As filed with the Securities and Exchange Commission on March 17, 1997
Registration No. 333- _________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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MAI SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
----------------------
Delaware 22-2554549
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
9600 Jeronimo Road
Irvine, California 92718
(714) 580-0700
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
----------------------
Stanley P. Witkow
Vice President, Corporate and Legal Affairs
9600 Jeronimo Road
Irvine, California 92718
(714) 580-0700
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
----------------------
Copies to:
Frank H. Golay, Jr.
Sullivan & Cromwell
444 South Flower Street
Los Angeles, California 90071
(213) 955-8000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: After the
effective date of this Registration Statement, as determined by market
conditions.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box. |X|
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
----------------------
CALCULATION OF REGISTRATION FEE
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH MAXIMUM AGGREAGATE AMOUNT OF
CLASS OF SECURITIES AMOUNT TO BE AGGREGATE PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PER UNIT (2) PRICE(2) FEE
- ------------------- ------------ --------------- ------------- ------------
Common Stock(1) 400,000 $7.07 $2,828,000 $ 857
750,000 $8.00 $6,000,000 $1,819
- ------------------- ------------ --------------- ------------- ------------
Warrants 750,000 $1.40 $1,050,000 $ 319
=================== ============ =============== ============= ============
(1) Includes 400,000 shares being offered by the Selling Stockholders and
750,000 shares issuable upon exercise of the Warrants.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) and (c).
----------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE OR UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BY ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MARCH 17, 1997
MAI SYSTEMS CORPORATION
COMMON STOCK
AND WARRANTS TO PURCHASE COMMON STOCK
---------------------------
This Prospectus relates to 400,000 shares of Common Stock (the "Shares") of
MAI Systems Corporation ("MAI" or the "Company"), 750,000 warrants (the
"Warrants") to purchase shares of Common Stock and 750,000 shares (the "Warrant
Shares") issuable upon exercise of the Warrants. Each Warrant entitles the
holder thereof to purchase one share of Common Stock upon exercise at an
exercise price of $8.00 per share of Common Stock (the "Exercise Price"),
subject to adjustment as set forth under "Description of Warrants." The Warrants
are immediately exercisable and will expire on March 3, 2004. The Company may
call the Warrants on or after September 4, 1997, subject to the conditions set
forth herein, if the daily market price (as defined herein) of the Common Stock
equals or exceeds 150% of the Exercise Price for a specified period of time. See
"Description of Warrants." The number of shares of Common Stock offered hereby
by the Selling Stockholders may increase upon the exercise by the Selling
Stockholders of Warrants. The Shares and Warrants are being offered hereby by
the Selling Stockholders. The Warrant Shares are also offered by the Company to
persons (other than the Selling Stockholders) who may subsequently acquire the
Warrants and exercise the Warrants to acquire the Warrant Shares. See
"Prospectus Summary--The Offering" and "Principal and Selling Stockholders." The
Company will not receive any of the proceeds from the sale of the Shares or the
Warrants by the Selling Stockholders or from the sale of any Warrant Shares
issued to the Selling Stockholders upon exercise of the Warrants and included by
the Selling Stockholders in this offering.
The sale or distribution of the offered shares and warrants may be effected
directly to purchasers by the Selling Stockholders as principal or through one
or more underwriters, brokers, dealers or agents from time to time in one or
more transactions. See "Plan of Distribution."
To the extent required, the number and the offering price of the shares and
warrants in respect of which this Prospectus is being delivered (the "Offered
Shares" and the "Offered Warrants," respectively, and collectively the "Offered
Securities") are set forth in an accompanying Prospectus Supplement ("Prospectus
Supplement"). To the extent required, the Prospectus Supplement also sets forth
the names of any agents, dealers or underwriters acting in connection with the
sale of the Offered Securities, the compensation of such agents, dealers and
underwriters and the other terms of offering of the Offered Securities. One or
more Prospectus Supplements may be utilized from time to time to effect the full
offering contemplated hereby. The Company estimates that the expenses of the
offering to be borne by it will be approximately $20,000.
The Company's Common Stock is traded on the American Stock Exchange under
the symbol "NOW."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH
DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON
PAGE 6.
---------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Prospectus is _______ __, 1997
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational reporting requirement of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the Public
Reference Room of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549; and at the Commission's regional offices in Chicago (Citicorp Center,
Suite 1400, 500 West Madison Street, Chicago, Illinois 60661), and in New York
(7 World Trade Center, 13th Floor, New York, New York 10048). Copies of such
material may be obtained from the Public Reference Section of the Commission,
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Securities and Exchange Commission maintains a website that contains reports,
proxy and information statements and other information regarding registrants
that file electronically. The address of the website is http:\\www.sec.gov.
The Company has filed with the Commission a Registration Statement (as
amended, the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"). This Prospectus does not contain all of the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. For
further information, reference is hereby made to the Registration Statement. The
Common Stock of the Company is traded on the American Stock Exchange. Reports,
proxy statements and other information concerning the Company may be inspected
at the American Stock Exchange, 86 Trinity Place, New York, New York 10006-1881.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the year ended December 31,
1995, an amendment thereto on Form 10-K/A dated December 3, 1996, Quarterly
Reports on Form 10-Q for the quarters ended March 31, 1996, June 30, 1996 (as
amended by Form 10-Q/A dated October 23, 1996) and September 30, 1996, and its
Current Reports on Form 8-K filed July 24, 1996 and January 2, 1997 which are on
file with the Commission, are incorporated in this Prospectus by reference and
made a part hereof. All documents filed by the Company pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering of the Common Stock to
which this Prospectus relates shall be deemed to be incorporated by reference
into this Prospectus. Any statements contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
replaced for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or replaces such
statement. Any such statement so modified or replaced shall not be deemed,
except as so modified or replaced, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom a Prospectus is delivered, upon written or oral
request of such person, a copy of the documents incorporated by reference
herein, other than exhibits to such documents not specifically incorporated by
reference. Such requests should be directed to MAI Systems Corporation, 9600
Jeronimo Road, Irvine, California 92718, (714) 580-0700, Attention: Mr. Stanley
P. Witkow.
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<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements, including the notes thereto,
appearing elsewhere or incorporated by reference in this Prospectus. All share
information in this Prospectus has been restated to reflect a stock split
effected by means of a 25% stock dividend paid to holders of the Company's
common stock, $0.01 par value per share (the "Common Stock"), on August 24,
1995. References to MAI or the Company include its consolidated subsidiaries
unless the context otherwise requires.
THE COMPANY
MAI provides software applications, professional services and networked
client/server computer equipment for the hotel, resort and gaming industries and
to mid-sized process manufacturers. In addition, the Company provides a variety
of products and services for its installed base of legacy customers.
MAI's Hotel CompuSystem II and Paragon products, the Lodging Touch
International ("LTI") products and the Gaming Systems International ("GSI")
products for the hospitality and gaming industry and the Company's CIMPRO and
MANBASE products for mid-sized process manufacturers enable MAI's customers more
efficiently to operate their businesses. More hotel and resort rooms are managed
by MAI's hospitality products, installed at more than 3,500 hotels and resorts
worldwide, than any other front desk and back office software product in the
hospitality and resort industry. The GSI suite of products provide complete slot
accounting and player tracking functionality and are installed in approximately
10,000 slot machines around the world. The CIMPRO and MANBASE products are a
suite of robust, full-featured products for process manufacturers. In addition,
MAI is a reseller of third-party networking and applications products, including
Microsoft Windows 95/NT, Novell Netware, the Solomon suite of financial
management products, Optika imaging systems and Visual HR for human resource
management. The Company also sells various UNIX-based operating systems in
conjunction with its computer equipment sales.
MAI's professional services include state-of-the-art software applications
support for all the applications it offers to its customers, software training,
custom programming, project management, information systems and
telecommunications consulting, network design, remote network management and
various outsourcing offerings.
The Company has improved and intends to improve its strategic positioning
through acquisitions and product licensing. The Company recently acquired Hotel
Information Systems and the LTI products to complete its offerings to the
hospitality industry. It reacquired the distribution rights to the advanced
MANBASE products and it acquired the CIMPRO division of Datalogix International,
Inc., a wholly-owned subsidiary of Oracle Corporation.
MAI also sells, configures and installs for its customers a broad array of
network and other client/server equipment produced by industry leaders such as
IBM, Cisco Systems, Compaq Computer and Bay Networks.
In addition to offering total information system solutions for the hotel,
resort and gaming industries and mid-sized process manufacturers, MAI offers
products and services to maintain, upgrade and otherwise extend the useful life
of the mid-range MAI-Basic Four computer systems that were manufactured by the
Company and its predecessors in the 1970's and 1980's.
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<PAGE>
On August 9, 1996, MAI acquired (the "HIS Acquisition") substantially
all the assets and certain of the liabilities of Hotel Information Systems, Inc.
("HIS"). The assets acquired from HIS are used in the business of software
design, engineering and service relating to hotel information systems and
included the subsidiaries of HIS in Singapore, Hong Kong and Australia. In
connection with the HIS Acquisition, MAI issued 1,307,302 shares of its Common
Stock, and may be required to issue additional shares as part of such
acquisition. See additional information under "The Offering" in this Prospectus
Summary.
THE OFFERING
THE COMMON STOCK OFFERING
Common Stock offered by
the Selling Stockholders................... 400,000 shares(1)
Common Stock issued and
issuable after the offering................ 8,690,851 shares(2)
Use of Proceeds............................... The Company will not
receive any proceeds from
the sale of the Shares by
the Selling Stockholders.
AMEX symbol................................... NOW
- ---------------
(1) The number of shares of Common Stock being offered by the Selling
Stockholders may increase upon exercise by the Selling Stockholders of any
of the Warrants. The Registration Statement of which this Prospectus is a
part also covers the Warrant Shares. See "Principal and Selling
Stockholders."
(2) Information as to issued and issuable shares is as of February 28, 1997.
The Company has issued and outstanding 8,615,851 shares of Common Stock and
has estimated that an additional 75,000 shares are issuable pursuant to the
Plan of Reorganization in settlement of creditor claims. Therefore, the
Company has 8,690,851 shares of Common Stock issued and issuable before the
offering. This total does not include 993,793 shares issuable upon the
exercise of outstanding options under the Company's stock option plans,
699,750 shares issuable upon the exercise of outstanding warrants other
than the Warrants, up to 50,546 shares issued or expected to be issued
pursuant to agreements pursuant to which a subsidiary of the Company
purchased 30% of its outstanding common stock and terminated options for
the purchase of 3.5% of its common stock, up to 216,255 shares that the
Company expects to issue pursuant to the agreements relating to the
acquisition of HIS and the 750,000 Warrant Shares. See "Principal and
Selling Stockholders."
THE WARRANT OFFERING
Number of Warrants ........................... 750,000.
Exercise Price ............................... Each Warrant entitles the
holder thereof upon exercise to
purchase one share of Common
Stock at $8.00 per share; the
Exercise Price and the number
of Warrant Shares to be issued
upon exercise of Warrants are
subject to adjustment as set
forth below under "Description
of Warrants."
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<PAGE>
Company's Call Option ........................ On or after September 4, 1997,
the Warrants are callable by
the Company, subject to certain
conditions, if at any time the
daily market price of the
Common Stock equals or exceeds
150% of the Exercise Price for
any ten trading days during the
most recent consecutive twenty
trading-day period immediately
prior to commencement of a
fifteen day notice period. See
"Description of
Warrants--Company's Call
Option."
Vesting ...................................... The Warrants are fully vested.
Term ......................................... The Warrants will expire
March 3, 2004.
Minimum Denominations......................... The minimum denominations for
any warrant certificate issued
pursuant to the Warrant
Agreement (as defined herein)
is 10,000 Warrant Shares.
Use of Proceeds............................... The Company will not receive
any proceeds from the sale of
the Warrants by the Selling
Stockholders.
Warrant Agent ................................ The Company is the Warrant
Agent for purposes of the
Warrant Purchase Agreement (as
defined herein).
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<PAGE>
RISK FACTORS
An investment in the Shares or the Warrants offered hereby, or in any
Warrant Shares issued upon exercise of the Warrants, involves a high degree of
risk. Prospective investors should carefully consider the following risk
factors, in addition to other information contained in or incorporated by
reference in this Prospectus.
COMPETITION
Competition is vigorous in all sectors of the market for computer-based
solutions and support and maintenance services which the Company offers. The
Company has numerous competitors in each of its business lines, which vary
widely in their size, capabilities, market segments and geographical areas, many
of which are larger and have financial resources far greater than the Company.
Within its markets, competition comes primarily from competing software
applications vendors, principally with regard to the Company's hospitality,
gaming and process manufacturing products, and from local VARs and ISVs, who
usually resell hardware or networking products of larger original equipment
manufacturers. There is also competition, to a lesser extent, from independent
service organizations ("ISOs"), which provide service to end users of the
Company's software products, and third-party maintenance organizations, which
provide service to users of the Company's hardware products. Many of the
Company's services are also provided by in-house MIS departments. There can be
no assurance that the Company can effectively compete with any or all of its
competitors in any of its business lines. See "Business--Competition."
PRODUCTION AND PROCUREMENT
The networking products and services implemented, maintained and supported
by the Company utilize hardware and software products from multiple technology
vendors. Accordingly, the Company is and will remain dependent on the demand for
products from such vendors. In addition, delay or failure in the delivery of
products or components purchased from third parties could adversely affect
shipments by the Company and its ability to conclude sales. The Company has
purchased many products and components from single sources of supply. Because
the Company's current products are industry standard, management believes that
alternative sources of supply of similar products would be available to the
Company in the event of any interruption of delivery of a single source
supplier. However, there can be no assurance that any such products will be
available or be accepted by the Company's customers.
EMERGENCE FROM CHAPTER 11 BANKRUPTCY PROCEEDINGS
On November 18, 1993, the United States Bankruptcy Court for the District
of Delaware (the "Bankruptcy Court") entered an order confirming the Plan of
Reorganization of the Company, Brooke Acquisition Corp. ("BAC") and CLS
Software, Inc. ("CSI") (collectively, the "Debtors"). The Company had been
operating under the protection of Chapter 11 of the United States Bankruptcy
Code (the "Bankruptcy Code") since April 12, 1993. On January 27, 1994, the
Bankruptcy Court entered an order which among other things fixed January 27,
1994 as the effective date of the Plan of Reorganization (the "Effective Date").
The following summary of some of the features of the Plan of Reorganization is
qualified in its entirety by reference to the Plan of Reorganization, which is
an exhibit to the Company's Annual Report on Form 10-K for the year ended
December 31, 1993, and by the more detailed description of the Plan of
Reorganization that is contained in the 1995 Form 10-K.
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<PAGE>
The Plan of Reorganization provides for, among other things, (i) the
satisfaction of substantially all of the Debtors' unsecured (non-priority)
indebtedness through the issuance of Common Stock, and (ii) the cancellation of
existing equity interests in the Debtors. The Plan of Reorganization also
provides for the substantive consolidation and merger of the Debtors and the
corresponding extinguishment of intercompany liabilities and intercompany
contracts among the Debtors.
Under the Plan of Reorganization, (i) holders of approximately $1,300,000
aggregate amount of administrative claims and approximately $100,000 aggregate
amount of priority claims received cash distributions and (ii) holders of
approximately $3,019,000 aggregate amount of tax claims receive deferred cash
payments over periods up to six years. At December 31, 1996, the aggregate
amount of tax claims had been reduced to $711,697 and the Company continues to
dispute certain tax claims.
The Company commenced distribution of Common Stock to holders of unsecured
claims on April 14, 1994. The settlement of certain claims is subject to
approval by the Bankruptcy Court. The Common Stock is being issued pursuant to
Section 1145 of the Bankruptcy Code, which contains an exemption from
registration under the Securities Act. Through December 31, 1996, the Company
had distributed 6,728,256 shares of Common Stock to its former creditors. The
Plan of Reorganization provided holders of unsecured claims the right to elect a
limited cash recovery, and through December 31, 1996, $74,570 in cash had been
distributed pursuant to such provision.
Under the Plan of Reorganization, there is no recovery for holders of the
Company's $0.01 par value Common Stock and all classes of Preferred Stock
outstanding prior to the Effective Date. See "Chapter 11 Bankruptcy
Proceedings."
LIMITED HISTORY OF PROFITABILITY
Prior to the bankruptcy, the Company incurred significant operating losses.
While the Company has generally experienced positive operating income since
emerging from bankruptcy, there can be no assurance that the Company will be
able to achieve or maintain profitability or avoid losses on a quarterly or
annual basis in the future.
FLUCTUATIONS IN OPERATING RESULTS
A variety of factors may cause period-to-period fluctuations in the
Company's operating results, including the timing of significant orders, the
timing of product enhancements and new product introductions by the Company, its
technology vendors and its competitors, the pricing of the Company's products
and services, competitive conditions and general economic conditions. Typically,
orders received in one quarter are delivered and installed by the following
quarter. However, many of the Company's systems sales involve lengthy sales
cycles and installations. Consequently, it is not possible to predict with any
reliability the periods within which a sale may close or revenue will be
recognized. As a result, the operating results of the Company may be materially
skewed if a single transaction is completed earlier or later than expected. The
Company has experienced fluctuations in its operating results and expects to
continue to experience such fluctuations. Additionally, as the Company's network
systems business has increased, it is increasingly finding that it must order
and pay for equipment utilized in a network installation in advance of the date
it is able to invoice or collect from
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<PAGE>
its customer for the equipment. See "Business--Order, Shipment and Backlog."
Fluctuations in operating results may also result in volatility in the market
price of the Common Stock.
VOLATILITY IN CERTAIN MARKETS
Certain of the markets in which the Company competes are cyclical and are
subject to volatility. The Company believes that the decline in its gaming
solutions business during 1996 was attributable to the decline in the number of
new gaming facilities outside of established gaming jurisdictions, such as
Nevada and Atlantic City, which the Company believes is directly attributable to
increased opposition to gaming in certain jurisdictions and the negative impact
the failure of certain gaming operations in Louisiana has had on the entire
industry. The Company cannot predict the duration of this negative environment
for new gaming installations. Conversely, the Company believes that the growth
of its hospitality information systems business is attributable in part to the
current health of the hospitality industry, compared to the condition of that
industry in the early 1990's. The Company cannot predict the duration of the
current favorable climate in the hospitality industry.
LIQUIDITY; VOLATILITY OF STOCK PRICE
Since its emergence from bankruptcy, trading volume of the Common Stock has
been small, and the market for the Company's Common Stock has been less liquid
than that of many other publicly traded companies. In August 1995, however, the
Company's Common Stock became listed on the AMEX under the symbol "NOW." During
the fiscal year ended December 31, 1996, the average daily trading volume has
been approximately 25,000 shares. There can be no assurance that a stockholder
who desires to sell shares of Common Stock can sell all of the shares that the
stockholder desires to sell, either at all or at the desired times or prices. In
addition, sales of shares of Common Stock after this offering could reduce the
market price of the Common Stock to a greater extent than shares of other
companies with higher trading volumes. Like the stock of other technology
companies, the market price of the Common Stock has been and may continue to be
volatile. Factors such as quarterly fluctuations in the Company's results of
operations, trading volume, the announcement of technological innovations or new
products by the Company or its competitors, general conditions in the computer
hardware and software industries, economic conditions generally, the Company's
ability successfully to increase its market share with its existing products
while expanding its product base into other markets, the strength of the
Company's distribution channels, variances between actual results of operations
and the results expected by securities analysts and the factors mentioned under
"--Fluctuations in Operating Results," among other factors, may have a
significant impact on the market price of the Common Stock and the price of the
Warrants. It is not expected that a liquid public market will develop for the
Warrants.
RISKS OF CONTRACT SERVICES BUSINESS
The Company is subject to the risks associated with a contract services
business, including dependence on reputation with existing customers, volatility
of workload and dependence on ability to retain qualified technical personnel.
Also, a substantial portion of the Company's contract services revenue may be
derived from the performance of services under fixed-price contracts. There can
be no assurance that the Company can consistently perform in a profitable manner
under these contracts, especially in the field of software development, where
cost overruns are common-place. See "Business--Products and Services."
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<PAGE>
RAPID TECHNOLOGICAL CHANGE; DEPENDENCE ON NEW PRODUCTS AND MARKETS
The Company expects that the market for hospitality, gaming and
manufacturing information management systems and network hardware and software
products will continue to be subject to frequent and rapid changes in technology
and customer preferences. Customers may delay purchases in anticipation of
technological changes. In addition, the Company's ability to develop and market
information management and network systems and other new products is dependent
upon its ability to attract and retain qualified employees. Any failure by the
Company to anticipate or respond adequately to the changes in technology and
customer preferences, or to develop and introduce new products in a timely
fashion, could materially adversely affect the Company's business and operating
results. See "Business--Research and Development."
DEPENDENCE ON PROPRIETARY TECHNOLOGY
The Company's success depends in part upon its proprietary application
software and its licensing rights to the principal application software products
marketed by it. The Company relies on a combination of contractual rights,
trademarks, copyrights and other property rights to establish or protect its
proprietary rights in its products. There can be no assurance that the steps
taken by the Company in this regard will be adequate to deter misappropriation
of its proprietary rights or independent third party development of functionally
equivalent technology. Although the Company does not believe that it is
materially infringing on the intellectual property rights of others, there can
be no assurance that such a claim will not be asserted against the Company in
the future or that any attempt to protect its technology will not be challenged.
See "Business--Trademarks, Copyrights and Licenses."
DEPENDENCE ON KEY PERSONNEL
Competition for qualified personnel in the software industry is intense and
there can be no assurance that the Company will be able to attract and retain a
sufficient number of qualified employees. As the business of the Company grows,
it may become increasingly difficult for it to hire, train and assimilate the
new employees needed. The Company's success depends to a significant degree upon
the continued contributions of its key management, marketing, product
development and operational personnel, including Richard S. Ressler and George
G. Bayz. The Company does not maintain key man insurance for any of such
officers.
The services of Richard S. Ressler, Chairman of the Board and Director of
the Company, are provided on a non-exclusive basis pursuant to an agreement
which expires in August 1997. There can be no assurance that Mr. Ressler will
continue with the Company after such date or that the Company will be able to
find a replacement in the event that either the Company or Mr. Ressler
determines not to continue their relationship. See "Principal and Selling
Stockholders."
RISK OF FOREIGN OPERATIONS
The financial performance of the Company is affected to some extent by the
fluctuation in value of the US dollar in relation to the local currencies of the
countries in which the Company does business. In addition, the Company's foreign
operations are subject to the usual risks that may affect such operations,
including import and export restrictions, possible expropriation or other
governmental
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<PAGE>
actions, taxes and political changes. Most of the Company's foreign operations
are located in Singapore, Hong Kong and Canada.
SHARES AVAILABLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock after this offering could have
a material adverse effect on the Offered Securities. Upon completion of this
offering, the Company will have outstanding and issuable 8,690,851 shares of
Common Stock, as of February 28, 1997, not including among other things the
750,000 Warrant Shares issuable upon exercise of the Warrants. All of the
outstanding shares (other than approximately 671,400 shares that are subject to
an escrow agreement) are, and all of the issuable shares will be, freely
tradeable; provided that shares held by affiliates of the Company may be subject
to limitations on disposition pursuant to Rule 144 under the Securities Act of
1933.
ABSENCE OF PUBLIC MARKET FOR WARRANTS
There is no existing market for the Warrants and there can be no assurance
as to the liquidity of any markets that may develop for the Warrants, the
ability of the holders to sell their Warrants or at what price holders of the
Warrants will be able to sell their Warrants. Future trading prices of the
Warrants will depend on many factors including, among other things, the value of
the Common Stock, the Company's operating results and the market for similar
securities.
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THE COMPANY
MAI provides software applications, professional services and networked
client/server computer equipment for the hotel, resort and gaming industries and
to mid-sized process manufacturers. In addition, the Company provides a variety
of products and services to its installed base of legacy customers.
MAI's Hotel CompuSystem II and Paragon products, the Lodging Touch
International ("LTI") products and the Gaming Systems International ("GSI")
products for the hospitality and gaming industry and the Company's CIMPRO and
MANBASE products for mid-sized process manufacturers enable MAI's customers to
operate more efficiently their businesses. More hotel and resort rooms are
managed by MAI's hospitality products, installed at more than 3,500 hotels and
resorts worldwide, than any other front desk and back office software product in
the hospitality and resort industry. The GSI suite of products provide complete
slot accounting and player tracking functionality and are installed in
approximately 10,000 slot machines around the world. The CIMPRO and MANBASE
products are a suite of robust, full-featured products for process
manufacturers. In addition, MAI is a reseller of third-party networking and
applications products, including Microsoft Windows 95/NT, Novell Netware, the
Solomon suite of financial management products, Optika imaging systems and
Visual HR for human resource management. The Company also sells various
UNIX-based operating systems in conjunction with its computer equipment sales.
MAI's professional services include state-of-the-art software applications
support for all the applications it offers to its customers, software training,
custom programming, project management, information systems and
telecommunications consulting, network design, remote network management, and
various outsourcing offerings.
The Company has improved and intends to improve its strategic positioning
through acquisitions and product licensing. The Company recently acquired Hotel
Information Systems and the LTI products to complete its offerings to the
hospitality industry. It reacquired the distribution rights to the advanced
MANBASE products and it acquired the CIMPRO division of Datalogix International,
Inc., a wholly-owned subsidiary of Oracle Corporation.
MAI also sells, configures and installs for its customers a broad array of
network and other client/server equipment produced by industry leaders such as
IBM, Cisco Systems, Compaq Computer and Bay Networks.
In addition to offering total information systems solutions for the hotel,
resort and gaming industries and mid-sized process manufacturers, MAI offers
products and services to maintain, upgrade and otherwise extend the useful life
of the mid-range MAI-Basic Four computer systems that were manufactured by the
Company and its predecessors in the 1970's and 1980's.
The Company operated under the protection of Chapter 11 of the Bankruptcy
Code from April 12, 1993 to January 27, 1994. See "Risk Factors--Emergence from
Chapter 11 Bankruptcy Proceedings" and "Chapter 11 Bankruptcy Proceedings."
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MAI Systems Corporation was incorporated under the laws of the State of
Delaware on September 6, 1984. The Company commenced operations on January 29,
1985. The Company's name was changed from MAI Basic Four, Inc. to MAI Systems
Corporation on November 6, 1990. The Company's principal executive offices are
presently located at 9600 Jeronimo Road, Irvine, California 92718, (714)
580-0700.
On August 9, 1996, MAI acquired substantially all the assets and assumed
certain of the liabilities of HIS. The assets acquired from HIS are used in the
business of software design, engineering and service relating to hotel
information systems and included the subsidiaries of HIS in Singapore, Hong Kong
and Australia. As consideration for the HIS Acquisition, MAI issued 1,184,383
shares of Common Stock to HIS and assumed net liabilities of approximately $7.9
million. The 1,184,383 shares do not reflect any possible adjustments on account
of purchase price adjustments or adjustments based on resolution of disputes,
with respect to the HIS Acquisition. Subject to certain conditions and
limitations, all of the shares issued in the HIS Acquisition are subject to
registration rights. On October 28, 1996, the Company filed a registration
statement on Form S-3 with respect to such shares and shares that may be issued
pursuant to the aforementioned adjustments. To date, effectiveness of such
registration statement has not been requested, while the Company attempts to
resolve certain disputes relating to the HIS Acquisition. Any actual adjustment
to the number of shares issuable to HIS will be based on the public offering
price determined at the time of consummation of the offering of the shares
acquired by HIS. The Company currently estimates, based on certain assumptions
that are subject to change, that it will issue up to an additional 216,255
shares to HIS or its shareholders.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Shares or
Warrants by the Selling Stockholders or from the sale of any Warrant Shares
issued to the Selling Stockholders upon exercise of the Warrants and included by
the Selling Stockholders in this offering. The Company will receive the exercise
price of $8.00 per share, subject to adjustment, upon exercise by holders of the
Warrants to acquire the Warrant Shares.
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BUSINESS
THE COMPANY
MAI provides software applications, professional services and networked
client/server computer equipment for the hotel, resort and gaming industries and
to mid-sized process manufacturers. In addition, the Company provides a variety
of products and services to its installed base of legacy customers.
MAI's Hotel CompuSystem II and Paragon products, the LTI products and the
GSI products for the hospitality and gaming industry and the Company's CIMPRO
and MANBASE products for mid-sized process manufacturers enable MAI's customers
to operate more efficiently their businesses. More hotel and resort rooms are
managed by MAI's hospitality products, installed at more than 3,500 hotels and
resorts worldwide, than any other front desk and back office software product in
the hospitality and resort industry. The GSI suite of products provide complete
slot accounting and player tracking functionality and are installed in
approximately 10,000 slot machines around the world. The CIMPRO and MANBASE
products are a suite of robust, full-featured products for process
manufacturers. In addition, MAI is a reseller of third-party networking and
applications products, including Microsoft Windows 95/NT, Novell Netware, the
Solomon suite of financial management products, Optika imaging systems and
Visual HR for human resource management. The Company also sells various
UNIX-based operating systems in conjunction with its computer equipment sales.
MAI's professional services include state of the art software applications
support for all the applications it offers to its customers, software training,
custom programming, project management, information systems and
telecommunications consulting, network design, remote network management and
various outsourcing offerings.
The Company has improved and intends to improve its strategic positioning
through acquisitions and product licensing. The Company recently acquired Hotel
Information Systems and the LTI products to complete its offerings to the
hospitality industry. It reacquired the distribution rights to the advanced
MANBASE products and it acquired the CIMPRO Division from Datalogix
International, Inc., a wholly-owned subsidiary of Oracle Corporation.
MAI also sells, configures and installs for its customers a broad array of
network and other client/server equipment produced by industry leaders such as
IBM, Cisco Systems, Compaq Computer and Bay Networks.
In addition to offering total information system solutions for the hotel,
resort and gaming industries and mid-sized process manufacturers, MAI offers
products and services to maintain, upgrade and otherwise extend the useful life
of the mid-range MAI-Basic Four computer systems that were manufactured by the
Company and its predecessors in the 1970's and 1980's.
MARKET OVERVIEW
Until the mid-1980's most mid-sized companies (which comprised the majority
of MAI's customers) generally utilized host-based computer systems that were
based on proprietary hardware and
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software. The systems usually consisted of a central processing unit located
somewhere in a facility and terminals and printers located throughout the
enterprise. Data was input at the terminals and was extracted through the use of
programs that were created by the central MIS department. Reports were printed
at printers located throughout the facility or distributed by the MIS
department. The advantage that these systems offered was that all of the
components, the central processing unit, the operating system, the application
software, the printers and other peripheral devices were closely integrated and
worked together seamlessly. Among the disadvantages of these systems were that
they could only run applications that were specially written to run on them, the
actual users of the enterprise's information were limited to reports that were
available in the existing programs and new technologies were often not
compatible with the system. Additionally, the host-based computing model
required a staff of dedicated information system professionals to run it.
By the mid-1980's, the personal computer had become powerful enough, and
enough application software had been written, to enable it to perform most of
the tasks that were being performed by the older host-based systems. The
advantage of this new technology was immediately apparent: users of the data
could create their own reports to analyze data in new and creative ways and were
no longer limited to the forms of data inquiry that had been created by the
centralized information services department. A wide range of applications and
peripheral products from a variety of manufacturers was available to fill
virtually all of the needs of an end user. The equipment was inexpensive and
easy to maintain. The need for large information management staffs was
curtailed. With the further development of high speed computer networks,
client/server computing emerged. Businesses found that they could centrally
maintain key data which could be accessed by end users throughout the
enterprise. The end users could then manipulate the data and create their own
reports without dependence on the centralized information management department.
By the end of the decade, to a very large extent corporate America had begun the
migration from host-based, proprietary computing to open-system, client/server
computing.
Since the array of products used in an open-system environment often do not
operate in the seamless fashion of a proprietary system, many smaller businesses
are faced with the difficult situation of maintaining and integrating these
diverse products. In many cases, mid-size companies now out-source their
information management needs including the design, implementation and
maintenance of their networks, maintenance of their hardware and support of
their software. Companies like MAI have emerged to provide total information
solutions to these customers. These businesses design, integrate and maintain
systems comprised of industry-standard components from a wide variety of
developers and manufacturers. They provide on-site equipment maintenance,
telephonic software support and remote management of networks.
STRATEGY
MAI's strategy is to focus on delivering total information solutions to
customers in the hospitality and gaming industries and to mid-sized process
manufacturers, and to enable its host-based systems customers to maximize the
value of their legacy systems and establish a migration path to open systems
client/server computing.
The Company offers industry-leading applications products, including Hotel
CompuSystem II, Paragon and Lodging Touch International front desk, back office
and central reservation system
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products for the hospitality industry, the Gaming Systems International products
for the gaming industry, and the CIMPRO and MANBASE line of products for process
manufacturers. The Company's strategy is to develop total information systems
around these applications to enable customers to maximize the strategic value of
their information resources. This will be done through the design,
implementation and support of information systems which allow data to be input,
output and exchanged throughout the network. The Company matches its specific
industry expertise with its experience in designing, installing, integrating,
maintaining and supporting enterprise-wide information systems.
For its legacy system customers, the Company offers products and services
which extend the useful life of the legacy system while linking it with the
state-of-the-art computing technology and enabling the system to utilize the
latest telecommunications technology. The Company assists these customers to
prepare for the time when it is appropriate for them to transition from the
proprietary system/host-based computer to the open system/client/server model.
Studies indicate that sixty percent of companies similar to the Company's
legacy customers intend to establish WANs and LANs before the turn of the
century. As its customers transition to network computing, the Company is well
positioned to help them make the transition. It is a reseller of popular and
reliable computing technology, including products manufactured by Bay Networks,
Cisco Systems, Compaq Computer, Inc., Hewlett Packard and IBM Corporation. It is
a Microsoft Solutions provider and has achieved certification to provide support
for Windows NT, the advanced operating system from Microsoft Corporation. The
Company believes that it can demonstrate to its current customer base and to new
customers that it is best suited to move them forward to networked computing
because of its familiarity with their information system needs, the Company's
expertise in complex WANs and LANs, its wide array of products and services and
its unique ability to provide reliable service and support around the clock
across the nation.
Because mid-sized companies generally do not maintain large information
system staffs, these companies may rely on third parties like the Company to
help them design and maintain their information systems. MAI is well positioned
to provide the services that the customers will require and that it has the
knowledge base that will make it the preferred provider of these products and
services.
By successfully executing on these strategies, MAI believes that it can
become its customer's partner maximizing the utilization of its critical
resource: its information.
GENERAL
MAI provides software applications, professional services and networked
client/server computer equipment for the hotel, resort and gaming industries and
to mid-sized process manufacturers. In addition, the Company provides a variety
of products and services for its installed base of legacy customers. The Company
markets its proprietary software products and is the reseller of a variety of
third-party application products. It also designs, installs, integrates,
maintains and supports complex WANs and LANs which feature open system
components from well-known technology companies, such as IBM, Cisco Systems,
Compaq Computer and Bay Networks. MAI also provides on-site equipment
maintenance and installation throughout North America both directly and through
a
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relationship with Olivetti North America, Inc. and Olivetti Canada Ltd., and it
provides around-the-clock telephonic support and remote network management.
The Company's software products operate on IBM RISC and Intel Corporation-
based microcomputer systems. The Company's OpenBASIC application environment
runs under various UNIX-based operating systems and enables licensees of the
Company's proprietary, BusinessBASIC-based applications to run on open systems
equipment. These products provide cost effective multi-user solutions for
customers whose needs range from entry-level systems to mid-sized,
multiprocessor systems that support up to 500 users.
PRODUCTS AND SERVICES
Products and Services
MAI designs, implements, maintains and supports total information system
solutions utilizing complete WANs and LANs. In conjunction with these solutions,
the Company's approach is to analyze a customer's information system
requirements, propose a solution and then design, integrate, install and
maintain the system. One of the principal objectives of the Company is to help
its customers utilize their data across their entire enterprise so that
information that was once limited to one area of a business can now be available
to other areas where it can be utilized for new purposes. Once a system is
on-line, the Company typically continues its relationship with the customer by
providing around-theclock telephonic support and, through its partnership with
Olivetti, on-site field support. The systems designed by the Company utilize the
Company's industry-leading property management system and process manufacturing
applications software, and industry-standard hardware and software products from
leading technology vendors including Cisco Systems, Compaq Computer, Hewlett
Packard, IBM, Larscom, Microsoft and Novell. Additionally, the Company resells
telecommunicatin services and equipment, including wide bandwidth T1 lines,
which enable its customers to achieve maximum utilization of their networks.
Products for Hotels, Resorts and Destinations
The Company markets three property management systems. Hotel CompuSystem
II has been marketed by the Company since 1990, when the Company acquired
Computerized Lodging Systems ("CLS"). In August 1996 the Company acquired Hotel
Information Systems, Inc. and began marketing its Paragon product line. In
October 1996, the Company become the exclusive distributor of the Lodging Touch
International products from Enhanced Hospitality Solutions. Each of the products
has features which make it particuarly well-suited to a different segment of the
hospitality marketplace. In addition, the Company markets the Gaming Systems
International ("GSI") products for the gaming industry.
Hotel CompuSystem II provides one of the leading information systems in the
hotel and resort industry. Running under UNIX, Hotel CompuSystem II is
full-featured and provides customers with front desk, night audit, house-keeping
and numerous other functions. Its target client is a full-featured hotel or
resort with 300 to 1,000 rooms. Additionally, the CLS products interface to more
than 250 other hospitality-related information system products, such as
point-of-sale systems, telephone call monitoring systems and minibar maintenance
systems. The ease of connectivity with third-party
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products is one of the system's competitive advantages. Hotel CompuSystem II
is installed in over 2,000 sites worldwide.
The Paragon property management system, from HIS, is designed to serve the
needs of larger hotels and resorts. Running on IBM AS 400 or System 36
minicomputers, the Paragon product line provides the full range of features and
functionality required by premier properties, such as Disneyland Paris. Paragon
is installed in hotels and resorts around the world, and is a major presence in
the Pacific Rim.
The Lodging Touch International ("LTI") products are a state-of the-art
suite of products designed to take full advantage of the versatility of
Microsoft's Widows 95 and Windows NT operating systems. They are the industry's
first fully graphical products and the only ones to fully utilize the features
of the Windows operating system. With the LTI products, MAI has been named a
Microsoft Solutions Partner.
GSI's on-line slot accounting and player tracking product is comprised of a
proprietary circuit board which is installed inside electronic slot machines,
and database software which gathers and maintains data collected by the circuit
boards. The Company utilizes Novell-based LANs to link the slot machines. The
GSI system monitors the activity in the individual gaming machines in real time,
providing information on the activity of each machine, the amount of money in
the machine, whether or not the machine is operating properly and alerting the
casino management if the machine has been tampered with. The software modules
include stand-alone player tracking, cage/pit management, table games
accounting, slot maintenance, employee time and attendance, and numerous other
functions.
Products for Process Manufacturing
MAI develops and markets MANBASE and CIMPRO, both of which are enterprise
resource planning ("ERP") applications, used by process manufacturers. The
Company's typical customer generally has annual revenues between $50 million and
$500 million. These manufacturers convert raw material into finished goods or
into products used to manufacture other goods. Typical users of the Company's
ERP product would be manufacturers who convert raw milk into cheese and other
dairy products, or pharmaceutical manufacturers who convert raw chemicals into
medicinal products. These process manufacturers have unique requirements in
quality control, regulatory compliance, inventory control and production
planning that require an integrated application and system solution.
The CIMPRO product, which the Company acquired from Oracle Corporation in
March 1997, offers a fully integrated modular system for complete support of
process manufacturing planning and tracking, including inventory, production,
supply chain management, costing, accounting, electronic data interchange and
regulatory compliance. CIMPRO's customer base is primarily with food, chemical
and pharmaceutical manufacturers.
MANBASE, the rights to which the Company reacquired in March 1996, also
offers a fully integrated ERP application for process manufacturers. MANBASE has
been sold primarily to food manufacturers and has many features which are
tailored for the unique requirements of this industry.
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Legacy System Products and Services
The Company continues to provide products and services to its installed
base of customers. These products and services are designed to enable customers
to benefit from their investment in the Company's host-based information
systems. The Company's OpenBASIC application environment permits customers using
application software written in the Business BASIC programming language to
continue to use such application software on selected hardware platforms
designed for the UNIX, MS-DOS and Novell environments. Optional OpenBASIC
modules permit developers to enhance their Business BASIC applications by
integrating them with popular UNIX and MS-DOS/Microsoft Windows software.
With its own personnel and through an outsource agreement with Olivetti
North America, Inc. in the United States, and with Olivetti Canada Ltd. in
Canada, and directly in Venezuela and Puerto Rico, the Company offers on-site
repair and warranty service and around-the-clock telephonic support to its
legacy customers. The Company also provides a range of customer education,
training and consulting services for its application software packages and
hardware and horizontal software products. These services are offered to the
Company's customers as part of the Company's strategy of supplying the total
information solution to its customers.
The Company markets a family of upgradeable, industry-standard platforms
based upon IBM RISC and Intel Corporation microcomputer technology and featuring
the Company's OpenBASIC application environment running under various UNIX-based
operating systems. These products provide cost-effective, multi-user solutions
for customers whose needs range from entry-level systems to mid-size,
multiprocessor systems that support up to 500 users.
MARKETING AND SALES
In the United States, the Company's systems are marketed by a direct sales
and marketing organization, which included, as of February 28, 1997, 113 sales,
sales support, administrative and marketing personnel located in the corporate
headquarters and five satellite offices. In addition, the Company markets its
systems internationally through its subsidiaries, which operate in Hong Kong,
Singapore, Canada, Puerto Rico, Venezuela, Mexico and the Netherlands (including
a branch office in the United Kingdom) and through various distributors that are
exclusive in their jurisdiction. The Company's international subsidiaries
employed, as of February 28, 1997, 86 sales, sales support, administrative and
marketing personnel who are engaged in the marketing of MAI products from two
sales locations in Canada and 15 other sales locations abroad. Additionally, the
Company also sells its products through indirect channels outside the United
States. These indirect channels include independent VARs, distributors, ISVs and
local sales agents.
The financial performance of the Company is affected by the fluctuation in
value of the U.S. dollar in relation to the local currencies of the countries in
which the Company does business. However, certain international contracts are
priced in U.S. dollars. In addition, the Company's foreign operations are
subject to the usual risks that may affect such operations, including import and
export restrictions, possible expropriation or other governmental actions, taxes
and political changes.
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MAINTENANCE AND SUPPORT SERVICE
Remote network management, software support and on-site equipment
maintenance are key components of the Company's business strategy. The Company
operates around-the-clock redundant remote network management and software
support centers. In the event that power or communications are shut down at any
facility, through advanced telecommunication systems, calls are automatically
rerouted to remote support facilities. Trained personnel respond to customer
requests for application product support and provide remote network management
to anticipate and correct potential problems on customers' LANs and WANs.
The Company also provides on-site equipment maintenance, preventive
maintenance and reconditioning services for substantially all of the legacy
systems marketed by the Company. These services are available throughout the
United States and Canada (through outsource agreements with Olivetti North
America, Inc. and Olivetti Canada Ltd.), Puerto Rico and Venezuela. As of
February 28, 1997, the Company employed approximately 53 trained service
technicians at six service locations in Canada, Puerto Rico and Venezuela. From
October 15, 1996 through February 1997, primarily as a result of the recent
outsource agreement with Olivetti, the Company reduced its employees by
approximately 183 persons and has eliminated five service locations in the
United States and seven service locations in Canada.
The Company's support and maintenance services are generally provided
pursuant to individual contracts with customers, although time and material
services are provided in some areas. Such agreements are of varying duration,
provide annual cancellation rights and frequently require advance payment of
fees to the Company. Substantially all of the revenue earned by support and
maintenance operations is invoiced to customers in advance.
PRODUCTION AND PROCUREMENT
In response to market demand for standardized hardware and software
products, all of the Company's current systems offerings utilize an open systems
architecture, which means that they will operate on a wide variety of
third-party hardware equipment. At present, the Company has relationships with a
number of suppliers of such systems, including Bay Networks, Cisco Systems,
Compaq Computer, Hewlett Packard and IBM Corporation and distributors such as
MicroAge and Ingram Micro. Management believes that these relationships have
enabled the Company to reduce product costs, permit earlier availability of new
technology and offer customers products with superior performance at competitive
prices. The Company no longer manufactures proprietary hardware products but
does refurbish for resale previously owned MAI equipment.
Delay or failure in the delivery of products or components purchased from
third parties could adversely affect shipments by the Company and its ability to
conclude sales. The Company has purchased many products and components from
single sources of supply. Because the Company's current products are industry
standard, management believes that alternative sources of supply of similar
products would be available to the Company in the event of any interruption of
delivery of a single source supplier.
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ORDER, SHIPMENT AND BACKLOG
The Company generally records and enters into backlog a purchase order for
equipment and software when it receives a customer's written order requesting
delivery within six months, once systems configuration and contract provisions
are verified. In the United States and in some areas outside the United States,
a deposit is also required from a customer before the order is recorded and
entered into backlog. Orders that are canceled by the customer and orders that
are not shipped within one year are removed from backlog. Orders that are
removed from backlog for non-shipment are restored if they are reinstated by the
customer.
The Company's backlog is not necessarily indicative of future revenues.
RESEARCH AND DEVELOPMENT
The Company's research and development activities are focused on the
development of products for hospitality, gaming and manufacturing information
management systems and on extending and enhancing OpenBASIC. The Company's use
of OpenBASIC application environments and its system integration capability
permits it to have substantial independence from individual hardware
manufacturers and minimized the need for hardware research and development.
As of February 28, 1997, the Company employed 36 engineers, programmers and
other technical personnel in research and development activities. For the first
three quarters of 1996, the Company expensed approximately $1,366,000 for
research and development. The Company's research and development expenditures in
1995 related primarily to support and enhancement of existing software products.
In the years ended December 31, 1995, 1994 and 1993, the Company expensed
$2,667,000, $2,698,000 and $2,901,000, respectively, for research and
development. These amounts reflect engineering labor, material and engineering
overhead.
CUSTOMERS
The Company's customers are generally small and medium-sized businesses,
with fifty to 500 employees. During 1995 and 1996, no single customer accounted
for 10% or more of the Company's revenues.
COMPETITION
Competition is vigorous in all sectors of the worldwide market for
computer-based applications systems such as those which the Company offers. The
Company has numerous competitors varying widely in their size, capabilities,
market segment and geographical area, many of which are larger and have
financial resources far greater than the Company.
Within its targeted application markets, the Company has positioned itself
to sell complete solutions to the hospitality and gaming industries and to
mid-sized manufacturing businesses. Regarding the hospitality, gaming and
manufacturing application software and system markets, the Company competes with
several applications software providers, local VARs and ISVs who usually resell
hardware, software and networking products of larger original equipment
manufacturers, and
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internal information management departments with significant application
development resources. In marketing its products and services to mid-sized
manufacturers, the Company competes with many software applications vendors,
none of which individually commands significant market share, and local VARs and
ISVs, who usually resell hardware or networking products of larger original
equipment manufacturers. The VARs and ISVs with which the Company often competes
are typically smaller organizations that are usually dependent on one or two
specialized software application products targeted for specific industry market
segments. Although certain of these suppliers have national (or international)
capability, most are regional and unable to provide the full range of technical
support and maintenance services offered by the Company.
The Company also competes with independent service organizations ("ISOs"),
which provide service to end users of the Company's software products, and
third-party maintenance organizations ("TPMs"), which provide service to users
of the Company's hardware products. In addition to competing with these
companies on the basis of price and quality of service and support, the Company
has also sought to enforce its copyrights when these organizations infringe upon
its rights. For example, the Company's application software licenses prohibit
end users or their agents from porting its software to different hardware
platforms, an act which is sometimes performed by ISOs. The Company has
prevailed in litigation against TPMs who have utilized its proprietary
diagnostic software to provide maintenance services to customers of the
Company's hardware products. See "--Legal Proceedings." Many of the Company's
services are also provided by in-house MIS departments.
TRADEMARKS, COPYRIGHTS AND LICENSES
The Company is the owner of certain trademarks, copyrights and other
property rights associated with its businesses, including rights associated with
its proprietary application software. The Company owns or has licensing rights,
generally with terms of three years (except for the Lodging Touch products,
where the license is perpetual), to the principal application software products
marketed by the Company. Such licensing rights generally are renewable. Although
there is some risk that the independent vendors who own such products may elect
not to renew their licensing agreements with the Company and enter into
exclusive arrangements with, or elect to install their software on systems sold
by competitors of the Company, such vendors generally tend to continue to
support the Company's marketing efforts so long as the Company's systems provide
a good opportunity for them to market their products.
The Company is party to license agreements with IBM relating to a variety
of patents, with Novell, Inc. relating to UNIX and with a number of other
suppliers of software products. These licenses are terminable at the Company's
option and certain of the licenses require the Company to make royalty payments.
OpenBASIC and certain other intellectual property formerly owned by the
Company is currently owned by Triple P Management BV ("Triple P"), a corporation
organized under the laws of the Netherlands, which acquired the rights from
Application Systems, Inc. ("ASI"), a Delaware corporation controlled by the
Company's former bank lenders (the "Banks"), which holds the stock of certain of
the Company's former European subsidiaries, which stock was acquired by the
Banks in connection with the foreclosure described under "Chapter 11 Bankruptcy
Proceedings." MAI retained
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an exclusive license to use the intellectual property in the western hemisphere.
The license is perpetual and royalty free, but subject to termination under
certain circumstances.
LEGAL PROCEEDINGS
The Company has filed and will continue to file objections to claims
asserted in its Chapter 11 bankruptcy proceedings. The majority of these claims
would, if upheld, give rise to allowed unsecured claims entitling the respective
claimants to distributions of new Common Stock. A number of filed objections in
respect of secured claims, administrative claims, priority claims, tax claims,
convenience claims and cure claims were still outstanding at December 31, 1996.
To the extent the Company's objections to such claims are not sustained, the
Company will be obligated to pay such claims in a lump sum in the case of
convenience claims and administrative claims and, in the case of secured claims,
priority claims, tax claims and cure claims, on a deferred basis over six to
seven years, depending on the type of claim, at an interest rate of 6% in
accordance with the Plan of Reorganization. The Company does not believe the
outcome of these objections to be material.
The Company is also involved in various other legal proceedings which are
incident to its business. Management believes the ultimate outcome of these
matters will not have a material adverse effect on the consolidated financial
position or results of operations of the Company. See "--Competition."
EMPLOYEES
As of February 28, 1997, the Company had approximately 550 employees, of
which 364 were employed in the United States, 33 in Canada, 14 in Mexico, 13 in
the Netherlands, 11 in Puerto Rico, 56 in Venezuela and 60 in Asia (Hong Kong,
People's Republic of China, Indonesia, Malaysia and Singapore). From October 15,
1996 through February 1997, primarily as a result of the recent outsource
agreement with Olivetti, the Company reduced its employees by approximately 183
persons. In March 1995, a petition for election of a collective bargaining
representative was filed with regard to field service technicians at the
Company's Chicago, Illinois office, but the petition was withdrawn prior to the
election. The Company has not experienced any work stoppages and considers its
relationship with its employees to be good.
CHAPTER 11 BANKRUPTCY PROCEEDINGS
Prior to its Chapter 11 Bankruptcy proceedings, the Company had followed
certain business strategies that eventually led to its defaulting on its and its
Canadian subsidiary's U.S. and Canadian Credit Agreements (the "Credit
Agreements"). Thereafter, shortly before the Company filed for bankruptcy
protection, the bank lenders (the "Banks"), parties to the Credit Agreements,
foreclosed on all of the outstanding capital stock of certain of the Company's
former European subsidiaries, on certain intellectual property of the Company
and on amounts due to the Company from the European subsidiaries in satisfaction
of all amounts due under the Credit Agreements which, at such time, amounted to
approximately $84,500,000.
-22-
<PAGE>
On November 18, 1993, the United States Bankruptcy Court for the District
of Delaware entered an order confirming the Plan of Reorganization. The Company
had been operating under Chapter 11 of the Bankruptcy Code since April 12, 1993.
The order was not appealed and became final and nonappealable on November 29,
1993. On January 27, 1994, the Bankruptcy Court entered an order which fixed
January 27, 1994 as the effective date of the Plan of Reorganization. The 1995
Form 10-K which is incorporated by reference herein contains a summary of the
material features of the Plan of Reorganization. Such summary is qualified in
its entirety by reference to the Plan of Reorganization which is filed as an
exhibit to the Registration Statement of which this Prospectus is a part.
The Plan of Reorganization provided for, among other things, (i) the
satisfaction of substantially all of the Debtors' unsecured (non-priority)
indebtedness through the issuance of the Company's Common Stock and (ii) the
cancellation of existing equity interests in the Debtors. The Plan of
Reorganization also provided for the substantive consolidation and merger of the
Debtors and the corresponding extinguishment of intercompany liabilities and
contracts among the Debtors. At June 30, 1996, the aggregate amount of tax
claims had been reduced to $711,697 and the Company continues to dispute certain
tax claims.
The Company commenced distribution of Common Stock to holders of unsecured
claims on April 14, 1994. The Common Stock is issued pursuant to section 1145 of
the Bankruptcy Code, which contains an exemption from registration under the
Securities Act of 1933, as amended. Through December 31, 1996, the Company had
distributed 6,728,256 shares of Common Stock to its former creditors, and the
Company has estimated that an additional 75,000 shares are issuable in
settlement of other creditor claims. The Plan of Reorganization provided holders
of unsecured claims the right to elect a limited cash recovery, and through
December 31, 1996, $74,570 in cash had been distributed pursuant to such
provision.
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth (i) certain information regarding beneficial
ownership of the Company's Common Stock as of February 28, 1997 by (1) each
person who is known by the Company to own beneficially more than 5% of the
outstanding shares of Common Stock, (2) each director and executive officer of
the Company, (3) all directors and executive officers of the Company as a group
and (4) The Value Realization Fund, L.P., Canyon Value Realization Fund
(Cayman), Ltd., GRS Partners II and CPI Securities L.P. (collectively, the
"Selling Stockholders") and affiliated entities and (ii) the information set
forth in (i) as adjusted to reflect the sale of the shares offered hereby.
Unless otherwise indicated below, to the knowledge of the Company, all persons
listed below have sole voting and investment power with respect to the shares of
Common Stock, except to the extent authority is shared by spouses under
applicable law.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING(1) AFTER OFFERING(1)
-------------------- --------------------
NUMBER
NUMBER OF OF SHARES NUMBER
NAME SHARES PERCENT TO BE SOLD OF SHARES PERCENT
- ------------------------------- --------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
CSA(2)(3)...................... 517,319 6.0% -- 517,319 6.0%
Montreux Equity
Partners III, L.P.(3).......... 118,569 1.4 -- 118,569 1.4
Richard S. Ressler(4).......... 1,414,791 16.4 -- 1,414,791 16.4
CPI Securities LP group (5).... 1,705,000 19.8 1,150,000 555,000 6.4
George G. Bayz(6)(7)........... 34,250 * -- 34,250 *
Lewis H. Stanton............... -- -- -- -- --
W. Brian Kretzmer(6)(7)........ 20,833 * -- 20,833 *
Stanley P. Witkow(6)(7)........ 22,833 * -- 22,833 *
Alan A. Gleicher............... 12,500 * -- 12,500 *
Morton O. Schapiro............. 12,500 * -- 12,500 *
All directors and executive
officers as a group (7 persons) 1,467,707 17.0 -- 1,467,707 17.0
<FN>
- ---------------
* Less than 1%.
(1) The number of shares beneficially owned by each beneficial owner listed
above is based upon the numbers reported by such owner in documents publicly
filed with the Commission, publicly available information or information
available to the Company. The percentage of each class is calculated based
on the total number of shares of each class actually outstanding at February
28, 1997. Such number (i.e., 8,615,851 shares) differs from the total of
shares issued and issuable as of such date. The foregoing table includes
shares with respect to which such beneficial owner
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<PAGE>
has the right to acquire beneficial ownership as specified in
Rule 13d-3(d)(1) of the Exchange Act.
(2) The shares are held by Computer Systems Advisors (Private) Limited and CSA
Pte Ltd (collectively, "CSA"). CSA's address is 221 Henderson Road, 08-01,
Henderson Building, Singapore 0315.
(3) On October 28, 1996, the Company filed a registration statement on Form S-3
with respect to the shares held by CSA and Montreux Equity Partners III,
L.P. Such stockholders beneficially own in the aggregate 635,888 shares of
Common Stock and the Company currently estimates, based on certain
assumptions that are subject to change, that it will issue up to an
additional 216,255 shares to such stockholders. The estimated additional
shares are not included in the table.
(4) Includes a warrant to purchase 625,000 shares of Common Stock, which is
currently exercisable. Mr. Ressler's address is c/o MAI Systems Corporation,
9600 Jeronimo Road, Irvine, California 92718. Mr. Ressler also holds a
warrant to purchase 50,000 shares of Common Stock, which warrant was issued
March 6, 1997 to Orchard Capital Corporartion and transferred to him on that
date.
(5) CPI Securities L.P., Canpartners Incorporated, The Value Realization Fund
L.P., The Canyon Value Realization Fund (Cayman), Ltd., GRS Partners II,
Mitchell R. Julis, Joshua S. Friedman, R. Christian B. Evensen, K. Robert
Turner, Patrick Dooley, Scott Imbach, Monica Young, Douglas Claman and
Michael McCarthy, as a group, beneficially own 1,705,000 shares of Common
Stock, including 750,000 Warrant Shares issuable upon exercise of the
Warrants. The address of all the above-referenced entities other than The
Canyon Value Realization Fund (Cayman), Ltd. and GRS Partners II is 9665
Wilshire Boulevard, Suite 200, Beverly Hills, California 90212; the
addresses for The Canyon Value Realization Fund (Cayman), Ltd. and GRS
Partners II are c/o MeesPierson (Cayman) Limited, British American Center,
Phase 3, Dr. Roy's Drive, Grand Cayman, B.W.I. and c/o Grosvenor Capital
Management, L.P., 333 West Wacker Drive, Suite 1600, Chicago, Illinois
60606. The 1,705,000 shares includes the 400,000 Shares issued and sold by
the Company in a private placement to the Selling Stockholders on February
14, 1997.
(6) Includes shares subject to options that are currently exercisable. For Mr.
Bayz (31,249 shares), Mr. Kretzmer (20,833 shares), Mr. Witkow (20,833
shares), Mr. Gleicher (12,500 shares) and Mr. Schapiro (12,500 shares).
(7) Excludes shares subject to options granted during 1995 and 1996 and that
become exercisable incrementally with full vesting occurring three years
following the date of grant. For Mr. Bayz (172,500 shares), Mr. Kretzmer
(77,500 shares) and Mr. Witkow (77,500 shares).
</FN>
</TABLE>
The services of Richard S. Ressler, Chairman of the Board and Director of
the Company, are provided pursuant to an agreement entered into in August 1994
with Orchard Capital Corp. ("Orchard"), which is his employer. Pursuant to that
agreement, Orchard agreed to provide Mr. Ressler's services on a non-exclusive
basis for two years, which expired in August 1996. In October 1996, the
agreement was retroactively renewed for one additional year. Orchard is paid
$24,000 per month during the term of the agreement ($20,000 per month during the
original term) and was awarded a bonus of $1,187,500 in January 1996.
Additionally, Orchard was granted a warrant to purchase up to 625,000 shares of
the Company's Common Stock at $1.90 per share and a warrant to purchase up to
50,000 shares of Common Stock at $7.50 per share, which warrants are currently
exercisable; Mr. Ressler currently holds such warrants directly. The warrants
expire August 14, 1999 and March 6, 2002, respectively.
-25-
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 25,000,000 shares
of Common Stock, par value $0.01 per share (the "Common Stock"). At February 28,
1997, there were 8,690,851 shares of Common Stock issued and issuable. This
total does not include 993,793 shares issuable upon the exercise of outstanding
options under the Company's stock option plans, 699,750 shares issuable upon the
exercise of outstanding warrants, up to 50,546 shares expected to be issued
pursuant to agreements pursuant to which a subsidiary of the Company purchased
30% of its outstanding common stock and terminated options for the purchase of
3.5% of its common stock, up to 216,255 shares that the Company expects to issue
pursuant to the agreements relating to the acquisition of HIS and the 750,000
Warrant Shares. Most of the 699,750 outstanding warrants are held by Richard S.
Ressler. See "Principal and Selling Stockholders."
Shares of Common Stock have been and are being issued as described above
under "Chapter 11 Bankruptcy Proceedings" and will also be issued to optionees
under the Company's 1993 Stock Option Plan and the 1995 Non-Employee Directors
Stock Option Plan. At February 28, 1997, the number of shares of Common Stock
reserved for issuance upon exercise of options (both granted and available for
grant) equaled 1,034,172. The information in the preceding paragraph reflects
options granted. The Company's stock option plans will permit additional options
to be granted in the future.
All outstanding shares of Common Stock are, and the shares to be issued as
contemplated herein will be, validly authorized, fully paid and nonassessable.
All holders of Common Stock have full voting rights and are entitled to one vote
for each share held of record on all matters submitted to a vote of the
stockholders. Votes may not be cumulated in the election of directors.
Stockholders have no preemptive or subscription rights. The Common Stock is
neither redeemable nor convertible, and there are no sinking fund provisions.
Holders of Common Stock are entitled to dividends when and as declared by the
Board of Directors from funds legally available therefor and are entitled in
the event of liquidation, to share ratably in all assets remaining after payment
of liabilities. The rights of holders of Common Stock will be subject to any
preferential rights of any Preferred Stock which may be issued in the future.
The Company's Amended Certificate of Incorporation does not presently
authorize any Preferred Stock.
CERTAIN CHARTER AND BY-LAWS PROVISIONS
Certain provisions of the Company's restated certificate of incorporation
and by-laws could have anti-takeover effects and may delay, defer or prevent a
takeover attempt that a stockholder might consider in its best interest. These
provisions are intended to enhance the likelihood of continuity and stability in
the composition of the policies formulated by the board of directors. In
addition, these provisions are also intended to ensure that the board of
directors will have sufficient time to act in what the board of directors
believes to be the best interests of the Company and its stockholders.
The Company's restated certificate of incorporation and by-laws require
that special meetings of the stockholders of the Company may be called only by
the board of directors, the Chairman of the Board, or the President, and shall
be called by the Secretary upon the request in writing of a stockholder
-26-
<PAGE>
or stockholders holding of record at least 51% of the voting power of the issued
and outstanding shares of stock.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
The Company is subject to Section 203 of the Delaware General Corporation
Law which, subject to certain exceptions, prohibits a Delaware corporation from
engaging in a business combination (as defined therein) with an "interested
stockholder" (defined generally as any person who beneficially owns 15% or more
of the outstanding voting stock of the Company or any person affiliated with
such person) for a period of three years following the date that such
stockholder became an interested stockholder, unless (i) prior to such date the
board of directors of the corporation approved either the business combination
or the transaction that resulted in the stockholder becoming an interested
stockholder; (ii) upon consummation of the transaction that resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation at the time the transaction
commenced (excluding for purposes of determining the number of shares
outstanding those shares owned (x) by directors who are also officers of the
corporation and (y) by employee stock plans in which employee participants do
not have the right to determine confidentially whether shares held subject to
the plan will be tendered in a tender or exchange offer); or (iii) on or
subsequent to such date the business combination is approved by the board of
directors of the corporation and authorized at a meeting of stockholders by the
affirmative vote of at least 66 2/3% of the outstanding voting stock of the
corporation not owned by the interested stockholder.
LIMITATION ON DIRECTORS' AND OFFICERS' LIABILITY
The Company's certificate of incorporation limits the liability of
directors to the fullest extent permitted by the Delaware General Corporation
Law. In addition, the Company's by-laws provide that the Company shall indemnify
directors and officers of the Company as permitted by such law.
TRANSFER AGENT
The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services, L.L.C.
DESCRIPTION OF WARRANTS
The Warrants were issued pursuant to a warrant agreement (the "Warrant
Agreement"), dated March 3, 1997, by and among the Company, the Company, as
Warrant Agent, and the Selling Stockholders. The following summary of the
material terms and provisions of the Warrant Agreement and the Warrants does not
purport to be complete and is subject to, and is qualified in its entirety by,
reference to the Warrant Agreement and the Warrants, a copy of each of which is
filed as an exhibit to the Registration Statement of which this Prospectus is a
part. Capitalized terms that are used but not defined herein have the meanings
assigned to them in the Warrant Agreement and such definitions are incorporated
herein by reference.
GENERAL
-27-
<PAGE>
The Offered Securities include 750,000 Warrants to purchase shares of
Common Stock. Each Warrant entitles the holder thereof upon exercise to purchase
one share of Common Stock at an exercise price of $8.00 per share. In the case
of warrant certificates representing two or more Warrants, upon exercise of less
than all the Warrants represented by such certificate, a warrant certificate for
the unexercised portion will be delivered to the holder. The Warrants vested
immediately upon issuance and will expire on March 3, 2004.
COMPANY'S CALL OPTION
In the event that on or after September 4, 1997, (i) the daily market price
(as defined below) of the Common Stock equals or exceeds 150% of the Exercise
Price for any ten trading days during the most recent consecutive twenty
trading-day period immediately prior to the commencement of a fifteen day notice
period triggered by the Company's giving notice of its election to call the
Warrants, (ii) the Company is not in default of its obligations hereunder or
under the Registration Rights Agreement and (iii) all of the Warrant Shares may
be transferred in a public sale pursuant to a registration statement filed under
the Securities Act or in a transaction exempt from the registration and
prospectus delivery requirements of the Securities Act under Section 4(1) and
subject to certain other conditions, then the Company shall have the right, for
a purchase price of $1.00 for every ten thousand Warrant Shares for which the
Warrants are exercisable, to call the Warrants at the completion of the fifteen
day notice period described above. The Warrants will remain subject to prior
exercise during such notice period, but not thereafter. The "daily market price"
for each such business day shall be: (i) if the Common Stock is then listed on a
national securities exchange or is listed on The Nasdaq National Market
("NASDAQ") and is designated as a National Market System security, the last sale
price, regular way, on such day on the principal stock exchange or market system
on which such Common Stock is then listed or admitted to trading, or, if no such
sale takes place on such day, the average of the closing bid and asked prices
for the Common Stock on such day as reported on such stock exchange or market
system or (ii) if the Common Stock is not then listed or admitted to trading on
any national securities exchange or designated as a National Market System
security on NASDAQ but is traded over-the-counter, the average of the closing
bid and asked prices for the Common Stock as reported on NASDAQ or the
Electronic Bulletin Board or in the National Daily Quotation Sheets, as
applicable.
CONSOLIDATION, MERGER, SALE, TRANSFER OR LEASE
So long as the Warrants remain outstanding, the Company will not merge or
consolidate with or into, or sell, transfer or lease all or substantially all of
its property to, any corporation unless the successor or purchasing corporation,
as the case may be (if not the Company), expressly assumes, by supplemental
agreement, the due and punctual performance and observance of each and every
covenant and condition of the Warrant Agreement to be performed and observed by
the Company.
ADJUSTMENTS TO NUMBER OF WARRANT SHARES AND EXERCISE PRICE
The number of shares of Common Stock issuable upon exercise of a Warrant
and the Exercise Price may be adjusted in certain circumstances upon the
occurrence of a stock dividend, subdivision or combination of the outstanding
Common Stock, certain rights offerings by the Company or distributions by
dividend or otherwise of evidence of the Company's indebtedness, shares of the
Company's capital stock or other property. In addition, upon the reorganization,
recapitalization or
-28-
<PAGE>
consolidation, merger or sale or other disposition of all or substantially all
the Company's property, pursuant to the terms of which (i) shares of common
stock of the successor or acquiring corporation or of the Company (if it is the
surviving corporation) or (ii) any property of any nature whatsoever in addition
to or in lieu of common stock of the successor or acquiring corporation or of
the Company (if it is the surviving corporation) are to be received or
distributed to holders of Common Stock, then the holders of the Warrants shall
have the right to receive, upon exercise thereof, the number of shares of common
stock of the successor or acquiring corporation or of the Company (if it is the
surviving corporation) and such other property receivable upon or as a result of
the reorganization, reclassification, merger, consolidation or disposition of
assets by a holder of the number of shares of Common Stock for which the
Warrants held by such holder are exercisable immediately prior to such event. In
addition, in the event the Company shall subdivide into two or more corporate
entities owned by the Company's stockholders or the Company shall distribute,
without consideration, shares of one or more subsidiaries or affiliated
corporations or former divisions (the Company and each new entity a "Constituent
Corporation" and collectively the "Constituent Corporations"), then the Warrants
shall be divided into the right to purchase shares of common stock outstanding
of each Constituent Corporation in the amounts and in the manner set forth in
the Warrant Purchase Agreement.
MISCELLANEOUS
The Warrants are transferable only on the books of the Company maintained
at its principal office. Upon any registration of transfer, the Company shall
countersign and deliver new Warrants to the persons entitled thereto. The
Company or the Warrant Agent may require the payment of a sum sufficient to
cover any tax or governmental charge that may be imposed in connection with any
such transfer. The minimum denomination of any warrant certificate issued
pursuant to the Warrant Purchase Agreement is 10,000 Warrant Shares.
The Warrant Agent for the Warrants is the Company.
The holders of the Warrants have no right to vote or to receive dividends
or to consent to or receive notice as a stockholder in respect of any meeting of
stockholders for the election of directors of the Company or any other matter,
or any rights whatsoever as a stockholder of the Company.
PLAN OF DISTRIBUTION
The sale or distribution of the Offered Securities may be effected directly
to purchasers by the Selling Stockholders as principal or through one or more
underwriters, brokers, dealers or agents from time to time in one or more
transactions (which may involve crosses or block transactions) (i) on any stock
exchange or in the over-the-counter market, (ii) in transactions otherwise than
on any stock exchange or in the over-the-counter market or (iii) through the
writing of options (whether such options are listed on an options exchange or
otherwise) on, or settlement of short sales of, the Offered Shares. Any of such
transactions may be effected at market prices prevailing at the time of sale, at
prices related to such prevailing market prices, at varying prices determined at
the time of sale or at negotiated or fixed prices, in each case as determined by
the Selling Stockholders or by agreement between the Selling Stockholders and
underwriters, brokers, dealers or agents, or purchasers. If the Selling
Stockholders effect such transactions by selling Offered Securities to or
through underwriters, brokers,
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<PAGE>
dealers or agents, such underwriters, brokers, dealers or agents may receive
compensation in the form of discounts, concessions or commissions from the
Selling Stockholders or commissions from purchasers of Offered Securities for
whom they may act as agent (which discounts, concessions or commissions as to
particular underwriters, brokers, dealers or agents may be in excess of those
customary in the types of transactions involved). The Selling Stockholders and
any brokers, dealers or agents that participate in the distribution of the
Offered Securities may be deemed to be underwriters, and any profit on the sale
of Offered Securities by them and any discounts, concessions or commissions
received by any such underwriters, brokers, dealers or agents may be deemed to
be underwriting discounts and commissions under the Securities Act.
Under the Securities laws of certain states, the Offered Securities may be
sold in such states only through registered or licensed brokers or dealers. In
addition, in certain states the Offered Securities may not be sold unless an
exemption from registration or qualification is available and is complied with.
The Company will pay all of the expenses incident to the registration,
offering and sale of the Offered Securities to the public hereunder other than
commissions, fees and discounts of underwriters, brokers, dealers and agents.
The Company estimates that the expenses of the offering to be borne by it will
be approximately $20,000.
VALIDITY OF COMMON STOCK AND WARRANTS
The validity of the shares of Common Stock and the Warrants offered hereby
is being passed upon for the Company by Stanley P. Witkow, Esq., General Counsel
of the Company. See "Principal and Selling Stockholders."
EXPERTS
The consolidated financial statements and schedule of MAI Systems
Corporation at December 31, 1995 and 1994, and for each of the years in the
three-year period ended December 31, 1995, have been incorporated by reference
herein and in the Registration Statement in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, incorporated by
reference herein, and upon the authority of said firm as experts in accounting
and auditing.
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<PAGE>
- ----------------------------------- -----------------------------------
NO DEALER, SALESPERSON OR OTHER
PERSON HAS BEEN AUTHORIZED IN
CONNECTION WITH THIS OFFERING TO
GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN MAI SYSTEMS
THIS PROSPECTUS AND, IF GIVEN OR CORPORATION
MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY
THE COMPANY, THE SELLING
STOCKHOLDERS OR ANY OTHER PERSON. Common Stock
THIS PROSPECTUS DOES NOT CONSTITUTE and Warrants to
AN OFFER TO SELL OR A SOLICITATION purchase Common Stock
OF ANY OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY
PERSON IN ANY JURISDICTION IN WHICH --------------------------------
IT IS UNLAWFUL TO MAKE ANY SUCH
OFFER OR SOLICITATION IN SUCH PROSPECTUS
JURISDICTION. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE --------------------------------
HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF OR
THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
-----------------
TABLE OF CONTENTS
Page
Available Information.......... 2
Incorporation of Certain
Documents by Reference....... 2
Prospectus Summary............. 3
Risk Factors................... 6
The Company.................... 11
Use of Proceeds ............... 12
Business....................... 13
Chapter 11 Bankruptcy
Proceedings.................. 23
Principal and Selling
Stockholders................. 24
Description of Capital Stock... 26
Description of Warrants........ 27
Plan of Distribution........... 29
Validity of Common Stock
and Warrants................. 30
Experts........................ 30
- ----------------------------------- -----------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The expenses in connection with the issuance and distribution of the securities
being registered, other than underwriting discounts and commissions, are
estimated as follows:
Securities and Exchange Commission Registration Fee........... $2,995
Transfer Agent and Registrar Fees*............................ 1,000
Legal Fees and Expenses*...................................... 10,000
Accounting Fees and Expenses*................................. 4,000
Miscellaneous*................................................ 2,005
--------
Total......................................................... $20,000
========
* Estimated
Item 15. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law grants to the Company
the power to indemnify the officers and directors of the Company, under certain
circumstances and subject to certain conditions and limitations as stated
therein, against all expenses and liabilities incurred by or imposed upon them
as a result of suits brought against them as such officers and directors if they
act in good faith and in a manner they reasonably believe to be in or nor
opposed to the best interests of the Company and, with respect to any criminal
action or proceeding, have no reasonable cause to believe their conduct was
unlawful. The Company's Certificate of Incorporation provides for
indemnification of officers and directors to the fullest extent permitted by
law.
Item 16. Exhibits.
2.1 First Amended Joint Chapter 11 Plan of Reorganization of MAI Systems
Corporation, Brooke Acquisition Corp. and CLS Software, Inc., as
confirmed by the United States Bankruptcy Court for the District of
Delaware on November 13, 1993 (incorporated by reference to Exhibit 2.1
to the Registrant's Current Report on Form 8-K dated January 15, 1994).
2.2 Consent Order Modifying Confirmed Plan of Reorganization and Fixing
Effective Date, as entered by the United States Bankruptcy Court for
the District of Delaware on January 27, 1994 (incorporated by reference
to Exhibit 2.2 to the Registrant's Current Report on Form 8-K dated
February 9, 1994).
3.1 Amended and Restated Certificate of Incorporation of Registrant, as
amended.*
3.2 Bylaws of Registrant (incorporated by reference to Exhibit 3.2 to
Registrant's registration statement on Form S-3 (Commission File No.
333-14947) filed on October 28, 1996).
4.1 Warrant Agreement, dated March 3, 1997, by and among the Registrant and
the purchasers named therein (including form of Warrant).
5.1 Opinion of Stanley P. Witkow, Esq. as to validity of Common Stock and
Warrants.*
23.1 Consent of KPMG Peat Marwick LLP.
<PAGE>
23.2 Consent of Stanley P. Witkow, Esq. (included in the opinion filed as
Exhibit 5.1 to this Registration Statement).
24.1 Power of Attorney (included on page II-4 hereof).
- ---------------------------------
* To be filed by amendment.
Item 17. Undertakings
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933 (the "Securities
Act"), each filing of the Registrant's annual report pursuant to Section 13(a)
or Section 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act")
(and, where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference
in this Registration Statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities under the Securities Act of 1933
(the "Securities Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions described in Item 15 above,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim of indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in a successful defense of any action, suit
or proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
II-2
<PAGE>
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Irvine, California, on the 17th day of March 1997.
MAI SYSTEMS CORPORATION
(Registrant)
By:/s/George G. Bayz
George G. Bayz
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Stanley P. Witkow and Lewis H. Stanton, his true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments, including post-effective amendments,
to this Registration Statement and any related Rule 462(b) registration
statement or amendment thereto, and to file the same, with all exhibits thereto,
and other documents in connection therewith with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully and to
all intents and purposes as he might or could do in person hereby ratifying and
confirming all that said attorneys-in-fact and agents, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated and on March 17, 1997.
/s/ Richard S. Ressler Chairman of the Board and Director
Richard S. Ressler
/s/ George G. Bayz Director and Chief Executive Officer
George G. Bayz
/s/ Lewis H. Stanton Executive Vice President and Chief Operating and
Lewis H. Stanton Financial Officer (Chief Accounting Officer)
/s/ Alan A. Gleicher Director
Alan A. Gleicher
/s/ Morton O. Schapiro Director
Morton O. Schapiro
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
2.1 First Amended Joint Chapter 11 Plan of Reorganization of MAI Systems
Corporation, Brooke Acquisition Corp. and CLS Software, Inc., as
confirmed by the United States Bankruptcy Court for the District of
Delaware on November 13, 1993 (incorporated by reference to Exhibit
2.1 to the Registrant's Current Report on Form 8-K dated January 15,
1994).
2.2 Consent Order Modifying Confirmed Plan of Reorganization and Fixing
Effective Date, as entered by the United States Bankruptcy Court for
the District of Delaware on January 27, 1994 (incorporated by
reference to Exhibit 2.2 to the Registrant's Current Report on Form
8-K dated February 9, 1994).
3.1 Amended and Restated Certificate of Incorporation of Registrant, as
amended.*
3.2 Bylaws of Registrant (incorporated by reference to Exhibit 3.2 to
Registrant's registration statement on Form S-3 (Commission File No.
333-14947) filed on October 28, 1996).
4.1 Warrant Agreement, dated March 3, 1997, by and among the Registrant
and the purchasers named therein (including form of Warrant).
5.1 Opinion of Stanley P. Witkow as to validity of Common Stock and
Warrants.*
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Stanley P. Witkow (included in the opinion filed as
Exhibit 5.1 to this Registration Statement).
24.1 Power of Attorney (included on page II-4 hereof).
- ---------------------------------
* To be filed by amendment.
II-4
Exhibit 4.1
- --------------------------------------------------------------------------------
WARRANT AGREEMENT OF
MAI SYSTEMS CORPORATION
750,000 Shares
Dated as of March 3, 1997
- --------------------------------------------------------------------------------
Common Stock Purchase Warrants
<PAGE>
WARRANT AGREEMENT dated as of March 3, 1997, between MAI Systems
Corporation, a Delaware corporation (the "Company"), the Company as Warrant
Agent (in such capacity, "Warrant Agent"), and those persons signatory hereto
(collectively, the "Warrant Holder" or "Holder").
The Company proposes to issue Common Stock Purchase Warrants as hereinafter
described (collectively the "Warrants") to purchase an aggregate of up to
750,000 shares of its Common Stock, $0.01 par value per share (the shares of
Common Stock issuable on exercise of the Warrants being referred to herein as
the "Warrant Shares"), in favor of the Warrant Holder. Capitalized terms used
herein, if not otherwise defined, are defined in Section 8 hereof.
The Company and the Warrant Holder hereby agree as follows:
Section 1. Transferability; Notice of Corporate
Actions; Form of the Warrants.
1.1 Registration. The Warrants shall be numbered and shall be
registered on the books of the Company maintained at the principal office of the
Company in Irvine, California ("the Warrant Register"). The Company shall be
entitled to treat the Holder of the Warrants as the owner in fact thereof for
all purposes and shall not be bound to recognize any equitable or other claim to
or interest in such Warrants on the part of any other Person.
1.2 Transferability. The Warrants are freely transferable, subject
to applicable securities laws restrictions. The holder of any Warrants so
transferred shall continue to be bound by this Agreement. However, the minimum
denomination of any Warrant hereunder shall be a Warrant exchangeable for 10,000
Warrant Shares.
1.3 Transfer-General. Subject to the terms hereof, the Warrants
shall be transferable only on the books of the Company maintained at its
principal office upon delivery thereof duly endorsed by the Holder or by his
duly authorized attorney or representative, or accompanied by proper evidence of
succession, assignment or authority to transfer. In all cases of transfer by an
attorney, the original power of attorney, duly approved, or a copy thereof, duly
certified, shall be deposited and remain with the Company. In case of transfer
by executors, administrators, guardians or other legal representatives, duly
authenticated evidence of their authority shall be produced, and may be required
to be deposited and to remain with the Company in its discretion. Upon any
registration of transfer, the Company shall countersign and deliver new Warrants
to the Persons entitled thereto. The Company or the Warrant Agent may require
the payment of a sum sufficient to cover any tax or governmental charge that may
be imposed in connection with any such transfer.
1.4 Notices of Corporate Actions. In the event of: (a) any taking
by the Company of a record of the holders of the Common Stock for the purpose of
determining the holders thereof who are entitled to receive any extraordinary
dividend or distribution, (other than
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<PAGE>
cash dividends representing a dividend payment on an annualized basis of not
more than 10% of the Company's Market Capitalization at the time of such
dividend) or any right to subscribe for, purchase or otherwise acquire any
shares of capital stock of any class or any other securities, (b) any capital
reorganization of the Company, any reclassification or recapitalization of the
capital stock of the Company or any consolidation or merger involving the
Company and any other Person or any transfer or other disposition of all or
substantially all the assets of the Company to another Person; (c) any voluntary
or involuntary dissolution, liquidation or winding-up of the Company, or (d) any
amendment of the Certificate of Incorporation of the Company, the Company shall
mail to each Warrant Holder in accordance with the provisions of Section 14
hereof a notice specifying (i) the date or expected date on which any such
record is to be taken for the purpose of such dividend, distribution or right,
and the amount and character of such dividend, distribution or right and (ii)
the date or expected date on which any such reorganization, reclassification,
recapitalization, consolidation, merger, transfer, disposition, dissolution,
liquidation or winding-up is to take place, the time, if any such time is to be
fixed, as of which the holders of record of Common Stock shall be entitled to
exchange their shares of Common Stock for the securities or Other Property
deliverable upon such reorganization, reclassification, recapitalization,
consolidation, merger, transfer, disposition, dissolution, liquidation or
winding-up and a description in reasonable detail of the transaction. Such
notice shall be mailed to the extent practicable at least thirty (30), but not
more than ninety (90) days prior to the date therein specified. In the event
that the Company at any time sends any notice to the holders of its Common
Stock, it shall concurrently send a copy of such notice to each Warrant Holder.
1.5 Form of the Warrants. The text of the Warrants and of the form
of election to purchase Warrant Shares (the "Purchase Form") shall be
substantially as set forth respectively in Exhibits A and B attached hereto. The
price per Warrant Share (the "Warrant Price") and the number of Warrant Shares
issuable upon exercise of each Warrant are subject to adjustment upon the
occurrence of certain events, all as hereinafter provided. The Warrants shall be
executed on behalf of the Company by its Chairman of the Board, its Chief
Executive Officer, President or one of its Vice Presidents.
The Warrants shall be dated as of the date of countersignature
thereof by the Company either upon initial issuance or upon transfer.
1.6 Restrictive Legend. Except as otherwise provided in this
Section 1.6, each Warrant and each certificate for Warrants or Warrant Shares
and each certificate for Warrant Shares issued to any subsequent transferee of
any such certificate, shall be stamped or otherwise imprinted with a legend in
substantially the following form:
2
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR ANY STATE SECURITIES LAW. NO TRANSFER OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE SHALL BE VALID OR
EFFECTIVE UNLESS (A) SUCH TRANSFER IS MADE PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR (B) THE
HOLDER OF THE SECURITIES PROPOSED TO BE TRANSFERRED SHALL
HAVE DELIVERED TO THE COMPANY AN OPINION OF COUNSEL (WHO MAY
BE AN EMPLOYEE OF SUCH HOLDER) REASONABLY ACCEPTABLE TO THE
COMPANY TO THE EFFECT THAT SUCH PROPOSED TRANSFER IS EXEMPT
FROM THE REGISTRATION REQUIREMENTS OF THE ACT OR (C) SUCH
TRANSFER IS PURSUANT TO RULE 144 OR RULE 144A UNDER THE ACT
AND SUCH HOLDER(S) SHALL HAVE DELIVERED TO THE COMPANY A
CERTIFICATE SETTING FORTH THE BASIS FOR APPLYING SUCH RULE
TO THE PROPOSED TRANSFER.
1.7 Termination of Securities Laws Restrictions. The legend
requirements of Section 1.6 shall terminate as to any particular Warrant or
Warrant Shares when the Company shall have received from the Holder thereof an
opinion of counsel reasonably acceptable to the Company to the effect that such
legend is not required in order to ensure compliance with the Securities Act.
Whenever the restrictions imposed by this Agreement shall terminate as to the
Warrants, as hereinabove provided, the Holder hereof shall be entitled to
receive from the Company, at the expense of the Company, a new Warrant or
Warrant Shares bearing no legends.
Section 2. Term of the Warrants; Exercise of the Warrants; Warrant Price,
Etc.
2.1 Term of the Warrants. Subject to the terms of this Agreement,
the Holder shall have the right, which may be exercised from time to time, from
and through the dates set forth in the Warrants, to purchase from the Company
the number of fully paid and nonassessable Warrant Shares which the Holder may
at the time be entitled to purchase on exercise of such Warrant. If the last day
for the exercise of the Warrants shall not be a Business Day, then the Warrant
may be exercised on the next succeeding Business Day.
2.2 Vesting of the Warrants. The Warrants shall immediately vest
and may be exercised on or after the date hereof in accordance with the terms of
this Agreement and the Warrant Certificate.
2.3 Call Provisions. In the event that after the date that is six
months and one Business Day from the date of issuance of the Warrants, (i) the
daily market price (as
3
<PAGE>
included in the definition of Current Market Price below) of the Company's
Common Stock shall equal or exceed one hundred and fifty percent (150%) of the
Exercise Price for any ten trading days during the most recent consecutive
twenty trading-day period immediately prior to the commencement of the Notice
Period (as defined below), (ii) the Company is not in default of its obligations
hereunder or under the Registration Rights Agreement and (iii) all of the
Warrant Shares may be transferred in a public sale pursuant to a registration
statement filed under the Securities Act or in a transaction exempt from the
registration and prospectus delivery requirements of the Securities Act under
Section 4(1) and pursuant to Sections 1.2 and 1.3 hereof, then the Company shall
have the right, for a purchase price of $1.00 per every ten thousand Warrant
Shares represented by the Warrants being called (rounded to the nearest cent),
to call the Warrants at the completion of the Notice Period. The Warrants shall
remain subject to prior exercise by the Holders during the Notice Period, but
not thereafter.
2.4 Exercise of the Warrants. The Warrants may be exercised upon
surrender to the Company, at its principal office, of the certificate evidencing
the Warrant to be exercised, together with the Purchase Form, in the form of
Exhibit B hereto, on the reverse thereof duly filled in and signed, and upon
payment to the Company, of the Warrant Price (as defined in and determined in
accordance with the provisions of Sections 2 and 6 hereof), for the number of
Warrant Shares in respect of which such Warrant is then exercised. Upon partial
exercise, a Warrant Certificate for the unexercised portion shall be delivered
to the Holder. Payment of the aggregate Warrant Price shall be payable in cash,
by certified or official bank check or wire transfer, or by delivery to the
Company of the Company's 11% Subordinated Notes due 2004, which shall be valued
for this purpose at the principal amount thereof so delivered plus the accrued
interest thereon.
Subject to Section 3 hereof, upon such surrender of the
Warrants and payment of the Warrant Price as aforesaid, the Company shall issue
and cause to be delivered with all reasonable dispatch to or upon the written
order of the Holder and in such name or names as the Holder may designate, a
certificate or certificates for the number of full Warrant Shares so purchased
upon the exercise of such Warrant, together with cash, as provided in Section 9
hereof, in respect of any fractional Warrant Shares otherwise issuable upon such
surrender. Such certificate or certificates shall be deemed to have been issued
and any Person so designated to be named therein shall be deemed to have become
a holder of record of such Warrant Shares as of the date of the surrender of
such Warrant and payment of the Warrant Price, as aforesaid; provided, however,
that if, at the date of surrender of such Warrant and payment of such Warrant
Price, the transfer books for the Warrant Shares or other class of stock
purchasable upon the exercise of such Warrant shall be closed, the certificates
for the Warrant Shares in respect of which such Warrant are then exercised shall
be issuable as of the date on which such books shall next be opened (whether
before or after the Expiration Date or the Notice Period) and until such date
the Company shall be under no duty to deliver any certificate for such Warrant
Shares; provided, further, that the transfer books of record, unless otherwise
required by law, shall not be closed at any one time for a period longer than 20
calendar days.
4
<PAGE>
2.5 Warrant Price. The price per share at which Warrant Shares
shall be purchasable upon exercise of the Warrant (the "Warrant Price") shall be
$8.00, subject to adjustment pursuant to Section 6 hereof.
Section 3. Payment of Taxes and Indemnification.
3.1 Payment of Taxes. The Company will pay all documentary stamp
taxes, if any, attributable to the issuance of Warrants and Warrant Shares upon
the exercise of the Warrants.
3.2 Indemnification. Warrant Holder hereby agrees to indemnify and
hold the Company harmless from any and all taxes on the Warrant Holder that may
result from the issuance of the Warrants or any subsequent exercise of the
Warrants and issuance of the Warrant Shares.
Section 4. Mutilated or Missing Warrants. In case the Warrants shall be
mutilated, lost, stolen or destroyed, the Company shall issue and deliver in
exchange and substitution for and upon cancellation of the mutilated Warrants,
or in lieu of and substitution for the Warrants lost, stolen or destroyed, a new
certificate of like tenor and representing an equivalent right or interest; but
only upon receipt of evidence reasonably satisfactory to the Company of such
loss, theft or destruction of such Warrant certificate and indemnity or bond, if
requested, also reasonably satisfactory to them. An applicant for such
substitute Warrant certificate shall also comply with such other reasonable
regulations and pay such other reasonable charges as the Company may prescribe.
Section 5. Reservation of Warrant Shares.
5.1 Reservation of Warrant Shares. There have been reserved, and
the Company shall at all times keep reserved, out of its authorized shares of
Common Stock, a number of shares of Common Stock sufficient to provide for the
exercise of the rights of purchase represented by the outstanding Warrants. The
transfer agent for the Common Stock ("Transfer Agent"), and every subsequent
transfer agent for any shares of the Company's capital stock issuable upon the
exercise of any of the rights of purchase aforesaid will be and are hereby
irrevocably authorized and directed at all times until the Expiration Date to
reserve such number of authorized shares as shall be requisite for such purpose.
The Company will keep a copy of this Agreement on file with the Transfer Agent
and with every subsequent transfer agent for any shares of the Company's capital
stock issuable upon the exercise of the rights of purchase represented by the
Warrants. The Company covenants that all Warrant Shares which may be issued upon
exercise of Warrants will, upon issue, be fully paid, nonassessable, free of
preemptive rights and free from all taxes, liens, charges and security interests
with respect to the issue thereof. The Company will supply such Transfer Agent
and any subsequent transfer agent with duly executed stock certificates for such
purpose and will itself provide or otherwise make available any cash which may
be payable as provided in Section 9 of this Agreement. The Company will furnish
to such Transfer Agent a copy of all notices of adjustments, and certificates
related thereto, transmitted to each Holder. The
5
<PAGE>
Warrants surrendered in the exercise of the rights thereby evidenced shall be
canceled by the Company.
5.2 Cancellation of the Warrants. In the event the Company shall
purchase or otherwise acquire the Warrants, the same shall be canceled and
retired.
Section 6. Adjustment of Warrant Price and Number of Warrant Shares. The
number and kind of securities purchasable upon the exercise of the Warrants and
the Warrant Price shall be subject to adjustment from time to time upon the
happening of certain events, as hereinafter defined.
6.1 Stock Dividends, Subdivisions and Combinations. If at any time
the Company shall:
(i) take a record of the holders of its Common Stock for the
purpose of entitling them to receive a dividend payable in, or other
distribution of, additional shares of Common Stock,
(ii) subdivide its shares of Common Stock Outstanding into a
larger number of shares of such Common Stock, or
(iii) combine its shares of Common Stock Outstanding into a
smaller number of shares of such Common Stock,
then the Exercise Price shall be adjusted to equal the product of the Exercise
Price in effect immediately prior to such event multiplied by a fraction the
numerator of which is equal to the number of shares of Common Stock Outstanding
immediately prior to the adjustment and the denominator of which is equal to the
number of shares of Common Stock Outstanding immediately after such adjustment.
6.2 Rights Offerings of Common Stock. (a) In case the Company shall
issue rights, options or warrants to all holders of its Common Stock entitling
them to subscribe for or purchase shares of Common Stock at a price per share
less than the Current Market Price per share (determined as provided below) of
the Common Stock on the date fixed for the determination of stockholders
entitled to receive such rights, options or warrants, the Exercise Price in
effect at the opening of business on the day following the date fixed for such
determination shall be decreased by multiplying such Exercise Price by a
fraction of which the numerator shall be the number of shares of Common Stock
outstanding at the close of business on the date fixed for such determination
plus the number of shares of Common Stock which the aggregate of the offering
price of the total number of shares of Common Stock so offered for subscription
or purchase would purchase at such Current Market Price and the denominator
shall be the number of shares of Common Stock outstanding at the close of
business on the date fixed for such determination plus the number of shares of
Common Stock so offered for subscription or purchase, such decrease to become
effective immediately after the opening of business on the day following the
date fixed for such determination. For the purposes of this
6
<PAGE>
provision, the number of shares of Common Stock at any time outstanding shall
not include shares held in the treasury of the Company but shall include shares
issuable in respect of script certificates issued in lieu of fractions of shares
of Common Stock. The Company will not issue any rights, options or warrants in
respect of shares of Common Stock held in the treasury of the Company.
(b) The provisions of this Section 6.2 shall not apply to any
issuance of Common Stock for which an adjustment is provided for under Section
6.1.
6.3 Other Distributions. In case the Company shall, by dividend or
otherwise, distribute to all holders of its Common Stock evidences of its
indebtedness, shares of any class of capital stock, or other property (including
securities, but excluding (i) any rights, options or warrants referred to in
Section 6.2, (ii) any dividend or distribution paid exclusively in cash, (iii)
any dividend or distribution referred to in Section 6.1, and (iv) any merger or
consolidation or other transactions to which Section 6.5 or Section 6.7
applies), the Exercise Price shall be reduced by multiplying the Exercise Price
in effect immediately prior to the close of business on the date fixed for the
determination of stockholders entitled to receive such distribution by a
fraction of which the numerator shall be the Current Market Price per share of
the Common Stock on the date fixed for such determination (the "Reference Date")
less the then fair market value (as determined by the Board of Directors, whose
determination shall be conclusive and described in a Board Resolution filed with
the Warrant Agent) on the Reference Date of the portion assets, shares or
evidences of indebtedness of the Company so distributed applicable to one share
of Common Stock and the denominator shall be the Current Market Price per share
of the Common Stock on the Reference Date, such adjustment to become effective
immediately prior to the opening of business on the day following the Reference
Date.
6.4 Adjustment of Number of Shares Purchasable. Upon any adjustment
of the Exercise Price as provided in Section 6.1, 6.2 or 6.3 hereof, the Warrant
Holder shall thereafter be entitled to purchase upon the exercise of the
Warrants, at the Exercise Price resulting from such adjustment, the number of
shares of Common Stock (calculated to the nearest 1/100th of a share) obtained
by multiplying the Exercise Price in effect immediately prior to such adjustment
by the number of shares of Common Stock issuable on the exercise hereof
immediately prior to such adjustment and dividing the product thereof by the
Exercise Price resulting from such adjustment.
6.5 Reorganization, Reclassification, Merger, Consolidation or
Disposition of Assets. In case the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or where there
is any change whatsoever in, or distribution with respect to, the Outstanding
Common Stock of the Company), or sell, transfer or otherwise dispose of all or
substantially all of its property, assets or business to another corporation
and, pursuant to the terms of such reorganization, reclassification, merger,
consolidation or disposition of assets, (i) shares of common stock of the
successor or acquiring corporation or of the Company (if it is the surviving
corporation) or (ii) any cash, shares of stock or other securities or
7
<PAGE>
property of any nature whatsoever (including warrants or other subscription or
purchase rights) in addition to or in lieu of common stock of the successor or
acquiring corporation ("Other Property") are to be received by or distributed to
the holders of Common Stock of the Company who are holders immediately prior to
such transaction, then the Warrant Holder shall have the right thereafter to
receive, upon exercise of the Warrants, the number of shares of common stock of
the successor or acquiring corporation or of the Company, if it is the surviving
corporation, and Other Property receivable upon or as a result of such
reorganization, reclassification, merger, consolidation or disposition of assets
by a holder of the number of shares of Common Stock for which the Warrants are
exercisable immediately prior to such event. In such event, the aggregate
Exercise Price otherwise payable for the shares of Common Stock issuable upon
exercise of the Warrants shall be allocated among the shares of common stock and
Other Property receivable as a result of such reorganization, reclassification,
merger, consolidation or disposition of assets in proportion to the respective
fair market values of such shares of common stock and Other Property as
determined in good faith by the Board of Directors of the Company. In case of
any such reorganization, reclassification, merger, consolidation or disposition
of assets, the successor or acquiring corporation (if other than the Company)
shall expressly assume the due and punctual observance and performance of each
and every covenant and condition of this Agreement to be performed and observed
by the Company and all the obligations and liabilities hereunder, subject to
such modifications as may be reasonably deemed appropriate (as determined by
resolution of the Board of Directors of the Company) in order to provide for
adjustments of any shares of the common stock of such successor or acquiring
corporation for which the Warrants thus become exercisable, which modifications
shall be as equivalent as practicable to the adjustments provided for in this
Section 6. For purposes of this Section 6.5, "common stock of the successor or
acquiring corporation" shall include stock of such corporation of any class that
is not preferred as to dividends or assets over any other class of stock of such
corporation and that is not subject to redemption and shall also include any
evidences of indebtedness, shares of stock or other securities that are
convertible into or exchangeable for any such stock, either immediately or upon
the arrival of a specified date or the happening of a specified event and any
warrants or other rights to subscribe for or purchase any such stock. The
foregoing provisions of this Section 6.5 shall similarly apply to successive
reorganizations, reclassification, mergers, consolidations or disposition of
assets.
6.6 Determination of Consideration. For purposes of Sections 6.1,
6.3 and 6.5 hereof, the consideration received and/or receivable by the Company
in connection with the issuance, sale, grant or exercise of additional shares of
Common Stock, Stock Purchase Rights or Convertible Securities, irrespective of
the accounting treatment of such consideration, shall be valued as follows:
(1) Securities or Other Property. In the case of securities or
other property, the fair market value thereof as of the date immediately
preceding such issuance, sale, grant or exercise as determined in good faith by
the Board of Directors of the Company.
(2) Dividends in Securities. In case the Company shall declare a
dividend or make any other distribution upon any stock of the Company payable in
either case
8
<PAGE>
in Common Stock or Convertible Securities, such Common Stock or Convertible
Securities, as the case may be, issuable in payment of such dividend or
distribution shall be deemed to have been issued or sold without consideration.
(3) Merger, Consolidation or Sale of Assets. In case any shares of
Common Stock, Stock Purchase Rights or Convertible Securities shall be issued in
connection with any merger or consolidation in which the Company is the
surviving corporation, the amount of consideration therefor shall be deemed to
be the fair value of such portion of the assets and business of the
non-surviving corporation attributable to such Common Stock, Stock Purchase
Rights or Convertible Securities, as is determined in good faith by the
Company's Board of Directors.
6.7 Corporate Distribution Event.
(a) Price Adjustment. In the event that the Company shall subdivide
(a "Corporate Distribution Event") into two or more corporate entities which are
owned (at least initially) by shareholders of the Company or shall distribute to
its shareholders, without consideration, shares of one or more subsidiaries or
affiliated corporations or former divisions (the Company and each new entity a
"Constituent Corporation and collectively the "Constituent Corporations") then
the Warrants shall be divided into the right to purchase shares of common stock
of the Constituent Corporations based upon the number of shares of common stock
outstanding of each Constituent Corporation immediately after the Corporate
Distribution Event such that the Holders of the Warrants will receive upon
exercise of the Warrants in each of the Constituent Corporations a proportionate
share of such Constituent Corporations' common stock equal to that share of the
Company's Common Stock issuable upon exercise of the Warrants prior to the
Corporate Distribution Event, such that the new warrant price per share for each
warrant to purchase shares in each of the Constituent Corporations reflects the
relative Market Capitalization values of the Constituent Corporations after
completion of the Corporate Distribution Event (rated by the number of shares
received by the holder of a share of Company Common Stock) and such that the
total consideration to be paid by the Holders upon exercise of all of the
Warrants in all of the Constituent Corporations is equal to the total
consideration which would have been paid by the Holders prior to the Corporate
Distribution Event if they had exercised all the Warrants for the purchase of
Company Common Stock. Each Constituent Corporation shall become a party to a
successor warrant agreement similar hereto in form and substance reasonably
satisfactory to the Holders of the Warrants.
By way of example, if the Company had 7,500,000 shares of Common Stock
outstanding prior to the Corporate Distribution Event and the Company
distributed to each holder of its Common Stock two shares of common stock in a
newly formed Constituent Corporation ("Newco Common Stock") for each share of
Company Common Stock, and, during the twenty (20) trading days after the
completion of the Corporate Distribution Event, the shares of Newco Common Stock
traded at an average price of $6 per share and the shares of Company Common
Stock traded at an average price of $9 per share, then each Holder of Warrants
would be entitled to a reduction in his or her Exercise Price for the Warrants
which would continue to be exercisable for Company Common Stock to $3.43 per
share and the Holders of Warrants would receive in
9
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addition 1,500,000 warrants to purchase a like number of shares of Newco Common
Stock, each exercisable at $2.29 per share.
Adjustments made pursuant to this Section 6.7 shall be applied to successive
Corporate Distribution Events, the provisions of this Section 6 shall be
applicable to the warrants of all Constituent Corporations and the principles of
Sections 6.1 through 6.5 shall similarly apply to the Corporate Distribution
Event and the Constituent Corporations, if applicable.
(b) Registration Rights. Any common stock of the Constituent
Corporations shall be subject to equivalent Registration Rights as the
Registration Rights applicable to the Company Common Stock under the
Registration Rights Agreement.
6.8 Other Provisions Applicable to Adjustments Under this Section.
The following provisions shall be applicable to the adjustments provided for
pursuant to this Section 6:
(a) When Adjustments To Be Made. The adjustments required by this
Section 6 shall be made whenever and as often as any specified event requiring
such an adjustment shall occur. For the purpose of any such adjustment, any
specified event shall be deemed to have occurred at the close of business on the
date of its occurrence.
(b) Fractional Interests. In computing adjustments under this
Section 6, fractional interests in Common Stock shall be taken into account to
the nearest 1/100th of a share.
(c) When Adjustment Not Required. If the Company shall take a
record of the holders of its Common Stock for the purpose of entitling them to
receive a dividend or distribution to which the provisions of Section 6 would
apply, but shall, thereafter and before the distribution to stockholders
thereof, legally abandon its plan to pay or deliver such dividend or
distribution, then thereafter no adjustment shall be required by reason of the
taking of such record and any such adjustment previously made in respect thereof
shall be rescinded and annulled.
(d) Maximum Exercise Price. Except as provided in Section 6.1
above, at no time shall the Exercise Price per share of Common Stock exceed the
amount set forth in this Agreement.
(e) Certain Limitations. Notwithstanding anything herein to the
contrary, the Company agrees not to enter into any transaction that, by reason
of any adjustment under Section 6.1, 6.2 or 6.3 above, would cause the Exercise
Price to be less than the par value of the Common Stock, if any, unless the
Company first reduces the par value of the Common Stock to be less than the
Exercise Price that would result from such transaction.
(f) Notice of Adjustments. Whenever the number of shares of Common
Stock for which the Warrants are exercisable or the Exercise Price shall be
adjusted pursuant
10
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to this Section 6, the Company shall forthwith prepare a certificate to be
executed by the chief financial officer of the Company setting forth, in
reasonable detail, the event requiring the adjustment and the method by which
such adjustment was calculated, specifying the number of shares of Common Stock
for which the Warrants are exercisable and (if such adjustment was made pursuant
to Section 6.5) describing the number and kind of any other shares of stock or
Other Property for which the Warrants are exercisable, and any related change in
the Exercise Price, after giving effect to such adjustment or change. The
Company shall promptly cause a signed copy of such certificate to be delivered
to each Holder in accordance with Section 14. The Company shall keep at its
principal office copies of all such certificates and cause the same to be
available for inspection at said office during normal business hours by any
Holder or any prospective transferee of any Warrants designated by a Holder
thereof.
(g) Independent Application. Except as otherwise provided herein,
all subsections of this Section 6 are intended to operate independently of one
another (but without duplication). If an event occurs that requires the
application of more than one subsection, all applicable subsections shall be
given independent effect without duplication.
6.9 Disputes. In the event that there is any dispute as to the
computation of the price or the number of Warrant Shares required to be issued
upon exercise of Warrants or any other disputed calculation or adjustment under
Section 6 hereof, the Warrant Holders and the Company will retain an independent
and nationally recognized accounting firm to conduct at the expense of the
Company a special procedures engagement of the computations pursuant to the
terms hereof involved in such dispute, including the financial statements or
other information upon which such computations were based. The determination of
such nationally recognized accounting firm shall, in the absence of manifest
error, be binding upon the Warrant Holders and the Company. If there shall be a
dispute as to the selection of such nationally recognized accounting firm, such
firm shall be appointed by the American Institute of Certified Public
Accountants, if willing, otherwise the American Arbitration Association, upon
application by the Company or any holder or holders of at least 25% of the
outstanding Warrants with notice to the others.
Section 7. Registration.
(a) Company Registration. The Company shall register the Warrant
Shares pursuant to the Registration Rights Agreement under the Securities Act,
and the Company shall, at such time, promptly give all holders of Registrable
Securities written notice of such registration.
(b) Expenses. The Company shall pay all Registration Expenses
incurred in connection with the registration of Registrable Securities pursuant
to the Registration Rights Agreement.
Section 8. Definitions.
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As used in this Warrant Agreement, the following terms shall have
the following respective meanings:
Business Day shall mean any day that is not a Saturday or
Sunday or a day on which banks are required or permitted to be closed in the
State of California.
Commission means the Securities and Exchange Commission.
Common Stock means (except where the context indicates that it
means the Common Stock of another corporation such as a Constituent Corporation)
the Common Stock of the Company, par value $0.01 per share, as constituted on
its original date of issue by the Company, and any capital stock into which such
Common Stock may thereafter be changed, and shall also include (i) capital stock
of the Company of any other class (regardless of how denominated) issued to the
holders of shares of any Common Stock upon any reclassification thereof which is
also not preferred as to dividends or liquidation over any other class of stock
of the Company and which is not subject to redemption and (ii) shares of common
stock of any successor or acquiring corporation (as defined in Section 6.5
hereof) received by or distributed to the holders of Common Stock of the Company
in the circumstances contemplated by Section 6.5 hereof.
Convertible Securities shall mean evidences of indebtedness,
shares of stock or other securities that are convertible into or exchangeable
for, with or without payment of additional consideration in cash or property,
shares of Common Stock, either immediately or upon the occurrence of a specified
date or a specified event.
Current Market Price shall mean as of any specified date the
average of the daily market prices of the Common Stock of the Company for the
shorter of (x) the twenty (20) consecutive Business Days immediately preceding
such date or (y) the period commencing on the Business Day next following the
first public announcement of any event giving rise to an adjustment of the
Exercise Price pursuant to Section 6 and ending on such specified date. The
"daily market price" for each such Business Day shall be: (i) if the Common
Stock is then listed on a national securities exchange or is listed on NASDAQ
and is designated as a National Market System security, the last sale price,
regular way, on such day on the principal stock exchange or market system on
which such Common Stock is then listed or admitted to trading, or, if no such
sale takes place on such day, the average of the closing bid and asked prices
for the Common Stock on such day as reported on such stock exchange or market
system or (ii) if the Common Stock is not then listed or admitted to trading on
any national securities exchange or designated as a National Market System
security on NASDAQ but is traded over-the-counter, the average of the closing
bid and asked prices for the Common Stock as reported on NASDAQ or the
Electronic Bulletin Board or in the National Daily Quotation Sheets, as
applicable.
Exchange Act means the Securities Exchange Act of 1934, as
amended, or any successor act, and the rules and regulations of the Commission
promulgated thereunder, all as the same shall be in effect at the time.
12
<PAGE>
Exercise Price shall mean, in respect of a share of Common
Stock at any date herein specified, the initial Exercise Price set forth in this
Agreement as adjusted from time to time pursuant to Section 6 hereof.
Expiration Date means the seventh anniversary of the date of
this Agreement.
GAAP shall mean generally accepted accounting principles in
the United States of America as from time to time in effect.
Market Capitalization means a number which is the sum of the
number of shares of Outstanding Common Stock multiplied by the Current Market
Price of the corporation in question.
Notice Period shall mean the period of fifteen (15) days
commencing upon the delivery to the Holders of written notice of the Company's
intention to call the Warrants pursuant to Section 2.3, provided that conditions
(i), (ii) and (iii) of Section 2.3 have been satisfied and that such conditions
(ii) and (iii) continue to have been satisfied for such 15 days.
Outstanding shall mean, when used with reference to Common
Stock, at any date as of which the number of shares thereof is to be determined,
all issued shares of Common Stock, except shares then owned or held by or for
the account of the Company or any Subsidiary thereof, and shall include all
shares issuable in respect of outstanding scrip or any certificates representing
fractional interests in shares of Common Stock.
Original Issue Date shall mean the date on which the Warrants
were issued, as set forth on Exhibit B hereto.
Person shall mean any individual, sole proprietorship,
partnership, limited liability company, joint venture, trust, incorporated
organization, association, corporation, institution, public benefit corporation,
entity or government (whether federal, state, county, city, municipal or
otherwise, including, without limitation, any instrumentality, division, agency,
body or department thereof).
Registrable Securities shall have the meaning specified for
such term in the Registration Rights Agreement.
Registration Expenses shall have the meaning specified for
such term in the Registration Rights Agreement.
Registration Rights means the right of a Holder to have its
Registrable Securities registered pursuant to Section 7 of this Agreement and
pursuant to the Registration Rights Agreement.
Registration Rights Agreement means the Agreement dated as of
March 3, 1997 between the Company and the Holders.
13
<PAGE>
Stock Purchase Rights shall mean any options, warrants or
other securities or rights to subscribe to or exercisable for the purchase of
shares of Common Stock or Convertible Securities, whether or not immediately
exercisable.
Securities Act means the Securities Act of 1933, as amended,
or any successor act thereto, and the rules and regulations of the Commission
promulgated thereunder, all as the same shall be in effect at the time.
Section 9. Fractional Interests. The Company shall not be required to
issue fractional Warrant Shares on the exercise of the Warrants. If any fraction
of a Warrant Share would, except for the provisions of this Section 8, be
issuable on the exercise of the Warrants (or specified portion thereof), the
Company shall pay an amount in cash equal to the closing price for one share of
the Common Stock on the trading day immediately preceding the date the Warrants
are presented for exercise, multiplied by such fraction.
Section 10. No Rights as Stockholder; Notices to Holder. Nothing contained
in this Agreement or in the Warrants shall be construed as conferring upon the
Holder or his permitted transferees the right to vote or to receive dividends or
to consent to or receive notice as a stockholder in respect of any meeting of
stockholders for the election of directors of the Company or any other matter,
or any rights whatsoever as a stockholder of the Company.
Section 11. Inspection of Warrant Agreement. The Company shall keep copies
of this Agreement and any notices given or received hereunder available for
inspection by the Holder during normal business hours at its principal office.
Section 12. Identity of Transfer and Warrant Agent. Forthwith upon the
appointment of any subsequent transfer agent for the Common Stock or Warrant
Agent, or any other shares of the Company's capital stock issuable upon the
exercise of the Warrants, the Company will notify the Holder of the name and
address of such subsequent transfer agent.
Section 13. Financial and Business Information. Until the Expiration Date,
the Company shall deliver to each Warrant Holder promptly upon their becoming
available, copies of all public financial statements, reports and filings,
notices and proxy statements sent or made available by the Company to the
holders of any class of its securities generally.
Section 14. Notices. Any notice pursuant to this Agreement by any Holder to
the Company, shall be in writing and shall be mailed first class, postage
prepaid, or delivered to the Company at its office at 9600 Jeronimo Road,
Irvine, California 92718, Attention: General Counsel.
Each party hereto may from time to time change the address to
which notices to it are to be delivered or mailed hereunder by notice in writing
to the other party. Any notice mailed pursuant to this Agreement by the Company
or the Warrant Agent to the Holder shall be in writing and shall be mailed first
class, postage prepaid, or delivered to the Holder at
14
<PAGE>
his address on the books of the Warrant Agent, and a copy thereof shall be
delivered to Canyon Capital Management c/o Canyon Partners Incorporated, 9665
Wilshire Boulevard Suite 200, Beverly Hills, CA 90212.
Section 15. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT GIVING
EFFECT TO PRINCIPLES OF CONFLICT OF LAWS. THE PARTIES HERETO AGREE TO SUBMIT TO
THE JURISDICTION OF THE COURTS OF THE STATE OF CALIFORNIA IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.
Section 16. Supplements and Amendments. The Company and the Warrant Agent
may from time to time supplement or amend this Agreement in order to cure any
ambiguity or to correct or supplement any provision contained herein which may
be defective or inconsistent with any other provision herein, or to make any
other provisions in regard to matters or questions arising hereunder which the
Company and the Warrant Agent may deem necessary or desirable and which shall
not be inconsistent with the provisions of the Warrant and which shall not
adversely affect the interests of the Holder.
Section 17. Successors. All the covenants and provisions of this Agreement
by or for the benefit of the Company, the Warrant Agent or the Holders of the
Warrants shall bind and inure to the benefit of their respective successors and
assigns hereunder.
Section 18. Merger or Consolidation of the Company. So long as the Warrants
remain outstanding, the Company will not merge or consolidate with or into, or
sell, transfer or lease all or substantially all of its property to, any other
corporation unless the successor or purchasing corporation, as the case may be
(if not the Company), shall expressly assume, by supplemental agreement, the due
and punctual performance and observance of each and every covenant and condition
of this Agreement to be performed and observed by the Company.
Section 19. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any Person other than the Company and the Holders of the
Warrants, any legal or equitable right, remedy or claim under this Agreement,
but this Agreement shall be for the sole and exclusive benefit of the Company
and the Holders.
Section 20. Captions. The captions of the Sections of this Agreement have
been inserted for convenience only and shall have no substantive effect.
Section 21. Counterparts. This Agreement may be executed in any number of
counterparts each of which so executed shall be deemed to be an original; but
such counterparts together shall constitute but one and the same instrument.
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IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed as of the day, month and year first above written.
THE COMPANY:
MAI SYSTEMS CORPORATION, a Delaware corporation
By: /s/ William Brian Kretzmer
---------------------------------------------
Name: William Brian Kretzmer
Title: Vice President, Business Development
THE WARRANT AGENT:
MAI SYSTEMS CORPORATION, a Delaware corporation
By: /s/ William Brian Kretzmer
---------------------------------------------
Name: William Brian Kretzmer
Title: Vice President, Business Development
16
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The Value Realization Fund, L.P.,
a California limited partnership
By: Canpartners Investments III, L.P.,
a California limited partnership,
its general partner
By: Canyon Capital Management, L.P.,
a California limited partnership,
its general partner
By: Canpartners Incorporated,
a California corporation,
its general partner
By: /s/ Mitchell R. Julis
--------------------------------------
Name: Mitchell R. Julis
Title: Vice President
Canyon Value Realization Fund (Cayman), Ltd.
By: /s/ Roger A. Hanson
--------------------------------------
Name: Roger A. Hanson
Title: Director
GRS Partners II
By: Grosvenor Capital Management L.P.,
its Administrator
By: Grosvenor Capital Management, Inc.,
its general partner
By: /s/ Michael Sacks
--------------------------------------
Name: Michael Sacks
Title: Vice President
17
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CPI Securities L.P.,
a California limited partnership
By: Canpartners Incorporated,
a California corporation,
its general partner
By: /s/ Mitchell R. Julis
--------------------------------------
Name: Mitchell R. Julis
Title: Vice President
18
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EXHIBIT A
Form of Warrant Certificate
No. ___ _______ Shares
COMMON STOCK PURCHASE WARRANT
Void After 5:00 P.M.
Pacific Time on [_____________] __, 2004
THIS CERTIFIES THAT, for value received, _____________, the registered
holder of this Common Stock Purchase Warrant (the "Warrant") or permitted
assigns (the "Holder"), is entitled to purchase from MAI Systems Corporation, a
Delaware corporation (the "Company"), at any time until 5:00 p.m. Pacific Time
on _______, 2004 (the "Expiration Date"), unless this Warrant is earlier called
by the Company pursuant to Section 2.3 of the Warrant Agreement hereinafter
mentioned, at the Warrant Price of $8.00 per share (the "Warrant Price"), the
number of shares of Common Stock of the Company (the "Common Stock") which is
equal to the number of Shares set forth above. The number of shares purchasable
upon exercise of this Warrant and the Warrant Price per share shall be subject
to adjustment from time to time as set forth in the Warrant Agreement referred
to below.
This Warrant is issued under and in accordance with a Warrant Agreement,
dated as of March 3, 1997, between the Company, the Warrant Agent and the
Warrant Holders and is subject to the terms and provisions contained in the
Warrant Agreement, to all of which the Holder of this Warrant by acceptance
hereof consents. A copy of the Warrant Agreement may be obtained for inspection
by the Holder hereof upon written request to the Company.
This Warrant may be exercised in whole or in part by presentation of this
Warrant with the Purchase Form on the reverse side hereof duly executed and
simultaneous payment of the Warrant Price (subject to adjustment) at the
principal office of the Company in Irvine, California. Payment of such price
shall be payable at the option of the Holder hereof in cash or by certified or
official bank check or wire transfer or by delivery to the Company of the
Company's 11% Subordinated Notes due 2004, which shall be valued for this
purpose at the principal amount thereof so delivered plus the accrued interest
thereon. Terms relating to exercise of Warrant are set forth more fully in the
Warrant Agreement.
This Warrant may be exercised in whole or in part. Upon partial exercise, a
Warrant Certificate for the unexercised portion shall be delivered to the
Holder. No fractional shares will be issued upon the exercise of this Warrant
but the Company shall pay the cash value of any fraction upon the exercise of
the Warrant. This Warrant is transferable only in limited circumstances as
described in this Warrant Agreement at the office of the Company in Irvine,
California, in the manner and subject to the limitations set forth in the
Warrant Agreement.
1
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THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR ANY STATE SECURITIES LAW. NO TRANSFER OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE SHALL BE VALID OR
EFFECTIVE UNLESS (A) SUCH TRANSFER IS MADE PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR (B) THE
HOLDER OF THE SECURITIES PROPOSED TO BE TRANSFERRED SHALL
HAVE DELIVERED TO THE COMPANY AN OPINION OF COUNSEL (WHO MAY
BE AN EMPLOYEE OF SUCH HOLDER) REASONABLY ACCEPTABLE TO THE
COMPANY TO THE EFFECT THAT SUCH PROPOSED TRANSFER IS EXEMPT
FROM THE REGISTRATION REQUIREMENTS OF THE ACT OR (C) SUCH
TRANSFER IS PURSUANT TO RULE 144 OR RULE 144A UNDER THE ACT
AND SUCH HOLDER(S) SHALL HAVE DELIVERED TO THE COMPANY A
CERTIFICATE SETTING FORTH THE BASIS FOR APPLYING SUCH RULE
TO THE PROPOSED TRANSFER.
The Holder hereof may be treated by the Company and all other Persons
dealing with this Warrant as the absolute owner hereof for any purpose and as
the person entitled to exercise the rights represented hereby, or to the
transfer hereof on the books of the Company. Any notice to the contrary
notwithstanding, and until such transfer on which books, the Company may treat
the Holder hereof as the owner for all purposes.
This Warrant does not entitle any Holder hereof to any of the rights of a
stockholder of the Company.
MAI SYSTEMS CORPORATION
By:
-------------------------------------------
Name: William Brian Kretzmer
Title: Vice President, Business Development
DATED: As of_________, 1997
2
<PAGE>
Exhibit B
PURCHASE FORM
Mailing Address
- --------------------------------------- ------------------------------------
- --------------------------------------- ------------------------------------
- --------------------------------------- ------------------------------------
The undersigned hereby irrevocably elects to exercise the right of purchase
represented by the within Warrant for, and to purchase thereunder, _________
shares of the stock provided for therein, and tenders herewith payment of the
Warrant Price in full in the form of cash or by cashier's check in the amount of
$______________, or as otherwise provided in the Warrant.
The undersigned requests that certificates for such shares be issued in the
name of:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please Print Name, Address and Social Security No.)
DATED: , ______
Name of Warrant Holder or Permitted Assignee:
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Signature:
----------------------------------------------------------------------
Note: The above signature must correspond with the name as written upon the
face of this Warrant Certificate in every particular, without alteration
or enlargement or any change whatever, unless this Warrant has been
assigned.
Signature Guaranteed:
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
MAI Systems Corporation:
We consent to the incorporation by reference in the Registration Statement on
Form S-3 of MAI Systems Corporation of our report dated February 9, 1996,
relating to the consolidated balance sheets of MAI Systems Corporation as of
December 31, 1995 and 1994, and the related consolidated statements of
operations, stockholders' equity and cash flows and related schedule for each of
the years in the three-year period ended December 31, 1995, which report appears
in the December 31, 1995 Annual Report on Form 10-K of MAI Systems Corporation.
We also consent to the reference to our firm under the heading "Experts" in the
prospectus.
/s/ KPMG Peat Marwick LLP
Orange County, California
March 13, 1997
