<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. 1)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
[X] Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
</TABLE>
MAI SYSTEMS CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] Fee not required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE> 2
MAI SYSTEMS CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 29, 1998
TO ALL STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the 1998 Annual Meeting of Stockholders of
MAI Systems Corporation (the "Company" or "MAI"), a Delaware corporation, will
be held at The Doubletree Hotel, 10740 Wilshire Boulevard, Los Angeles,
California, on Friday, May 29, 1998 at 10:00 a.m., for the following purposes:
1. To elect four directors to serve for the ensuing year and until their
successors are elected.
2. To transact such other business as may properly come before the
meeting and any adjournment(s) thereof.
Only stockholders of record at the close of business on April 17, 1998
are entitled to notice of and to vote at the Annual Meeting.
All stockholders are cordially invited to attend the meeting in person.
However, to ensure your representation at the meeting, you are urged to mark,
sign and return the enclosed Proxy as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any stockholder attending
the meeting may vote in person, even though he or she has returned a Proxy.
Lewis H. Stanton
Secretary
Irvine, California
April 30, 1998
YOUR VOTE IS IMPORTANT
IN ORDER TO ENSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE REQUESTED TO
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE AND RETURN
IT IN THE ENCLOSED ENVELOPE.
<PAGE> 3
MAI SYSTEMS CORPORATION
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed Proxy is solicited on behalf of MAI Systems Corporation
("MAI" or the "Company") for use at the 1998 Annual Meeting of Stockholders
("Annual Meeting") to be held Friday, May 29, 1998, at 10:00 a.m., local time,
and at any adjournment(s) or postponement(s) thereof, for the purposes set forth
herein and in the accompanying Notice of Annual Meeting of Stockholders. The
Annual Meeting will be held at The Doubletree Hotel, 10740 Wilshire Boulevard,
Los Angeles, California. The Company's principal executive offices are located
at 9601 Jeronimo Road, Irvine, California 92618 and its main telephone number is
(714) 598-6000. These proxy solicitation materials were mailed on or about April
30, 1998, to all stockholders entitled to vote at the Annual Meeting.
RECORD DATE AND OUTSTANDING SHARES
Stockholders of record at the close of business on April 17, 1998 (the
"Record Date"), are entitled to notice of and to vote at the Annual Meeting. At
the Record Date, 10,298,539 shares of the Company's $0.01 par value Common Stock
("Common Stock"), were outstanding. The closing price on the American Stock
Exchange for the Common Stock on the Record Date, as reported in The Wall Street
Journal, was $4.75 per share. The Company was aware of the following beneficial
owners of more than 5% of its Common Stock as of the Record Date:
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
NAME AND ADDRESS SHARES OF CLASS(1)
- ---------------- ------ -----------
<S> <C> <C>
Richard S. Ressler 1,813,301(1) 16.8%
c/o Orchard Capital Corporation
10960 Wilshire Boulevard, Suite 500
Los Angeles, California 90024
CPI Securities LP group(2) 1,705,500 15.8%
CSA(3) 517,319 4.8%
</TABLE>
- ----------
(1) Includes 467,105 shares of Common Stock which Mr. Ressler may purchase
pursuant to warrants which are exercisable in full at this time. See
"Certain Transactions with Management".
(2) 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 Friedman and Chris Evensen, as a
group, beneficially own 1,705,000 shares of Common Stock. The address of
all of 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 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.
(3) 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.
<PAGE> 4
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before its use by delivering to the Company before
the Annual Meeting a written notice of revocation or a duly executed proxy
bearing a later date, or by attending the Annual Meeting and voting in person.
VOTING AND SOLICITATION
On all matters other than the election of directors, each share has one
vote.
The cost of soliciting proxies will be borne by the Company. The Company
has retained the services of Georgeson & Company Inc. ("Georgeson") to aid in
the solicitation of proxies from brokers, bank nominees and other institutional
owners. The Company estimates that it will pay Georgeson a fee not to exceed
$6,500 for its services and will reimburse Georgeson for certain out-of-pocket
expenses estimated to be not more than $10,000. In addition, the Company may
reimburse brokerage firms and other persons representing beneficial owners of
shares for their expenses in forwarding solicitation materials to such
beneficial owners. Proxies may be solicited by certain of the Company's
directors, officers and regular employees, without additional compensation,
personally or by telephone or telegram.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company that are intended to be
presented by such stockholders at the Company's 1999 Annual Meeting of
Stockholders must be received by the Company no later than January 15, 1999, in
order to be considered for possible inclusion in the proxy statement and form of
proxy relating to that meeting.
PROPOSAL I
ELECTION OF DIRECTORS
GENERAL
A board of four directors is to be elected at the Annual Meeting. Unless
otherwise instructed, the proxy holders will vote the proxies received by them
for the Company's four nominees named below, all of whom are currently directors
of the Company. In the event that any nominee of the Company is unable or
declines to serve as a director at the time of the Annual Meeting (neither of
which events is expected), the proxies will be voted for such nominee as shall
be designated by the current Board of Directors to fill the vacancy.
VOTE REQUIRED
A quorum comprising the holders of the majority of the outstanding
shares of Common Stock on the Record Date must be present or represented by
proxy for the transaction of business at the Annual Meeting. Each share may vote
for up to four director-nominees. Votes may not be cumulated. If a quorum is
present, the four nominees receiving the highest number of votes will be elected
to the Board of Directors, whether or not such number of votes for any
individual represents a majority of the votes cast. Votes withheld and broker
non-votes will be counted for purposes of determining the presence or absence of
a quorum but have no other effect under Delaware law in the election of
directors.
<PAGE> 5
The term of office of each person elected as a director will continue
until the next Annual Meeting or until his successor has been elected and
qualified.
MANAGEMENT RECOMMENDS A VOTE "FOR" EACH OF THE NOMINEES LISTED BELOW.
NOMINEES
The names of the nominees, their ages at Record Date and certain other
information about them are set forth below.
<TABLE>
<CAPTION>
DIRECTOR
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION SINCE
- --------------- --- -------------------- -----
<S> <C> <C> <C>
Richard S. Ressler 39 Chairman of the Board, MAI Systems Corporation; 1995
Chief Executive Officer, JFAX
Communications, Inc.; President and
Chief Executive Officer, Orchard Capital
Corporation
George G. Bayz 44 President and Chief Executive Officer, MAI 1995
Systems Corporation
Morton O. Schapiro 44 Dean, College of Letters, Arts and Sciences, 1995
University of Southern California
Zohar Loshitzer 40 Chief Information Officer and Director, 1998
JFAX Communications, Inc.
</TABLE>
There is no family relationship between any director and any executive
officer of the Company.
Richard S. Ressler was named Chairman of the Board of Directors in May
1995 and was originally elected to the Company's Board of Directors in February
1995. He was Chief Executive Officer of the Company from October 1994 until
February 1997 and President of the Company from October 1994 until May 1995. Mr.
Ressler has been Chief Executive Officer of JFAX Communications, Inc., a leading
unified messaging services provider, since March 1997. He also serves as
President and Chief Executive Officer of Orchard Capital Corporation
("Orchard"), an investment and consulting firm which he formed in January 1994
for the purpose of providing financial and operational consulting services. He
is also a managing member of CIM Group LLC, a real estate investment,
development, and management company and a Managing Director of Orchard Telecom,
a telecommunications consulting firm. From July 1988 until January 1, 1994, Mr.
Ressler held various executive positions at Brooke Group, Ltd. ("BGL") and BGL's
predecessor company, Brooke Partners, LP, and their various respective
subsidiaries and affiliates including Liggett Group, Inc., a tobacco products
producer. From July 1990 to April 1993, he was a director, and from November
1990 to April 1993, he was Executive Vice President, of BGL.
George G. Bayz was elected President and Chief Executive Officer of the
Company in February 1997 and had been its President and Chief Operating Officer
since May 1995. He became a director in July 1995. He joined the Company in July
1994 as Vice President, Sales and Marketing. From April 1993 until July 1994,
Mr. Bayz was a senior vice president of the Corum Group, Ltd., an investment
banking firm specializing in mergers and acquisitions of information technology
companies. From January 1992 to March 1993, he was acting president of Blue
Sheet, Inc., a start-up on-line information services provider.
Morton O. Schapiro was appointed to the Company's Board of Directors in
July 1995. Since July 1991, he has been a professor of Economics at the
University of Southern California, and since July 1994 he has served as the Dean
of the College of Letters, Arts and Sciences at the University of Southern
California. Since October 1992,
<PAGE> 6
Mr. Schapiro has been a director of The Griffin Funds Incorporated, a management
subsidiary of Home Savings of America.
Zohar Loshitzer was appointed to the Company's Board of Directors in
January 1998. Since July 1997, he has been Chief Information Officer and a
member of the Board of Directors of JFAX Communications, Inc., a leading unified
messaging services provider. Since 1995, he has also been a Managing Director of
Orchard Telecom, a telecommunications consulting firm. From 1987 until 1995, he
was the general manager and a partial owner of Life Alert, a nationwide
emergency response service.
EXECUTIVE OFFICERS
The name, age and title of each executive officer of the Company (other
than executive officers who are nominees for director set forth above), business
experience for at least the past five years and certain other information
concerning each such executive officer has been furnished by the executive
officer and is set forth below. Executive officers are elected by the Board of
Directors following the annual meeting of the Company's stockholders.
<TABLE>
<CAPTION>
NAME (AGE) TITLE, BUSINESS EXPERIENCE AND OTHER DIRECTORSHIPS
- ---------- --------------------------------------------------
<S> <C>
Lewis H. Stanton (44) Executive Vice President, Chief Operating and
Financial Officer. Mr. Stanton joined the Company
in February 1997. From July 1996 until he joined
the Company, Mr. Stanton was president of Stanton &
Associates, a consulting company and from September
1996 to January 1997, he was chief executive
officer (acting) of Worldsite Networks, Inc., an
internet access provider. From September 1988 until
July 1996, Mr. Stanton was chief financial officer
of Data Analysis Inc., the parent company of
Investor's Business Daily and other companies.
Luke Brown (40) President and Chief Executive Officer, Process
Manufacturing Group. Mr. Brown joined the Company
in February 1993. From February 1993 until August
1994, he served as Director of Operations for the
Company's Process Manufacturing Division. From
August 1994 until March 1998, Mr. Brown served as
the Company's Vice President and General Manager,
Software Support Services. From 1991 to 1993, Mr.
Brown was employed as Vice President of Customer
Service at Remanco Systems International, a
provider of point-of-sale solutions. From 1980
until 1989, Mr. Brown served as an officer with the
United States Coast Guard.
</TABLE>
<PAGE> 7
BOARD MEETINGS AND COMMITTEES
The Board of Directors held four meetings during the year ended December
31, 1997 and conducted business by written consent. The Board of Directors has
an Audit Committee and a Compensation Committee. It does not have a Nominating
Committee.
The Audit Committee currently consists of Messrs. Schapiro (chairman),
Loshitzer and Ressler. The Audit Committee held no meetings during 1997. The
Audit Committee recommends engagement of the Company's independent auditors and
is primarily responsible for approving the services performed by the Company's
independent auditors and reviewing and evaluating the Company's accounting
policies and its system of internal accounting controls.
The Compensation Committee currently consists of Messrs. Loshitzer
(chairman), Ressler and Schapiro. The Compensation Committee met twice during
1997. The Compensation Committee reviews and approves the Company's executive
compensation policies.
During 1997, each incumbent director attended all of the meetings of the
Board of Directors and the committees of which they were members.
DIRECTOR COMPENSATION
The Company pays fees of $3,000 per calendar-year quarter to each of its
non-employee directors, and $1,000 for each Board or Committee meeting which is
attended in person or telephonically. Additionally, the Company reimburses
directors for their reasonable travel expenses to attend meetings.
The Company's Non-Employee Directors Stock Option Plan (the "Directors'
Plan") provides for the grant of nonstatutory stock options to non-employee
directors. Under the Directors' Plan, each non-employee director who is not the
holder of 5% or more of the outstanding shares of Common Stock is granted a
nonstatutory option to purchase 31,250 shares of Common Stock on the date of his
or her appointment to the Board. Thereafter, each non-employee director is
automatically granted a nonstatutory option to purchase 6,250 shares of Common
Stock on the date of each annual meeting of stockholders at which each such
non-employee director is reelected, provided that on such date, he or she has
served on the Board of Directors for at least six months. Options granted
pursuant to the Directors' Option Plan vest as to 20% of the initial grant six
months following the date of grant and as to 20% on each successive term to
which the director is reelected to the Board. Subsequent grants vest, if at all,
on the director's reelection to the Board four years hence. The Directors Plan
provides that upon a change of control all options granted pursuant to the plan
shall become immediately exercisable in full. The Directors' Plan provides that
the exercise price of the options granted thereunder shall be equal to the fair
market value of the Common Stock on the date of grant of the option. Options
granted pursuant to the Directors' Plan have a term of ten years and options
granted pursuant to the Directors' Plan may be exercised only while the optionee
is a director of the Company or within one year after termination of service as
a director. No options were exercised pursuant to the Directors Option Plan in
1997.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee currently consists of Messrs. Loshitzer,
Ressler and Schapiro. The Company has no interlocking relationships or other
transactions involving any of its Compensation Committee members that are
required to be reported pursuant to applicable Securities and Exchange
Commission rules. One former officer of the Company, Richard S. Ressler, but no
current officer, serves on the Compensation Committee.
<PAGE> 8
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the beneficial ownership of Common Stock
as of the Record Date, by each director, by each of the executive officers named
in the Summary Compensation Table, and by all directors and executive officers
as a group.
<TABLE>
<CAPTION>
NUMBER OF
SHARES APPROXIMATE
BENEFICIALLY PERCENTAGE
NAME OWNED OWNED(1)
- ---- ----- --------
<S> <C> <C>
Richard S. Ressler (1) 1,813,301 16.8%
George G. Bayz (2) 120,917 *
Morton Shapiro (3) 25,000 *
Zohar Loshitzer (4) 24,750 *
Lewis H. Stanton (5) 30,000 *
Luke Brown (6) 36,250 *
All current directors and executive officers
as a group (6 persons) (7) 2,050,218 19.0%
</TABLE>
- -------------
* Less than 1%
(1) Includes warrants to purchase 467,105 shares of Common Stock held by Mr.
Ressler which are exercisable by Mr. Ressler within 60 days of the
Record Date.
(2) Includes 117,917 shares issuable upon exercise of options held by Mr.
Bayz exercisable within 60 days of the Record Date.
(3) Includes 25,000 shares issuable upon exercise of options held by Mr.
Schapiro which are exercisable within 60 days of the Record Date,
assuming Mr. Schapiro's reelection to the Board of Directors.
(4) Includes 24,750 shares issuable upon exercise of warrants held by Mr.
Loshitzer exercisable within 60 days of the Record Date.
(5) Includes 30,000 shares issuable upon exercise of options held by Mr.
Stanton exercisable within 60 days of the Record Date.
(6) Includes 36,250 shares issuable upon exercise of options held by Mr.
Brown exercisable within 60 days of the Record Date.
(7) Includes 701,022 shares issuable upon exercise of options or warrants
held by directors and executive officers and warrants held by Mr.
Ressler exercisable within 60 days of the Record Date.
<PAGE> 9
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table shows, as to the Chairman and former Chief Executive
Officer, the current Chief Executive Officer and each of the other two executive
officers during the last fiscal year, information concerning all compensation
paid for services to the Company in all capacities during the last three fiscal
years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
---------------------- --------------------------
OTHER ALL
ANNUAL SECURITIES OTHER
COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($) OPTIONS(#) ($)(1)
- --------------------------- ---- --------- -------- --- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Richard S. Ressler(2) 1997 $288,000 0 $ 0 50,000 $ 0
Chairman 1996 258,000 $1,187,500(3) 0 0 0
1995 240,000 N/A 0 625,000(6) 0
George G. Bayz 1997 225,000 0 0 30,000 0
President and Chief Executive Officer 1996 216,346 0 0 78,750 0
1995 172,000 44,200(4) 0 93,750 180
Lewis H. Stanton 1997 170,885 75,000(5) N/A 120,000 N/A
Executive Vice President and Chief 1996 N/A N/A N/A N/A N/A
Operating and Financial Officer 1995 N/A N/A N/A N/A N/A
Luke Brown 1997 140,000 0 0 12,000 N/A
President and Chief Executive Officer, 1996 129,853 0 0 15,000 N/A
Process Manufacturing Division 1995 120,013 21,152(4) 0 43,750 N/A
</TABLE>
- ----------
(1) Amounts stated reflect contributions made by the Company to such
executive officer's account under the Company's 401(k) Plan.
(2) Mr. Ressler is an employee of Orchard Capital Corporation, which
provides his services through a consulting agreement between it and the
Company. 1997 compensation includes $44,000 in consulting fees that
accrued in fiscal 1997 and were paid in 1998. Mr. Ressler served as
Chief Executive Officer of the Company from October 1994 until February
1997.
(3) A bonus in the amount of $1,187,500 which was earned January 2, 1996,
when the conditions precedent to the award of such bonus were satisfied.
This amount was paid to Mr. Ressler on or about September 8, 1997,
together with interest at 5.75% from January 2, 1996 to the date of
payment, in the form of shares of the Company's Common Stock issued to
Mr. Ressler (calculated based on the average closing price on the
American Stock Exchange ("AMEX") for the five days prior to issuance).
(4) Represents bonus amount earned in fiscal 1995 and paid in fiscal 1996.
(5) Includes a guaranteed bonus paid to Mr. Stanton as a condition of his
employment with the Company.
(6) Warrant issued to Orchard Capital Corporation (and immediately
transferred to Mr. Ressler) in connection with the agreement pursuant to
which it supplies the services of Mr. Ressler. See "-- Certain
Transactions with Management".
<PAGE> 10
OPTIONS OR WARRANTS GRANTED IN LAST FISCAL YEAR
The following table sets forth certain information regarding grants of
stock options or warrants made during the fiscal year ended December 31, 1997 to
the Company's executive officers named in the Summary Compensation Table:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------
POTENTIAL REALIZABLE
% OF VALUE AT
NUMBER OF SECURITIES TOTAL OPTIONS ASSUMED ANNUAL
UNDERLYING OPTIONS GRANTED RATES OF STOCK PRICE
APPRECIATION TO EMPLOYEES EXERCISE OPTION TERM(1)
FOR IN FISCAL PRICE EXPIRATION ----------------------
DATE GRANTED#(2) YEAR(3) ($/SH)(4)(5) DATE 5%(%) 10%($)
---- ----------- ------- ------------ ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Richard S. Ressler 50,000 8.9% $ 7.50(6) 3/05/02 N/A N/A
George G. Bayz 30,000 5.4% $ 3.50 9/12/07 $ 66,000 $ 167,400
Lewis H. Stanton 120,000 21.4%(7) (7) $454,800 $1,152,811
Luke Brown 12,000 2.1% $ 3.50 9/12/07 $ 26,400 $ 66,960
</TABLE>
- ----------
(1) Potential realizable value is based on the assumption that the Common
Stock appreciates at the annual rate shown (compounded annually) from
the date of grant until the expiration of the option term. These numbers
are calculated based on the requirements promulgated by the Securities
and Exchange Commission and do not represent an estimate by the Company
of future stock price growth.
(2) All stock options granted (not including Mr. Ressler's warrants) have
ten year terms and are generally exercisable (a) with respect to 33-1/3%
of the shares covered thereby on the anniversary of the date of grant,
with full vesting occurring three years following the date of grant, or
(b) as to 100% of the grant on the third anniversary of the date of
grant. See "--Employment Contracts and Change of Control Agreements" for
provisions regarding acceleration of the vesting of options under
certain circumstances.
(3) There were a total of 559,583 stock options and warrants granted to
employees of the Company in 1997.
(4) Options were granted at an exercise price equal to the market value of
the Common Stock as listed on the AMEX.
(5) The exercise price and tax withholding obligations may be paid in cash
and, subject to certain conditions or restrictions, by delivery of
already-owned shares or pursuant to a cashless exercise procedure under
which the optionee provides irrevocable instructions to a brokerage firm
to sell the purchased shares and to remit to the Company, out of the
sale proceeds, an amount equal to the exercise price plus all applicable
withholding taxes.
(6) In order for the Company to raise equity capital, the exercise price of
these warrants was adjusted to $3.04 on September 12, 1997 and the
warrants were subsequently exercised.
(7) 90,000 of Mr. Stanton's options are exercisable at the price of $6.87
per share and expire on February 10, 2007 and 30,000 are exerciseable at
the price of $3.50 per share and expire on September 12, 2007.
<PAGE> 11
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
Except for the exercise by Mr. Ressler of warrants as described under
"-- Certain Transactions With Management," no options were exercised by any of
the executive officers during the year ended December 31, 1997. The value of the
options held at the end of the year are set forth in the following table:
VALUE OF UNEXERCISED STOCK OPTIONS AT END OF YEAR
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT FISCAL YEAR-END(#) FISCAL YEAR-END($)(1)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Richard S. Ressler (2) 467,105 0 $280,263 N/A
George G. Bayz 74,582 127,915 35,415 17,710
Lewis H. Stanton N/A 120,000 N/A N/A
Luke Brown 21,666 41,584 18,416 12,394
</TABLE>
- -----------
(1) Market value of underlying securities at fiscal year end ($2.50 per
share), minus the exercise price.
(2) Represents Mr. Ressler's warrant to purchase up to 467,105 shares of
Common Stock at $1.90 per share
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS
The Company currently has no employment contracts with any of the
Company's executive officers named in the Summary Compensation Table above (but
it does have a consulting agreement with Orchard Capital Corporation which
supplies the services of Richard S. Ressler, its President and Chief Executive
Officer). See "--Certain Transactions with Management").. The Company's 1993
Employee Stock Option Plan provides that upon a change of control all options
granted pursuant to the plan shall become immediately exercisable in full.
CERTAIN TRANSACTIONS WITH MANAGEMENT
The services of Richard S. Ressler, Chairman of the Company, are
provided pursuant to an agreement with Orchard Capital Corporation ("Orchard"),
which is his employer. Pursuant to that agreement (which expires in August
1998), Orchard agreed to provide Mr. Ressler's services on a non-exclusive
basis. Orchard is paid $24,000 per month under the agreement. Additionally,
Orchard has been granted warrants (which Orchard immediately transferred to Mr.
Ressler) to purchase 625,000 and 50,000 shares of the Company's Common Stock at
$1.90 and $7.50 per share, respectively. In order for the Company to raise
equity capital, the exercise price of the $7.50 warrants was adjusted to $3.04
on September 12, 1997, and these warrants were subsequently exercised. At the
same time, 157,895 of the $1.90 warrants were also exercised. The remainder of
the $1.90 warrants are currently exercisable and expire on August 14, 1999.
From January 1997 through July 1997 (prior to his appointment as a
director of the Company in January, 1998), Zohar Loshitzer was retained as a
consultant by the Company, providing advice in the areas of cost cutting, sales
training, process automation and operations. During this period, Mr. Loshitzer
was compensated at the rate of $2,500 per week.
<PAGE> 12
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON
EXECUTIVE COMPENSATION
GENERAL
The policy of the Company regarding the compensation of its executive
officers is to maintain a total compensation program which would retain the
services of key executives and (a) assure the availability of their skills for
the benefit of the Company, (b) secure to the Company freedom from competition
by such persons within reasonable and lawful limits, and (c) provide appropriate
base compensation, benefits and financial incentives through bonus, severance
and other employment-related programs. The Compensation Committee of the Board
of Directors recommends, subject to the Board's approval, executive
compensation, including the compensation of the Chairman and the Chief Executive
Officer. The Compensation Committee or the Board of Directors determines and
approves stock option grants for all employees, including the Chief Executive
Officer. The Committee currently comprises two independent, non-employee
directors, and one director, whose services are provided pursuant to a
consulting agreement with his employer (see "Executive Compensation--Certain
Transactions with Management").
COMPENSATION PHILOSOPHY
The Company operates in the highly competitive and rapidly changing high
technology industry. The goals of the Company's compensation program are to
align compensation with the Company's overall business objectives and
performance, to foster teamwork and to enable the Company to attract, retain and
reward employees who contribute to its long-term success. The Committee also
seeks to establish compensation policies that allow the Company flexibility to
respond to changes in its business environment.
COMPENSATION COMPONENTS
Compensation for the Company's executive officers generally consists of
salary, annual incentive and stock option awards. The Committee assesses past
performance and anticipated future contribution of each executive officer in
establishing the total amount and mix of each element of compensation.
Salary. The salaries of the executive officers, other than the Chairman,
are determined annually by the Compensation Committee based upon various
subjective factors such as the executive's responsibilities, position,
qualifications, years of experience and individual performance. In no such case
does the Committee undertake a formal survey of analysis of compensation paid by
other companies.
Annual Incentives. The Committee annually reviews and approves an
executive compensation plan. A target, expressed as a percentage of salary, is
established for each officer, based on the scope of his or her responsibility.
Actual payment is computed as a percentage of that target based on the Company's
performance in achieving specified objectives and individual performance of
executives. No incentive compensation was paid (or accrued) pursuant to the plan
based on 1997 performance.
Stock Options. Stock option awards are designed to align the interests
of executives with the long-term interests of the stockholders. The Committee
approves option grants subject to vesting periods (usually over a three-year
period or as to 100% of the grant on the third anniversary of the grant) to
retain executives and encourage sustained contributions. The exercise price of
options is the market price on the date of grant.
The Company is subject to Section 162(m) of the Internal Revenue Code,
adopted in 1993, which limits the deductibility of certain compensation payments
to its officers. The Company does not have a policy requiring the Committee to
qualify all compensation for deductibility under this provision. The Company
does not currently have any non-deductible compensation plans. The Company
believes that any compensation expense incurred in connection with the exercise
of stock options granted under its 1993 Employee Stock Option Plan will continue
to be deductible as performance-based compensation.
<PAGE> 13
COMPENSATION OF CHAIRMAN AND FORMER CHIEF EXECUTIVE OFFICER
Mr. Ressler's services as Chairman (and formerly as Chief Executive
Officer) have been provided pursuant to a consulting agreement dated August 15,
1994 (amended as of August 31, 1997) with Orchard Capital Corporation, Mr.
Ressler's employer. Pursuant to that agreement, Orchard was paid $20,000 per
month up through and including August 15, 1996, and is currently paid $24,000
per month, for Mr. Ressler's services. In March 1997, Orchard was issued
warrants to purchase up to 50,000 shares of Common Stock at $7.50 (which it
immediately transferred to Mr. Ressler). In order for the Company to raise
equity capital, the exercise price of these warrants was adjusted to $3.04 on
September 12, 1997 and the warrants were subsequently exercised.
The compensation paid to Orchard pursuant to the consulting agreement
and the amendments thereto was determined by the Compensation Committee and the
Board of Directors based upon various subjective factors such as Mr. Ressler's
responsibilities, qualifications, years of experience, individual performance,
and perceived contributions to the Company. In addition, in January 1997, the
Compensation Committee commissioned an independent compensation consulting
organization which considered, among other things, compensation for senior
executives in turn-around companies and concluded that the compensation
arrangements were fair and reasonable and in the best interests of the Company.
Other than reimbursement for reasonable expenses incurred in connection
with the services it renders to the Company, neither Orchard nor Mr. Ressler
receive any other compensation from the Company and Mr. Ressler does not
participate in the Company's stock option plans.
Respectfully submitted,
Zohar Loshitzer, Chairman
Richard S. Ressler
Morton O. Schapiro
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 as amended (the
"Exchange Act") requires the Company's officers (as defined in Rule 16a-1(f),
directors and persons who own more than ten percent of a registered class of the
Company's equity securities to file reports of ownership and changes in
ownership with the Securities and Exchange Commission ("SEC"). Such persons are
required by SEC regulations to furnish the Company with copies of all Section
16(a) forms they file. Based solely on its review of the copies of such forms
received by it and written representations from certain reporting persons that
they have complied with the relevant filing requirements, the Company believes
that all filing requirements applicable to its officers, directors and 10%
stockholders were complied with during the fiscal year ended December 31, 1997.
PERFORMANCE GRAPH
Set forth below is a line graph comparing the annual percentage change
in the cumulative return to the stockholders of the Company's Common Stock with
the cumulative return of the S&P 500 Index and the S&P Computer Systems Index
for the period commencing April 1, 1994 (the month during which the Company
first issued shares of its new Common Stock pursuant to its Chapter 11 Plan of
Reorganization) and ending December 31, 1997. The information contained in the
performance graph shall not be deemed "soliciting material" or to be "filed"
with the Securities and Exchange Commission, nor shall such information be
incorporated by reference into any future filing under the Securities Act of
1933 as amended (the "Securities Act") or Exchange Act, except to the extent
that the Company specifically incorporates it by reference into such filing. The
stock price performance on the following graph is not necessarily indicative of
future stock price performance.
<PAGE> 14
COMPARISON OF 45 MONTH CUMULATIVE TOTAL RETURN
AMONG MAI SYSTEMS CORPORATION, THE S & P 500 INDEX
AND THE S & P COMPUTERS (SOFTWARE & SERVICES) INDEX
ASSUMES $100 INVESTED ON 4/08/94 IN STOCK OR ON 3/31/94 IN INDEX - INCLUDING
REINVESTMENT OF DIVIDENDS. FISCAL YEAR ENDING DECEMBER 31.
<TABLE>
<CAPTION>
4/08/94 12/94 12/95 12/96 12/97
------- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
MAI Systems Corporation 100 1,176 3,971 3,860 1,471
S&P 500 100 105 145 178 238
S&P Computers (SOFTWARE & SERVICES) 100 120 169 262 365
</TABLE>
NOTICE OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has selected KPMG Peat Marwick LLP, independent
auditors, to audit the consolidated financial statements for the fiscal year
ending December 31, 1998. KPMG Peat Marwick LLP has served as the Company's
independent auditors since the Company's inception. Notwithstanding the
selection, the Board, in its discretion, may direct appointment of new
independent auditors at any time during the year, if the Board feels that such a
change would be in the best interests of the Company and its stockholders.
Representatives of KPMG Peat Marwick LLP are expected to be present at the
Annual Meeting and are expected to be available to respond to appropriate
questions.
OTHER MATTERS
The Company knows of no other matters to be submitted to the Annual
Meeting. If any other matters properly come before the Annual Meeting, it is the
intention of the persons named in the enclosed form of Proxy to vote the shares
they represent as the Board of Directors may recommend.
THE BOARD OF DIRECTORS
Dated: April 30, 1998
MAI Systems Corporation
9601 Jeronimo Road
Irvine, California 92618
<PAGE> 15
[LOGO]
MAI SYSTEMS CORPORATION
This proxy is solicited by the Board of Directors for the
Annual Meeting of Stockholders--May 29, 1998
The undersigned hereby appoints George G. Bayz and Lewis H. Stanton
and each of them, attorneys and proxies, with power of substitution
in each of them, to vote for and on behalf of the undersigned at the
Annual Meeting of Stockholders of the Company to be held on May 29,
1998, and any adjournment thereof, upon matters properly coming
before the meeting, as set forth in the Notice of Meeting and Proxy
Statement, both of which have been received by the undersigned and
upon all such other matters that may properly be brought before the
meeting, as to which the undersigned hereby confers discretionary
authority to vote upon said proxies. Without otherwise limiting the
general authorization given hereby, said attorneys and proxies are
instructed to vote as follows:
(THIS PROXY CARD CONTINUES AND MUST BE SIGNED ON THE RESERVE SIDE)
<PAGE> 16
This proxy when properly executed will be voted in the manner directed
herein. If no direction is made, this proxy will be voted FOR the election
of directors below.
<TABLE>
<S> <C>
1. Election of four directors THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE DIRECTORS BELOW.
FOR all nominees WITHHOLD AUTHORITY NOMINEES: George G. Bayz, Richard S. Ressler, Morton O. Schapiro, Zohar Loshitzer
listed to the right to vote for the (INSTRUCTION: TO WITHHOLD AUTHORITY FOR ANY PARTICULAR NOMINEE, WRITE SUCH
(except as marked nominees listed NOMINEE(S) NAME ON THE LINE BELOW.)
to the contrary)
[ ] [ ] __________________________________________________________________________________
Dated: _________________________________________________________________, 1998
__________________________________________________________________________________
(signed)
__________________________________________________________________________________
(signed)
Please sign exactly as your name appears below. Give full title if an Attorney,
Executor, Administrator, Trustee, Guardian, etc. For an account in the name of two
or more persons, each should sign. If a Corporation, please sign in full corporate
name by President or other authorized officer. If a partnership, please sign in
partnership name by authorized person.
PLEASE SIGN THIS PROXY AND RETURN IT PROMPTLY WHETHER OR NOT YOU EXPECT TO ATTEND
THIS MEETING. YOU MAY NEVERTHELESS VOTE IN PERSON IF YOU DO ATTEND.
</TABLE>
