<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material under Rule 14a-12
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] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) 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:
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<PAGE> 2
MAI SYSTEMS CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 19, 2000
TO ALL STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the 2000 Annual Meeting of Stockholders of
MAI Systems Corporation (the "Company" or "MAI"), a Delaware corporation, will
be held at the Hollywood Roosevelt Hotel, 7000 Hollywood Boulevard, Hollywood,
California, on Friday, May 19, 2000 at 10:00 a.m., for the following purposes:
1. To elect three (3) directors to serve for the ensuing year and until
their successors are elected.
2. To ratify the selection of KPMG LLP as independent auditors for the
Company.
3. 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 7, 2000
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.
W. Brian Kretzmer
Secretary
Irvine, California
April 20, 2000
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 2000 Annual Meeting of Stockholders
("Annual Meeting") to be held Friday, May 19, 2000, 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 Hollywood Roosevelt Hotel, 7000 Hollywood
Boulevard, Hollywood, California. The Company's principal executive offices are
located at 9601 Jeronimo Road, Irvine, California 92618 and its main telephone
number is (949) 598-6000. These proxy solicitation materials were mailed on or
about April 20, 2000, 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 7, 2000 (the
"Record Date"), are entitled to notice of and to vote at the Annual Meeting. The
closing price on the American Stock Exchange for the Company's $0.01 par value
Common Stock ("Common Stock") on the Record Date, as reported in The Wall Street
Journal, was $.9375 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 2,026,907(2) 17.9%
c/o Orchard Capital Corporation
6922 Hollywood Boulevard, Suite 900
Hollywood, California 90028
Canyon Capital Advisors LLC group(3) 1,588,000 14.6%
</TABLE>
- ------------
(1) At the Record Date, 10,842,071 shares of the Company's Common Stock were
outstanding.
(2) Includes 467,105 shares of Common Stock which Mr. Ressler may purchase
pursuant to warrants or options which are exercisable in full at this time.
See "Certain Transactions with Management." Also includes 12,500 shares of
Common Stock issuable upon exercise of options held by Mr. Ressler which
are exerciseable within 60 days of the Record Date, assuming Mr. Ressler's
re-election to the Board of Directors.
(3) Canyon Capital Advisors LLC, The Value Realization Fund L.P., The Value
Realization Fund B, L.P., C.P.I. Securities, L.P., The Canyon Value
Realization Fund (Cayman), Ltd., GRS Partners II, Mitchell R. Julis, Joshua
S. Friedman and R. Christian B. Evensen, as a group, beneficially own
1,588,000 shares of Common Stock. The address of all of the
above-referenced entities is 9665 Wilshire Boulevard, Suite 200, Beverly
Hills, California 90212.
2
<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 its transfer agent, Chase Mellon Shareholder
Services ("Chase Mellon") to aid in the solicitation of proxies from brokers,
bank nominees and other institutional owners. The Company estimates that it will
pay Chase Mellon a fee not to exceed $5,000 for its services and will reimburse
Chase Mellon 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 2001 Annual Meeting of
Stockholders must be received by the Company no later than January 15, 2001, in
order to be considered for possible inclusion in the proxy statement and form of
proxy relating to that meeting.
PROPOSAL 1
ELECTION OF DIRECTORS
GENERAL
A board of three 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 three 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 three director-nominees. Votes may not be cumulated. If a quorum is
present, the three 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.
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<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.
THE BOARD OF DIRECTORS 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 41 President, Orchard Capital Corporation 1995
Morton O. Schapiro 46 President-Elect, Williams College 1995
Zohar Loshitzer 42 Chief Information Officer and Director, 1998
JFAX. COM, Inc.
</TABLE>
There is no family relationship between any director and any executive
officer of the Company.
RICHARD S. RESSLER was named Chairman of our Board of Directors in May
1995 and was originally elected to the Board of Directors in February 1995. He
was our Chief Executive Officer from October 1994 until February 1997 and our
President from October 1994 until May 1995. Mr. Ressler has served in these
capacities pursuant to a consulting agreement between us and Orchard Capital
Corporation, a consulting firm which provides investment, operational, and
financial consulting services to, among others, start-up and turn-around
companies. Mr. Ressler has been the President of Orchard since 1994. Mr. Ressler
has been a member of the Board of Directors of JFAX.COM, Inc., a leading unified
messaging service provider, since March 1997. He served as Chief Executive
Officer for JFAX.COM, Inc. from March 1997 until January 2000. Since 1995, Mr.
Ressler has also acted (indirectly through Orchard) as the manager of CIM Group,
LLC, a real estate investment, development and management company. Since March
15, 2000, Mr. Ressler has been Chairman of the Board of Directors of Express One
International, Inc., an ACMI (aircraft, crew, maintenance, and insurance)
operator of cargo aircraft.
MORTON O. SCHAPIRO was appointed to our Board of Directors in July 1995.
Mr. Schapiro is the President-Elect of Williams College and will assume this
office in July 2000. 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, Mr. Schapiro has been a director of The WM Group
of Funds (previously The Griffin Funds Incorporated), a management subsidiary of
Washington Mutual Bank.
ZOHAR LOSHITZER was appointed to our 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.COM, 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.
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<PAGE> 6
EXECUTIVE OFFICERS
The name, age and title of each executive officer of the Company,
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.
W. BRIAN KRETZMER, 47, has been our Chief Executive Officer since August
1999. He also served as our Chief Financial Officer from August 1999 until March
2000. From August 1997 until July 1999 he was Executive Vice President and Chief
Financial Officer for Segue Corporation, a Rancho Santa Margarita, California
based private company focused on providing support services to computer
manufacturers utilizing internet commerce. From July 1991 until July 1997 he
held various positions with MAI Systems Corporation, including Vice President,
Corporate Development, Vice President, Finance, Chief Financial Officer, Chief
Information Officer and Controller. From July 1995 until July 1996 he also
served as the President and Chief Operating Officer of Gaming Systems
International, which was at that time a wholly-owned subsidiary of MAI Systems
Corporation.
LUKE BROWN, 42, has been our President and Chief Operating
Officer since August 1999. He has also served as the President of our Process
Manufacturing division since March 1998. From February 1993 until August 1994,
he served as Director of Operations for our Process Manufacturing Division. From
August 1994 until March 1998, he served as our 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.
JAMES W. DOLAN, 41, has been our Chief Financial Officer since March
2000. Previously, he served as our Vice President, Finance from September 1999
until March 2000. From 1985 to 1999, Mr. Dolan served in positions of increasing
responsibility with the accounting firm of KPMG LLP. Most recently, he was
senior manager, Los Angeles and Orange County, where he managed audit and
consulting projects for companies ranging in size from start-up operations to
large public multinational organizations. Mr. Dolan also served as KPMG's senior
audit manager to MAI from 1994 through 1997.
SASUN MUSLIYAN, 43, has been the President of our Legacy division since
August 1999 and the President of our Canadian division, MAI Canada, Ltd., since
November 1998. Mr. Musliyan joined MAI Systems Corporation in August 1983. Since
that time he has held a series of progressive positions including Controller,
and thereafter, Director of Operations and Finance, in our Canadian division.
From November 1998 until August 1999 he served as Vice President and General
Manager of our Legacy division.
BOARD MEETINGS AND COMMITTEES
The Board of Directors held seven (7) meetings during the year ended
December 31, 1999 and conducted business by written consent. The Board of
Directors has an Executive Committee, an Audit Committee and a Compensation
Committee. It does not have a Nominating Committee.
Our Executive Committee was formed in November 1998. Messrs. Schapiro
and Loshitzer are the members of this committee. This committee has all
authority, consistent with the Delaware Corporation Law, as may be granted to it
by the Board of Directors. Presently, this committee's sole function is to
coordinate management presentations to the Board of Directors. The Executive
Committee held no formal meetings during 1999.
Our Audit Committee currently consists of Messrs. Schapiro (chairman),
Loshitzer and Ressler. The Audit Committee held one (1) meeting during 1999. The
Audit Committee recommends engagement of our independent auditors and is
primarily responsible for approving the services performed by our independent
auditors and reviewing and evaluating our accounting policies and our system of
internal accounting controls. The Board of Directors has yet to adopt a written
charter for the Audit Committee, but expects to do so on or prior to June 14,
2000.
5
<PAGE> 7
Our Compensation Committee currently consists of Messrs. Loshitzer
(chairman), Ressler and Schapiro. The Compensation Committee held one (1)
meeting during 1999. The Compensation Committee reviews and approves the
Company's executive compensation policies.
During 1999, each incumbent director attended all of the meetings of the
Board of Directors and the committees of which they were members.
DIRECTOR COMPENSATION
We pay fees of $3,000 per calendar-year quarter to each of our
non-employee directors, and $1,000 for each Board or Committee meeting which is
attended in person or telephonically. Mr. Schapiro, as chairman of the Executive
Committee, is entitled to receive an additional $3,000 per calendar-year quarter
for serving in this capacity. Additionally, we reimburse directors for their
reasonable travel expenses to attend meetings.
Our 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 director is granted a nonstatutory
option to purchase 31,250 shares of Common Stock on the date of his or her
appointment to the Board or his or her becoming eligible to participate in the
Directors' Plan. 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'
Plan vest as to 20% of the initial grant six months following the date of grant
and as to 20% on each successive annual stockholders' meeting at which the
director is re-elected 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' Plan in 1999.
On August 11, 1999, as consideration for his agreeing to continue to act
as chairman of the Executive Committee, the 12,500 options previously granted
under the Directors' Plan to Mr. Schapiro in 1997 and 1998 were re-priced, so
that the exercise price is now $2.50 per share. In connection with the
re-pricing, the vesting schedule for these options was changed so that 6,250 of
such options now vest on the date of our 2002 annual meeting and 6,250 of such
options vest on the date of our 2003 annual meeting.
In addition, on August 11, 1999, as consideration for his agreeing to
act as a member of the Company's Executive Committee, the 6,250 options
previously granted under the Directors' Plan to Mr. Loshitzer on May 29, 1998
were re-priced, so that the exercise price is now $2.50 per share. In connection
with the re-pricing, the vesting schedule for these options was changed so that
these options now vest on the date of our 2003 annual meeting.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee currently consists of Messrs. Loshitzer,
Ressler and Schapiro. We have no interlocking relationships or other
transactions involving any of our Compensation Committee members that are
required to be reported pursuant to applicable Securities and Exchange
Commission rules. One of our former officers, Richard S. Ressler, but no current
officer, serves on the Compensation Committee.
6
<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(1) OWNED OWNED
- ------- ------------ -----------
<S> <C> <C>
Richard S. Ressler(2) 2,026,907 17.9%
W. Brian Kretzmer 2,700 *
Luke Brown(3) 62,700 *
James W. Dolan 0 *
Sasun Musliyan(4) 24,300 *
Morton Schapiro(5) 37,500 *
Zohar Loshitzer(6) 43,500 *
All current directors and executive officers 2,197,607 19.2%
as a group (7 persons) (7)
</TABLE>
- --------------
(*) Designates less than 1%
(1) The address for all executive officers and directors is c/o MAI Systems
Corporation, 9601 Jeronimo Road, Irvine, CA 92618.
(2) Includes 467,105 shares issuable upon exercise of warrants and options held
by Mr. Ressler exercisable within 60 days of the Record Date. Also includes
12,500 shares of Common Stock issuable upon exercise of options held by Mr.
Ressler which are exerciseable within 60 days of the Record Date, assuming
Mr. Ressler's re-election to the Board of Directors.
(3) Includes 56,000 shares issuable upon exercise of options held by Mr. Brown
exercisable within 60 days of the Record Date.
(4) Includes 15,500 shares issuable upon exercise of options held by Mr.
Musliyan within 60 days of the Record Date.
(5) Includes 37,500 shares issuable upon exercise of options held by Mr.
Schapiro which are exercisable within 60 days of the Record Date, assuming
Mr. Schapiro's re-election to the Board of Directors.
(6) Includes 24,750 shares issuable upon exercise of warrants held by Mr.
Loshitzer exercisable within 60 days of the Record Date, and 18,750 shares
issuable upon exercise of options held by Mr. Loshitzer which are
exercisable within 60 days of the Record Date, assuming Mr. Loshitzer's
re-election to the Board of Directors.
(7) Includes 632,105 shares issuable upon exercise of options or warrants held
by directors and executive officers within 60 days of the Record Date.
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<PAGE> 9
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table shows, as to our Chairman, our Chief Executive
Officer, our other three executive officers and two former executive officers
who served as executive directors during the last fiscal year, information
concerning all compensation paid for services to us in all capacities during the
last three fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
-------------------- --------------------
OTHER ALL
ANNUAL OTHER
COMPEN- SECURITIES COMPEN-
SATION UNDERLYING SATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($) OPTIONS(#) ($)
- --------------------------- ---- --------- -------- ------ ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Richard S. Ressler(1) 1999 $288,000 $ 0 $ 0 256,250 $ 0
Chairman 1998 288,000 0 0 0 0
1997 288,000 0 0 50,000 0
W. Brian Kretzmer(2) 1999 80,000 0 0 225,000 0
Chief Executive Officer and 1998 0 0 0 0 78,269(3)
Chief Financial Officer 1997 78,269 0 21,346(3) 30,000 142,500(4)
113,846(3)
Luke Brown(5) 1999 191,058 18,955 0 150,000 0
President and Chief Operating 1998 175,016 0 0 56,250 53,500(6)
Officer and President, Process 1997 140,000 0 0 12,000 0
Manufacturing Division
James W. Dolan(7) 1999 46,288 0 0 50,000 0
Chief Financial Officer 1998 0 0 0 0 0
1997 0 0 0 0 0
Sasun Musliyan(8) 1999 94,734 61,580 0 97,500 0
President, Legacy Division 1998 85,207 35,138 0 0 0
and MAI Canada, Ltd. 1997 81,434 0 0 2,500 0
George G. Bayz(9) 1999 162,692 7,452 0 0 0
Former President and Chief 1998 225,000 0 0 0 0
Executive Officer 1997 225,000 0 0 30,000 0
Lewis H. Stanton(10) 1999 155,385 6,624 0 0 0
Former Executive Vice 1998 200,000 6,000(11) 0 0 0
President and Chief Operating 1997 170,885 69,000(11) N/A 120,000 0
and Financial Officer
</TABLE>
- -----------------------
(1) Mr. Ressler is an employee of Orchard Capital Corporation, which provides
his services to us through a consulting agreement. 1997 compensation
includes $44,000 in consulting fees that accrued in fiscal 1997 and were
paid in 1998. Mr. Ressler served as our Chief Executive Officer from
October 1994 until February 1997.
(2) Mr. Kretzmer was appointed to the position of Chief Executive Officer
effective August 2, 1999 and he assumed the position of Chief Financial
Officer effective August 17, 1999 (Mr. Kretzmer subsequently resigned as
Chief Financial Officer on March 24, 2000 when Mr. Dolan was elected to
this position). Pursuant to his appointment his salary was established as
$200,000 annually and he was granted 225,000 options to
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<PAGE> 10
acquire Common Stock at an exercise price of $2.81, which options vest
one-third on each of the first three anniversaries of the date of grant.
(3) Represents severance payments related to Mr. Kretzmer's termination in
July 1997, including a $21,346 payment for accrued vacation.
(4) This amount was realized from the exercise of stock options previously
granted to Mr. Kretzmer.
(5) Mr. Brown was appointed to his current positions effective August 2, 1999.
Pursuant to his appointment his salary was established as $200,000
annually. He was subsequently granted 150,000 options to acquire Common
Stock at an exercise price of $.563, which options vest one-third on each
of the first three anniversaries of the date of grant.
(6) This amount was realized from the exercise of stock options previously
granted to Mr. Brown.
(7) Mr. Dolan was elected to the position of Chief Financial Officer effective
March 24, 2000. Previously, from September 1999 through March 2000 he
served as our Vice President, Finance. Pursuant to his appointment as
Chief Financial Officer his salary was established as $175,000 annually
and he was granted 50,000 options to acquire Common Stock at an exercise
price of $1.00, which options vest one-third on each of the first three
anniversaries of the date of grant. These options are in addition to the
50,000 options he was granted on November 2, 1999 at an exercise price of
$.563, which options vest one-third on each of the first three
anniversaries of the date of grant.
(8) Mr. Musliyan was appointed to his current position effective August 2,
1999. Pursuant to his appointment his salary was established as $91,260
annually and he was granted 72,500 options to acquire Common Stock at an
exercise price of $2.81, which options vest one-third on each of the first
three anniversaries of the date of grant.
(9) Mr. Bayz resigned as Chief Executive Officer and President effective
August 2, 1999.
(10) Mr. Stanton resigned as Executive Vice President and Chief Operating and
Financial Officer effective August 16, 1999.
(11) Represents a guaranteed bonus paid to Mr. Stanton as a condition of his
accepting employment.
OPTIONS GRANTED IN LAST FISCAL YEAR
The following table sets forth certain information regarding grants of
stock options made during the fiscal year ended December 31, 1999 to the
Company's chairman and executive officers named in the Summary Compensation
Table:
<TABLE>
<CAPTION>
Potential Realizable
Value at
Number of % of Total Assumed Annual Rates
Securities Options Exercise of Stock Price
Underlying Granted Price Appreciation for
Options In Fiscal ($/Share) Expiration Option Term(1)
Name Granted(2) Year(3) (4)(5) Date 5%($) 10($)
---- ---------- --------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Richard Ressler 31,250(6) 3.7% $3.25 5/21/09 $ 63,872 $ 161,864
225,000(7) 26.7% $2.50 8/11/09 $353,753 $ 896,480
W. Brian Kretzmer 225,000 26.7% $2.81 8/02/09 $397,619 $1,007,644
Luke Brown 150,000 17.8% $.563 11/02/09 $ 53,110 $ 134,592
James Dolan 50,000 5.9% $.563 11/02/09 $ 17,703 $ 44,864
Sasun Musliyan 72,500 8.6% $2.81 8/02/09 $128,122 $ 324,685
25,000 3.0% $2.75 1/20/09 $ 43,237 $ 109,570
</TABLE>
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<PAGE> 11
(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) Other than the 31,250 options granted to Mr. Ressler pursuant to the
Non-Employee Directors Stock Option Plan (the "Directors' Plan") (which
have a ten-year term and are exercisable with respect to 20% of the shares
covered thereby six months following the date of grant and with respect to
an additional 20% on each successive annual stockholders' meeting at which
Mr. Ressler is re-elected to the Board of Directors), all stock options
granted have ten year terms and are exercisable with respect to 33-1/3% of
the shares covered thereby on each anniversary of the date of grant, with
full vesting occurring three years following the date of grant. See
"--Employment Contracts and Change of Control Agreements" for provisions
regarding acceleration of the vesting of options under certain
circumstances.
(3) There were a total of 843,750 stock options granted by us in 1999
(including all options granted to Mr. Ressler, but excluding options
granted under the Directors' Plan to the other two directors).
(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) Granted to Mr. Ressler on May 21, 1999 upon his becoming eligible to
participate in the Directors' Plan.
(7) Granted to Orchard Capital Corporation, which provides Mr. Ressler's
services as chairman pursuant to a consulting agreement.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION VALUES
No options were exercised by any of the executive officers during the
year ended December 31, 1999. 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 Underlying Value of Unexercised
Unexercised Options at Fiscal In-The-Money Options at
Year-End (#) Fiscal Year-End($)(1)
------------------------------- -----------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Richard S. Ressler 473,355(2) 250,000 $0.00 $ 0.00
W. Brian Kretzmer 0 225,000 $0.00 $ 0.00
Luke Brown 56,000 193,500 $0.00 $37,425.00
James W. Dolan 0 50,000 $0.00 $12,475.00
Sasun Musliyan 7,167 100,000 $0.00 $ 0.00
</TABLE>
(1) Market value of underlying securities at fiscal year end ($0.8125 per
share), minus the exercise price.
10
<PAGE> 12
(2) Represents Mr. Ressler's warrant to purchase up to 467,105 shares of Common
Stock at $1.90 per share which expires on August 14, 2001 and 6,250 vested
options at $2.91 per share granted to Mr. Ressler pursuant to the
Directors' Plan which expire on May 21, 2009.
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS
We currently have no employment contracts with any of our executive
officers named in the Summary Compensation Table above (but we do have a
consulting agreement with Orchard Capital Corporation which supplies the
services of Richard S. Ressler, our Chairman). (See "--Certain Transactions with
Management"). Our 1993 Employee Stock Option Plan and Non-Employee Directors'
Stock Option Plan each provide that upon a change of control all options granted
pursuant to the plans shall become immediately exercisable in full.
CERTAIN TRANSACTIONS WITH MANAGEMENT
The services of Richard S. Ressler, Chairman of the Company, are
provided pursuant to a consulting agreement dated August 15, 1994 (amended as of
August 16, 1997, August 31, 1997, August 31, 1998, and August 31, 1999) 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 August 1994,
Orchard was granted warrants to purchase up to 625,000 shares of the Company's
Common Stock at $1.90 per share (which Orchard immediately transferred to Mr.
Ressler). Mr. Ressler exercised 157,895 of these warrants in September 1997. The
remainder of the $1.90 warrants are currently exercisable and expire on August
14, 2001 (these warrants were originally scheduled to expire on August 14, 1999;
in August, 1999, in order to satisfy Orchard's requirements for a further
extension of the consulting agreement, the Compensation Committee approved an
extension of these warrants through August 14, 2001). In March 1997, Orchard was
issued warrants to purchase up to 50,000 shares of Common Stock at $7.50 per
share (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. In August, 1999, Orchard was granted options under the Company's 1993
Employee Stock Option Plan to purchase 225,000 shares of Common Stock at $2.50
per share. One-third of these options will become exercisable on each of the
first three anniversaries of the grant, and the options expire in August, 2009.
11
<PAGE> 13
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.
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 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 INCENTIVE. The Committee annually reviews and approves an
executive compensation plan. A target, expressed as a percentage of salary, is
established for each officer, based on the scope of his or her responsibility.
Actual payment is computed as a percentage of that target based on the Company's
performance in achieving specified objectives, and the individual performance of
executives. A total of $94,611 in incentive compensation was paid with respect
to executive officers pursuant to the plan based on 1999 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.
12
<PAGE> 14
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 16, 1997, August 31, 1997, August 31, 1998, and
August 31, 1999) 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 August 1994, Orchard was granted warrants to purchase up
to 625,000 shares of the Company's Common Stock at $1.90 per share (which
Orchard immediately transferred to Mr. Ressler). Mr. Ressler exercised 157,895
of these warrants in September 1997. The remainder of the $1.90 warrants are
currently exercisable and expire on August 14, 2001 (these warrants were
originally scheduled to expire on August 14, 1999; in August, 1999, in order to
satisfy Orchard's requirements for a further extension of the consulting
agreement, the Committee approved an extension of these warrants through August
14, 2001). In March 1997, Orchard was issued warrants to purchase up to 50,000
shares of Common Stock at $7.50 per share (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. In August, 1999, Orchard was granted
options under the Company's 1993 Employee Stock Option Plan to purchase 225,000
shares of Common Stock at $2.50 per share. One-third of these options will
become exercisable on each of the first three anniversaries of the grant, and
the options expire in August, 2009.
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.
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, 1999.
13
<PAGE> 15
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 January 1, 1995 and ending December 31, 1999. 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.
MAI SYSTEMS CORP.
<TABLE>
<CAPTION>
Cumulative Total Return
---------------------------------------------------------
12/94 12/95 12/96 12/97 12/98 12/99
------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
MAI SYSTEMS CORPORATION 100.00 337.50 328.13 125.00 134.38 40.65
S & p 500 100.00 137.58 169.17 225.61 290.09 351.13
S & P COMPUTER (SOFTWARE & SERVICES) 100.00 140.54 218.48 304.35 551.47 1019.84
</TABLE>
14
<PAGE> 16
PROPOSAL 2
TO RATIFY THE SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected KPMG LLP, independent auditors, to
audit the consolidated financial statements for the fiscal year ending December
31, 2000. KPMG 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 LLP are
expected to be present at the Annual Meeting and are expected to be available to
respond to appropriate questions.
REQUIRED VOTE AND RECOMMENDATION
Ratification of KPMG LLP as the Company's auditors requires the
affirmative vote of the holders of a majority of shares of Common Stock present
or represented and entitled to vote at the Annual Meeting. Abstentions and
broker non-votes will be counted as present for purposes of determining whether
a quorum is present, and broker non-votes will not be treated as entitled to
vote on this matter at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 2.
15
<PAGE> 17
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 20, 2000
MAI Systems Corporation
9601 Jeronimo Road
Irvine, California 92618
16
<PAGE> 18
[MAI LOGO]
MAI SYSTEMS CORPORATION
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF STOCKHOLDERS -- MAY 19, 2000
The undersigned hereby appoints W. Brian Kretzmer and James W. Dolan 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 19, 2000, 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 REVERSE SIDE)
- --------------------------------------------------------------------------------
/\ FOLD AND DETACH HERE /\
<PAGE> 19
This proxy when properly executed will be voted in the Please mark [X]
manner directed herein. If no direction is made, this your votes as
proxy will be voted FOR the election of directors below. indicated in
this example.
FOR WITHHOLD
all nominees listed AUTHORITY
below (except as to vote for the
marked to the contrary) nominees listed
1. Election of three directors [ ] [ ]
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE FOR THE ELECTION OF THE
DIRECTORS BELOW.
NOMINEES: Richard S. Ressier,
Morton O. Schapiro, Zohar Loshitzer
(INSTRUCTION: TO WITHHOLD AUTHORITY FOR
ANY PARTICULAR NOMINEE, WRITE SUCH NOMINEE(S)
NAME ON THE LINE BELOW.)
- --------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR THIS PROPOSAL. FOR AGAINST ABSTAIN
2. Proposal to Ratify the Selection of KMPG LLP [ ] [ ] [ ]
as independent auditors for the Company.
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.
Signature(s)_____________________________________ Dated:______________, 2000
Please sign exactly as your name appears above. 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.
- -------------------------------------------------------------------------------
FOLD AND DETACH HERE
