10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

/X/ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the fiscal year ended December 31, 2002 or

/_/ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the transition period from ___to___.

Commission file number: 1-9158

MAI Systems Corporation

(Exact name of registrant as specified in its charter)

Delaware	22-2554549
(State or other jurisdiction of	(IRS Employer Identification No.)
incorporation or organization)

26110 Enterprise Way, Lake Forest, CA 92630
Address of principal executive offices
Registrant’s telephone number including area code (949) 598-6000

Securities registered pursuant to Section 12(b) of the Act:	None
Securities registered pursuant to Section 12(g) of the Act:	Common Stock, Par Value $0.01
	Preferred Stock, Par Value $0.01
	(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No /_/

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes /_/ No /X/

The aggregate market value of the common stock held by non-affiliates of the registrant, based upon the last sale price of the Common Stock reported on the National Association of Securities Dealers Automated Quotation National Market System on April 4, 2003 was $2,461,635.

The number of shares of common stock outstanding as of April 4, 2003 was 14,675,752. The aggregate market value of the common stock held by non-affiliates of the registrant, based upon the last sale price of the Common Stock reported on the AMEX on June 28, 2002 was $10,599,000.

DOCUMENTS INCORPORATED BY REFERENCE
(To the Extent Indicated Herein)

Registrant’s Proxy Statement to be filed with the Securities and Exchange Commission in connection with the solicitation of proxies for the Registrant’s 2003 Annual Meeting of Stockholders to be held on June 12, 2003 is incorporated by reference in Part III, Items 10 (as to directors), 11, 12 and 13 of this Form 10-K.

TABLE OF CONTENTS

PART I
	ITEM 1. BUSINESS
	ITEM 2. PROPERTIES
	ITEM 3. LEGAL PROCEEDINGS
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
	ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
	ITEM 6. SELECTED FINANCIAL INFORMATION
	ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
	ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
PART III
	ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
	ITEM 11. EXECUTIVE COMPENSATION
	ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
	ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
	ITEM 14. CONTROLS AND PROCEDURES
PART IV
	ITEM 15. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULE AND REPORTS ON FORM 8-K
SIGNATURES
CERTIFICATIONS
EXHIBIT INDEX
EXHIBIT 10.13
EXHIBIT 10.22
EXHIBIT 10.23
EXHIBIT 10.24
EXHIBIT 10.25
EXHIBIT 10.30
EXHIBIT 21.1
EXHIBIT 23.1
EXHIBIT 23.2
EXHIBIT 23.3

PART I

ITEM 1. BUSINESS

THE COMPANY

We provide total information technology solutions primarily to the hospitality, resort and destination industry. The solutions provided by us typically include applications software, computer hardware, peripherals and wide and local area network design, implementation, installation and support. The software applications are generally our proprietary software, or software which is licensed to us on an exclusive basis. The hardware, peripherals and networking systems are generally third-party products, which we distribute. Directly and through arrangements with third parties, we provide on-site and off-site service and support to users of our solutions. We were incorporated under the laws of the State of Delaware on September 6, 1984. Our name was changed from MAI Basic Four, Inc. to MAI Systems Corporation on November 6, 1990. We commenced operations on January 29, 1985.

DESCRIPTION OF THE BUSINESS

Our mission is to put in place long-term information technology systems for our customers by designing, installing and supporting industry-specific total information management solutions. Focusing on the hotel, motel and resort destinations industry, we design, sell, install and support enterprise information management solutions. We provide a wide array of products and services to our installed base of customers and continue to make direct sales of certain products and services which enhance, upgrade and extend the useful life and functionality of our installed systems.

We market our products and services primarily through a team selling approach, which utilizes our nationwide network of sales offices. This approach involves a coordinated effort between our field sales personnel, and our corporate office software development, marketing, contract administration and financial staff. All of our products and services are also available through a limited number of distributors, independent value-added resellers (“VARs”), authorized service representatives and independent software vendors (“ISVs”).

Our activities are conducted principally in the United States, the United Kingdom, Malaysia, Hong Kong, Singapore and Mexico. We also operate offices in the People’s Republic of China in Beijing and Shanghai.

We provide software support services (both procedural and technical support) to our hospitality customers from our offices in the United States, the United Kingdom, Kuala Lumpur, Singapore and Hong Kong. In some countries, we rely on certain foreign distributors of our products to provide software support services to customers located within the distributors’ territories.

Products and Services

We provide complete enterprise products and services to serve the needs of local and multinational chains, franchisees and independent operators of hotels, resorts and destination properties. Our products have been installed in over 4,000 properties, throughout 83 countries, and in properties up to 5,000 rooms from limited service and business hotels to convention centers and five star luxury resorts or urban luxury hotels.

Our HIS epitome™ Enterprise Solutions, including our established products (epitome for windows, formerly LodgingTouch, epitome for Unix, formerly CLS and epitome for i-series, formerly Paragon), which represented all of our revenue during the three-year period ended December 31, 2002, as well as our new internet native suite of products written in java which are currently under development and not yet available for general release, enables hospitality enterprises to increase revenue, improve guest loyalty and reduce costs by centralizing and streamlining their operations while maximizing existing technology investments. A majority of our history revenue relates to our property management systems applications associated with our established products. Our new internet native corporate application suite is a component-based architecture, which has not been installed as December 31, 2002. The enterprise suite includes software, services and integration for Business Intelligence, Corporate Information, Channel Reservation, Channel Management and Property Management systems. The products are deployable on multiple platforms using intelligent transport and messaging technology.

Our enterprise services include systems integration, consulting, project management, implementation, training, documentation, online help, long-term support, maintenance and specialized engineering, with particular expertise in the implementation of local and wide-area networks for the hospitality industry.

The epitome Strategic Analysis Tools

Our epitome multidimensional Business Intelligence (“BI”) provides a suite of sophisticated Multidimensional Online Analytical Processing (“MOLAP”) tools for strategic analysis and planning for the entire enterprise. Not only can hoteliers analyze and report on data consolidated from multiple sources, they can perform complex modeling against industry standard Key Performance Indicators (“KPIs”), including Revenue Per Available Room (“RevPAR”) and Revenue Per Available Customer (“RevPAC”). These tools include a relational data warehouse, subject-specific data marts, MOLAP

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tools and a library of standard analyses and reports. This combination results in a system that provides executives with “just-in-time” strategic intelligence to analyze operations and grow market share, revenue and occupancy.

The epitome Corporate Management Tools

Our epitome Central Information Systems (“CIS”) provides essential information and management tools to centralize operations at a corporate headquarters. With the increasing number of mergers, acquisitions and individual properties desiring to associate with an established chain or flag, centralizing the data for consolidated marketing, accounting and reporting tasks have become popular cost-savings tools. Additionally, hotel guests now expect their preferences and history to be available at local properties, corporate locations and online. To accomplish this, corporate systems must capture and share all guest information to provide quality service during the reservation process as well as comprehensive marketing and financial information to facilitate corporate marketing and finance strategies. Our HIS corporate tools consolidate information about each guest such as identity, spending patterns, preferred accommodations, amenity requests, billing details, commission accumulations and more.

Specialized functionality of the CIS includes centralized travel agency production statistics and transaction payments, more accurate and effective corporate Accounts Receivable invoicing and collections, and consistent guest spending patterns to better facilitate corporate affinity programs and more.

The epitome Reservation and Channel Management Tools

Our epitome Central Reservation Systems (“CRS”) provides chains and management companies with the functionality required to process reservations and availability from a centralized location. Over time, CRS products have evolved to provide the same features and functions as reservation modules in Property Management Systems. However, a CRS must be more efficient at guest preference requirements, multiple property itineraries, history retrievals, travel agent processing and general corporate billing and transaction processing. These products are perfectly suited for small and medium reservation call centers.

Hoteliers are reducing the cost of guest acquisition and improving guest loyalty through branded Internet booking engines. However, we understand that the explosion of Internet channels and travel procurement software has been difficult for hoteliers to manage effectively. Our epitome Channel Reservation and Channel Management Tools deliver more benefits than a simple branded booking engine or any one wholesale reservation portal. It allows hoteliers the tools to manage their rates, availability and guests through all their channels of distribution. The goal and foundation of the design are to provide a more cost-effective and efficient tool for the properties using the epitome enterprise suite of applications.

It also provides guests with the ability to search multiple (related) properties, to check availability of rooms and to maintain reservations for rooms, and allows the property the ability to use room allocation features already in the epitome PMS, to modify or customize its web reservations screens and to reduce transaction fees of costly intermediaries.

The epitome Property Management Tools

Our epitome Property Management Systems (“PMS”) provide a complete solution for the management of rates, availability and affinity programs for single and multi-property enterprises. These tools are specifically designed and optimized for comprehensive guest management, including modules for web and central reservations, room and revenue management and group and wholesaler management.

Specialized functionality offers flexible guest-focused features including guest service notification, availability and occupancy controls for long-term stay and gender-specific environments, sophisticated revenue and taxation capabilities, casino accounting and condominium management. Multi-property integration of availability, itinerary reservations and guest accounting is also available. Additional tools include modules for report writing, emulation, data extraction and transfer and more.

The epitome Integration and Data Exchange Tools

The HIS epitome Interfaces and Integrations provide multiple levels of data exchange and application integration, from simple send and receive interfaces to intelligent business application integration. The high-level of integration available between the HIS PMS, CRS, CIS and BI enables chains and management companies to deploy an enterprise solution with ‘customizable’ functionality at each location, while consolidating critical controls, statistics and revenue analysis. Our HIS epitome Enterprise Solutions includes a library of over 400 device-type interfaces. Some examples include Call Accounting, Energy Management, In-room Facsimile, In-room Internet, Mini Bar, Point Of Sale, Telephone Management, Video Services and Voice Mail.

We also specialize in application-type integrations, which are typically more complex than device-type interfaces, requiring

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additional management and auditing of the data exchange. It often includes the exchange of guest and group information, availability, contractual room rates and more. Each product also adds complexity, as the platform, data and method of communication vary from product to product. It is very rare that any of these elements are similar to the platform, database and method of communication in the core business applications.

Our integration solutions offer integration of the core business applications (PMS, CRS and CIS) with other disparate business applications (Sales, Catering, Revenue Management and more). It allows for standardized communication processes, configuration controls and audit trails. The data mapping is accomplished through a series of application-specific and common industry Application Programming Interfaces (“APIs”). All communication and data exchange are actually handled through a central integration product, providing our core business applications and the third party products with a common ground for data exchange and consolidation.

From property transactions to corporate intelligence our HIS epitome Enterprise Solutions provides complete products and services for every level of the enterprise. With different platforms, applications, deployment methods and database management technologies, hoteliers can implement the ‘epitome of technology’ for their enterprise.

Marketing and Sales

We market our products and services primarily through a team-selling approach, which utilizes our worldwide network of sales offices and our Irvine, California-based account representatives. We also market certain products and services through limited numbers of distributors, authorized service representatives and ISVs.

In the United States, our systems are marketed by a direct sales and marketing organization which included, 12 sales and marketing personnel located in the corporate headquarters and satellite offices. In addition, we market our systems internationally through our subsidiaries which operate in the United Kingdom, Mexico, Hong Kong, Malaysia and Singapore, and through various distributors that are exclusive in their jurisdictions. Our international subsidiaries employed 21 sales and marketing personnel who are engaged in the marketing of MAI products from sales offices in Mexico, the United Kingdom, Hong Kong, Singapore, Malaysia and the People’s Republic of China.

During 2002, our aggregate revenue was derived from geographic areas as follows:

		Percentage of
		Total Revenue
United States			80.2	%
Asia			12.7	%
United Kingdom			5.0	%
Canada			2.1	%
	Total		100.0	%

Our financial performance is affected by the fluctuation in value of the US dollar in relation to the local currencies of the countries in which we do business. In addition, our foreign operations are subject to the usual risks that may affect such operations, including possible expropriation or other governmental actions, taxes and political changes. However, as only 19.8% of our 2002 revenue was generated outside the United States, the risk associated with these foreign operations in relation to our overall financial performance is limited.

Support and Maintenance

The provision of around-the-clock customer service is a cornerstone of our business. As of December 31, 2002, we had support and maintenance agreements with approximately 2,025 customers. We employ approximately 71 technicians to provide support for our applications software products.

Telephonic support, which is primarily to assist licensees of our applications products, is provided from our response centers located in Irvine, California, Concord, California, Singapore, Hong Kong, Malaysia and the United Kingdom. We utilize current developments in telephony and call center technology to enable our support technicians to quickly identify and resolve customers’ software related computing problems.

Our maintenance services are generally provided pursuant to individual maintenance contracts with customers, although time and material services are provided in some areas. Such support and maintenance are of varying duration, provide prospective cancellation rights and require advance payment of fees to us. Substantially all of the revenue earned by maintenance operations is invoiced to customers in advance and recognized evenly over the related contract period.

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Production and Procurement

In response to market demand for standardized hardware and software products, all of our current systems offerings utilize open systems architecture, which means that they will operate on a wide variety of third-party hardware equipment. At present, we have relationships with a number of suppliers including Microsoft, Cognos, BEA, Compaq Computer, Data General, Hewlett Packard, Seagull Software, Visual Legacy, IBM and distributors such as MicroAge and Ingram Micro. Management believes that these relationships have enabled us to reduce product costs, permit earlier availability of new technology and offer customers products with superior performance at competitive prices. We no longer manufacture proprietary hardware products.

Delay or failure in the delivery of products or components purchased from third parties could adversely affect our shipments and our ability to conclude sales. We have purchased many products and components from single sources of supply. Because our current products are industry standard, or are comprised of industry-standard components, management believes that alternative sources of supply of similar products would be available to us in the event of any interruption of delivery of a single source supplier.

Order, Shipment and Backlog

We record and enter into backlog a purchase order for equipment and software when we receives a customer’s written order requesting delivery within twelve months, and systems configuration and contract provisions are verified. 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.

Set forth below is certain information concerning orders, shipments and backlog for 2001 and 2002:

	(dollars in millions)
	2001		2002
Orders received (net of cancellations)	$	10.5		8.3
Shipments		6.1		9.5
Backlog (at year end)		4.4		3.2

Our backlog is not necessarily indicative of future revenues.

Research and Development

Our research and development activities are focused on the development of products for the hospitality, resort and destination industry.

As of December 31, 2002, we employed 51 engineers, programmers and other technical personnel in research and development activities. We also utilized external third party resources for development. During 2000, 2001, and 2002, we incurred $3,068,000, $4,209,000, and $3,307,000, (net of capitalized software of $861,000) respectively, for research and development activities. Our research and development expenditures related to the support and extension of existing software products and the development of new products.

Customers

Our customers in hospitality are both chain and independent hotels and resorts. During 2000, 2001 and 2002, the Joint Armed Services was the only customer accounting for ten percent or more of our revenues. Total revenue from the Joint Armed Services for 2000, 2001 and 2002 was $3,147,000, $ 2,937,000 and $2,880,000 respectively.

Competition

Competition is vigorous in all sectors of the worldwide market for computer-based applications systems, networked solutions and the maintenance and support of the software and hardware, which comprise those systems. We have numerous competitors (and potential competitors) varying widely in their size, capabilities, market segment and geographic area, many of which are larger and have financial resources far greater than ours.

Within our targeted application markets, we have positioned ourselves to sell complete enterprise solutions to our customers. Within this marketplace, competition comes primarily from vendors of competing information technology in the markets in which we compete. There are several providers of information technology to the hotel, resort and destination

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industry against which we regularly compete. We have several primary competitors, which are substantially larger than us, and provide application software that is similar to ours in quality but have the ability to aggressively compete on price.

Trademarks, Copyrights and Licenses

We are the owner or licensee of certain trademarks, copyrights and other property rights associated with our businesses, including rights associated with our proprietary application software. We own or have licensing rights, generally with terms of three years, to the principal application software products marketed by us. Such licensing rights are generally renewable. Although there is some risk that independent vendors who own such products may elect not to renew their licensing agreements with us and enter into exclusive arrangements with, or elect to install their software on systems sold by competitors of ours, such vendors generally tend to continue to support our marketing efforts so long as our systems provide a good opportunity for them to market their products. These independent vendors do not represent a significant part of our revenues.

We are 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 our option and certain of the licenses require us to make royalty payments.

Employees

As of December 31, 2002, we had 218 employees, of which 135 were employed in the United States, 3 in Mexico, 14 in the United Kingdom and 66 in Asia (Hong Kong, Singapore, Malaysia and the People’s Republic of China). We have not experienced any work stoppages and consider our relationship with our employees to be good.

1993 CHAPTER 11 BANKRUPTCY PROCEEDINGS

We filed for Chapter 11 bankruptcy protection on April 12, 1993, shortly after our banks foreclosed on all of the outstanding capital stock of certain of our former European subsidiaries in satisfaction of all amounts due under certain loan agreements. On January 27, 1994, our Plan of Reorganization became effective. The summary of the material features of the Plan of Reorganization, contained in our Annual Report on Form 10-K for the year ended December 31, 1993 under the heading “CHAPTER 11 BANKRUPTCY PROCEEDINGS”, is included herein by this reference.

Under the Plan of Reorganization, there was no recovery for holders of our $0.01 par value old Common Stock, and all classes of Preferred Stock outstanding prior to the Effective Date. The interests evidenced by these securities were extinguished by operation of the Plan of Reorganization. We commenced distribution of Common Stock to holders of unsecured claims on April 14, 1994. Through December 31, 2002, we had distributed 6,758,251 shares of Common Stock (approximately 49.4% of our current issued and outstanding shares) to our former creditors in settlement of all outstanding claims, except for the tax claim discussed below. The Plan of Reorganization provided holders of unsecured claims the right to elect a limited cash recovery, and through December 31, 2002, $74,570 in cash had been distributed pursuant to such provision. As of December 31, 2002, all claimants’ rights to elect a cash recovery have expired.

We do not believe that the Plan of Reorganization has any current material impact on our business operations. We have been able to secure revolving credit facilities and other financing during the period in which the Plan of Reorganization has been pending. In addition, suppliers and customers have not requested any extraordinary contractual provisions during this period.

At December 31, 2002, there is only one material claim to be settled before the Chapter 11 proceedings can be formally closed, a tax claim with the United States Internal Revenue Service (the “Service”) in the amount of $712,000. The amount of this claim is in dispute. We reserved $712,000 for settlement of this claim, which upon settlement, it is anticipated would be payable to the Service, interest only at 6% per annum for a period of 72 months, at which time the entire outstanding balance would be due and payable. The accrual of interest will commence upon the effective date of the settlement with the Service. The dispute relates to complex alternative minimum tax and interest calculations covering the period 1988 though 1989.

RISK FACTORS

The following discussion should be read in conjunction with the audited consolidated financial statements contained herein. In addition to the factors set forth herein, there may be other factors, or factors that arise in the future which may affect our future performance.

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Effects of the September 11, 2001 Terrorist Attacks and Other Events

Our operating results for the twelve months ended December 31, 2002 were negatively affected by the September 11, 2001 terrorist attacks. Weakness in the hospitality and tourism industries as a result of the terrorist attacks and armed conflicts arising therefrom have caused the Company to experience cancellations, delays and reductions in certain purchases by its hospitality customers. There can be no guarantee that this slow-down will be only short-term. Many of our hospitality customers experienced severe declines in occupancy and room rates at most of their hotels in the weeks following the attacks. We are operating our business under the assumption that the weakness in the hospitality industry will be medium-term. It is not possible, however, to predict the magnitude or duration of the declines or the potential impact on our results of operations, financial condition or cash flow, if the existing political and economic risks continue unabated, or if there is future major terrorist activity.

We cannot yet determine the impact on our business of the recent war in Iraq and the recent outbreak of SARS in Asia.

We Have Recently Settled Litigation and Issued A Substantial Number of Shares to a Shareholder Who May Be Able to Exercise Significant Influence

In February 2001 we settled certain litigation which required that we issue and register with the United States Securities and Exchange Commission (the “Commission”) a substantial number of shares to an existing shareholder, CSA Private Limited (“CSA”). CSA received these shares pursuant to our acquisition of our Hotel Information Systems subsidiary as described under “Legal Proceedings – CSA Private Limited versus MAI Systems Corporation.” Based upon this settlement, CSA has become our largest shareholder and beneficially owns approximately 16.6% of our Common Stock. If this shareholder decides not to sell its shares of Common Stock or sells the shares in a block to a third party, either this shareholder or the party or parties it sells to in any “block” sale may be able to exert significant influence over our affairs because they have approximately 16.6% of the voting control on any matter that may be submitted for a shareholder vote. This concentration of ownership could have the effect of delaying or preventing a change in our control or otherwise discouraging a potential acquirer from attempting to obtain control of us, which in turn could have a material and adverse effect on the market price of our Common Stock.

The Price of Our Common Stock May Decline Due to Sales by Certain Shareholders

Approximately 40% of our issued and outstanding Common Stock is held by five shareholders which includes CSA. Sales by these shareholders of a part or substantially all of their shares of our Common Stock in the market or the perception that sales may occur could cause the market price of our Common Stock to drop.

At April 4, 2003, we had 14,675,752 shares of Common Stock outstanding. Approximately 56% of our outstanding shares are freely tradable, The remaining shares are either held by “affiliates,” as defined under Rule 144 under the Securities Act of 1933, or are “restricted securities” under such rule. In such cases, shares may be sold pursuant to registration under the Securities Act, or to the extent permitted by Rule 144 or another exemption under the Securities Act.

Our Agreements with our Primary Lender and Two Other Substantial Creditors Require Substantial On-Going Payments

We have agreements with Coast Business Credit (“Coast”) and two other creditors that require substantial on-going payments and affect the availability of our cash flow to be used for other material company operations. We were in default under the terms of our secured debt agreements as of December 31, 2002. On January 13, 2003 we restructured our debt with Coast and Canyon. We are currently in negotiations with CSA to restructure the term of the subordinated note. Currently, these obligations are follows:

• A balance due to Coast of approximately $1,801,000 under a term loan with a current monthly principal and interest payment obligation of approximately $58,000, maturing in February 28, 2005;

• A balance due under our 11% subordinated notes payable to an investment fund managed by Canyon Capital Management LP (“Canyon”) of approximately $5,634,000, with a current monthly interest payment obligation of $52,000;

• A balance due under a 10% secured promissory note due to CSA in the amount of $2,800,000, with monthly payments of $37,500 commencing on March 1, 2002 and ending on September 1, 2002, and monthly payments of $107,500 commencing on October 1, 2002 until October 1, 2003 when all remaining unpaid principal and interest is due.

As of December 31, 2002 we were current on our payment obligations to Coast and Canyon. In connection with the

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restructuring of the Coast and Canyon debt, the covenants were revised and will be effective commencing with the quarter ended March 31, 2002. We are currently in default with our payment obligations to CSA and have not made any payments since September 2002. Under the terms of the subordination agreement between Coast, Canyon and CSA, we are not allowed to make any principal or interest payments to CSA until the Coast and Canyon debt, including any accrued interest, is repaid in full or the CSA debt is restructured and approved by Coast and Canyon. There can be no assurance that CSA and MAI will come to terms on a restructuring or that Coast and Canyon will ultimately approve the terms of the restructuring. In the event that we are unable to meet the required payments to our primary lenders or meet our payment obligations to our other secured creditors, they are entitled to exercise certain rights under the respective agreements we have with them, including but not limited to, foreclosing on all of our tangible and intangible assets. Such action would have a substantial adverse effect on our ability to continue as a going concern.

Our Limited Period of Profitability May Not Continue

Although we were profitable for the years ended December 31, 2000 and 2001, we incurred net losses for the year ending December 31, 2002 as well as net losses on an annual basis for the four fiscal years previous to 2000. We cannot assure you that we will attain profitability on a consistent basis or avoid losses on a quarterly or annual basis in the future.

Our Operating Results In One or More Future Periods Are Likely to Fluctuate Significantly and May Negatively Impact Our Stock Price

Our annual and quarterly operating results may fluctuate significantly in the future as a result of numerous factors, including:

• the timing of significant orders,

• the timing of product enhancements and new product introductions by us, our technology vendors and our competitors,

• the pricing of our products and services, and

• economic and competitive conditions specific to our industry.

Typically, the orders we receive in one quarter are delivered and installed by the following quarter. However, many of our sales involve lengthy sales cycles. Consequently, it is not possible to predict with any reliability the periods within which a sale may close or when we will recognize revenue. As a result, our operating results may be materially affected if a single large transaction is earlier or later than expected. It is likely that in some future periods our operating results will be below the expectations of securities analysts and investors. If this happens, the trading price of our Common Stock would likely be materially adversely affected.

We May Need and Be Unable to Obtain Additional Funding on Satisfactory Terms, Which Could Dilute Our Stockholders or Impose Burdensome Financial Restrictions on Our Business

As stated above, the Company has successfully restructured the terms of certain secured debt, including extending the maturity dates. The restructured debt pursuant to an intercreditor agreement between Canyon Capital and Coast Business Credit, contains various restrictions and covenants, including a minimum quick ratio of 0.30 to 1.00 and minimum debt service coverage ratio of 0.90 to 1.00 as of and for the three-month period ended March 31, 2003. The minimum quick ratio increases to 0.31 to 1.00 as of June 30, 2003 and September 30, 2003 and to 0.34 to 1.00 as of December 31, 2003 and for each and every fiscal quarter ending thereafter. The minimum debt coverage ratio increases to 1.10 to 1.00 for the three-month period ending June 30, 2003 and to 1.25 to 1.00 for the three-month period ending September 30, 2003 and for each and every fiscal quarter thereafter. In the event that we were not in compliance with the various restrictions and covenants and were unable to receive waivers for non-compliance, the term and subordinated debt would be immediately due and payable. We believe that we will be in compliance with the covenants as of March 31, 2003 and for every fiscal quarter thereafter. However, any additional debt financing or other financing of securities senior to Common Stock will likely include financial and other covenants that will restrict our flexibility. At a minimum, we expect these covenants to include restrictions on our ability to pay dividends on our Common Stock. Any failure to comply with these covenants or to repay such indebtedness when due would have a material adverse effect on our business, prospects, financial condition and results of operation.

On February 7, 2003, the Federal Deposit Insurance Corporation (“FDIC”) put Coast and its parent company, Southern Pacific Bank, into receivership and is currently holding all of Coast’s assets for sale to third parties, which includes our term loan with Coast. This receivership and ultimate sale of the loan by the FDIC does not change any of the terms of our current loan agreement.

The Market In Which We Operate is Highly Competitive, and We May Face Increased Competition From New Entrants and Established Industry Competitors With Significantly Greater Financial Resources

We face significant competition in all sectors of the market for computer-based solutions and support and maintenance services which we offer. We have numerous competitors, which vary widely in their size, capabilities, market segments and geographical areas, many of which are larger and have financial resources far greater than we have. Within our market, competition comes primarily from competing software applications vendors and from local value-added resellers and independent software vendors, who usually resell hardware or networking products of larger original equipment

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manufacturers. Many of our services are provided by our customers’ in-house information services departments. There can be no assurance that we can effectively compete with any or all of our competitors in our business line. Our competitors may be able to adapt more swiftly to new or emerging technologies and changes in customer requirements, take advantage of acquisition and other opportunities more readily and devote greater resources to the marketing and sale of their products and services than we can. There can be no assurance that additional competitors will not enter markets that we plan to serve or that we will be able to compete effectively.

The Software Industry for Hospitality Management is Undergoing Rapid Technological Changes and New Software Introduced by Third Parties May Be Superior to the Software That We Own or License

The software industry for hospitality management is subject to rapid and significant technological change. We cannot predict the effect of technological changes on our business. We expect that new products and services will emerge in the markets in which we compete. These new products and services may be superior to the products and services that we use or these products and services may render our products and services obsolete. Our failure 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 our business and operating results.

Trading in Our Common Stock is Limited

The recent trading volume for our Common Stock has been small, and the market for our common stock has been less liquid than that of many other publicly traded companies. During the twelve months ended December 31, 2002, the average daily trading volume has been approximately 17,500 shares, whereas the average daily trading volume for an American Stock Exchange listed stock is substantially higher. 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.

Our International Operations Are Subject to Additional Risks

Approximately 20% of our revenues in the year ended December 31, 2002 were derived from foreign operations and approximately 38% of our work force is based outside the United States. Our financial performance 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 we do business. In addition, our 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. International sales are subject to inherent risks, including:

• recessions in economies outside the United States,

• limited protection of intellectual property rights in some countries,

• political instability,

• terrorism,

• unexpected changes in regulatory requirements and tariffs,

• difficulties in staffing and managing foreign operations,

• the possibility of subsidization of our competitors and the nationalization of business,

• longer payment cycles,

• greater difficulty in accounts receivable collection, and

• potentially adverse tax consequences.

We May Be Unable to Enforce or Defend Our Ownership and Use of Proprietary Technology

Our success depends to a significant degree upon our proprietary technology upon and our licensing rights to the principal application software products that we market. We rely on a combination of trademark, trade secret and copyright law and contractual restrictions to protect our proprietary technology. However, these measures provide only limited protection, and we may not be able to detect unauthorized use or take appropriate steps to enforce our intellectual property rights, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the United States. Any litigation to enforce our intellectual property rights would be expensive and time-consuming, would divert management resources and may not be adequate to protect our business.

We could be subject to claims that we have infringed the intellectual property rights of others. In addition, we may be required to indemnify our resellers and users for similar claims made against them. Any claims against us could require us to spend significant time and money in litigation, pay damages, develop new intellectual property or acquire licenses to

9

intellectual property that is the subject of the infringement claims. These licenses, if required, may not be available at all or on acceptable terms. As a result, intellectual property claims against us could have a material adverse effect on our business, prospects, financial condition and results of operations.

American Stock Exchange Market Listing

We were notified in 2000 by The American Stock Exchange (“AMEX”) that we no longer comply with the minimum stockholders’ equity requirements for continued listing and have subsequently met with exchange officials to review such requirements. We cannot provide any assurance that we will remain listed on the American Stock Exchange or that we will not be delisted at some later time. In the event of a delisting, we will attempt to have our Common Stock listed on the over-the-counter electronic bulletin board sponsored by Nasdaq. In such event, investors may find it more difficult to trade in our Common Stock or to obtain accurate, current information concerning market prices. This could have a substantially negative impact on the trading prices and the liquidity of the market for our Common Stock. In addition, there would likely be a more negative perception of our company by investors, customers and third parties doing business or considering doing business with us. Also, following delisting, our company would be treated less favorably with respect to regulatory requirements that are dependent upon listing on a national stock exchange. For example, our Common Stock would cease to be a covered security for purposes of Section 18 of the Securities Act of 1933, which provides an exemption from state securities registration or qualification requirements. We believe that it is likely that we will be delisted from AMEX and apply for a listing on the electronic bulletin board sponsored by Nasdaq in 2003.

Forward-Looking Statements are Inherently Uncertain

Some statements under the caption “Risk Factors,” and elsewhere in this prospectus or in the documents incorporated by reference in this prospectus are forward-looking statements. These forward-looking statements include, but are not limited to, statements about our industry, plans, objectives, expectations, intentions and assumptions and other statements that are not historical facts. When used in this prospectus or in the incorporated documents, the words “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate” and similar expressions are generally intended to identify forward-looking statements. Because these forward-looking statements involve risks and uncertainties, including those described in this “Risk Factors” section, actual results may differ materially from those expressed or implied by these forward-looking statements. We do not intend to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Access to Company Information

We electronically file our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K with the Securities and Exchange Commission (SEC). The public may read and copy any of the reports that are filed with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically.

We make available, free of charge, through our website at www.hotelinfosys.com, and by responding to requests addressed to our investor relations department the annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. These reports are available as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. Our website address is www.hotelinfosys.com and these reports are available for review at or downloading from that site. The information contained on our website is not part of this document.

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ITEM 2. PROPERTIES

As of April 4, 2002, the principal properties utilized by the Company were as follows:

	Approximate Total
Type of Facility	Square Footage		Location
Corporate and Hospitality Headquarters, warehousing, administration, marketing, sales, development and support		26,955	Lake Forest, California
Sales and support		600	Boston, Massachusetts
Product development, sales and support		3,151	Concord, California
Hotel Information Systems (Ltd) Hong Kong headquarters, marketing, sales, and support		2,902	Hong Kong
Hotel Information Systems (Ltd) Singapore sales and support		4,529	Singapore
Hospitality Services & Solutions (Ltd) Malaysia support and development		1,760	Malaysia
MAI Information Solutions Limited, European Headquarters, marketing, sales and support		2,225	London

All of the properties noted above were occupied by the Company pursuant to leases with various expiration dates. In addition to the premises identified above, the Company leases five other locations around the world. Generally such leases are for terms of five years or less. We believe that our current facilities are suitable for our needs.

ITEM 3. LEGAL PROCEEDINGS

Chapter 11 Bankruptcy Proceedings

At December 31, 2002, there was only one material claim to be settled regarding our Chapter 11 proceedings, a tax claim with the United States Internal Revenue Service (the “Service”). The amount of this claim is in dispute. The Company has reserved $712,000 for settlement of this claim, which it is anticipated would be payable to the Service in equal monthly installments over a period of six (6) years from the settlement date at an interest rate of 6%.

CSA Private Limited

CSA is a MAI shareholder. On August 9, 1996, MAI acquired from Hotel Information Systems, Inc. (“HIS”) substantially all their assets and certain of their liabilities (the “HIS Acquisition”). At the time of our acquisition of HIS in 1996, CSA was a shareholder of HIS and, in connection with the purchase, we agreed to issue to CSA shares of its Common Stock worth approximately $4.8 million in August 1996, which amount had increased to approximately $6.8 million as of December 31, 2000, pursuant to the agreement. We entered into a settlement agreement with CSA in February, 2001 whereby we (i) issued CSA 1,916,014 additional shares of our Common Stock to bring CSA’s total share ownership to 2,433,333 shares; (ii) filed a registration statement for all of CSA’s shares of our Common Stock which has been declared effective by the SEC so that such shares are now freely tradable; and (iii) executed a secured debt instrument in favor of CSA in the principal sum of $2,800,000 which is subordinate only to our present group of two (2) senior secured leaders and required cash installment payments to commence in March 2002 (see note 9 to the financial statements).

In connection with the settlement agreement with CSA, we recorded the $2.8 million debt issuance as a reduction in paid in capital and the 1,916,014 additional shares at par as an addition to Common Stock and a reduction to additional paid in capital.

Cher-Ae Heights Indian Community

A lawsuit was filed by Cher-Ae Heights Indian Community (“Cher-Ae Heights”) against Logix Development Corporation (Logix), now known as MAI Development Corporation, as a co-defendant for a breach of contract by the Company’s formerly owned gaming subsidiary along with the new owners, Monaco Informatiques Systemes (“MIS”), who acquired the assets and certain liabilities of the gaming subsidiary on July 27, 2001. Based upon this suit, MIS has informed the Company that it did not intend to pay the Company under a promissory note and security agreement. On October 24, 2002 the Company entered into a settlement agreement with Cher-Ae Heights and MIS to resolve and dismiss any and all outstanding legal claims between the parties including payment of approximately $796,000 to MAI by January 10, 2003, which was received by the Company.

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Logix Development Corporation

We entered into a settlement agreement with Logix Development Corporation (“Logix”) in July of 2002 whereby we (i) issued Logix 200,000 shares of our Common Stock (ii) required the Company to make various cash installment payments totaling $175,000 to be paid within 1 year and (iii) executed a contract with Logix for a consulting project in the amount of $50,000.

Other Litigation

We were also involved in various other legal proceedings that are incident to its business. Management believes the ultimate outcome of these matters will not have a material adverse effect on our consolidated financial position, results of operations or liquidity.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

Our shares are traded on the American Stock Exchange, Inc. under the AMEX symbol “NOW”. Prior to listing on the AMEX, which occurred August 29, 1995, our shares were traded over-the-counter by various market makers under the ticker symbol “MAIS”. The following table sets forth the high and low closing sales prices for our Common Stock for the indicated periods during 2001 and 2002, as reported by the AMEX. On April 4, 2003, the closing price of our Common Stock as reported by the AMEX was $0.08 and there were 550 stockholders of record (See “Risk Factors” – American Stock Exchange Market Listing”).

We have never paid any dividends and do not anticipate declaring or paying cash dividends in the foreseeable future. We intend to retain future earnings, if any, to reinvest in our business. The covenants in our current or future financing agreements may prohibit or limit our ability to declare or pay cash dividends.

Period		High		Low
Fiscal 2001:
	First Quarter	$	0.67	$	0.19
	Second Quarter	$	0.58	$	0.26
	Third Quarter	$	0.68	$	0.30
	Fourth Quarter	$	0.40	$	0.22
Fiscal 2002
	First Quarter	$	0.34	$	0.24
	Second Quarter	$	0.45	$	0.25
	Third Quarter	$	0.34	$	0.16
	Fourth Quarter	$	0.18	$	0.08
Fiscal 2003
	First Quarter	$	0.29	$	0.06

ITEM 6. SELECTED FINANCIAL INFORMATION

The information required by this item is incorporated by reference to our Annual Report under the heading, “Selected Financial Information”.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The information required by this item is incorporated by reference to our Annual Report under the heading, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk Disclosures

The following discussion about our market risk disclosures contains forward-looking statements. Forward-looking statements are subject to risks and uncertainties. Actual results could differ materially from those discussed in the forward-looking statements. We are exposed to market risk related to changes in interest rates and foreign currency exchange rates. We do not have derivative financial instruments for hedging, speculative, or trading purposes.

Interest Rate Sensitivity

Of our $10.6 million principal amount of indebtedness at December 31, 2002, none bears interest at a variable rate. However, $5.7 million bears interest at a fixed rate of 11%, $2.8 million bears interest at a fixed rate of 10%, $1.8 million bears interest at 9.25% and $0.3 million bears fixed interest rates ranging from 6% to 17.5%. Since these debt instruments bear interest at fixed rates, we have exposure to decreases in interest rates because we still are required to pay the fixed rate even if current interest rates are lower.

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Foreign Currency Risk

We believe that our exposure to currency exchange fluctuation risk is reduced because our transactions with international vendors and customers are generally transacted in US dollars. The currency exchange impact on intercompany transactions was immaterial in 2000, 2001, and 2002.

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this item is incorporated by reference to our Annual Report under the headings, “Consolidated Balance Sheets”, “Consolidated Statements of Operations”, “Consolidated Statements of Stockholders’ Deficiency and Comprehensive Income (Loss)”, “Consolidated Statements of Cash Flows”, “Notes to Consolidated Financial Statements” and “Independent Auditors’ Report”.

Schedule II Valuation and Qualifying Accounts is set forth in this Annual Report on Form 10-K.

All other schedules and financial statements are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Information required by this Item may be found in our Form 8-K filed November 21, 2002, our Form 8-K/A filed December 6, 2002, in connection with our termination of KPMG LLP as our independent auditors and our Form 8-K filed on December 9, 2002, in connection with our appointment of BDO Seidman, LLP as our independent auditors. Following is Item 4 of the respective Form 8-K’s:

Form 8-K filed on November 21, 2002:

On November 14, 2002 the Company dismissed KPMG LLP, the Registrant’s independent public accountants. KPMG LLP’s reports on the Company’s consolidated financial statements for the past two years, contained no adverse opinion or disclaimer of opinion, and were not qualified as to uncertainty, audit scope, or accounting principles.

During the Company’s two most recent fiscal years and the subsequent interim periods to the date of KPMG LLP’s dismissal, there were no disagreements between the Company and KPMG LLP on any matters of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement(s) if not resolved to the satisfaction of KPMG LLP would have caused that firm to make reference in connection with its reports to the subject matter of the disagreement(s). At the time of its dismissal, KPMG LLP had not completed its review of the Registrant’s financial statements for the three-months ended June 30, 2002 pursuant to Statement on Auditing Standards No. 71, Interim Financial Information. In connection with its review, KPMG LLP had requested that the Registrant provide to KPMG LLP additional documentation and information related to the capitalization of software development costs recorded by the Registrant during the period. Due to KPMG LLP’s dismissal, the issue had not been resolved to their satisfaction prior to their termination as the Registrant’s independent public accountants.

The Registrant has requested that KPMG LLP furnish it with a letter addressed to the Commission stating whether it agrees with the above statements.

Form 8-K filed on December 6, 2002:

On November 14, 2002 the Company dismissed KPMG LLP (“KPMG” or the “former accountant”), the Registrant’s independent public accountants. KPMG’s reports on the Company’s consolidated financial statements for the past two years, contained no adverse opinion or disclaimer of opinion, and were not qualified as to uncertainty, audit scope, or accounting principles. The Company’s dismissal of KPMG was reviewed and approved by the Company’s Audit Committee.

The Company requested a letter from KPMG at the time of their dismissal which would be addressed to the Securities and Exchange Commission (“SEC”). At the time of the initial Form 8-K Report filing on November 21, 2002 the Company had not yet received KPMG’s letter.

The Registrant is hereby filing as an exhibit to this Form 8-K/A Report a letter dated December 4, 2002 from KPMG to the SEC. Prior to filing the original Form 8-K Report on November 21, 2002, the Registrant furnished a copy of the disclosures it was proposing to make to the former accountant as required by Regulation S-K, Item 304. The former accountant

14

suggested changes to the Registrant’s proposed disclosures responsive to paragraph (a)(1)(v) of Item 304, and the Registrant made the requested changes. Specifically, the Form 8-K Report filed on November 21, 2002 included, as suggested by the former accountant, the following disclosure:

“At the time of its dismissal, KPMG LLP had not completed its review of the Registrant’s financial statements for the three-months ended June 30, 2002 pursuant to the Statement on Auditing Standards No. 71, Interim Financial Information. In connection with its review, KPMG LLP had requested that the Registrant provide to KPMG LLP additional documentation and information related to the capitalization of software development costs recorded by the Registrant during the period. Due to KPMG LLP’s dismissal, the issue had not been resolved to their satisfaction prior to their termination as the Registrant’s independent public accountants.”

The former accountant did not request any changes responsive to paragraph (a)(1)(iv) of Item 304. Based on discussions between the Registrant and the former accountant in the period up to November 21, 2002, and a draft of the response letter of the former accountant (i.e., letter stating whether it agreed with the statements made by the Registrant), which the former accountant provided to the Registrant on November 19, 2002, the Registrant understood from the former accountant that there were no disagreements required to be reported pursuant to Section (a)(1)(iv) of Item 304. The Registrant understood that any input received from KPMG through the filing deadline for the Report on Form 8-K remained subject to KPMG national office review.

Therefore, to the extent paragraph a. of the former accountant’s December 4 letter implies a disagreement prior to dismissal, the Registrant is unable to agree with the former accountant.

The Registrant’s Form 10-Q Report for the three months ended June 30, 2002 was previously amended by a Form 10-Q/A dated August 23, 2002. In preparing the Form 10-Q/A filed on August 23, 2002, the Registrant verbally cleared the text with the KPMG engagement partner before making the filing. In fact, the text dealing with the SAS 71 review not being complete was substantially similar to wording provided by KMPG. At no time before December 4, 2002 did KPMG suggest that the Form 10-Q/A should have included additional wording that “completion of [KPMG’s] SAS No. 71 review was pending the receipt of satisfactory corroborative evidence supporting the capitalization of software development costs recorded by the Registrant during the three months ended June 30, 2002.”

Therefore, to the extent paragraph b. of the former accountant’s letter implies a second disagreement prior to dismissal, the Registrant is again unable to agree with the former accountant.

Prior to the dismissal of the former accountant, the issues respecting the Registrant’s capitalization of software development costs were discussed between the Registrant’s senior management and the engagement partner of KPMG, but such discussion did not include the board or audit committee of the Registrant. When a successor accountant has been engaged, the Registrant will authorize the former accountant to respond fully to inquiries of the successor accountant concerning the capitalization of software development costs.

If the Company had not capitalized software development costs of $359,000 and $256,000 for the three-month periods ended June 30, 2002 and September 30, 2002, respectively, net income (loss) and net income (loss) per share for the three and six month periods June 30, 2002 would have been ($13,000) and $0.00 per share and $314,000 and $0.02 per share, respectively, and ($419,000) and ($0.03) per share and ($106,000) and ($0.01) per share for the three and nine month periods ended September 30, 2002, respectively.

Additionally, the Registrant’s Form 10-Qs for the June and September quarters of 2002 disclosed in detail the effect of capitalizing such software development costs. Such reports contained the following statements:

6/30/02 Report

MDA

“. . . The decrease in research and development costs in 2002 was due to the capitalization of approximately $359,000 of software development costs mainly associated with the Company’s new product development for hospitality. There were no such costs capitalized in 2001 . . .”

9/30/02 Report

15

MDA

“. . . Net cash used in investing activities for the nine months ended September 30, 2002, totaled $743,000 which represented capital expenditures of $128,000 and capitalized software of $615,000 . . .

Critical Accounting Policies & Estimates

“. . . The Company capitalized $256,000 and $615,000 of software development costs during the three and nine month periods ended September 30, 2002, respectively, relating to its new N-Tier, Internet-native corporate application suite of products written. Although the Company has not yet sold any of the modules to this suite of applications, the Company believes that its new product will produce new sales adequate to recover amounts capitalized . . .”

The Registrant expects to engage a new principal accountant within the next 10 business days and to provide the required disclosures pursuant to Form 8-K and Regulation S-K, Item 304, with respect to such engagement.

Exhibit to Form 8-K filed on December 6, 2002

The following is the text of KPMG, LLP’s letter filed as an exhibit to Form 8-K filed on December 6, 2002:

December 4, 2002

Securities and Exchange Commission
Washington, D.C. 20549

Ladies and Gentlemen:

We were previously principal accountants for MAI Systems Corporation (the “Registrant”) and, under the date of March 31, 2002, we reported on the consolidated financial statements of MAI Systems Corporation as of and for the years ended December 31, 2001 and 2000. On November 14, 2002, our appointment as principal accountants was terminated. We have read MAI Systems Corporation’s statements included under Item 4 of its Form 8-K dated November 21, 2002, and we agree with such statements except as described below:

During the Registrant’s two most recent fiscal years and the subsequent interim periods to the date of our dismissal, there were no disagreements between the Registrant and KPMG LLP on any matters of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements(s) if not resolved to our satisfaction would have caused us to make reference in connection with our reports to the subject matter of the disagreements except for the following matters:

a.

We advised management of the Registrant, based on the evidence provided to us through the date of our dismissal, that we did not concur with the Registrant’s capitalization of software development costs during the three months ended June 30, 2002.

b.

The Registrant filed its Form 10-Q for the three months ended June 30, 2002 (“Form 10-Q”) on August 14, 2002 and did not disclose that we had not completed our review of the Registrant’s financial statements for the three months ended June 30, 2002 pursuant to Statement on Auditing Standards (“SAS”) No. 71, Interim Financial Information. We informed management that if they did not amend the Form 10-Q promptly to disclose this fact, we would consider their inaction to be an illegal act. When the Registrant amended the Form 10-Q on August 23, 2002, the Registrant stated:

“.... Due to the late engagement of KPMG to commence the review process and KPMG’s unanticipated backlog of work, the Company filed its Form 10-Q in advance of KPMG’s completion of the SAS 71 review. KPMG anticipates completion of its review shortly...”

We believe that the Registrant should have disclosed that the completion of our SAS No. 71 review was pending the receipt of satisfactory corroborative evidence supporting the capitalization of software development costs recorded by the Registrant during the three months ended June 30, 2002.

Very truly yours,

/s/ KPMG LLP

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Form 8-K filed on December 9, 2002:

On December 9, 2002 the Registrant engaged the accounting firm of BDO Seidman, LLP as the independent public accountants to audit the Registrant’s financial statements for the fiscal year ending December 31, 2002, as well as future financial statements, to replace the firm of KPMG LLP, which was the Registrant’s principal independent accountant as reported in the Registrant’s Form 10-K as filed with the Securities and Exchange Commission for the period ending December 31, 2001. As reported in the Registrant’s Form 8-K filed November 21, 2002, KPMG LLP was terminated as the Registrant’s independent public accountants on November 14, 2002.

The selection of BDO Seidman, LLP to replace KPMG LLP as the Registrant’s independent public accountants was approved by the Board of Directors of the Registrant and its Audit Committee.

During the years ended December 31, 2001 and 2000 and through December 9, 2002, neither the Registrant nor anyone on its behalf consulted BDO Seidman, LLP regarding the application of accounting principles to a specific transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Registrant’s financial statements, or any other matters or reportable events as set forth in Items 304(a)(2)(i) and (ii) of Regulation S-K.

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PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information required by this Item with respect to Directors may be found in the section captioned “Election of Directors” appearing in the definitive Proxy Statement to be delivered to stockholders in connection with the Annual Meeting of Stockholders to be held in 2003. Information required by this Item with respect to executive officers may be found in the section captioned “Proposal 1 - - Election of Directors” appearing in the definitive Proxy Statement to be delivered to stockholders in connection with the Annual Meeting of Stockholders to be held in 2003. Such information is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

Information required by this Item may be found in the section captioned “Executive Compensation” appearing in the definitive Proxy Statement to be delivered to stockholders in connection with the Annual Meeting of Stockholders to be held in 2003. Such information is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information with respect to this Item may be found in the section captioned “Security Ownership of Management” appearing in the definitive Proxy Statement to be delivered to stockholders in connection with the Annual Meeting of Stockholders to be held in 2003. Such information is incorporated herein by reference.

Security authorized for issuance under equity compensation plans

The following table provides information as of December 31, 2002 regarding compensation plans (including individual compensation arrangements) under which equity securities of the Company are authorized for issuance.

					Number of securities
					remaining available for
	Number of securities to be				future issuance under equity
	issued upon exercise of		Weighted-average exercise		compensation plans
	outstanding options and		price of outstanding		(excluding securities
	warrants		options and warrants		reflected in column a)
	(a)		(b)		(c)
Plan Category
Equity Compensation Plans Approved By Security Holders		2,763,855	$	1.26		201,397
Total		2,763,855	$	1.26		201,397

See note 14 to the Consolidated Financial Statements for information regarding the material features of the above plans.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information with respect to this Item may be found in the sections captioned “Proposal 1 – Election of Directors,” and “ – Compensation Committee Interlocks and Insider Participation” and “Executive Compensation - Employment Contracts and Change of Control Arrangements” appearing in the definitive Proxy Statement to be delivered to stockholders in connection with the Annual Meeting of Stockholders to be held in 2003. Such information is incorporated herein by reference.

ITEM 14. CONTROLS AND PROCEDURES

The Company maintains controls and procedures designed to ensure that it is able to collect the information it is required to disclose in the reports it files with the SEC, and to process, summarize and disclose this information within the time periods specified in the rules of the SEC. The Company’s Chief Executive and Chief Financial Officers are responsible for establishing and maintaining these procedures, and, as required by the rules of the SEC, evaluate their effectiveness. Based on their evaluation of the Company’s disclosure controls and procedures which took place as of a date within 90 days of the filing date of this report, the Chief Executive and Chief Financial Officers believe that these procedures are effective to ensure that the Company is able to collect, process and disclose the information it is required to disclose in the reports it files with the SEC within the required time periods.

Internal Controls

The Company maintains a system of internal controls designed to provide reasonable assurance that: transactions are executed in accordance with management’s general or specific authorization; transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles, and to maintain accountability for assets; access to assets is permitted only in accordance with management’s general or specific authorization; and the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

Since the date of the most recent evaluation of the Company’s internal controls by the Chief Executive and Chief Financial Officers, there have been no significant changes in such controls or in other factors that could have significantly affected those controls, including and corrective actions with regard to significant deficiencies and material weaknesses.

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PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULE AND REPORTS ON FORM 8-K

(a)	1.	Financial Statements
			Report of Independent Certified Public Accountants from BDO Seidman, LLP
			Independent Auditors’ Report from KPMG LLP
			Consolidated Balance Sheets
			Consolidated Statements of Operations
			Consolidated Statements of Stockholders’ Deficiency and Comprehensive Income (Loss)
			Consolidated Statements of Cash Flows
			Notes to Consolidated Financial Statements
		The consolidated financial statements of the Company, the notes thereto and the Independent Auditors’ Report are incorporated herein by reference to the Company’s 2002 Annual Report.
	2.	Financial Statement Schedule
			Schedule II Valuation and Qualifying Accounts
	3.	Exhibits:

Number	Exhibit
2.1	First Amended Joint Chapter II 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, filed as 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, as filed as 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 MAI Systems Corporation, filed as Exhibit 3.1 to the Company’s 1996 Annual Report on Form 10-K.
3.2	Amendment No. 1 to the Amended and Restated Certificate of Incorporation of MAI Systems Corporation, filed as Exhibit 3.2 to the Company’s 1996 Annual Report on Form 10-K.
3.3	By-laws of MAI Systems Corporation, filed as Exhibit 2(b) to the Registrant’s Registration Statement on Form 8-A/A filed with the Securities and Exchange Commission on February 24, 1994.
3.4	Amendment No. 2 to the Amended and Restated Certificate of Incorporation of MAI Systems Corporation, filed as Exhibit 3.4 to the Company’s 1998 Annual Report on Form 10-K.

10.1	Amended and Restated MAI Systems Corporation 1993 Stock Option Plan.
10.2	Amended and Restated 1995 Non-Employee Directors Stock Option Plan.
10.3	MAI Systems Corporation’s 2001 Restricted Stock Plan.

10.4	Coast Business Credit Loan and Security Agreement, dated April 23, 1998, filed as Exhibit 10.2 to the Company’s 1998 Annual Report on Form 10-K.
10.5	Amendment Number One dated September 30, 1998 to the Loan and Security Agreement between Coast Business Credit and the Company dated April 23, 1998, filed as Exhibit 10.2 to the Company’s 1999 Annual Report on Form 10-K.
10.6	Amendment Number Two dated March 2, 1999 to the Loan and Security Agreement between Coast Business Credit and the Company dated April 23, 1998, filed as Exhibit 10.3 to the Company’s 1999 Annual Report on Form 10-K.
10.7	Amendment Number Three dated June 16, 1999 to the Loan and Security Agreement between Coast Business Credit and the Company dated April 23, 1998, filed as Exhibit 10.4 to the Company’s 1999 Annual Report on Form 10-K.
10.8	Amendment Number Four dated July 28, 1999 to the Loan and Security Agreement between Coast Business Credit and the Company dated April 23, 1998, filed as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the period ending September 30, 1999.
10.9	Letter Agreement Amendment dated October 1, 1999 to the Loan and Security Agreement between Coast Business Credit and

20

Number	Exhibit
	the Company dated April 23, 1998, filed as Exhibit 10.6 to the Company’s 1999 Annual Report on Form 10-K.
10.10	Amendment Number Five dated April 13, 2000, to the Loan and Security Agreement between Coast Business Credit and the Company dated April 23, 1998, filed as Exhibit 10.20 to the Company’s 1999 Annual Report on Form 10-K.
10.11	Amendment Number Six dated September 12, 2000, to the Loan and Security Agreement between Coast Business Credit and the Company dated April 23, 1998, filed as Exhibit 10.31 to the Company’s 2000 Annual Report on Form 10-K.
10.12	Amendment Number Seven dated September 13, 2001, to the Loan and Security Agreement between Coast Business Credit and the Company dated April 23, 1998, filed as Exhibit 10.12 to the Company’s 2001 Annual Report on Form 10-K.
10.13	Amendment Number Eight dated January 13, 2003, to the Loan and Security Agreement between Coast Business Credit and the Company dated April 23, 1998
10.14	Pledge, Assignment and Security Agreement dated September 7, 2001 between Coast Business Credit, the Company, MAI Systems International and MAI Development Corporation, filed as Exhibit 10.13 to the Company’s 2001 Annual Report on Form 10-K.
10.15	Collateral Release Agreement dated September 28, 2001 between Coast Business Credit and the Company filed as Exhibit 10.14 to the Company’s 2001 Annual Report on Form 10-K.
10.17	Forebearance Agreement between MAI Systems Corporation and CPI Securities LP, The Value Realization Fund, L.P., The Canyon Value Realization Fund and GRS Partners II dated October 28, 1999, filed as Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q for the period ending September 30, 1999.
10.18	Amendment No. 1 dated February 14, 2000 to Forebearance Agreement between MAI Systems Corporation and CPI Securities LP, The Value Realization Fund, L.P., The Canyon Value Realization Fund and GRS Partners II dated October 28, 1999, filed as Exhibit 10.18 to the Company’s 1999 Annual Report on Form 10-K.
10.19	Amendment No. 2 dated April 13, 2000 to Forebearance Agreement between MAI Systems Corporation and CPI Securities LP, The Value Realization Fund, L.P., The Canyon Value Realization Fund and GRS Partners II dated October 28, 1999, filed as Exhibit 10.19 to the Company’s 1999 Annual Report on Form 10-K.
10.20	Supplement and Amendment dated January 31, 2001 to Forebearance Agreement between MAI Systems Corporation and CPI Securities LP, The Value Realization Fund, L.P., The Canyon Value Realization Fund and GRS Partners II dated October 28, 1999, filed as Exhibit 10.32 to the Company’s 2000 Annual Report on Form 10-K.
10.21	Collateral Release Agreement dated September 28, 2001 between MAI Systems Corporation and CPI Securities LP, The Value Realization Fund, L.P., The Canyon Value Realization Fund and GRS Partners II.
10.22	Amendment No. 3 dated January 13, 2003 to Note Purchase Agreement between MAI Systems Corporation and CPI Securities LP, The Value Realization Fund, L.P., The Canyon Value Realization Fund and GRS Partners II dated October 28, 1999.
10.23	Amendment No. One dated January 13, 2003 to Intercreditor and Subordination Agreement dated April 23, 1998 between MAI Systems Corporation and CPI Securities LP, The Value Realization Fund, L.P., The Canyon Value Realization Fund, GRS Partners II and Coast Business Credit.
10.24	Warrant Agreement between CPI Securities LP, The Value Realization Fund, L.P., The Canyon Value Realization Fund and GRS Partners II.
10.25	Registration Rights Agreement between CPI Securities LP, The Value Realization Fund, L.P., The Canyon Value Realization Fund and GRS Partners II.
10.26	Settlement Agreement dated December 1, 2000 between CSA and MAI Systems Corporation, filed as Exhibit 10.27 to the Company’s 2000 Annual Report on Form 10-K.
10.27	Security Agreement dated December 1, 2000 between CSA and MAI Systems Corporation, filed as Exhibit 10.28 to the Company’s 2000 Annual Report on Form 10K.
10.28	Amendment to Subordinated Note Due 2003 dated as of April 18, 2002 between CSA Private Limited and MAI Systems Corporation, filed as an Exhibit to the Company’s Quarterly Report on Form 10-Q for the period ending March 31, 2002.
10.29	Consulting Agreement dated as of August 15, 1994, as amended as of October 17, 1994, August 16, 1996, August 31, 1997, August 31, 1998, August 31, 1999, August 31, 2000, and August 31, 2001 by and between the Company and Orchard Capital Corporation, relating to the services of Richard S. Ressler, Chairman of the Board. The original agreement and the October 17, 1994 amendment are incorporated herein by reference to the Company’s 1994 Annual Report on Form 10-K. The August 16, 1996 amendment is incorporated herein by reference to the Company’s 1996 Annual Report on Form 10-K. The August 31, 1997 amendment is incorporated herein by reference to the Company’s 1997 Annual Report on Form 10-K. The August 31, 1998 amendment is incorporated herein by reference to the Company’s 1998 Annual Report on Form 10-K. The August 31, 1999 amendment is incorporated herein by reference to the Company’s 1999 Annual Report on Form 10-K. The August 2000 amendment is incorporated herein by reference to the Company’s 2000 Annual Report on Form 10-K. The August 2001 amendment is incorporated herein by reference to the Company’s 2001 Annual Report on Form 10-K.
10.30	Premises Lease for MAI Systems Corporation corporate offices dated January 23, 2003

21

Number	Exhibit
13.1	Portions of the Company’s Annual Report to Stockholders for the year ended December 31, 2002, but only to the extent such report is expressly incorporated by reference into Items 10, 11, 12, 13 and 15(a)(1) of this report and such report is not otherwise deemed to be filed as part of this Annual Report on Form 10-K.
21.1	Subsidiaries of MAI Systems Corporation.
23.1	Report of Independent Certified Public Accountants from BDO Seidman LLP.
23.2	Consent of BDO Seidman, LLP.
23.3	Independent Auditors’ Report on Schedule and Consent from KPMG LLP
99.1	Certification of Chief Executive Officer, W. Brian Kretzmer, as required by Sections 3.02 and 9.06 of the Sarbanes Oxley Act of 2002.
99.2	Certification of Chief Financial Officer, James W. Dolan, as required by Sections 3.02 and 9.06 of the Sarbanes Oxley Act of 2002
(b)	Reports on Form 8-K during 2002:
1.	Current Report on Form 8-K dated December 10, 2002.
2.	Amended Current Report on Form 8-K dated December 6, 2002.
3.	Current Report on Form 8-K dated November 21, 2002.

22

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		MAI SYSTEMS CORPORATION
	By:	/s/ William B. Kretzmer
		William B. Kretzmer Chief Executive Officer and President
Dated: April 15, 2003

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on April 15, 2003.

Signatures	Title
/s/Richard S. Ressler Richard S. Ressler	Chairman, Director
/s/William B. Kretzmer William B. Kretzmer	Chief Executive Officer and President (Principal Executive Officer)
/s/James W. Dolan James W. Dolan	Chief Operating Officer and Chief Financial Officer (Principal Financial and Accounting Officer)
/s/Zohar Loshitzer Zohar Loshitzer	Director
/s/Stephen Ross Stephen Ross	Director
/s/Steven F. Mayer Steven F. Mayer	Director

23

CERTIFICATIONS

I, William B. Kretzmer, certify that:

1.     I have reviewed this annual report on Form 10-K of MAI Systems Corporation;

2.     Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.     Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.     The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and
c)	presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.     The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.     The registrant’s other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: April 15, 2003	By:	/s/ William B. Kretzmer
		William B. Kretzmer Chief Executive Officer

24

I, James W. Dolan, certify that:

1.     I have reviewed this annual report on Form 10-K of MAI Systems Corporation;

2.     Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.     Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.     The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and
c)	presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.     The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.     The registrant’s other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: April 15, 2003	By:	/s/ James W. Dolan
		James W. Dolan Chief Financial and Operating Officer

25

In connection with the Annual Report on Form 10-K of MAI Systems Corporation (the Company) for the year ended December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, William B. Kretzmer, Chief Executive Officer of the Company, certify pursuant to 18 U. S. C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that :

1.	The Report fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934, as amended; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: April 15, 2003	By:	/s/ William B. Kretzmer
		William B. Kretzmer Chief Executive Officer

26

In connection with the Annual Report on Form 10-K of MAI Systems Corporation (the Company) for the year ended December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, James D. Dolan, Chief Financial and Operating Officer of the Company, certify pursuant to 18 U. S. C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that :

1.	The Report fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934, as amended; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: April 15, 2003	By:	/s/ James W. Dolan
		James W. Dolan Chief Financial and Operating Officer

27

Exhibit 13.1     THE COMPANY’S ANNUAL REPORT TO STOCKHOLDERS

Sections of the Registrant’s Annual Report to Stockholders Incorporated by Reference:

13.1.1	Selected Financial Information
13.1.2	Management’s Discussion and Analysis of Financial Condition and Results of Operations
13.1.3.1	Independent Auditor Report
13.1.3.2	Independent Auditor Report
13.1.4	Consolidated Balance Sheets
13.1.5	Consolidated Statements of Operations
13.1.6	Consolidated Statements of Stockholders’ Deficiency and Comprehensive Income (Loss)
13.1.7	Consolidated Statements of Cash Flows
13.1.8	Notes to Consolidated Financial Statements

28

Exhibit 13.1.1      SELECTED FINANCIAL INFORMATION

The following table summarizes our selected financial data derived from our financials statements.

The financial data set forth below should be read in conjunction with, and is qualified in reference to, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” our consolidated financial statements and the related notes to those financial statements, included elsewhere in this report.

SELECTED FINANCIAL DATA

(in thousands, except per share data)

STATEMENT OF OPERATIONS DATA

			For the Years Ended December 31,
			1998			1999			2000			2001			2002
Revenue			$	36,389		$	37,335		$	27,321		$	23,768		$	21,937
Income (loss) from continuing operations				(4,881	)		(13,770	)		1,444			3,657			417
Income (loss) and gain (loss) from discontinued operations				2,565			2,997			(627	)		(1,525	)		(1,767	)
Net income (loss)				(2,316	)		(10,773	)		817			2,132			(1,350	)
Income (loss) per share from continuing operations:
		Basic income (loss) per share	$	(0.46	)	$	(1.26	)	$	0.13		$	0.28		$	0.03
		Diluted income (loss) per share	$	(0.46	)	$	(1.26	)	$	0.13		$	0.28		$	0.03
Income (loss) per share from discontinued operations:
		Basic income (loss) per share	$	0.23		$	0.27		$	(0.06	)	$	(0.12	)	$	(0.13	)
		Diluted income (loss) per share	$	0.23		$	0.27		$	(0.06	)	$	(0.12	)	$	(0.12	)
Net Income (loss) per share:
		Basic income (loss) per share	$	(0.23	)	$	(0.99	)	$	0.07		$	0.16		$	(0.10	)
		Diluted income (loss) per share	$	(0.23	)	$	(0.99	)	$	0.07		$	0.16		$	(0.09	)
Weighted average common shares used in determining income (loss) per share:
	Basic			10,587			10,889			10,923			13,091			13,945
	Diluted			10,587			10,889			11,206			13,263			14,395
BALANCE SHEET DATA
Working capital deficiency				(8,010	)		(14,381	)		(10,811	)		(3,787	)		(8,649	)
Total assets				35,757			24,630			16,445			8,288			6,177
Long-term debt				8,333			8,114			7,792			10,966			10,523
Stockholders’ deficiency (1)				(2,366	)		(12,569	)		(12,110	)		(12,992	)		(14,782	)

(1)     No cash dividends have been declared by the Company.

29

QUARTERLY DATA (Unaudited)

(in millions, except share data)

			1st Quarter			2nd Quarter			3rd Quarter			4th Quarter			1st Quarter		2nd Quarter		3rd Quarter			4th Quarter
			2001			2001			2001			2001(1)			2002		2002		2002			2002(1)
Revenue			$	6.5		$	6.3		$	6.1		$	4.9		$	5.7	$	5.5	$	5.7		$	5.0
Gross profit				4.3			4.4			4.3			3.5			3.8		3.7		3.9			3.7
Income (loss) from continuing operations				1.9			0.8			0.6			0.3			0.2		0.3		0.1			(0.2	)
Income (loss) from discontinued operations				(0.5	)		(0.5	)		(0.2	)		(0.3	)		0.1		0.1		(0.2	)		(1.7	)
Net income (loss)				1.4			0.3			0.4			0.0			0.3		0.3		(0.2	)		(1.8	)
Income (loss) per share(1):
	Continuing Operations:
		Basic	$	0.16		$	0.06		$	0.05		$	0.02		$	0.02	$	0.02	$	0.00		$	0.01
		Diluted		0.16			0.06			0.05			0.02			0.02		0.02		0.00			0.01
	Discontinued Operations:
		Basic		(0.04	)		(0.04	)		(0.02	)		(0.02	)		0.00		0.01		(0.01	)		(0.12	)
		Diluted		(0.04	)		(0.04	)		(0.02	)		(0.02	)		0.00		0.01		(0.01	)		(0.12	)
	Income (loss) per share:
		Basic		0.12			0.02			0.03			0.00			0.02		0.02		(0.01	)		(0.13	)
		Diluted		0.12			0.02			0.03			0.00			0.02		0.02		(0.01	)		(0.13	)
Weighted average common shares used in determining income (loss) per share (in thousands):
Basic				11,395			13,679			13,691			13,656			13,656		13,852		14,119			14,154
Diluted				11,563			13,847			13,928			13,692			13,663		14,361		14,569			14,604

⁽¹⁾ During the fourth quarter of 2002, the Company recorded a $1,021,000 loss on the sale of its Legacy and Process Manufacturing businesses. During the fourth quarter of 2001, the Company recorded a $1,262,000 gain on the sale of certain assets relating to its Legacy business. Additionally, the Company also recorded a charge of $1,351,000 in the fourth quarter of 2001 relating to the write down of intangible assets relating to its Process Manufacturing business which was held for sale with the Legacy business as of December 31, 2001.

30

Exhibit 13.1.2 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the audited consolidated financial statements included elsewhere herein. Except for the historical information contained herein, the matters discussed in this Annual Report are forward-looking statements that involve a number of risks and uncertainties. There are certain important factors and risks, including the rapid change in hardware and software technology, market conditions, competitive factors, seasonality and other variations in the buying cycles of certain of our customers, the timing of product announcements, the release of new or enhanced products, the introduction of competitive products and services by existing or new competitors, the significant risks associated with the acquisition of new products, product rights, technologies or businesses, our ability to retain technical, managerial and other personnel, and the other risks detailed from time to time in our SEC reports, including reports on Form 10-K and Form 10-Q, that could cause results to differ materially from those anticipated by the statements made herein. Therefore, historical results and percentage relationships will not necessarily be indicative of the operating results of any future period. See “Risk Factors” elsewhere in this Annual Report on Form 10-K.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect our reported assets, liabilities, revenues and expenses. On an on-going basis, we evaluate our estimates, including those related to revenue recognition, accounts receivable and intangible assets. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. This forms the basis of judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe the following critical accounting policies and the related judgments and estimates affect the preparation of our consolidated financial statements:

Software Development Costs

We capitalize costs related to the development of certain software products. Capitalization of costs begins when technological feasibility is established and ends when the product is available for general release to customers. Technological feasibility is reached upon the earlier of completion of a detailed program design or working model.

Amortization is computed on an individual product basis and is recognized over the greater of the remaining economic lives of each product or the ratio that current gross revenues for a product bear to the total of current and anticipated revenues for that product, commencing when the products become available for general release to customers. Software development costs are generally being amortized over a three-year period. We continually assess the recoverability of software development costs by comparing the carrying value of individual products to their net realizable value.

We capitalized $861,000 of software development costs during 2002 relating to our new N-Tier, Internet-native corporate application suite of products written in java. Although we have not yet sold any of the modules to this suite of applications, we believe that these new products will produce new sales adequate to recover amounts capitalized.

Revenue Recognition

We record revenue in accordance with Statement of Position (SOP) 97-2, Software Revenue Recognition, as amended. We license our products through our direct sales force and indirectly through resellers. We recognize revenue from sales of hardware, software and professional services and from arrangements involving multiple elements of each of the above. Revenue for multiple element arrangements are recorded by allocating revenue to the various elements based on their respective fair values as evidenced by vendor specific objective evidence. The fair value in multi-element arrangements is determined based upon the price charged when sold separately. Revenue is not recognized until persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable and collectibility is probable. Sales of network and computer equipment are recorded when title and risk of loss transfers. Software revenues are recorded when application software programs are shipped to end users, resellers and distributors, provided the Company is not required to provide services essential to the functionality of the software and/or significantly modify, customize or produce the software. Professional services fees for software development, training and installation are recognized as the services are provided. Maintenance revenues are initially deferred and recognized evenly over the related contract period.

31

Accounts Receivable

We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. The amount of our reserves is based on historical experience and our analysis of the accounts receivable balances outstanding. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required which would result in an additional general and administrative expense in the period such determination was made. While such credit losses have historically been within our expectations and the provisions established, we cannot guarantee that we will continue to experience the same credit loss rates that we have in the past.

Intangible Assets

We record goodwill arising from acquisitions as the excess of the purchase price over the fair value of assets acquired and such goodwill was being amortized over a useful life of five to seven years. In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (“SFAS”) No. 141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS 141 requires that all business combinations initiated after June 30, 2001 be accounted for using the purchase method and provides new criteria for recording intangible assets separately from goodwill. Existing goodwill and intangible assets will be evaluated against these new criteria, which may result in certain intangible assets being subsumed into goodwill. SFAS 142 addresses financial accounting and reporting for acquired goodwill and other intangible assets. Goodwill and intangible assets that have indefinite useful lives will not be amortized into results of operations, but instead will be evaluated at least annually for impairment and written down when the recorded value exceeds the estimated fair value. The Company adopted the provisions of SFAS No. 142 on January 1, 2002. As a result, the Company has ceased amortization of goodwill. In addition, impairment reviews may result in charges against earnings to write down the value of goodwill.

The Company did not record an impairment charge upon completion of the initial impairment reviews on January 1, 2002 or upon it’s annual impairment reviews at December 31, 2002.

Liquidity and Capital Resources

At December 31, 2002, working capital decreased from a working capital deficiency of $3,787,000 at December 31, 2001 to a working capital deficiency of $8,649,000. Excluding unearned revenue of $3,693,000, the Company’s working capital deficiency at December 31, 2002 would be $4,956,000. Excluding unearned revenue of $1,743,000, working capital deficiency at December 31, 2001 was $2,044,000. Excluding unearned revenue, the increase in the working capital deficiency of $2,912,000 was primarily attributable to increases in customer deposits of $647,000, current portion of long term debt of $3,177,000 and decreases in cash of $679,000, current assets held for sale of $204,000, accounts receivable of $562,000, notes receivable of $250,000 and prepaids and other assets of $290,000 offset by decreases in accounts payable of $826,000, accrued liabilities of $395,000, income taxes payable of $146,000 and current liabilities held for sale of $1,560,000.

Cash was $545,000 at December 31, 2002, as compared to $1,224,000 at December 31, 2001. On January 13, 2003, the Company converted its secured revolving credit facility which was based on a calculation using a rolling average of certain cash collections to a two-year term loan. At December 31, 2002, approximately $1,801,000 was drawn down under this facility. The consolidated balance sheet reflects the reclass of the secured revolving credit facility to a term loan in 2002.

Net cash used in investing activities for the year ended December 31, 2002 totaled $462,000, which is comprised of capital expenditures of $101,000 and capitalized software of $861,000, offset by payments received on notes receivable of $500,000.

Net cash used in financing activities for the year ended December 31, 2002 totaled $725,000, which was comprised of a $623,000 decrease in the secured revolving credit facility and $102,000 in repayments of long-term debt. The revolving credit facility required monthly interest only payments on the average outstanding balance for the period. The Company was required to make weekly payments of $12,500 on the subordinated debt. On January 13 2003, the Company converted its credit facility to a term loan which requires monthly principal and interest payments of $58,000 and matures on February 28, 2005. In addition, the Company amended its subordinated note to require monthly interest only payments of $52,000 through February 28, 2005, at which time it will convert to a term loan to be amortized over a three year period. The restructured debt pursuant to an intercreditor agreement between Canyon Capital and Coast Business Credit, contains various restrictions and covenants, including a minimum quick ratio of 0.30 to l.00 and minimum debt service coverage ratio of 0.90 to l.00 which commence as of and for the three-month period ended March 31, 2003. The minimum quick ratio increases to 0.31 to 1.00 as of June 30, 2003 and September 30, 2003 and to 0.34 to 1.00 as of December 31, 2003 and for each and every fiscal quarter ending thereafter. The minimum debt coverage ratio increases to 1.10 to 1.00 for the three-month period ending June 30, 2003 and to 1.25 to 1.00 for the three-month period ending September 30, 2003 and for each and every fiscal quarter thereafter. In the event that we were not in compliance with the various restrictions and covenants and were unable to receive waivers for non-compliance, the term and subordinated debt would be immediately due and payable. We believe that we will be in compliance with the covenants as of March 31, 2003 and for every fiscal quarter thereafter.

32

Stockholders’ deficiency increased from $12,992,000 at December 31, 2001 to $14,782,000 at December 31, 2002, mainly as a result of net loss of $1,350,000, an increase in accumulated other comprehensive loss of $588,000 offset by unearned compensation of $91,000, issuance of common stock of $77,000 and exercise of stock options of $9,000.

Net cash provided by continuing operations for the year ended December 31, 2002 totaled $3,028,000 and was mainly related to an increase in unearned revenue of $1,700,000 and decreases in accounts receivable of $592,000, prepaids and other assets of $395,000, loss on discontinued operations of $746,000, loss on the disposal of discontinued operations of $1,021,000 and non-cash charges for depreciation and amortization of tangible and intangible assets of $819,000 offset by a net loss for the year of $1,350,000, decreases in accounts payable and customer deposits of $445,000, accrued liabilities of $522,000, and income taxes payable of $151,000.

Although the Company has a net stockholders’ deficiency of $14,782,000 and a working capital deficit of $8,649,000 (which includes subordinated debt due to CSA of $2,800,000) at December 31, 2002, the Company believes it will continue to generate sufficient funds from operations and obtain additional financing or restructure its subordinated note with CSA to meet its operating and capital requirements. The Company is currently in negotiations with CSA to restructure the terms of the existing debt, including extending the maturity date. The Company expects to generate positive cash flow from its continuing operations during 2003 from shipping out products and services from its current backlog as of December 31, 2002 as well as new orders. In the event that the Company cannot generate positive cash flow from its continuing operations during 2003, the Company can substantially reduce its research and development efforts to mitigate cash outflow to help sustain its operations. There can be no assurance that the Company will be able to sustain profitability, generate positive cash flow from operations or restructure its debt as necessary. These financial statements have been prepared assuming the Company will continue to operate as a going concern. If the Company is unsuccessful in the aforementioned efforts, the Company could be forced to liquidate certain of its assets, reorganize its capital structure and, if necessary, seek other remedies available to the Company, including protection under the bankruptcy laws.

Contractual Obligations and Commercial Commitments

The following table summarizes the Company’s obligations and commitments as of December 31, 2002:

	Payments Due by Period (in thousands)
Contractual Cash Obligations	Total		Less Than 1 Year		1-3 Years		4-5 Years		After 5 Years
Long-Term Debt	$	10,523	$	3,289	$	2,633	$	4,012	$	589
Operating Leases		2,646		839		1,169		516		122
Consulting Agreements		336		336		—		—		—
	$	13,505	$	4,464	$	3,802	$	4,528	$	711

33

Results of Operations

Year Ended December 31, 2001 Compared to Year Ended December 31, 2002.

	December 31,			Percentage of			December 31,			Percentage of
(dollars in thousands)	2001			Revenue			2002			Revenue
Revenue:		23,768			100.0	%		21,937			100.0	%
Gross profit		16,530			69.5	%		15,017			68.5	%
Selling, general and administrative expenses		7,927			33.3	%		9,363			42.7	%
Research and development costs		4,209			17.7	%		3,307			15.1	%
Amortization of intangibles		731			3.1	%		134			0.6	%
Other operating expense (income)		(1,643	)		(6.9	%)		276			1.3	%
Interest expense, net		1,473			6.2	%		1,490			6.8	%
Income taxes		176			0.7	%		30			0.1	%
Income from continuing operations		3,657			15.4	%		417			1.9	%
Gain (loss) on disposal of discontinued operations		1,262			5.3	%		(1,021	)		(4.7	%)
Loss from discontinued operations		(2,787	)		(11.7	)%		(746	)		(3.4	%)
Net income (loss)		2,132			9.0	%		(1,350	)		(6.2	%)

Revenue for 2002 was $21,937,000 compared to $23,768,000 in 2001 or a 7.7% decrease. Revenue decreased $1,831,000 in 2002, as a result of decreased professional services and maintenance services mainly due to decreased capital spending on information technology in 2002 due to the effects of the September 11, 2001 terrorist attacks on the hospitality industry.

The decrease in revenue in 2002 was mainly attributable to a decrease in service volume and rates as many hotels have reduced their operating costs by canceling or reducing contracted services, including support, in a post September 11, 2001 economy. Many hotels have requested that their suppliers reduce the cost of service or delay any price increases while they are experiencing reduced guest occupancy and lower average daily rates on their inventory of rooms. Certain hotels have also established their own help desks to further reduce costs. As a result, the Company did not raise support prices in 2002 and agreed, with certain of its clients, to provide a second line of support versus a first line of support that was previously provided to such clients. Our continuing hospitality business unit continues to generate sufficient cash from operations to adequately fund its ongoing operating activities.

Gross profit for 2002 decreased to $15,017,000 (68.5%) from $16,530,000 (69.5%) in 2001. The decrease in gross profit is mainly due to the decrease in professional services and maintenance services revenues during the period in excess of the Company’s cost reductions.

Selling, general and administrative expenses (“SG&A”) increased from $7,927,000 in 2001 to $9,363,000 in 2002. The increase is mainly due to an increase in selling & marketing, expenses for trade shows, advertisements and additional head count and other employee related expenses as the Company actively markets components of its newly developed enterprise suite of applications.

The decrease in net research and development costs in 2002 was mainly due to the capitalization of approximately $861,000 of software development costs associated with the Company’s new product development for hospitality. There were no such costs capitalized in 2001.

The decrease in amortization of intangibles in 2002 versus the comparable period of 2001 is due to the fact that goodwill is no longer amortized to expense commencing January 1, 2002. Goodwill amortization was $420,000 for the year ended December 31, 2001.

Other operating (income) expense was ($1,643,000) in 2001 and $276,000 in 2002. The decrease in other operating income in 2002 is mainly due to the Company issuing Common Stock to certain creditors to satisfy its obligations, which resulted in a gain of $1,377,000 in the first quarter of 2001. There were no such transactions in 2002.

Net interest expense net was $1,473,000 in 2001 compared to $1,490,000 in 2002. The slight increase is mainly due a decrease in interest income of $67,000 for 2001 compared to 2002.

The income tax provision only reflects a tax provision for our foreign operations and alternative minimum taxes for domestic operations due to the utilization of net operating loss carryforwards in 2001.

In 2001, the Company sold certain assets and liabilities relating to its domestic Legacy hardware maintenance division to a third party, resulting in a gain of $1,262,000. In the fourth quarter of 2002, the Company sold all the assets and liabilities of it’s Process Manufacturing and Canadian subsidiaries to third parties, resulting in a loss of $1,021,000.

34

Results from discontinued operations improved from a loss of $2,787,000 in 2001 to loss of $746,000 in 2002 mainly as a result of decreased Process Manufacturing operating expenses from $4,871,000 in 2001 to $1,486,000 in 2002. Revenue from discontinued operations decreased from $5,078,000 in 2001 to $2,344,000 in 2002. Revenue from Process Manufacturing decreased from $1,980,000 in 2001 to $1,443,000 in 2002 reflecting the process ERP industry stagnation and decline.

Results of Operations

Year Ended December 31, 2000 Compared to Year Ended December 31, 2001.

	December 31,			Percentage of			December 31,			Percentage of
(dollars in thousands)	2000			Revenue			2001			Revenue
Revenue	$	27,321			100.0	%	$	23,768			100.0	%
Gross profit		15,666			57.3	%		16,530			69.5	%
Selling, general and administrative expenses		8,942			32.7	%		7,927			33.3	%
Research and development costs		3,068			11.2	%		4,209			17.7	%
Amortization of intangibles		740			2.7	%		731			3.1	%
Other operating (income) expense		50			0.2	%		(1,643	)		(6.9	%)
Interest expense, net		1,260			4.6	%		1,473			6.2	%
Income taxes		162			0.6	%		176			0.7	%
Gain on disposal of discontinued operations		—			—			1,262			5.3	%
Loss from discontinued operations		(627	)		(2.3	%)		(2,787	)		(11.7	)%
Net income	$	817			3.0	%	$	2,132			9.0	%

Revenue for 2001 was $23,768,000 compared to $27,321,000 in 2000 or a 13.0% decrease. Revenue decreased from 2000, as a result of decreased software sales and professional services mainly due to decreased market spending on information technology in the fourth quarter of 2001 due to the effects of the September 11, 2001 terrorist attacks on the hospitality industry.

The decrease in revenue in 2001 was mainly attributable to a decrease in the volume of sales. Our respective business units continue to generate sufficient cash from operations to adequately fund the respective ongoing operating activities.

Revenue in our Asian operations decreased from $3,960,000 in 2000 to $2,585,000 in 2001. The deterioration of revenue from 2000 to 2001 is mainly due to the continued generally depressed condition of the Asian economies resulting in a decrease in sales in the region.

Gross profit increased to $16,530,000 (69.5%) in 2001 from $15,666,000 (57.3%) in 2000 primarily due to the implementation of several cost reduction measures which included a significant decrease in the use of outside consultants for professional services in 2001 compared to 2000. Additionally, the company was no longer required to pay royalties on its LTS product line in 2001, which resulted in improved gross profit percentages on software.

Selling, general and administrative expenses (“SG&A”) decreased 11.4% from $8,942,000 in 2000 to $7,927,000 in 2001. The decrease is related to the implementation of several cost reduction measures, including our reduction in payroll in the third quarter of 2001. Marketing expenses decreased from 2000 to 2001 as a result of decreasing our product advertising in trade publications and attending fewer trade shows.

Research and development costs increased 37.2% over the comparable period of 2000. This is primarily a result of increased headcount in the Company’s hospitality division and an increase in the use of contracted research and development personnel in 2001. Research and development costs increased from $3,068,000 in 2000 to $4,209,000 in 2001 as a result of the Company’s efforts and focus on new product development as well as enhancements to its current products.

Other operating (income) expense improved from $50,000 in 2000 to ($1,643,000) in 2001 primarily as a result of the Company issuing Common Stock to certain creditors to satisfy its obligations, which resulted in a gain of $1,377,000 in 2001. There were no such transactions in 2000.

Net interest expense was $1,260,000 in 2000 compared to $1,473,000 in 2001. The increase in 2001 is mainly due to the increased debt resulting from the company’s settlement with CSA, which required the Company to issue $2.8 million of secured debt in February 2001 bearing interest at 10% per annum.

The income tax provision only reflects a tax provision for our foreign operations and alternative minimum taxes for domestic operations due to the utilization of net operating loss carry forwards in 2000 and 2001.

In 2001, the Company sold certain assets and liabilities relating to its domestic Legacy hardware maintenance division to a

35

third party, resulting in a gain of $1,262,000. There was no such transaction in 2000.

The increase in the loss from discontinued operations consisting of Process Manufacturing and Legacy divisions from $627,000 in 2000 to $2,787,000 in 2001 is due to increased losses incurred at the Process Manufacturing business from approximately $2.0 million in 2000 to $3.7 million in 2001. The increase in losses of $1.7 million mainly related to the write off of approximately $1.4 million of intangible assets in 2001. There were no such charges in 2000.

Recent Accounting Pronouncements

In August 2001, the FASB issued FAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” FAS No. 144 supersedes FAS No. 121, “Accounting for the Impairment of Long-Lived Assets,” and the accounting and reporting provisions of APB No. 30, “Reporting the Results of Operations — Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions,” for the disposal of a segment of a business. The provisions of FAS No. 144 are effective for financial statements issued for fiscal years beginning after December 15, 2001. The Company elected to adopt FAS No. 144 early, and it is effective as of January 1, 2001. The adoption of this statement did not have a material effect on the Company’s consolidated financial statements.

In April 2002, the FASB issued FAS No. 145, “Rescission of FAS Statements No. 4, 44 and 64, Amendment of FAS Statement No. 13, and Technical Corrections,” to update, clarify and simplify existing accounting pronouncements. FAS No. 4, which required all gains and losses from debt extinguishment to be aggregated and, if material, classified as an extraordinary item, net of related tax effect, was rescinded. Consequently, FAS No. 64, which amended FAS No. 4, was rescinded because it was no longer necessary. The adoption of this statement did not have a material effect on the Company’s consolidated financial statements.

In June 2002, the FASB issued FAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” FAS No. 146 addresses accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring).” FAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at fair value when the liability is incurred. FAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. The Company will adopt the provisions of FAS 146 for exit or disposal activities that are initiated after December 31, 2002.

In December 2002, the FASB issued FAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure”, which amended FAS No. 123, “Accounting for Stock-Based Compensation.” The new standard provides alternative methods of transition for a voluntary change to the fair market value based method for accounting for stock-based employee compensation. Additionally, the statement amends the disclosure requirements of FAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. This statement is effective for financial statements for the year ended December 31, 2002. In compliance with FAS No. 148, the Company has elected to continue to follow the intrinsic value method in accounting for its stock-based employee compensation plan as defined by APB No. 25 and has made the applicable disclosures in Note 14.

36

Exhibit 13.1.3.1

Report of Independent Certified Public Accountants

The Board of Directors

MAI Systems Corporation:

We have audited the accompanying consolidated balance sheet of MAI Systems Corporation and subsidiaries as of December 31, 2002 and the related consolidated statements of operations, stockholders’ deficiency and cash flows for the year ended December 31, 2002. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of MAI Systems Corporation and subsidiaries as of December 31, 2002 and the results of their operations and their cash flows for the year ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America.

As discussed in note 1 to the consolidated financial statements, effective January 1, 2002, MAI Systems Corporation and subsidiaries adopted the provisions of SFAS No. 142, “Goodwill and other Intangible Assets”.

/s/ BDO Seidman, LLP

Costa Mesa, California
April 14, 2003

37

Exhibit 13.1.3.2

Independent Auditors’ Report

The Board of Directors

MAI Systems Corporation:

We have audited the accompanying consolidated balance sheets of MAI Systems Corporation and subsidiaries as of December 31, 2001, and the related consolidated statements of operations, stockholders’ deficiency and cash flows for each of the years in the two-year period ended December 31, 2001. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of MAI Systems Corporation and subsidiaries as of December 31, 2001, and the results of their operations and their cash flows for each of the years in the two-year period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America.

/s/ KPMG LLP

Costa Mesa, California
March 31, 2002

38

Exhibit 13.1.4      Consolidated Balance Sheets

MAI SYSTEMS CORPORATION

CONSOLIDATED BALANCE SHEETS

			As of December 31,
			(in thousands, except share data)
			2001			2002
ASSETS
Current assets:
Cash			$	1,224		$	545
Receivables, less allowance for doubtful accounts of $1,023 in 2001 and $336 in 2002				2,396			1,834
Inventories				90			60
Note receivable				500			250
Prepaids and other assets				918			628
Current assets held for sale				204			—
		Total current assets		5,332			3,317
Furniture, fixtures and equipment, net				1,221			843
Note receivable				250			—
Intangibles, net				799			1,823
Assets held for sale				613			—
Other assets				73			194
		Total assets	$	8,288		$	6,177
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY
Current liabilities:
	Current portion of long-term debt		$	112		$	3,289
	Accounts payable			1,903			1,077
	Customer deposits			1,164			1,811
	Accrued liabilities			2,402			2,007
	Income taxes payable			235			89
	Unearned revenue			1,743			3,693
	Current liabilities held for sale			1,560			—
		Total current liabilities		9,119			11,966
Line of credit				2,424			—
Long-term debt				8,542			7,234
Other liabilities				1,195			1,759
		Total liabilities		21,280			20,959
Stockholders’ deficiency:
	Preferred Stock, par value $0.01 per share; 1,000,000 shares authorized, none issued and outstanding			—			—
	Common Stock, par value $0.01 per share; authorized 24,000,000 shares; 13,656,085 and 14,675,752 shares issued and outstanding at December 31, 2001 and 2002, respectively			140			150
	Additional paid-in capital			218,022			218,251
	Accumulated other comprehensive income (loss):
		Minimum pension liability		(461	)		(918	)
		Foreign currency translation		100			(31	)
	Unearned compensation			—			(91	)
	Accumulated deficit			(230,793	)		(232,143	)
		Total stockholders’ deficiency		(12,992	)		(14,782	)
Total liabilities and stockholders’ deficiency			$	8,288		$	6,177

The accompanying notes are an integral part of these consolidated financial statements.

39

Exhibit 13.1.5 Consolidated Statements of Operations

MAI SYSTEMS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

					For the Years Ended December 31,
					(in thousands, except per share data)
					2000			2001			2002
Revenue:
		Software			$	6,857		$	5,329		$	4,585
		Network and computer equipment				1,301			789			996
		Services				19,163			17,650			16,356
				Total revenue		27,321			23,768			21,937
Direct costs:
		Software				1,106			269			437
		Network and computer equipment				1,041			479			770
		Services				9,508			6,490			5,713
				Total direct costs		11,655			7,238			6,920
				Gross profit		15,666			16,530			15,017
Selling, general and administrative expenses						8,942			7,927			9,363
Research and development costs						3,068			4,209			3,307
Amortization of intangibles						740			731			134
Other operating expense (income)						50			(1,643	)		276
				Operating income		2,866			5,306			1,937
Interest income						263			72			5
Interest expense						(1,523	)		(1,545	)		(1,495	)
Income from continuing operations before income taxes						1,606			3,833			447
Income taxes						(162	)		(176	)		(30	)
		Income from continuing operations				1,444			3,657			417
Discontinued operations:
		Gain (loss) on disposal of discontinued operations				—			1,262			(1,021	)
		Loss from discontinued operations				(627	)		(2,787	)		(746	)
				Total loss from discontinued operations		(627	)		(1,525	)		(1,767	)
				Net income (loss)	$	817		$	2,132		$	(1,350	)
Income (loss) per share:
	Continuing Operations:
			Basic income per share		$	0.13		$	0.28		$	0.03
			Diluted income per share		$	0.13		$	0.28		$	0.03
	Discontinued Operations:
			Basic (loss) per share		$	(0.06	)	$	(0.12	)	$	(0.13	)
			Diluted (loss) per share		$	(0.06	)	$	(0.12	)	$	(0.12	)
	Net income (loss) per share:
			Basic income (loss) per share		$	0.07		$	0.16		$	(0.10	)
			Diluted income (loss) per share		$	0.07		$	0.16		$	(0.09	)
		Weighted average common shares used in determining income (loss) per share:
Basic						10,923			13,091			13,945
Diluted						11,206			13,263			14,395

The accompanying notes are an integral part of these consolidated financial statements.

40

Exhibit 13.1.6 Consolidated Statements of Stockholders’ Deficiency

MAI SYSTEMS CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY
(in thousands)

						Accumulated
						Other									Total			Total
			Additional			Comprehensive			Unearned			Accumulated			Stockholders'			Comprehensive
	Common Stock		Paid-In Capital			Income (Loss)			Compensation			Deficit			Deficiency			Income (Loss)
Balance at December 31, 1999	$	112	$	220,567		$	494		$	—		$	(233,742	)	$	(12,569	)
Stock option compensation		1		55			—			—			—			56			—
Translation adjustments		—		—			(414	)		—			—			(414	)		(414	)
Net income		—		—			—			—			817			817			817
Balance at December 31, 2000		113		220,622			80			—			(232,925	)		(12,110	)		403
Issuance of Common Stock		8		219			—			—			—			227			—
Legal settlement		19		(2,819	)		—			—			—			(2,800	)		—
Minimum pension liability		—		—			(461	)		—			—			(461	)		(461	)
Translation adjustments		—		—			20			—			—			20			20
Net income		—		—			—			—			2,132			2,132			2,132
Balance at December 31, 2001		140		218,022			(361	)		—			(230,793	)		(12,992	)		1,691
Issuance of Common Stock		3		74			—			—			—			77			—
Minimum pension liability		—		—			(457	)		—			—			(457	)		(457	)
Exercise of stock options		1		8			—			—			—			9			—
Unearned compensation		6		147			—			(153	)		—			—			—
Amortization of unearned compensation		—		—			—			62			—			62			—
Translation adjustments		—		—			(131	)		—			—			(131	)		(131	)
Net loss		—		—			—			—			(1,350	)		(1,350	)		(1,350	)
Balance at December 31, 2002	$	150	$	218,251		$	(949	)	$	(91	)	$	(232,143	)	$	(14,782	)	$	(1,938	)

The accompanying notes are an integral part of these consolidated financial statements.

41

Exhibit 13.1.7 Consolidated Statements of Cash Flows

MAI SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

				2000			2001			2002
Cash flows from operating activities:
	Net income (loss)			$	817		$	2,132		$	(1,350	)
	Loss from discontinued operations				627			2,787			746
	Loss (gain) on disposal of discontinued operations				—			(1,262	)		1,021
		Income from continuing operations			1,444			3,657			417
	Adjustments to reconcile income from continuing operations to net cash provided by (used in) operating activities, net of business acquisitions and dispositions:
		Gain on creditor settlements			—			(1,377	)		—
		Gain on sale of GSI			—			(245	)		—
		Amortization of intangibles			740			731			134
		Depreciation and amortization			749			721			685
		Stock option compensation expense			56			—			62
		Provision for doubtful accounts receivable			350			47			89
		Changes in assets and liabilities:
			(Increase) decrease in receivables		748			1,697			592
			(Increase) decrease in inventories		29			(13	)		30
			(Increase) decrease in prepaids and other asset		190			(110	)		327
			(Increase) decrease in other assets		40			(6	)		68
			(Decrease) increase in accounts payable and customer deposits		(3,646	)		(4,699	)		(445	)
			(Decrease) increase in accrued liabilities		107			(255	)		(522	)
			(Decrease) increase in income taxes payable		(261	)		20			(151	)
			(Decrease) increase in unearned revenue		(1,314	)		(2,051	)		1,700
			(Decrease) increase in other liabilities		27			452			42
			Net cash provided by continuing operations		(741	)		(1,431	)		3,028
			Net cash provided by (used in) discontinued operations		989			(17	)		(2,509	)
			Net cash provided by (used in) operating activities		248			(1,448	)		519
Cash flows from investing activities:
		Capital expenditures			(127	)		(158	)		(101	)
		Payments received on note receivable			—			2,495			500
		Software development costs			—			—			(861	)
			Net cash used in investing activities		(127	)		2,337			(462	)
Cash flows from financing activities:
	Repayments of long-term debt				(245	)		(321	)		(102	)
	Repayments of Bridge Loan				(1,230	)		(220	)		—
	Net decrease in line of credit				(312	)		(155	)		(623	)
			Net cash provided by (used in) financing		(1,787	)		(696	)		(725	)
			Effect of exchange rate changes on cash		40			12			(11	)
			Net increase (decrease) in cash		(1,626	)		205			(679	)
Cash at beginning of year					2,645			1,019			1,224
Cash at end of year				$	1,019		$	1,224		$	545
Cash paid during the period for:
	Interest			$	1,190		$	1,504		$	990
	Income taxes			$	148		$	96		$	176

Supplemental disclosure of non-cash investing and financing activities (see notes 6, 8, 9, 14 and 18).

The accompanying notes are an integral part of these consolidated financial statements.

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Exhibit 13.1.8 Notes to Consolidated Financial Statements

MAI SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of the Business

MAI Systems Corporation (the “Company” or “MAI”) provides total information technology solutions to the hospitality, resort and destination industry. The solutions provided by the Company typically include applications software, computer hardware, peripherals and wide and local area network design, implementation, installation and support. The software applications are generally the Company’s proprietary software, or software which is licensed to the Company on an exclusive basis. The hardware, peripherals and networking systems are generally third-party products, which we distribute. Directly and through arrangements with third parties, we provide on-site and off-site service and support to users of network and systems hardware.

Liquidity

Although the Company has a net stockholders’ deficiency of $14,782,000 and a working capital deficit of $8,649,000 (which includes subordinated debt due to CSA of $2,800,000) at December 31, 2002, the Company believes it will continue to generate sufficient funds from operations and obtain additional financing or restructure its subordinated note with CSA to meet its operating and capital requirements. The Company is currently in negotiations with CSA to restructure the terms of the existing debt, including extending the maturity date (see note 9). The Company expects to generate positive cash flow from its continuing operations during 2003 from products and services from its current backlog as of December 31, 2002 as well as new orders. In the event that the Company cannot generate positive cash flow from its continuing operations during 2003, the Company can substantially reduce its research and development efforts to mitigate cash outflow to help sustain its operations. There can be no assurance that the Company will be able to sustain profitability, generate positive cash flow from operations or obtain the necessary restructure of its debt. These financial statements have been prepared assuming the Company will continue to operate as a going concern. If the Company is unsuccessful in the aforementioned efforts, the Company could be forced to liquidate certain of its assets, reorganize its capital structure and, if necessary, seek other remedies available to the Company including protection under the bankruptcy laws. We believe that it is likely that we will delist from AMEX and apply for a listing on the electronic bulletin board sponsored by Nasdaq in 2003.

Principles of Consolidation

The consolidated financial statements of the Company include the accounts of its domestic operations and its majority and wholly owned subsidiaries. All significant intercompany transactions and accounts have been eliminated in consolidation.

Use of Estimates

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the dates of the balance sheets and revenues and expenses for the periods. Actual results could materially differ from those estimates.

Revenue Recognition

The Company earns revenue from sales of hardware, software and professional services and from arrangements involving multiple elements of each of the above. Revenue for multiple element arrangements are recorded by allocating revenue to the various elements based on their respective fair values as evidenced by vendor specific objective evidence. The fair value in multi-element arrangements is determined based upon the price charged when sold separately. Revenue is not recognized until persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable and collectibility is probable. Sales of network and computer equipment are recorded when title and risk of loss transfers. Software revenues are recorded when application software programs are shipped to end users, resellers and distributors, provided the Company is not required to provide services essential to the functionality of the software or significantly modify, customize or produce the software. Professional services fees for software development, training and installation are recognized as the

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services are provided. Maintenance revenues are recorded evenly over the related contract period.

Cash Equivalents

Cash equivalents consist of highly liquid investments which are readily convertible into known amounts of cash and have original maturities of three months or less, when purchased.

Allowance for Doubtful Accounts

The Company records an allowance for doubtful accounts based on specifically identified amounts that it believes is uncollectible. The Company also records additional allowances based upon certain percentages of our aged receivables, which are determined based on historical experience and or assessment of the general financial conditions affecting our customer base. If the Company’s actual collection experience changes, revisions to its allowance may be required. Any unanticipated change in the Company’s customer’s credit worthiness or other matters affecting the collectibility of amounts due from such customers, could have a material affect on its results of operations in the period in which such changes or events occur. After all attempts to collect a receivable have failed, the receivable is written off against the allowance.

Inventories

Inventories are valued at the lower of first in, first out cost or market.

Furniture, Fixtures and Equipment

Furniture, fixtures and equipment are recorded at cost and depreciated on a straight-line basis over estimated useful lives ranging from 3 to 5 years. Leasehold improvements are amortized on a straight-line basis over the shorter of the lease term or their estimated useful lives.

Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of

Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” provides a single accounting model for long-lived assets to be disposed of. SFAS No. 144 also changes the criteria for classifying an asset as held for sale, and broadens the scope of businesses to be disposed of that qualify for reporting as discontinued operations and changes the timing of recognizing losses on such operations.

The Company adopted SFAS No. 144 on January 1, 2001. The adoption of SFAS No.144 did not affect the Company’s financial statements. In accordance with SFAS No. 144, long-lived assets, such as furniture, fixtures and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, and impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposed group classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet.

Prior to the adoption of SFAS No. 144, the Company accounted for long-lived assets to be disposed of in accordance with SFAS No. 121, “Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of”.

Goodwill

Prior to 2002, goodwill, representing the excess of the purchase price over the estimated fair value of the net assets of the acquired business, was amortized over the period of expected benefit of five to seven years. Long-lived assets and certain identifiable intangibles to be held and used by the Company were reviewed for impairment whenever events or changes in circumstances indicated that the carrying amount of the asset may not be recoverable. Recoverability of assets to be held and used was assessed by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets were considered to be impaired, the impairment recognized was measured by the amount by which the carrying amount of the assets exceeded the fair value of the assets. Assets that were to be disposed of were reported at the lower of the carrying amount or fair value less cost to sell.

However, effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” (“SFAS No. 142”) which requires that the Company cease amortization of goodwill and all intangible assets having indefinite useful economic lives. Such assets are not to be amortized until their

44

lives are determined to be finite, however, a recognized intangible asset with an indefinite useful life should be tested for impairment annually or on an interim basis if events or circumstances indicate that the fair value of the asset has decreased below its carrying value. At December 31, 2002, the Company evaluated its goodwill and determined that fair value had not decreased below carrying value and no adjustment to impair goodwill was necessary in accordance with SFAS No. 142.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The realizability of the deferred tax asset is assessed throughout the year and a valuation allowance is established accordingly.

Comprehensive Income (Loss)

Comprehensive income (loss) comprises net income (loss) plus the unrealized gains and losses associated with foreign currency translations and minimum pension liability.

Stock Option Plans

The Company accounts for stock-based compensation in accordance with Accounting Principles Board, APB, No. 25, “Accounting for Stock Issued to Employees.” The Company has adopted the disclosure-only provisions of FAS No. 123 “Accounting for Stock-Based Compensation.” Under APB No. 25, compensation expense relating to employee stock options is determined based on the excess of the market price of the Company’s stock over the exercise price on the date of grant, the intrinsic value method, versus the fair value method as provided under FAS No. 123.

At December 31, 2002, the Company had two stock-based employee compensation plans, which is described more fully in Note 14. The Company accounts for that plan under the recognition and measurement principles of APB No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. Accordingly, no stock-based employee compensation cost is reflected in net income (loss), as all options granted under the plan had an exercise price equal to the market value of the underlying common stock on the date of grant. Had compensation cost for the Company’s stock option plan been determined based on the fair value at the grant date for awards for years ended December 31, 2000, 2001 and 2002, consistent with the provisions of FAS No. 123, the Company’s net loss and loss per share or net income and net income and net income per share would have increased or decreased respectively. See Note 14 for the effect on net income (loss) and income (loss) per share if the Company had applied the fair value recognition provisions of FAS No. 123.

The following table represents the effect on net income and earnings per share if the Company had applied the fair value based method and recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation”, to stock-based employee compensation.

		Years ended December 31,
		(in thousands, except per share data)
		2000			2001			2002
Net income (loss):	As reported	$	817		$	2,132		$	(1,350	)
	Add: Stock-based employee compensation expense recorded		56			—			62
	Less: Stock based employee compensation expense determined under fair value calculations		(1,439	)		(793	)		(193	)
	Pro forma		(566	)		1,339			(1,481	)
Basic income (loss) per share:	As reported	$	0.07		$	0.16		$	(0.09	)
	Add: Stock-based employee compensation expense recorded		—			—			—
	Less: Stock based employee compensation expense determined under fair value calculations		(0.12	)		(0.06	)		(0.01	)
	Pro forma		(0.05	)		0.10			(0.10	)

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		Years ended December 31,
		(in thousands, except per share data)
		2000			2001			2002
Diluted income (loss) per share:	As reported	$	0.07		$	0.16		$	(0.09	)
	Add: Stock-based employee compensation expense recorded		—			—			—
	Less: Stock based employee compensation expense determined under fair value calculations		(0.12	)		(0.06	)		(0.01	)
	Pro forma	$	(0.05	)	$	0.10		$	(0.10	)

Pension Plan

The Company established a defined benefit plan for employees that were employed by the Company’s maintenance service business acquired in 1988. The plan provides benefits based upon a percentage of the participant’s career income with the Company or years of service while an employee of the Company. The funding policy is to contribute annually an amount to fund pension costs as actuarially determined by an independent pension consulting firm.

Foreign Currency Translation

The functional currency for all foreign subsidiaries is the applicable local currency. Accordingly, all translation adjustments for foreign subsidiaries, and gains and losses on intercompany foreign currency transactions that are of a long-term nature, are included in accumulated other comprehensive income (loss) as a separate component of stockholders’ deficiency.

There were no material net foreign currency transaction gains (losses) in 1999, 2000 and 2001. These amounts are included in selling, general and administrative expenses in the accompanying consolidated statements of operations.

Software Development Costs

The Company capitalizes costs related to the development of certain software products. Capitalization of costs begins when technological feasibility is established and ends when the product is available for general release to customers. Technological feasibility is reached upon the earlier of completion of a detailed program design or working model.

Amortization is computed on an individual product basis and is recognized over the greater of the remaining economic lives of each product or the ratio that current gross revenues for a product bear to the total of current and anticipated revenues for that product, commencing when the products become available for general release to customers. Software development costs are generally being amortized over a three-year period. The Company continually assesses the recoverability of software development costs by comparing the carrying value of individual products to their net realizable value.

The Company capitalized $861,000 of software development costs during 2002 relating to its new N-Tier, Internet-native corporate application suite of products written in java. Although the Company has not yet sold any of the modules to this suite of applications, the Company believes that its new product will produce new sales adequate to recover amounts capitalized.

Research and Development Costs

During 2000, 2001, and 2002, we incurred $3,068,000, $4,209,000, and $3,307,000, (net of capitalized software of $861,000) respectively, for research and development activities, which are expensed as incurred. Our research and development expenditures related to the support and extension of existing software products and the development of new products.

Fair Value of Financial Instruments

As of December 31, 2001 and 2002, the carrying value of cash receivables, notes receivable, accounts payable, accrued liabilities, income taxes payable and other liabilities approximate fair value due to the short-term nature of such instruments. The carrying value of long-term debt, including the Company’s line of credit, approximates fair value as the related interest rates approximate rates currently available to the Company.

Income (Loss) per Share of Common Stock

Basic and diluted income (loss) per share is computed using the weighted average shares of common stock outstanding

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during the period. Consideration is also given in the dilutive income per share calculation for the dilutive effect of common stock equivalents which might result from the exercise of stock options and warrants.

Recent Accounting Pronouncements

In August 2001, the FASB issued FAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” FAS No. 144 supersedes FAS No. 121, “Accounting for the Impairment of Long-Lived Assets,” and the accounting and reporting provisions of APB No. 30, “Reporting the Results of Operations — Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions,” for the disposal of a segment of a business. The provisions of FAS No. 144 are effective for financial statements issued for fiscal years beginning after December 15, 2001. The Company elected to adopt FAS No. 144 early, and it is effective as of January 1, 2001. The adoption of this statement did not have a material impact on the Company’s financial position or results of operations.

In April 2002, the FASB issued FAS No. 145, “Rescission of FAS Statements No. 4, 44 and 64, Amendment of FAS Statement No. 13, and Technical Corrections,” to update, clarify and simplify existing accounting pronouncements. FAS No. 4, which required all gains and losses from debt extinguishment to be aggregated and, if material, classified as an extraordinary item, net of related tax effect, was rescinded. Consequently, FAS No. 64, which amended FAS No. 4, was rescinded because it was no longer necessary. The adoption of this statement did not have a material effect on the Company’s consolidated financial statements.

In June 2002, the FASB issued FAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” FAS No. 146 addresses accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring).” FAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at fair value when the liability is incurred. FAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. The Company will adopt the provisions of FAS 146 for exit or disposal activities that are initiated after December 31, 2002.

In December 2002, the FASB issued FAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure”, which amended FAS No. 123, “Accounting for Stock-Based Compensation.” The new standard provides alternative methods of transition for a voluntary change to the fair market value based method for accounting for stock-based employee compensation. Additionally, the statement amends the disclosure requirements of FAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. This statement is effective for financial statements for the year ended December 31, 2002. In compliance with FAS No. 148, the Company has elected to continue to follow the intrinsic value method in accounting for its stock-based employee compensation plan as defined by APB No. 25 and has made the applicable disclosures in Note 14.

Reclassifications

Certain prior year amounts have been reclassified to conform with the 2002 presentation.

NOTE 2 – INVENTORIES

     Inventories are summarized as follows:

	December 31,
	(in thousands)
	2001		2002
Finished goods	$	75	$	45
Replacement parts		15		15
	$	90	$	60

The Company has purchased many products and components from single sources of supply. Because the Company’s current products are industry standard, the Company 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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NOTE 3 – BUSINESSES HELD FOR SALE

In the fourth quarter of 2001, the Company’s Board of Directors adopted a plan to sell its Process manufacturing and Legacy divisions. The Process manufacturing business division designs, sells, installs and supports total technology solutions featuring complex wide and local area networks to the process manufacturing industry. The Legacy business provides a wide array of products and services to its customers who continue to use its proprietary host-based computer systems, including field engineering services, new and replacement equipment, operating systems and software application products. These products and services upgrade, enhance and integrate the legacy systems with currently available computer technologies.

During the fourth quarter of 2002, the Company successfully sold its Process Manufacturing and Legacy businesses (see note 6).

In accordance with SFAS No. 144, the Company has reflected all of the assets and liabilities of Process Manufacturing and Legacy in the consolidated balance sheets as held for sale and the operating results of these businesses have been reflected as discontinued operations in the consolidated statements of operations for all periods presented.

Summarized below is historical financial information about Process Manufacturing and Legacy (in thousands):

	2000			2001			2002
Revenue	$	10,266		$	5,078		$	2,344
Loss, net of tax of zero		(627	)		(1,525	)		(1,767	)

NOTE 4 – FURNITURE, FIXTURES AND EQUIPMENT

The major classes of furniture, fixtures and equipment are as follows:

	2001			2002
	(in thousands)
Furniture, fixtures and equipment	$	2,760		$	3,238
Office equipment		3,178			2,542
Leasehold improvements		262			246
		6,200			6,026
Less: accumulated depreciation and amortization		(4,979	)		(5,183	)
	$	1,221		$	843

NOTE 5 – JOINT VENTURES

The Company is a joint venture partner with Metro Systems Corporation Limited (“MSC”) for the purpose of marketing and selling the Company’s software in Thailand. The Company has a 49.9% interest in the joint venture and accounted for this investment using the equity method of accounting. During 1998 the investment in MSC, recorded at $76,000, was written off by the Company. Summarized financial information of the investees has not been provided, as such combined amounts are not material.

NOTE 6 – ACQUISITIONS, DIVESTITURE, AGREEMENTS AND FINANCING

Hotel Information Systems, Inc.

Effective August 9, 1996, the Company acquired substantially all of the assets and assumed certain liabilities of Hotel Information Systems, Inc. (“HIS”) pursuant to an asset purchase agreement dated June 30, 1996 (as amended July 10, 1996) for 1,179,000 unregistered shares of the Company’s common stock valued at $10,900,000. The net assets acquired from HIS are used in the business of software design, engineering and service relating to hotel information systems. The net assets also included subsidiaries of HIS in Singapore, Hong Kong, Australia and Mexico. The acquisition of HIS has been accounted for by the purchase method of accounting. The total purchase price for HIS was $21,373,000, which included net liabilities assumed of HIS of $7,873,000 and acquisition costs of approximately $2,600,000.

During 1996, the Company entered into arbitration proceedings regarding the purchase price of HIS. The Company placed

48

approximately 1,100,000 shares of Common Stock issued in connection with the acquisition of HIS in an escrow account to be released in whole, or in part, upon final resolution of post closing adjustments.

In November 1997, the purchase price for the acquisition of HIS was reduced by $931,000 pursuant to arbitration proceedings. As a result, goodwill was reduced by $931,000 and approximately 100,650 shares were required to be released from the escrow account and returned to the Company (this has not occurred as of December 31, 2002). In addition, the Company had further claims against HIS relating to legal costs and certain disbursements inappropriately made by HIS prior to the closing estimated at $650,000. The Company was required, as needed, pursuant to the asset purchase agreement and related documents, to issue additional shares of Common Stock in order that the recipients ultimately receive shares worth a fair value of $9.25 per share. This adjustment applied to a maximum of 73,466 shares of Common Stock. As of December 31, 2002, the fair market value of the Company’s common stock was $0.08 per share, which would result in approximately 10,788,771 additional shares being issued. Also, included in the escrow account at December 31, 2002 are 200,000 shares of the Company’s common stock, which do not have a guarantee of value.

On March 25, 2003, the Company entered into a settlement agreement with HIS and one of its former corporate officers whereby (i) the parties dismissed all claims, known and unknown, against each other; (ii) the Company forgave and wrote off a note receivable from the former corporate officer of HIS in the amount of $66,000 (which was expensed to other expense in the 2002 consolidated statement of operations); (iii) the Company paid $50,000 in cash and issued a non-interest bearing unsecured promissory note which requires 35 consecutive monthly payments of $5,000 each commencing April 1, 2003; and (iv) the remaining 374,116 shares in the escrow account will be released to the Company. If the Company is delinquent four times in any twelve month period during the term of the unsecured promissory note in making its $5,000 monthly payments to HIS, and HIS issues respective valid default notices, the Company will be subject to a $225,000 penalty. The settlement agreement will become effective upon the legal transfer of the 374,116 shares to MAI, which has not yet occurred.

Hospitality Services & Solutions

On June 23, 2002, the Company acquired substantially all of the assets and assumed certain liabilities of Hospitality Services & Solutions (“HSS”) pursuant to a stock purchase agreement for 100,000 shares of common stock valued at $32,000 (the quoted market price of the common stock at the time the terms were agreed), and $75,000 in cash. Additionally, the shareholders of HSS received a 20% minority interest in the Company’s combined operations in Asia. HSS was acquired for the Company to expand its operations in the Asian marketplace, strengthen its management team n the territory and create new opportunities for its new enterprise capable suite of products. The net assets acquired from HSS are used in the business of software design, engineering and service relating to hotel information systems. The net assets also include subsidiaries of HSS in Malaysia, Singapore and Thailand. The Company recorded $297,000 of goodwill (deductible for tax purposes) in connection with the acquisition of HSS. Pro forma results of operations as if this acquisition had occurred at the beginning of 2001 and 2002 are not shown because its impact would have been immaterial.

Gaming Systems International

On June 19, 1999, the Company sold Gaming Systems International (“GSI”) for an amount in excess of the book value of net assets sold. Assets sold of approximately $3,749,000 consisted of accounts receivable of $1,514,000, inventories of $364,000, furniture, fixtures and equipment of $218,000, intangible assets of $1,573,000 and prepaid expenses of $80,000. Liabilities assumed by the buyer consisted of accounts payable and accrued liabilities of $197,000, deposits of $100,000, unearned revenue of $351,000 and long-term debt of 446,000. The Company received three promissory notes totaling $4,925,000 with face values of $1,100,000, $1,500,000 and $2,325,000, respectively. Interest was paid monthly at the rate of 10% per annum on both the $1,100,000 and $1,500,000 notes, with the principal due and payable on June 19, 2001 and June 19, 2003, respectively. The $1,100,000 promissory note was guaranteed by a third party. Principal payments and interest, at prime plus 1%, was to commence for the $2,325,000 promissory note on October 1, 2002 in 48 monthly installments of approximately $48,000 of principal, plus accrued interest.

Imputing interest at a rate of 10%, the present value of the $2,325,000 promissory note at the date of sale was $1,682,000 which resulted in a combined carrying value of $4,282,000 for all three promissory notes. The gain on sale of $1,227,000 had been deferred until collection of the proceeds representing the gain can be assured. As of December 31, 2000, the Notes were held for sale and were written down to an amount which approximated their estimated net realizable value of $2,700,000.

On April 6, 2001 the Company entered into an agreement with the maker of the Notes whereby the maker reconveyed 100% of the Common Stock of GSI to the Company for the purpose of selling GSI to a third party. In connection with the agreement, the Company canceled the Notes and entered into a new $1.1 million secured promissory note with the same party. The maker will be paid a commission of 30% of cash receipts from the third party, which will be first applied to the

49

$1.1 million note and paid in cash to the maker thereafter. On July 27, 2001, the Company entered into an Asset Purchase Agreement (“Agreement”) with the third party for approximately $3.2 million whereby all of the assets of GSI were acquired and all of the liabilities assumed, except for approximately $300,000 of obligations, which will remain with GSI. The payment terms under the Agreement required a $1 million non-refundable cash payment to the Company, which was received on July 27, 2001 and a $1.5 million payment, which was received in December 2001. The Company also received a secured promissory note in the amount of $750,000, of which $500,000 was received in December 2002 and $250,000 in January 2003. The third party was also required to pay an additional $250,000 subject to a maximum $250,000 reduction pursuant to the resolution of certain uncertainties as of the date of the Agreement, which, as part of the settlement, in January 2003 the Company received $46,000. Due to the uncertainty of collecting the unsecured amount of $250,000, gain recognition on that part of the proceeds was deferred until collection was assured. The Company recorded a gain on the sale of GSI of $245,000 in the fourth quarter of 2001, which is included in other operating expense (income) in the accompanying consolidated statements of operations

Legacy

On October 9, 2001, the Company sold certain rights under customer contracts together with the related assets and liabilities of its domestic Legacy hardware maintenance division to the third party currently providing the on-site repair and warranty service to the Company’s Legacy hardware maintenance customers. Pursuant to the agreement, the Company retained the software maintenance component of the customer contracts and will continue to provide the software support services directly to the domestic Legacy customer base. Additionally, the third party will be required to pay the Company approximately 15% of the third party’s hardware maintenance revenue stream relating to the hardware maintenance customer contracts subsequent to October 31, 2003. In connection with the sale, the Company received $328,000 in cash and sold approximately $157,000 of assets consisting of inventory, spare parts, fixed assets and certain accounts receivable. The third party also assumed approximately $1,091,000 of liabilities consisting of accrued liabilities of approximately $366,000 and deferred revenue of approximately $725,000. The sale resulted in a gain of approximately $1,262,000 in October 2001.

MAI Canada

On December 6, 2002, the Company sold all the assets and certain liabilities of its Canadian operations, including all legacy divisions, to the management of this subsidiary pursuant to a stock purchase agreement. In connection with the sale, the Company also entered into a software distribution agreement whereby the buyer has a non-exclusive right and license to market and install the Company’s hospitality products in Canada. The sale resulted in a loss of approximately $630,000, which is included in the loss on disposal of discontinued operations. Prior to the sale, the Canadian operations incurred a net income (loss) of $1,341,000, $910,000 and ($305,000) during 2000, 2001 and 2002, respectively, which is included in loss from discontinued operations in the accompanying statements of operations.

Process Manufacturing

On December 6, 2002, the Company entered into an Asset Purchase Agreement whereby all the assets and certain liabilities of its process manufacturing software division were sold to a third party for cash of $250,000. The sale resulted in a loss of approximately $391,000, which is included in the loss on disposal of discontinued operations. Prior to the sale, Process Manufacturing operations incurred a net loss of $1,968,000, $3,736,000 and $441,000 during 2000, 2001 and 2002, respectively, which is included in loss from discontinued operations in the accompanying statements of operations.

NOTE 7 – INTANGIBLE ASSETS

Intangible assets consist primarily of goodwill and capitalized software. Intangible assets other than goodwill are amortized on a straight-line basis over their estimated useful lives. Prior to 2002, goodwill, representing the excess of the purchase price over the estimated fair value of the net assets of the acquired business, was amortized over the period of expected benefit of five to seven years. However, effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets, (“SFAS No. 142”) which requires that the Company cease amortization of all goodwill and intangible assets having indefinite useful economic lives. The Company determined that there was no impairment upon adoption. Such assets are not to be amortized until their lives are determined to be finite, however, a recognized intangible asset with an indefinite useful life should be tested for impairment annually or on an interim basis if events or circumstances indicate that the fair value of the asset has decreased below its carrying value. At December 31, 2002, the Company evaluated its goodwill and determined that fair value had not decreased below carrying value and no adjustment to impair goodwill was necessary in accordance with SFAS No. 142.

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Net income and net income per share for 2000 and 2001 adjusted to exclude amortization expense is as follows:

					Year Ending December 31,
					(in thousands)
					2000			2001
Net income:
	Reported net income				$	817		$	2,132
	Goodwill amortization					420			420
				Adjusted net income	$	1,237		$	2,552
Basic net income per share:
		Reported basic net income per share			$	0.07		$	0.16
		Goodwill amortization				0.04			0.03
				Adjusted basic net income per share	$	0.11		$	0.19
Diluted net income per share:
		Reported diluted net income per share			$	0.07		$	0.16
		Goodwill amortization				0.04			0.03
			Adjusted diluted earnings per share		$	0.11		$	0.19
Income from continuing operations:
	Reported income from continuing operations				$	1,444		$	3,657
	Goodwill amortization					420			420
				Adjusted income from continuing operations	$	1,864		$	4,077
Basic income per share from continuing operations:
		Reported basic income per share from continuing operations			$	0.13		$	0.28
		Goodwill amortization				0.04			0.03
				Adjusted basic net income per share from continuing operations	$	0.17		$	0.31
Diluted income per share from continuing operations:
		Reported diluted net income per share from continuing operations			$	0.13		$	0.28
		Goodwill amortization				0.04			0.03
				Adjusted diluted income per share from continuing operations	$	0.17		$	0.31
Income (Loss) from discontinued operations:
	Reported loss from discontinued operations				$	(627	)	$	(1,525	)
	Goodwill amortization					1,232			1,233
				Adjusted income (loss) from discontinued operations	$	605		$	(292	)
Basic income (loss) per share from discontinued operations:
		Reported basic loss per share from discontinued operations			$	(0.06	)	$	(0.12	)
		Goodwill amortization				0.11			0.10
				Adjusted basic income per share from discontinued operations	$	0.05		$	(0.02	)
Diluted income (loss) per share from discontinued operations:
		Reported diluted loss per share from discontinued operations			$	(0.06	)	$	(0.12	)
		Goodwill amortization				0.11			0.10
				Adjusted diluted income (loss) per share from discontinued operations	$	0.05		$	(0.02	)

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Goodwill and capitalized software as of December 31, 2001 and 2002 are as follows:

		December 31,
		(in thousands)
		2001			2002
Goodwill		$	1,506		$	962
Accumulated amortization			(841	)		—
Goodwill, net			665			962
Capitalized software			1,319			2,180
Accumulated amortization			(1,185	)		(1,319	)
Capitalized software, net			134			861
	Total	$	799		$	1,823

The Company recorded $297,000 of goodwill in connection with the acquisition of HSS (see note 6).

The Company’s weighted average amortization period for capitalized software is expected to be three years. The following table shows the estimated amortization expense for these assets for each of the five succeeding years:

Year Ending December 31,
(in thousands)
2003	$	72
2004		287
2005		287
2006		215
	$	861

NOTE 8 – LINE OF CREDIT AND BRIDGE LOAN

On July 28, 1999, the Company obtained a Bridge Loan from Coast Business Credit (“Coast”) in the amount of $2,000,000. The Bridge Loan originally bore interest at prime plus 5% (prime plus 8% when default interest rates apply). Loan origination fees of $75,000 paid to Coast in connection with the Bridge Loan were amortized to interest expense over the term of the loan. During the first quarter of 2001, the remaining balance of the Bridge Loan was repaid in full. In April 1998, the Company negotiated a $5,000,000 secured revolving credit facility with Coast. The availability of this facility was based on a calculation using a rolling average of certain cash collections. The facility is secured by all assets, including intellectual property of the Company, and bore interest at prime plus 4.5% and was due to expire on April 30, 2003. The credit facility was amended to allow for aggregate borrowings on an interest only basis under the credit facility not to exceed $3,360,000. In connection with the amendment, the Company agreed to pay Coast a fee of $300,000 (“Loan Fee”) in weekly installments of $35,000 commencing after the Bridge Loan was paid in full. The Loan Fee was fully paid by April 23, 2001. At December 31, 2001 and 2002, approximately $2,424,400 and $1,801,000, respectively, was drawn down under the credit facility.

The Loan Fee of $300,000 is classified in prepaids and other current assets and was being amortized to interest expense over the original term of the facility. At December 31, 2001 and 2002, approximately $133,000 and $33,000, respectively, of the loan fee was classified in prepaids and other current assets.

On January 13, 2003, the Company re-negotiated the terms of the credit facility whereby the outstanding balance of $1,828,000 as of that date was converted to a term loan which accrues interest at 9.25% per annum and requires monthly payments of $58,000 over a 36 month period commencing March 1, 2003. The new term loan matures on February 28, 2005, at which time all remaining principal and accrued interest is due and payable. The Company will also be required to pay Coast additional principal payments on a quarterly basis based upon an EBITDA-based formula commencing March 31, 2003. The consolidated balance sheet as of December 31, 2002 reflects the reclass of the secured revolving credit facility to a term loan (see note 9). The restructured debt pursuant to an intercreditor agreement between Canyon Capital and Coast Business Credit, contains various restrictions and covenants, including a minimum quick ratio of 0.30 to l.00 and minimum debt service coverage ratio of 0.90 to l.00 which commence as of and for the three-month period ended March 31, 2003. The minimum quick ratio increases to 0.31 to 1.00 as of June 30, 2003 and September 30, 2003 and to 0.34 to 1.00 as of December 31, 2003 and for each and every fiscal quarter ending thereafter. The minimum debt coverage ratio increases to 1.10 to 1.00 for the three-month period ending June 30, 2003 and to 1.25 to 1.00 for the three-month period ending September 30, 2003 and for each and every fiscal quarter thereafter. In the event that the Company were not in compliance with the various restrictions and covenants and were unable to receive waivers for non-compliance, the term and subordinated debt would be immediately due and payable. The Company believes that it will be in compliance with the covenants as of March 31, 2003 and for every fiscal quarter thereafter.

On February 7, 2003, the Federal Deposit Insurance Corporation (“FDIC”) put Coast and its parent company, Southern Pacific Bank, into receivership and is currently holding all of Coast's assets for sale to third parties, which include the Company's term loan with Coast. This receivership and ultimate sale of the loan by the FDIC does not change any of the terms of the Company's current loan agreement.

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NOTE 9 – LONG-TERM DEBT

Long-term debt outstanding is as follows:

	December 31,
	(in thousands)
	2001			2002
11% subordinated debt, net of discount of $198,000 and 28,000, respectively	$	5,490		$	5,634
10% subordinated debt		2,800			2,800
9.25% subordinated debt (note 8)		—			1,801
Obligations under capital leases		57			36
Tax claims		252			252
Other		55			—
		8,654			10,523
Less: current installments		(112	)		(3,289	)
Non-current portion	$	8,542		$	7,234

Aggregate maturities of long-term debt are as follows:

Year Ending December 31,
(in thousands)
2003	$	3,289
2004		591
2005		2,042
2006		1,953
2007		2,059
Thereafter		589
	$	10,523

Notes Payable

In March 1997, the Company issued $6,000,000 of 11% subordinated notes payable due in 2004 to an investment fund managed by Canyon Capital Management LP (“Canyon”). In September 1997, this indebtedness was reduced to $5,250,000 through application of a portion of the proceeds realized from the exercise of warrants by Canyon. The notes called for semi-annual interest payments.

The Company and Canyon subsequently entered into a forbearance agreement providing that the Company pay Canyon weekly interest payments of $12,500 effective January 1, 2000. In addition, the Company executed a security agreement, which provided Canyon with a lien on all of the Company’s tangible and intangible property, which lien is junior to the lien granted to Coast (note 8).

On April 13, 2000, the Company entered into an agreement with Canyon, waiving all existing events of default, accelerated the maturity date to March 3, 2003 and provided for continued weekly interest payments of $12,500. On January 31, 2001, the Company entered into an agreement with Canyon whereby the specified accrued interest of $431,000 was added to the principal balance of the subordinated notes payable. As part of this agreement, the Company also agreed to pay Canyon an additional $79,000 loan fee, of which $29,000 was added to principal. The principal balance outstanding on the subordinate notes payable to Canyon was approximately $5,690,000 and $5,662,000 at December 31, 2001 and December 31, 2002, respectively.

On January 13, 2003, the Company modified the terms of its agreement with Canyon, whereby the Company is required to make monthly payments of $52,000, until the Coast term loan is paid off in full, at which time the note payable will be converted into a three-year amortizing loan which will accrue interest at 11% per annum and requires equal monthly payments of principal and interest such that the subordinated debt will be paid in full at the end of the amended term. Upon the repayment of the Coast debt in full, the Company will also be required to pay Canyon additional principal payments on a quarterly basis based upon an EBITDA-based formula. Additionally, the Company is required to issue Canyon 200,000 share of its common stock and one million warrants to purchase its common stock at an exercise price of $0.40 per share.

In connection with a settlement agreement with CSA (see Note 18), the Company issued $2.8 million of subordinated debt to CSA. The $2.8 million of debt is secured by all of the Company’s assets which is subordinate to Coast and Canyon,

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accrues interest at 10% per annum and requires payments of $37,500 from March 1, 2002 through September 1, 2002 and monthly payments of $107,500 commencing on October 1, 2002 until October 2003 when all remaining unpaid principal and accrued interest is to be paid in full. The balance outstanding on the subordinate debt to CSA was $2,800,000 at December 31, 2001 and December 31, 2002.

The agreement with CSA was amended whereby the Company shall be required to pay the required payments under the subordinated note unless and until it paid $1 million by December 31, 2002. Upon payment of the $1 million, contractual payments under the subordinated note would have ceased until a final payment in the amount of $400,000 is paid by February 28, 2003. If the Company did not make all of the modified payments to CSA, the subordinated note will revert back to its original terms. The Company did not make the modified payment and have not made any payments since September 2002. Under the terms of the subordination agreement between Coast, Canyon and CSA, the Company is not allowed to make any principal or interest payments to CSA until the Coast and Canyon debt, including any accrued interest, is repaid in full, or the CSA debt is restructured and approved by Coast and Canyon. The Company is currently in negotiations with CSA to restructure the terms of the subordinated notes including extending its maturity date. There can be no assurance that CSA and MAI will come to terms on a restructuring or that Coast and Canyon will ultimately approve the terms of the restructuring. In the event that the Company is unable to meet the required payments to its primary lenders or meet its payment obligations to its other secured creditors, they are entitled to exercise certain rights under the respective agreements the Company has with them, including but not limited to, foreclosing on all of the Company’s tangible and intangible assets. Such action would have a substantial adverse effect on our ability to continue as a going concern. The CSA debt is shown as current

CSA has not formally notified the Company of its default. As of December 31, 2001 and 2002, accrued interest relating to the CSA subordinated debt was $319,000 and $408,000, respectively, and is included in accrued liabilities in the accompanying consolidated balance sheets.

Tax Claims

Tax claims include pre-petition unsecured tax claims for income and property taxes from various taxing authorities. Under the terms of the Plan of Reorganization (see Note 17), such amounts are to be paid in full in cash in annual installments over six years with interest at 6%. Upon agreement with the respective taxing authority, tax claims are classified as debt, otherwise such claims are classified as other long-term liabilities in the accompanying consolidated balance sheets at December 31, 2001 and 2002. As of December 31, 2001 and 2002, unsettled tax claims of $712,000 are included in long-term liabilities. The accrual of interest will commence upon the effective date of the settlement with the IRS.

NOTE 10 — ACCRUED LIABILITIES

Accrued liabilities consist of the following:

		2001		2002
		(in thousands)
Salaries, wages and commissions		$	323	$	289
Accrued insurance & sales taxes			80		133
Accrued vacation			375		417
Accrued interest			321		416
Other			1,303		752
	Total	$	2,402	$	2,007

NOTE 11 — INCOME TAXES

The components of income (loss) from continuing operations before income taxes are as follows:

		Years Ended December 31,
		(in thousands)
		2000			2001		2002
U.S		$	1,688		$	3,829	$	702
Foreign			(82	)		4		(255	)
	Total	$	1,606		$	3,833	$	447

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The income tax provision is comprised of the following:

		Years Ended December 31,
		(in thousands)
		2000		2001		2002
Current:
	U.S. Federal	$	65	$	81	$	—
	State		—		—		3
	Foreign		97		95		27
			162		176		30
Deferred:
	U.S. Federal		—		—		—
	Foreign		—		—		—
			—		—		—
Total		$	162	$	176	$	30

Deferred tax assets and liabilities result from differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The significant components of the deferred income tax assets and deferred income tax liabilities are as follows:

			December 31,
			(in thousands)
			2001			2002
Deferred tax assets:
	Net operating loss carryforwards		$	21,448		$	21,521
	Furniture, fixture and equipment			1,381			—
	Inventory write-downs			82			2
	Allowance for doubtful accounts			463			144
	Capitalized software and intangibles			1,812			370
	Accrued expenses			304			179
	Other			683			151
				26,173			22,367
Less: valuation allowance				(26,173	)		(22,367	)
		Net deferred tax assets	$	—		$	—

The Company has recorded a valuation allowance in the amount set forth above for certain deductible temporary differences where it is not more likely than not the Company will receive future tax benefits. The net change in the valuation allowance for the years ended 2000, 2001 and 2002 was $(941,000), $(774,000) and $(3,806,000), respectively.

As of December 31, 2002 and 2002, the Company has Federal and state net operating losses (NOL) carryovers of approximately $62,000,000 and $2,000,000 respectively. These NOL carryovers will expire in the years 2003 through 2019. The Company’s utilization of a portion of its NOL carryovers is subject to various uncertainties including an annual limitation under Section 382 of the Internal Revenue Code. The amount of this limitation is not known at this time. The IRS has asserted deficiencies for the Company’s separate federal income tax returns for the years 1988 and 1989. The Company believes it has meritorious defenses and does not expect that any liability resulting from those years will result in a material adverse effect on its results of operations or financial position.

On September 11, 2002, the State of California enacted one of the budget trailer bills that implemented the state’s 2002-2003 Budget Bill (A425). The new law suspends the NOL carryover deduction for tax years 2002 and 2003. To compensate for the deduction suspension, the period of availability for these NOL deductions has been extended for two years.

The provision (benefit) for income taxes differs from the amount computed by applying the Federal corporate income tax rate of 34% to income (loss) from continuing operations before income taxes as follows:

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	Years Ended December 31,
	(in percentages)
	2000			2001			2002
Statutory tax rate		34.0	%		34.0	%		34.0	%
Change in valuation allowance		(71.2	)		(36.1	)		(679.6	)
Amortization and write-off of intangibles		8.9			3.7			—
Expiration of state NOLs		4.6			—			5.0
Effect of foreign operations		19.4			2.5			610.8
Adjustments of NOL carry forwards and deferred tax assets pursuant to the finalization of the IRS examination and other analysis		15.2			—			—
Other		(0.8	)		0.5			36.5
Effective tax rate		10.1	%		4.6	%		6.7	%

NOTE 12 — GEOGRAPHIC AREA INFORMATION

Information with respect to the Company’s operations by significant geographic area is set forth below. “Other foreign” includes operations in Mexico. “Asia” includes operations in Singapore, Malaysia and Hong Kong.

		2000			2001			2002
Revenue from unaffiliated customers (based on subsidiary location):
	United States	$	21,207		$	19,351		$	17,592
	Asia		3,960			2,585			2,783
	Canada		708			584			452
	United Kingdom		1,281			1,248			1,110
	Other foreign		165			—			—
		$	27,321		$	23,768		$	21,937
United States revenue from foreign affiliates		$	42		$	343		$	298
Operating income (loss):
	United States	$	2,951		$	5,303		$	2,192
	Asia		(189	)		(32	)		70
	Canada		204			23			6
	United Kingdom		(92	)		61			(176	)
	Other foreign		(8	)		(49	)		(155	)
		$	2,866		$	5,306		$	1,937
Identifiable assets:
	United States	$	13,205		$	6,233		$	4,329
	Asia		1,078			909			1,352
	Canada		544			383			—
	United Kingdom		1,331			505			422
	Other foreign		287			258			74
		$	16,445		$	8,288		$	6,177
Long-lived assets:
	United States	$	7,129		$	2,862		$	2,315
	Asia		52			28			492
	United Kingdom		56			36			46
	Canada		27			18			—
	Other foreign		(8	)		12			7
		$	7,256		$	2,956		$	2,860

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United States revenue from foreign affiliates consists of net intercompany sales and services from the United States to the Company’s foreign subsidiaries and is eliminated from consolidated net revenue. Intercompany sales are based on current selling prices or list prices less discounts. Discounts typically are influenced by competitive pricing, market conditions and relative foreign exchange rates.

NOTE 13 — BUSINESS SEGMENT INFORMATION

The Company evaluates performance of each segment based on operating income for fiscal years ending December 31, 2000, 2001, and 2002.

Year Ending December 31,
(in thousands)

2002:

				Discontinued
		Hospitality		Operations		Total
Revenues from:
	Hardware	$	996	$	—	$	996
	Software		4,585		—		4,585
	Professional Services		16,356		—		16,356
Total Revenues			21,937		—		21,937
Operating Income			1,937		—		1,937
Total Assets			6,177		—		6,177

2001:

				Discontinued
		Hospitality		Operations		Total
Revenues from:
	Hardware	$	789	$	—	$	789
	Software		5,329		—		5,329
	Professional Services		17,650		—		17,650
Total Revenues			23,768		—		23,768
Operating Income			5,306		—		5,306
Total Assets			7,471		817		8,288

2000:

				Discontinued
		Hospitality		Operations		Total
Revenues from:
	Hardware	$	1,301	$	—	$	1,301
	Software		6,857		—		6,857
	Professional Services		19,163		—		19,163
Total Revenues			27,321		—		27,321
Operating Income			2,866		—		2,866
Total Assets			11,874		4,571		16,445

Customers

During 2000, 2001 and 2002, the Joint Armed Services was the only customer accounting for ten percent or more of our revenues. Total revenue from the Joint Armed Services for 2000, 2001 and 2002 was $3,147,000, $2,937,000 and $2,880,000, respectively.

NOTE 14 — STOCKHOLDERS’ DEFICIENCY

Stock Option Plans

In connection with the Plan of Reorganization (see Note 17), the Company adopted the MAI Systems Corporation 1993 Stock Option Plan (the “1993 Plan”) which became effective on January 27, 1994. Under the 1993 Plan, 2,500,000 authorized shares of Common Stock are reserved for issuance of options. Options under the 1993 Plan may be granted at exercise prices determined by the Compensation Committee of the Board of Directors, provided that the exercise prices

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shall not be less than the fair market value of the Common Stock on the date of grant. At December 31, 2002, 1,815,500 options under the 1993 Plan were exercisable and the weighted-average exercise price of these options was $1.03.

In July 1995, the Board of Directors adopted the Non-Employee Director’s Stock Option Plan (the “Director’s Plan”). Under the Director’s Plan, certain directors who are not employees of the Company or any affiliate of the Company are eligible to receive stock options. The Director’s Plan provides that each non-employee director is also granted an option to purchase 6,250 shares of Common Stock on the date of each annual meeting of the Company’s stockholders at which the director is reelected to the Company’s Board. These options vest 25% on the date of each subsequent annual meeting of the Company’s stockholders which the director is reelected to the Board. The number of shares of Common Stock reserved for issuance pursuant to the Director’s Plan is 250,000 shares. The exercise price shall not be lower than the fair market value of the Common Stock on the date of grant. As of December 31, 2002, 206,250 options under the Director’s Plan were exercisable and the weighted-average exercise price of these options was $2.84.

At December 31, 2002, there were 201,397 additional shares available for grant under the stock option plans. The per share weighted-average fair value of stock options granted during 2000, 2001, and 2002 was $0.53, $0.32 and $0.22, respectively, on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions: 2000, 2001, and 2002 – risk-free interest rate of 6.5%, volatility of 80% and an expected life of 5 years.

On April 26, 2002, the Company granted 424,500 options to purchase shares of the Company’s common stock to employees for services rendered. The exercise price of the options is $0.34 per share. The options vest 33.3% per year and have a term of 10 years. The Company recorded no expense related to the granting of options to these employees.

On June 24, 2002, the Company granted 50,000 options to purchase shares of the Company’s common stock to an employee for services rendered. The exercise price of the options is $0.32 per share. The options vest 33.3% per year and have a term of 10 years. The Company recorded no expense related to the granting of options to this employee.

On June 3, 2002, the Company granted 25,000 options to purchase shares of the Company’s common stock to members of the board of directors for services rendered. The exercise price of the options is $0.32 per share. The options vest 33.3% per year and have a term of 10 years. The Company recorded no expense related to the granting of options to the member’s of the board of directors.

The Company accounts for stock-based compensation utilizing the intrinsic value method in accordance with the provisions of Accounting Principles Board Opinion No. 25 (APB 25) “Accounting for Stock Issued to Employees” and related interpretations. Accordingly, no compensation expense is recognized for fixed option plans because the exercise prices of employee stock options equaled or exceeded the market prices of the underlying stock on the dates of grant.

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The following is a summary of stock option activity under the Company’s stock option plans:

					Weighted-average
		Number of shares			Exercise price
Options outstanding at December 31, 1999			1,753,380		$	0.35
	Granted		678,746			0.53
	Exercised		(100,000	)		—
	Canceled		(902,625	)		3.91
Options outstanding at December 31, 2000			1,429,501		$	1.99
	Granted		396,250			0.32
	Canceled		(155,084	)		2.20
Options outstanding at December 31, 2001			1,670,667		$	1.58
	Granted		499,500			0.34
	Exercised		(107,167	)		—
	Canceled		(41,250	)		0.67
Options outstanding at December 31, 2002			2,021,750		$	0.79

At December 31, 2002, the exercise prices ranged from $0.28 to $9.75 per share and the weighted-average remaining contractual life of outstanding options under the Company’s stock option plans was 7.72 years.

The following is a summary of stock options as of December 31, 2002:

						Weighted Average
Range				Number Outstanding		Remaining		Weighted Average		Number Exercisable
Exercise Prices				December 31, 2002		Contractual Life		Exercise Price		December 31, 2002
$0.28	—	$	0.63		1,274,750	$	8.49	$	0.34		430,583
1.00	—		1.65		131,250		5.54		1.03		89,583
2.38	—		2.81		500,000		5.57		2.63		490,000
3.25	—		3.75		75,250		5.15		3.40		57,750
7.35	—		9.75		40,500		3.10		7.90		39,250
					2,021,750						1,107,166

In July 2000, the Company accelerated the vesting period of 100,000 stock options granted to an employee of the Company resulting in a new measurement date of such options. The exercise price of the options was zero and the fair market value on the date of acceleration was $0.56. Accordingly, earned compensation of $56,000 has been recorded for the difference between the option exercise price and fair market value on the date of acceleration in 2000 and was charged to expense in 2000.

Restricted Stock Plan

In May 2001, the Board of Directors adopted the 2001 Restricted Stock Plan. Under the plan, 1,250,000 authorized shares of the Company’s Common Stock are reserved for issuance to officers and directors of the Company. The shares will be issued as “Restricted Stock” within the meaning of Rule 144 of the Securities Act of 1933, as amended. The Compensation Committee of the Board of Directors shall have the discretion to determine what terms and conditions shall apply, including the imposition of a vesting schedule.

In May 2002, the Company issued 612,500 shares of restricted common stock to its members of the board of directors and certain of its corporate officers which vest equally over a four-year period. Recipients are not required to provide consideration to the Company other than rendering the service and have the right to vote the shares. Under APB 25, compensation cost is recognized for the fair value of the restricted stock awarded, which is its quoted market price at the date of grant, which was $0.25 per share. The total market value of the shares of $153,000 was treated as unearned compensation and is being amortized to expense in proportion to the vesting schedule. The unamortized balance as of December 31, 2002 is $91,000 and is included in accumulated other comprehensive loss in the accompanying consolidated balance sheet.

59

Common Stock

In January and February of 2001, the Company entered into agreements with several creditors to retire approximately $2.1 million of Company obligations in exchange for 798,000 shares of Common Stock and $470,000 of cash. This resulted in a gain of $1,377,000. To fulfill its performance under the agreement, the Company issued the 798,000 shares of its Common Stock and registered the shares with the SEC. The Company must also pay the $470,000 to the creditors as prescribed in the respective agreements. All payments required under the agreements were made in 2001 and the first quarter of 2002.

Preferred Stock

On May 20, 1997, the Company authorized the issuance of up to 1,000,000 shares of $0.01 par value preferred stock. The Board of Directors has the authority to issue the preferred stock, in one or more series, and to fix the rights, preferences, privileges and restrictions thereof without any further vote by the holders of Common Stock.

NOTE 15 — EMPLOYEE BENEFITS

Savings Plans

On October 1, 1995, the Company established a Savings and Investment Plan covering substantially all the Company’s domestic employees (the “Domestic Plan”). The Domestic Plan qualifies under Sections 401(k) and 401(a) of the Internal Revenue Code. Participating employees are allowed to contribute from 1% to 15% of their annual compensation. During 2000, 2001 and 2002, the Company did not make contributions to the Domestic Plan.

Defined Benefit Plans

The Company established a defined benefit plan for employees that were employed by the Company’s maintenance service business acquired in 1988.

In April 1992, the Company elected to cease benefit accruals under the defined benefit plan to current participants. The curtailment had no effect on the accrued pension cost of the defined benefit plan.

Company contributions under this plan are funded annually. Plan assets are comprised primarily of guaranteed investment/annuity contracts. Employee benefits are based on years of service and the employees’ compensation during their employment.

The actuarially computed components of net periodic benefit cost included the following components:

	Year Ended December 31,
	(in thousands)
	2000			2001			2002
Service costs	$	—		$	—		$	—
Interest costs		132			137			142
Amortization of unrecognized loss		—			—			16
Expected return on plan assets		(126	)		(122	)		(107	)
Net periodic pension expense	$	6		$	15		$	51

60

The following table sets forth the funded status and amounts recognized in the Company’s consolidated statements of operations:

	Years Ended December 31,
	(in thousands)
Change in Benefit Obligation:	2000			2001			2002
Projected Benefit Obligation, beginning of year	$	1,695		$	1,859		$	1,993
Service cost		—			—			—
Interest cost		131			137			142
Benefits paid		(62	)		(69	)		(79	)
Actuarial loss/(gain)		95			66			98
Projected Benefit Obligation, end of year	$	1,859		$	1,993		$	2,154
Change in Plan Assets:
Plan assets, beginning of year	$	1,830		$	1,736		$	1,531
Actual return on plan assets		(86	)		(190	)		(279	)
Employer contribution		54			54			63
Benefits paid		(62	)		(69	)		(79	)
Plan assets, end of year	$	1,736		$	1,531		$	1,236
Funded status	$	(123	)	$	(461	)	$	(918	)
Unrecognized (gain)/loss		161			538			1,008
Net amount recognized	$	38		$	77		$	90

The weighted average discount rates used in determining the actuarial present value of the benefit obligations were 7.5%, 7.25%, and 6.75% for 2000, 2001 and 2002, respectively. The long-term rate of return on assets was 7%, 7%, and 7% for 2000, 2001 and 2002, respectively.

NOTE 16 — RESTRUCTURING COSTS

During 1999, management authorized and committed the Company to a restructuring plan to close and reduce certain of its domestic facilities and reduce its hospitality and process manufacturing workforce to the appropriate levels sufficient to support the Company’s hospitality and process manufacturing domestic operations of software sales and professional services. In connection with these actions, the Company recorded a restructuring charge of $2,288,000 in the fourth quarter of 1999. The restructuring charge consisted of (1) $1,900,000 relating to the write-off of certain furniture, fixtures and equipment impaired pursuant to the restructuring which were determined to have a fair value of zero based upon a SFAS No. 121 evaluation, (2) $45,000 of costs associated with lease obligations relating to exited facilities and, (3) $343,000 of employee severance and termination benefits associated with 38 of the terminated employees. The remaining balance of $288,000 as of December 31, 1999 consists of $243,000 of remaining severance and termination benefits and $45,000 of lease obligations on exited facilities. The remaining balance of $288,000 was paid in 2000.

NOTE 17 — PLAN OF REORGANIZATION

In connection with the Company’s Chapter 11 bankruptcy proceedings in 1993, shares of Common Stock are currently being distributed by the Company to its former creditors pursuant to the Plan of Reorganization (the “Plan”) as approved by United States Bankruptcy Court. The Company does not anticipate that additional shares will be issued under the plan. As of December 31, 2002, 6,758,251 shares had been issued pursuant to the Plan.

Notwithstanding the confirmation and effectiveness of its Plan of Reorganization pursuant to which the Company emerged from a voluntary proceeding under the bankruptcy laws, the United States Bankruptcy Court continues to have jurisdiction, among other things, to resolve disputed pre-petition claims against the Company, to resolve matters related to the assumptions, assignment or rejection of executory contracts pursuant to the Plan, and to resolve other matters that may arise in connection with the implementation of the Plan.

61

NOTE 18 — COMMITMENTS AND CONTINGENCIES

Leases

The Company leases certain facilities and equipment, under both month-to-month and fixed-term agreements.

The aggregate minimum rentals under operating leases with noncancelable terms of one year or more are as follows:

Year Ending December 31,
(in thousands)
2003	$	839
2004		618
2005		551
2006		427
2007		89
Thereafter		121
	$	2,645

Rental expense was approximately $1,085,000, $ 1,146,000, and $953,000 for the years ended December 31, 2000, 2001, and 2002, respectively.

Legal Proceedings

Chapter 11 Bankruptcy Proceedings

At December 31, 2002, there was only one material claim to be settled regarding the Company’s Chapter 11 proceedings, a tax claim with the United States Internal Revenue Service (the “Service”). The amount of this claim is in dispute. The Company has reserved $712,000 for settlement of this claim, which it is anticipated would be payable to the Service in equal monthly installments over a period of six (6) years from the settlement date at an interest rate of 6%.

CSA Private Limited

CSA is a MAI shareholder. On August 9, 1996, MAI acquired from Hotel Information Systems, Inc. (“HIS”) substantially all their assets and certain of their liabilities (the “HIS Acquisition”). At the time of MAI’s acquisition of HIS in 1996, CSA was a shareholder of HIS and, in connection with the purchase, MAI agreed to issue to CSA shares of its Common Stock worth approximately $4.8 million in August 1996, which amount had increased to approximately $6.8 million as of December 31, 2000, pursuant to the agreement. The Company entered into a settlement agreement with CSA in February, 2001 whereby it (i) issued CSA 1,916,014 additional shares of our Common Stock to bring CSA’s total share ownership to 2,433,333 shares; (ii) filed a registration statement for all of CSA’s shares of our Common Stock which has been declared effective by the SEC so that such shares are now freely tradable; and (iii) executed a secured debt instrument in favor of CSA in the principal sum of $2,800,000 which is subordinate only to the Company’s present group of two (2) senior secured leaders and required cash installment payments to commence in March 2002 (see note 7 to the financial statements).

In connection with the settlement agreement with CSA, the Company recorded the $2.8 million debt issuance as a reduction in paid in capital and the 1,916,014 additional shares at par as an addition to Common Stock and a reduction to additional paid in capital.

Cher-Ae Heights Indian Community

A lawsuit was filed by Cher-Ae Heights Indian Community (“Cher-Ae Heights”) against Logix Development Corporation (Logix), now known as MAI Development Corporation, as a co-defendant for a breach of contract by the Company’s formerly owned gaming subsidiary along with the new owners, Monaco Informatiques Systemes (“MIS”), who acquired the assets and certain liabilities of the gaming subsidiary on July 27, 2001. Based upon this suit, MIS informed the Company that it did not intend to pay the next $500,000 due to the Company under a promissory note and security agreement. On October 24, 2002, the Company entered into a global settlement agreement between the parties whereby all claims, known and unknown, between the parties were dismissed and the Company received $796,000 (see note 6 under “Gaming Systems International”).

Logix Development Corporation

The Company entered into a settlement agreement with Logix in July of 2002 whereby it (i) issued Logix 200,000 shares of our Common Stock (ii) required the Company to make various cash installment payments totaling $175,000 to be paid within 1 year and (iii) executed a contract with Logix for a consulting project in the amount of $50,000.

62

Other Litigation

The Company is also involved in various other legal proceedings and claims that 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, results of operations or liquidity of the Company.

Related Party Transactions

Under the terms of a consulting agreement, and subsequent amendments (which expires on August 31, 2003 but which is automatically renewed each year unless proper notice is given between either party), between Orchard Capital Corporation (“Orchard”) and the Company, Orchard provides the services of Richard S. Ressler as the Company’s Chairman. Orchard is paid a consulting fee of $24,000 per month. Orchard was granted warrants in 1995 to purchase up to 625,000 shares of Common Stock at a price of $1.90 per share and in March 1997, was granted additional warrants to purchase up to 50,000 shares of the Company’s Common Stock at a price of $7.50 per share, the fair market values of Common Stock on the dates of grant (the latter warrants were subsequently repriced at $3.04 per share). The warrants were fully exercisable on the dates of the respective grants. In September 1997, Orchard exercised warrants to purchase 157,895 shares of Common Stock at $1.90 per share and additional warrants to purchase 50,000 shares of the Company’s Common Stock at $3.04 per share (which warrants had been temporarily re-priced in order to induce exercises), resulting in $452,000 cash proceeds to the Company. The term of the remaining warrants to purchase up to 467,105 shares of Common stock was extended so that they will expire on August 14, 2003. In connection with extending the term of the warrants in 1999, the Company recorded $280,275 of compensation expense.

The Company executed a consulting agreement with a member of its Board of Directors, Zohar Loshitzer, for the purpose of providing technology advisory services for the Company at its Process Manufacturing Division. The consulting agreement commenced in August 2000 and was on a month-to-month basis at the rate of $16,667 per month. The Company paid Mr. Loshitzer approximately $92,000 and $161,000 in 2000 and 2001, respectively. As of December 31, 2001 Mr. Loshitzer had completed his services on behalf of the Company.

On May 26, 2000, the Company issued warrants to its Chief Executive Officer to purchase 225,000 shares of Common Stock at $0.56 per share. The exercise price of these warrants will increase with the fair market value of Common Stock when the fair market value exceeds $2.81 per share. As the exercise price is not fixed, the warrants are accounted for as a variable award and, accordingly, are remeasured at each reporting date. The warrants vest equally over a three-year period and expire on March 24, 2010.

At December 31, 2000 and 2001, the Company was indebted to its Chief Financial Officer for $69,000 and $94,000, respectively, for unreimbursed Company related expenses paid by the Chief Financial Officer on the Company’s behalf. These expenses mainly relate to the travel costs for the Company’s professional service personnel and were fully paid in 2002.

NOTE 19 - INCOME (LOSS) PER SHARE

The following table illustrates the computation of basic and diluted income (loss) per share under the provisions of SFAS No. 128.

		Year Ending December 31,
		(in thousands)
		2000		2001		2002
Numerator:
	Numerator for basic and diluted income (loss) per share – net income (loss)	$	817	$	2,132	$	(1,350	)
Denominator:
	Denominator for basic income (loss) per share - weighted average number of common shares outstanding during the period		10,923		13,091		13,945
	Incremental common shares attributable to restricted stock grants and to the exercise of outstanding options and warrants		283		172		450
Denominator for diluted income (loss) per share			11,206		13,263		14,395
Basic income (loss) per share		$	0.07	$	0.16	$	(0.10	)
Diluted income (loss) per share		$	0.07	$	0.16	$	(0.09	)

The computation does not consider the additional shares of Common Stock, which may be issued in connection with past acquisitions (see Note 6). The number of antidilutive options and warrants that were excluded from the computation of incremental common shares were 1,415,273, 1,648,272 and 2,676,355 in 2000, 2001 and 2002, respectively.

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NOTE 20 – QUARTERLY RESULTS OF OPERATIONS (Unaudited)

(in millions, except share data)

			1stQuarter			2nd Quarter			3rd Quarter			4th Quarter			1st Quarter		2nd Quarter		3rd Quarter			4th Quarter
			2001			2001			2001			2001			2002		2002		2002			2002
Revenue			$	6.5		$	6.3		$	6.1		$	4.9		$	5.7	$	5.5	$	5.7		$	5.0
Gross Profit				4.3			4.4			4.3			3.5			3.8		3.7		3.9			3.7
Income (loss) from continuing operations				1.9			0.8			0.6			0.3			0.2		0.3		0.1			(0.2	)
Income (loss) from discontinued operations				(0.5	)		(0.5	)		(0.2	)		(0.3	)		0.1		0.1		(0.2	)		(1.7	)
Net income (loss)				1.4			0.3			0.4			0.0			0.3		0.3		(0.2	)		(1.8	)
Income (loss) per share:
	Continuing Operations:
		Basic	$	0.16		$	0.06		$	0.05		$	0.02		$	0.02	$	0.02	$	0.00		$	0.01
		Diluted		0.16			0.06			0.05			0.02			0.02		0.02		0.00			0.01
	Discontinued Operations:
		Basic		(0.04	)		(0.04	)		(0.02	)		(0.02	)		0.00		0.01		(0.01	)		(0.12	)
		Diluted		(0.04	)		(0.04	)		(0.02	)		(0.02	)		0.00		0.01		(0.01	)		(0.12	)
	Income (loss) per share:
		Basic		0.12			0.02			0.03			0.00			0.02		0.02		(0.01	)		(0.13	)
		Diluted		0.12			0.02			0.03			0.00			0.02		0.02		(0.01	)		(0.13	)
Weighted average common shares used in determining income (loss) per share (in thousands):
Basic				11,395			13,679			13,691			13,656			13,656		13,852		14,119			14,154
Diluted				11,563			13,847			13,928			13,692			13,663		14,361		14,569			14,604

64

\

Schedule II

Valuation and Qualifying Accounts

Years Ended December 31, 2000, 2001 and 2002
(dollars in thousands)

					Reductions
	Balance		Charged to		Due to Sale						Balances
	Beginning		Costs and		of						End of
	of Year		Expenses		Subsidiary			Write-offs			Year
Year ended December 31, 2000:
Allowance for doubtful accounts	$	1,590	$	350	$	—		$	(792	)	$	1,148
Year ended December 31, 2001:
Allowance for doubtful accounts	$	1,148	$	47	$	—		$	(172	)	$	1,023
Year ended December 31, 2002:
Allowance for doubtful accounts	$	1,023	$	89	$	(103	)	$	(673	)	$	336

65

EXHIBIT INDEX

Number	Exhibit
2.1	First Amended Joint Chapter II 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, filed as 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, as filed as 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 MAI Systems Corporation, filed as Exhibit 3.1 to the Company’s 1996 Annual Report on Form 10-K.
3.2	Amendment No. 1 to the Amended and Restated Certificate of Incorporation of MAI Systems Corporation, filed as Exhibit 3.2 to the Company’s 1996 Annual Report on Form 10-K.
3.3	By-laws of MAI Systems Corporation, filed as Exhibit 2(b) to the Registrant’s Registration Statement on Form 8-A/A filed with the Securities and Exchange Commission on February 24, 1994.
3.4	Amendment No. 2 to the Amended and Restated Certificate of Incorporation of MAI Systems Corporation, filed as Exhibit 3.4 to the Company’s 1998 Annual Report on Form 10-K.
10.1	Amended and Restated MAI Systems Corporation 1993 Stock Option Plan.
10.2	Amended and Restated 1995 Non-Employee Directors Stock Option Plan.
10.3	MAI Systems Corporation’s 2001 Restricted Stock Plan.
10.4	Coast Business Credit Loan and Security Agreement, dated April 23, 1998, filed as Exhibit 10.2 to the Company’s 1998 Annual Report on Form 10-K.
10.5	Amendment Number One dated September 30, 1998 to the Loan and Security Agreement between Coast Business Credit and the Company dated April 23, 1998, filed as Exhibit 10.2 to the Company’s 1999 Annual Report on Form 10-K.
10.6	Amendment Number Two dated March 2, 1999 to the Loan and Security Agreement between Coast Business Credit and the Company dated April 23, 1998, filed as Exhibit 10.3 to the Company’s 1999 Annual Report on Form 10-K.
10.7	Amendment Number Three dated June 16, 1999 to the Loan and Security Agreement between Coast Business Credit and the Company dated April 23, 1998, filed as Exhibit 10.4 to the Company’s 1999 Annual Report on Form 10-K.
10.8	Amendment Number Four dated July 28, 1999 to the Loan and Security Agreement between Coast Business Credit and the Company dated April 23, 1998, filed as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the period ending September 30, 1999.
10.9	Letter Agreement Amendment dated October 1, 1999 to the Loan and Security Agreement between Coast Business Credit and

Number	Exhibit
	the Company dated April 23, 1998, filed as Exhibit 10.6 to the Company’s 1999 Annual Report on Form 10-K.
10.10	Amendment Number Five dated April 13, 2000, to the Loan and Security Agreement between Coast Business Credit and the Company dated April 23, 1998, filed as Exhibit 10.20 to the Company’s 1999 Annual Report on Form 10-K.
10.11	Amendment Number Six dated September 12, 2000, to the Loan and Security Agreement between Coast Business Credit and the Company dated April 23, 1998, filed as Exhibit 10.31 to the Company’s 2000 Annual Report on Form 10-K.
10.12	Amendment Number Seven dated September 13, 2001, to the Loan and Security Agreement between Coast Business Credit and the Company dated April 23, 1998, filed as Exhibit 10.12 to the Company’s 2001 Annual Report on Form 10-K.
10.13	Amendment Number Eight dated January 13, 2003, to the Loan and Security Agreement between Coast Business Credit and the Company dated April 23, 1998
10.14	Pledge, Assignment and Security Agreement dated September 7, 2001 between Coast Business Credit, the Company, MAI Systems International and MAI Development Corporation, filed as Exhibit 10.13 to the Company’s 2001 Annual Report on Form 10-K.
10.15	Collateral Release Agreement dated September 28, 2001 between Coast Business Credit and the Company filed as Exhibit 10.14 to the Company’s 2001 Annual Report on Form 10-K.
10.17	Forebearance Agreement between MAI Systems Corporation and CPI Securities LP, The Value Realization Fund, L.P., The Canyon Value Realization Fund and GRS Partners II dated October 28, 1999, filed as Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q for the period ending September 30, 1999.
10.18	Amendment No. 1 dated February 14, 2000 to Forebearance Agreement between MAI Systems Corporation and CPI Securities LP, The Value Realization Fund, L.P., The Canyon Value Realization Fund and GRS Partners II dated October 28, 1999, filed as Exhibit 10.18 to the Company’s 1999 Annual Report on Form 10-K.
10.19	Amendment No. 2 dated April 13, 2000 to Forebearance Agreement between MAI Systems Corporation and CPI Securities LP, The Value Realization Fund, L.P., The Canyon Value Realization Fund and GRS Partners II dated October 28, 1999, filed as Exhibit 10.19 to the Company’s 1999 Annual Report on Form 10-K.
10.20	Supplement and Amendment dated January 31, 2001 to Forebearance Agreement between MAI Systems Corporation and CPI Securities LP, The Value Realization Fund, L.P., The Canyon Value Realization Fund and GRS Partners II dated October 28, 1999, filed as Exhibit 10.32 to the Company’s 2000 Annual Report on Form 10-K.
10.21	Collateral Release Agreement dated September 28, 2001 between MAI Systems Corporation and CPI Securities LP, The Value Realization Fund, L.P., The Canyon Value Realization Fund and GRS Partners II.
10.22	Amendment No. 3 dated January 13, 2003 to Note Purchase Agreement between MAI Systems Corporation and CPI Securities LP, The Value Realization Fund, L.P., The Canyon Value Realization Fund and GRS Partners II dated October 28, 1999.
10.23	Amendment No. One dated January 13, 2003 to Intercreditor and Subordination Agreement dated April 23, 1998 between MAI Systems Corporation and CPI Securities LP, The Value Realization Fund, L.P., The Canyon Value Realization Fund, GRS Partners II and Coast Business Credit.
10.24	Warrant Agreement between CPI Securities LP, The Value Realization Fund, L.P., The Canyon Value Realization Fund and GRS Partners II.
10.25	Registration Rights Agreement between CPI Securities LP, The Value Realization Fund, L.P., The Canyon Value Realization Fund and GRS Partners II.
10.26	Settlement Agreement dated December 1, 2000 between CSA and MAI Systems Corporation, filed as Exhibit 10.27 to the Company’s 2000 Annual Report on Form 10-K.
10.27	Security Agreement dated December 1, 2000 between CSA and MAI Systems Corporation, filed as Exhibit 10.28 to the Company’s 2000 Annual Report on Form 10K.
10.28	Amendment to Subordinated Note Due 2003 dated as of April 18, 2002 between CSA Private Limited and MAI Systems Corporation, filed as an Exhibit to the Company’s Quarterly Report on Form 10-Q for the period ending March 31, 2002.
10.29	Consulting Agreement dated as of August 15, 1994, as amended as of October 17, 1994, August 16, 1996, August 31, 1997, August 31, 1998, August 31, 1999, August 31, 2000, and August 31, 2001 by and between the Company and Orchard Capital Corporation, relating to the services of Richard S. Ressler, Chairman of the Board. The original agreement and the October 17, 1994 amendment are incorporated herein by reference to the Company’s 1994 Annual Report on Form 10-K. The August 16, 1996 amendment is incorporated herein by reference to the Company’s 1996 Annual Report on Form 10-K. The August 31, 1997 amendment is incorporated herein by reference to the Company’s 1997 Annual Report on Form 10-K. The August 31, 1998 amendment is incorporated herein by reference to the Company’s 1998 Annual Report on Form 10-K. The August 31, 1999 amendment is incorporated herein by reference to the Company’s 1999 Annual Report on Form 10-K. The August 2000 amendment is incorporated herein by reference to the Company’s 2000 Annual Report on Form 10-K. The August 2001 amendment is incorporated herein by reference to the Company’s 2001 Annual Report on Form 10-K.
10.30	Premises Lease for MAI Systems Corporation corporate offices dated January 23, 2003

Number	Exhibit
13.1	Portions of the Company’s Annual Report to Stockholders for the year ended December 31, 2002, but only to the extent such report is expressly incorporated by reference into Items 10, 11, 12, 13 and 15(a)(1) of this report and such report is not otherwise deemed to be filed as part of this Annual Report on Form 10-K.
21.1	Subsidiaries of MAI Systems Corporation.
23.1	Report of Independent Certified Public Accountants from BDO Seidman LLP.
23.2	Consent of BDO Seidman, LLP.
23.3	Independent Auditors’ Report on Schedule and Consent from KPMG LLP
99.1	Certification of Chief Executive Officer, W. Brian Kretzmer, as required by Sections 3.02 and 9.06 of the Sarbanes Oxley Act of 2002.
99.2	Certification of Chief Financial Officer, James W. Dolan, as required by Sections 3.02 and 9.06 of the Sarbanes Oxley Act of 2002

EX-10.13 3 a88905exv10w13.txt EXHIBIT 10.13 EXHIBIT 10.13 AMENDMENT NUMBER EIGHT TO LOAN AND SECURITY AGREEMENT This AMENDMENT NUMBER EIGHT TO LOAN AND SECURITY AGREEMENT, dated as of January 13, 2003 (this "Amendment"), amends that certain Loan and Security Agreement, dated as of April 23, 1998, as amended by that certain Amendment Number Seven To Loan And Security Agreement, dated as of September 13, 2001, that certain Amendment Number Six To Loan And Security Agreement, dated as of September 12, 2000, that certain Amendment Number Five To Loan And Security Agreement, dated as of April 13, 2000, that certain Amendment Number Four To Loan And Security Agreement, dated as of July 28, 1999, that certain Amendment Number Three To Loan And Security Agreement, dated as of June 16, 1999, that certain Amendment Number Two To Loan And Security Agreement, dated as of March 2, 1999, and that certain Amendment Number One To Loan And Security Agreement, dated as of September 30, 1998 (collectively, the "Loan Agreement"), by and among MAI SYSTEMS CORPORATION, a Delaware corporation, and HOTEL INFORMATION SYSTEMS, INC., a Delaware corporation (collectively, "Borrowers"), on the one hand, and COAST BUSINESS CREDIT, a division of Southern Pacific Bank, a California corporation ("Coast"), on the other hand. All initially capitalized terms used in this Amendment shall have the meanings ascribed thereto in the Loan Agreement unless specifically defined herein. RECITALS WHEREAS, Borrowers and Coast wish to amend the Loan Agreement pursuant to the terms and provisions set forth in this Amendment; and NOW, THEREFORE, the parties hereto agree as follows: ARTICLE I AMENDMENTS Section 1. AMENDMENT TO SECTION 1 OF THE LOAN AGREEMENT. (a) Section 1 of the Loan Agreement is hereby amended by deleting the definition of Debt Service Coverage Ratio in its entirety and replacing it with the following: ""Debt Service Coverage Ratio" means the ratio, in any fiscal quarter, whose numerator is EBITDA minus cash capital expenditures minus cash tax expenses minus capitalized software development costs, and whose denominator is current maturity of long term debt plus current portion of capital leases plus all principal payments on Debt plus all interest payments on Debt." (b) Section 1 of the Loan Agreement is hereby amended by deleting the definition of Early Termination Fee in its entirety. 1 (c) Section 1 of the Loan Agreement is hereby amended by adding the following definition to such section: ""CSA" means CSA Private Limited, a Singapore corporation." ""Debt" means, as of the date of determination, the sum, but without duplication, of any and all of Borrowers': (i) indebtedness heretofore or hereafter created, issued, incurred or assumed by such Borrowers (directly or indirectly) for or in respect of money borrowed; (ii) all obligations arising out of capital leases; and (iii) all obligations for the deferred purchase price of property or services." ""Quick Ratio" means the ratio of (i) the sum of cash plus Receivables, to (ii) current liabilities." ""Subordinating Lender" means, collectively, The Value Realization Fund, L.P., a California limited partnership, Canyon Value Realization Fund (Cayman), Ltd., GRS Partners II, and CPI Securities L.P., a California limited partnership." ""Subordination Agreement" means that certain Intercreditor and Subordination Agreement, dated as of April 28, 1998, by and between Subordinating Lender and Coast, including any and all amendments thereto." Section 2. AMENDMENT TO SECTION 8.5 OF THE LOAN AGREEMENT. Section 8.5 of the Loan Agreement is hereby amended by deleting the word "or" at the end of subsection (l), replacing the period at the end of subsection (m) with a semicolon, and adding the following: "(n) notwithstanding anything to the contrary contained herein, and subject to the terms and provisions of the Subordination Agreement, make any payment to Subordinating Lender of unpaid interest in excess of Fifty-two Thousand Dollars ($52,000), or any payment of principal that is owed to Subordinating Lender regardless of amount, in any given month; or (o) notwithstanding anything to the contrary contained herein, make any payment to CSA of unpaid interest in excess of Seventeen Thousand Five Hundred Dollars ($17,500), or any payment of principal that is owed to CSA regardless of amount, in any given month." Section 3. AMENDMENT TO SECTION 9.2 OF THE LOAN AGREEMENT. Section 9.2 of the Loan Agreement is hereby amended by deleting the second and third sentence in such section in their entirety. Section 4. AMENDMENT TO SECTION 2 OF THE SCHEDULE TO THE LOAN AND SECURITY AGREEMENT. Section 2 of the Schedule to the Loan Agreement is hereby amended by deleting such Section in its entirety and replacing it with the following: "On January 13, 2003 (the "Conversion Date"), and so long as no Default or Event of Default has occurred and is continuing, the outstanding and unpaid 2 principal balance of One Million Eight Hundred Twenty-eight Thousand One Hundred Seventy-nine Dollars and .62/00 ($1,828,179.62) shall be converted to a term loan (the "Term Loan"), which Term Loan shall be amortized at thirty-six (36) months, with installments of principal and interest, equaling Fifty-eight Thousand Dollars ($58,000) per month and a final installment of the entire outstanding and unpaid principal balance being due and payable on February 28, 2005. Principal and interest accruing on the Term Loan shall be payable monthly commencing on the last Business Day of February 2003 and continuing monthly thereafter until the Term Loan is paid in full. The amount of the Term Loan set forth above shall be increased by a per diem amount, to cover interest, and other expenses, incurred for each day after the Conversion Date, until all the conditions required by that certain Amendment Number Eight To Loan And Security Agreement, dated as of January 13, 2003, are satisfied." Section 5. AMENDMENT TO SECTION 3.1 OF THE SCHEDULE TO THE LOAN AND SECURITY AGREEMENT TITLED INTEREST RATE. Section 3.1 of the Schedule to the Loan Agreement titled Interest Rate is hereby amended by deleting such Section in its entirety and replacing it with the following: "A rate equal to 9.25% per annum, calculated on the basis of a 360-day year for the actual number of days elapsed." Section 6. AMENDMENT TO SECTION 3.1 OF THE SCHEDULE TO THE LOAN AND SECURITY AGREEMENT TITLED MINIMUM MONTHLY INTEREST. Section 3.1 of the Schedule to the Loan Agreement titled Minimum Monthly Interest is hereby amended by deleting such Section in its entirety. Section 7. AMENDMENT TO SECTION 8.1 OF THE SCHEDULE TO THE LOAN AND SECURITY AGREEMENT. Section 8.1 of the Schedule to the Loan Agreement is hereby amended by deleting such Section in its entirety and replacing it with the following: "1. Borrowers shall maintain a Debt Service Coverage Ratio, measured quarterly at the end of each fiscal quarter, as follows: (i) 0.90 to 1.00 for the fiscal quarter ending March 31, 2003; (ii) 1.10 to 1.00 for fiscal quarter ending June 30, 2003; and (iii) 1.25 to 1.00 for fiscal quarter ending September 30, 2003, and for each and every fiscal quarter thereafter. 2. Borrowers shall maintain a Quick Ratio as follows: (i) 0.30 to 1.00 for the fiscal quarters ending March 31, 2003 and June 30, 2003; (ii) 0.31 to 1.00 for the fiscal quarter ending September 30, 2003; and (iii) 0.34 to 1.00, commencing with the fiscal quarter ending December 31, 2003, and for each and every fiscal quarter thereafter." Section 8. AMENDMENT TO SECTION 9.1 OF THE SCHEDULE TO THE LOAN AND SECURITY AGREEMENT. Section 9.1 of the Schedule to the Loan Agreement is hereby amended by deleting such Section in its entirety and replacing it with the following: 3 "February 28, 2005, subject to automatic renewal as provided for in Section 9.1 of the Agreement, and early termination as provided in Section 9.2 of the Agreement." Section 9. AMENDMENT TO SECTION 9.2 OF THE SCHEDULE TO THE LOAN AND SECURITY AGREEMENT. Section 9.2 of the Schedule to the Loan Agreement is hereby amended by deleting such Section in its entirety. ARTICLE II GENERAL PROVISIONS Section 1. CONDITIONS. This Amendment shall be effective and the effectiveness of this Amendment is expressly conditioned upon the receipt by Coast of: (a) a copy of this Amendment duly executed by Borrowers; (b) a copy of that certain Amendment Number One to Intercreditor And Subordination Agreement, of even date herewith, duly executed by Borrowers and the Subordinated Lender, as such term is defined therein; and (c) payment for all expenses, fully earned and payable on the date hereof, incurred by Coast in connection with making the amendments contained herein, as well as any and all unpaid expenses owed to Coast by Borrowers pursuant to the terms and provisions of the Loan Agreement, within a reasonable time from that date hereof. Section 2. ENTIRE AGREEMENT. The Loan Agreement, as amended hereby, embodies the entire agreement and understanding between the parties hereto and supersedes all prior agreements and understandings relating to the subject matter hereof. Borrowers represent, warrant and agree that in entering into the Loan Agreement, and consenting to this Amendment, they has not relied on any representation, promise, understanding or agreement, oral or written, of, by or with, Coast or any of its agents, employees, or counsel, except the representations, promises, understandings and agreements specifically contained in or referred to in the Loan Agreement, as amended hereby. Section 3. CONFLICTING TERMS. In the event of a conflict between the terms and provisions of this Amendment and the terms and provisions of the Loan Agreement, the terms of this Amendment shall govern. In all other respects, the Loan Agreement, as amended and supplemented hereby, shall remain in full force and effect. Section 4. MISCELLANEOUS. This Amendment shall be governed by and construed in accordance with the laws of the State of California. This Amendment may be executed in any number of counterparts, all of which taken together shall constitute one agreement, and any party hereto may execute this Amendment by signing such counterpart. 4 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective officers thereunto duly authorized as of the date first above written. BORROWER: MAI SYSTEMS CORPORATION, a Delaware corporation By: _____________________________________ Name: ___________________________________ Title: __________________________________ HOTEL INFORMATION SYSTEMS, INC., a Delaware corporation By: _____________________________________ Name: ___________________________________ Title: __________________________________ COAST COAST BUSINESS CREDIT, a division of Southern Pacific Bank, a California corporation By: _____________________________________ Name: ___________________________________ Title: __________________________________ 5 EX-10.22 4 a88905exv10w22.txt EXHIBIT 10.22 EXHIBIT 10.22 MAI AMENDMENT NO.THREE This Amendment No. Three (the "Amendment No. Three") is dated as of January 13, 2003, by and among MAI Systems Corporation, a Delaware corporation ("MAI") and CPI Securities LP, a California limited partnership, The Value Realization Fund, L.P., a Delaware limited partnership, The Value Realization Fund, L.P., a Cayman Islands corporation and GRS Partners II (collectively, "Canyon"). RECITALS A. WHEREAS, MAI is as of this date obligated to Canyon for unpaid principal and interest under that certain Note Purchase Agreement, dated as of March 3, 1997 (as amended (i) by the Forbearance Agreement dated October 28, 1999, (ii) by Amendment No. One dated as of February 14, 2000, (iii) by Amendment No. Two dated April 13, 2000, (iv) the MAI Supplement dated September 2000, and (v) an MAI Supplement and Amendment dated January 31, 2001 (collectively, the "Canyon Loan Agreement"), among MAI and Canyon. Capitalized terms not defined herein shall have the meanings assigned to such terms in the Canyon Loan Agreement; and B. WHEREAS, MAI has presented to Canyon for its approval the terms of that certain Amendment Number Eight to Loan and Security Agreement between MAI, Coast Business Credit ("Coast"), which amendment is attached hereto as Exhibit A (the "Coast Amendment") and a certain term sheet respecting CSA Private Limited ("CSA"), which term sheet is attached hereto as Exhibit B (the "CSA Note Modification") and C. WHEREAS, MAI has requested that Canyon also agree to an extension of the maturity date of the Notes and other modifications to the terms of the Notes, which Canyon has agreed to subject to MAI's performance under this Amendment No. Three; and D. WHEREAS, MAI and Canyon wish to enter into this Amendment No. Three to confirm the unpaid principal and interest currently owed to Canyon by MAI and to confirm the terms of the aforesaid modifications to the Notes and Canyon's consent to MAI's execution of the Coast and CSA Note Modifications. NOW THEREFORE, the parties agree as follows: AGREEMENT 1. PRINCIPAL BALANCE AND AGREEMENT TO INCREASE PAYMENTS. MAI acknowledges that as of December 31, 2002, it is obligated to Canyon in the amount of $5,662,437. As of December 31, 2002, Canyon acknowledges that there is no accrued interest due from MAI not reflected in the foregoing amount. MAI confirms to Canyon that upon the repayment in full of Coast, Canyon shall succeed to a first priority secured position in the Collateral covered by the Security Agreement. 1 2. MODIFIED TERMS. The parties agree to the following additional modified terms relating to the Canyon Loan Agreement: (i) Canyon consents to MAI's execution of the Coast Amendment and CSA Note Modifications containing the terms set forth on Exhibits A and B hereto; (ii) the Notes shall require monthly payments of Fifty-Two Thousand Dollars ($52,000) until the later of (a) the date the Coast debt is paid off in full or (b) February 28, 2005 (the "Pay Date"). In addition, MAI shall pay to Canyon the maximum amount permitted to be paid to Canyon pursuant to Article I, Section 2 of the Amendment Number One to Intercreditor and Subordination Agreement of January 13, 2003. On the Pay Date, the Notes shall be converted to three-year amortizing loan paying equal monthly payments of principal and interest at 11% per annum, until February 28, 2008, at which time any and all principal and accrued interest then outstanding shall be due an payable, and from and after the Pay Date, MAI shall pay to Canyon on a quarterly basis, fifty percent (50%) of all quarterly amounts greater than $125,000 of an EBITDA-based formula calculated as follows: ACTUAL EBITDA LESS EACH OF THE FOLLOWING WITHOUT DUPLICATION: (1) PRINCIPAL AND INTEREST PAYMENTS ON ALL DEBT PERMITTED UNDER THE CANYON LOAN AGREEMENT, (2) NON-FINANCED CAPITAL EXPENDITURES PAID IN CASH NOT TO EXCEED $182,000 IN YEAR ONE, $325,000 IN YEAR TWO, $379,000 IN YEAR THREE, $438,000 IN YEAR FOUR, $459,000 IN YEAR FIVE AND $504,000 IN YEAR SIX, IF APPLICABLE, OF THIS AMENDMENT AND (3) CASH ACTUALLY PAID FOR ALL TAXES. IN ALL EVENTS, THE NOTES SHALL BE FULLY DUE AND PAYABLE ON FEBRUARY 28, 2008. 3. ISSUANCE OF MAI COMMON STOCK. MAI shall issue 200,000 Shares of its Common Stock to Canyon in the amounts set forth on the signature page hereof, subject to a private placement legend in customary form. 4. ISSUANCE OF MAI WARRANTS. MAI shall issue Warrants at $0.40 per share for 1,000,000 shares of its Common Stock to Canyon, subject to a private placement legend in customary form, pursuant to a Warrant Agreement attached hereto as Exhibit C in the amounts set forth on the signature page hereof. The Warrant Shares and the 200,000 Shares above shall receive the benefit of the Registration Rights Agreement attached hereto as Exhibit D in favor of Canyon. 5. NO ADDITIONAL DEBT, AMENDMENTS. MAI may not incur any additional indebtedness without the consent of Canyon, except for capital lease obligations not in excess of $150,000 in the aggregate per year. MAI covenants not to further amend the Coast Loan Agreement nor the CSA agreements without the consent of Canyon, and MAI may not extend (or allow Coast to extend) the term of the Coast loan agreement for more than one year (to February 28, 2006) without Canyon's written consent. MAI shall timely exercise its right to cancel the automatic extension of Section 9.1 of the Coast Loan Agreement. 2 6. FAILURE TO PAY. Failure to pay any amounts set forth above shall be an "Event of Default" under the Canyon Loan, with such 'cure' periods as provided for in the Canyon Loan Agreement. 7. AGREEMENT TO EXECUTE RELATED DOCUMENTATION. MAI agrees to cause CSA to execute any appropriate amendments requested by Canyon in respect to this Amendment No. Three to that certain Subordination Agreement and Rider among Canyon and CSA. MAI agrees that no payments of interest in excess of the amount set forth on Exhibit B, or principal of any amount, may be made to CSA until all obligations owed to Canyon have been paid in full. 8. REPRESENTATIONS AND WARRANTIES. MAI hereby represents and warrants to Canyon that, as of the date of this Amendment No. Three: 8.1 All of MAI's representations and warranties contained in this Amendment No. Three, and the Canyon Loan Agreement are true and correct on and as of the date hereof, as if then made (other than representations and warranties which expressly related to an earlier date); No Default or Event of Default (as such terms are defined in the Canyon Loan Agreement) has occurred or is continuing, except for the Coast covenant default and the CSA financial default as previously disclosed. 8.2 The execution and delivery of this Amendment No. Three by MAI and the performance of the transactions contemplated hereby (a) are within MAI's corporate power, (b) have been duly authorized by all necessary or proper corporate and shareholder action, (c) when duly executed and delivered by MAI, shall constitute the legal, valid and binding obligation of MAI enforceable against MAI in accordance with its terms, and (d) have been consented to by Coast. 8.3 If any of the foregoing representations is untrue or incorrect in any material respect, such untruthfulness or inaccuracy shall constitute an Event of Default under the Canyon Loan Agreement. 9. EFFECTIVE DATE. This Amendment shall be effective and the effectiveness of this Amendment is expressly conditioned upon the receipt by Canyon of: (a) a copy of this Amendment duly executed by MAI; (b) a copy of that certain Amendment Number One to Intercreditor and Subordination Agreement, of even date herewith, duly executed by MAI and Coast; (c) payment for all expenses, fully earned and payable on the date hereof, incurred by Canyon in connection with making the amendments contained herein; and (d) delivery to Canyon of the Warrants and Shares and the two associated agreements referred to in Paragraphs 3 and 4. 10. LIMITATION. This Amendment No. Three shall be limited solely to the matters expressly set forth herein and shall not (i) constitute an amendment or waiver of any term of the Canyon Loan Agreement other than the provisions thereof which are specifically and explicitly amended hereby, (ii) constitute an amendment or waiver of any term or condition of the Canyon Loan Agreement, the Notes or the Security Agreement, (iii) prejudice any right or rights which Canyon may now have or may have in the future under or in connection with the Canyon Loan Agreement the Notes or the Security Agreement, (iv) require Canyon to agree to a similar 3 transaction on a future occasion or (v) create any rights herein to another person, entity or other beneficiary or otherwise, except to the extent specifically provided herein. 11. RELEASE. 11.1 MAI acknowledges that Canyon would not enter into this Amendment No. Three without MAI's assurance that MAI has no claim against any of Canyon, their parents companies, subsidiaries, affiliates, officers, directors, shareholders, employees, attorneys, agents, professionals and servants, or any of their respective predecessors, successors, heirs and assigns (collectively, the "Canyon Parties" and each, a "Canyon Party"). MAI, for itself and on behalf of its officers and directors, and its respective predecessors, successors and assigns (collectively, the "Releasors") releases each Canyon Party from any known or unknown claims which MAI now has against any Canyon Party of any nature, including any claims that any Releasor, or any Releasor's successors, counsel and advisors may in the future discover they would have had now if they had known facts not now known to them, whether founded in contract, in tort or pursuant to any other theory of liability, including but not limited to any claims arising out of or related to the Loan Documents or the transactions contemplated thereby. MAI, FOR ITSELF AND ON BEHALF OF EACH RELEASOR, WAIVES THE PROVISIONS OF CALIFORNIA CIVIL CODE SECTION 1542, WHICH STATE: A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR. 11.2 The provisions, waivers and releases set forth in this section are binding upon each Releasor. The provisions, waivers and releases of this section shall inure to the benefit of each Canyon Party. 11.3 The provisions of this section shall survive payment in full of the Obligations, full performance of all of the terms of this Amendment No. Three, the Canyon Loan Agreement, the Notes, and the Security Agreement and/or any action by Canyon to exercise any remedy available under such documents, applicable law or otherwise. 11.4 MAI warrants and represents that it is the sole and lawful owner of all right, title and interest in and to all of the claims released hereby and MAI has not heretofore voluntarily, by operation of law or otherwise, assigned or transferred or purported to assign or transfer to any person any such claim or any portion thereof. MAI shall indemnify and hold harmless each Canyon Party from and against any claim, demand, damage, debt, liability (including payment of reasonable attorneys' fees and costs actually incurred whether or not litigation is commenced) based on or arising out of any such assignment or transfer. 4 12. MISCELLANEOUS. The headings herein are for convenience of reference only and shall not alter or otherwise affect the meaning hereof. No amendment, modification, termination or waiver of any provision of this Amendment No. Three, or any consent to any departure by MAI therefrom, shall in any event be effective unless the same shall be in writing and signed by all of the Canyon Parties. Any waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. 13. SOLE BENEFIT OF PARTIES. This Amendment No. 3 is solely for the benefit of the parties hereto and their respective successors and assigns, and no other person or entity shall have any right, benefit or interest under or because of the existence of this Amendment No. Three. 14. RULE 144 COVENANT. MAI shall file as and when applicable, on a timely basis, all reports required to be filed by it under the Securities Exchange Act of 1934. If MAI is not required to file reports pursuant to the Exchange Act, upon the request of Canyon, MAI shall make publicly available the information specified in Rule 144 of the Securities Act of 1933, and take such further action as may be reasonably required from time to time and as may be within the reasonable control of MAI, to enable Canyon to transfer their Common Stock Securities without registration under the Securities Act within the limitation of the exemptions provided by Rule 144 under the Securities Act or any similar rule or regulation hereafter adopted by the Securities and Exchange Commission. 15. FURTHER ASSURANCES. MAI and Canyon shall execute such documents and perform such further acts as may be reasonably required or desirable to carry out the provisions of this Amendment No. Three and the Security Agreement. 16. CONSENT BY COAST. MAI represents that pursuant to the Subordination and Intercreditor Agreement among Canyon, Coast and other parties, Coast has consented to this Amendment No. Three. 17. COUNTERPARTS. This Amendment No. Three may be executed in any number of separate counterparts, each of which shall collectively and separately constitute one agreement. 18. GOVERNING LAW. THIS AGREEMENT, AND ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE HEREOF, SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. 19. OTHER CHANGES. Other than as expressly set forth herein, all provisions of the Canyon Loan Agreement shall remain in full force and effect. 5 IN WITNESS HEREOF, the parties have executed this Amendment No. Three as of the date first written above. CPI SECURITIES LP, CANYON VALUE REALIZATION a California limited partnership, FUND, L.P., A DELAWARE LIMITED PARTNERSHIP By: Canpartners Incorporated, a California corporation, By: Canpartners Investments III, L.P., its general partner a California limited partnership, its general partner By: Canyon Capital Advisors LLC, By: _______________________ a Delaware limited liability company, Name: its general partner Title: By: ___________________________ 10,000 Shares Name: 50,000 Warrants Its Managing Director 90,000 Shares 450,000 Warrants THE CANYON VALUE REALIZATION GRS PARTNERS II FUND (CAYMAN), LTD. By: MeesPierson (Cayman) Limited, its Administrator By: ___________________________ Name: By: _______________________ Title: Name: Title: 10,000 Shares 50,000 Warrants 90,000 Shares 450,000 Warrants MAI SYSTEMS CORPORATION, A DELAWARE CORPORATION By: _______________________ Name: Title: 6 EXHIBIT A COAST LOAN AMENDMENT 7 EXHIBIT B CSA TERM SHEET The proposed amendment to the terms of the December 1, 2001 secured Subordinated Note due 2003, as amended ("Note") are as follows: 1. Agree to amend the 10% Subordinated Note to terms as follows: a. Extend maturity date to February 28, 2011 b. The amended loan with CSA shall accrue interest at 10% and require monthly interest only payments not to exceed $17,500 until the Coast and Canyon debt is paid off in full, at which time the CSA loan shall be converted to three-year amortizing loan paying equal monthly payments of principal over the remaining term of the amended loan. 2. The parties shall be responsible for their own attorney fees and any other costs associated in any way with the negotiation and execution of this Amendment. 8 EXHIBIT C WARRANT AGREEMENT 9 EXHIBIT D REGISTRATION RIGHTS AGREEMENT 10 EX-10.23 5 a88905exv10w23.txt EXHIBIT 10.23 EXHIBIT 10.23 AMENDMENT NUMBER ONE TO INTERCREDITOR AND SUBORDINATION AGREEMENT This AMENDMENT NUMBER ONE TO INTERCREDITOR AND SUBORDINATION AGREEMENT, dated as of January 13, 2003 (this "Amendment"), amends that certain Intercreditor and Subordination Agreement, dated as of April 28, 1998 (the "Subordination Agreement"), by and among THE VALUE REALIZATION FUND, L.P., a California limited partnership, CANYON VALUE REALIZATION FUND (CAYMAN), LTD., GRS PARTNERS II, CPI SECURITIES L.P., a California limited partnership (collectively, the "Subordinating Lender"), on the one hand, and COAST BUSINESS CREDIT, a division of Southern Pacific Bank, a California corporation ("Coast"), on the other hand. All initially capitalized terms used in this Amendment shall have the meanings ascribed thereto in the Subordination Agreement unless specifically defined herein. RECITALS WHEREAS, Subordinating Lender and Coast wish to amend the Subordination Agreement pursuant to the terms and provisions set forth in this Amendment; and NOW, THEREFORE, the parties hereto agree as follows: ARTICLE I AMENDMENTS Section 1. AMENDMENT TO SECTION 1 OF THE SUBORDINATION AGREEMENT. Section 1 of the Subordination Agreement is hereby amended by adding the following definition to such section: ""Excess Cash Flow" means, in any fiscal period, Borrower's EBITDA, as such term is defined in the Senior Loan Agreement, minus cash capital expenditures, minus cash tax expenses, minus capitalized software development costs, minus all principal payments on all debt, minus all interest payments on all debt." Section 2. AMENDMENT TO SECTION 3(b) OF THE SUBORDINATION AGREEMENT. Section 3(b) of the Subordination Agreement is hereby amended by deleting such Section in its entirety and replacing it with the following: "Restricted Payments to Subordinating Lender. Except as expressly provided in this Agreement, MAI and Subordination Lender Agree that MAI shall not make any payments to Subordinating Lender in respect of the Junior Debt, whether on account of principal or interest, or whether by way of prepayment, payment on maturity or acceleration, redemption or purchase, until such time as the Senior Debt shall have been paid in full by MAI to Senior Lender. Notwithstanding the foregoing, and subject to the provisions of Section 3(c) below, provided that all payments then due and payable on the Senior Debt have been first paid in full, 1 MAI may make monthly payments of unpaid interest accrued under the Notes in an amount not to exceed Fifty-two Thousand Dollars ($52,000); provided, however, that Excess Cash Flow in excess of One Hundred Twenty-five Thousand Dollars in any given month shall be divided equally between Senior Lender and Subordinating Lender." ARTICLE II GENERAL PROVISIONS Section 1. CONDITION PRECEDENT. This Amendment shall be effective and the effectiveness of this Amendment is expressly conditioned upon (a) the receipt by Coast of a copy of this Amendment duly executed by Subordinating Lender and Borrower, and (b) the receipt by Coast of a copy of that certain Amendment Number Seven To Loan And Security Agreement, of even date herewith, duly executed by Borrower. Section 2. ENTIRE AGREEMENT. The Subordination Agreement, as amended hereby, embodies the entire agreement and understanding between the parties hereto and supersedes all prior agreements and understandings relating to the subject matter hereof. Borrower represents, warrants and agrees that in entering into the Subordination Agreement, and consenting to this Amendment, it has not relied on any representation, promise, understanding or agreement, oral or written, of, by or with, Coast or any of its agents, employees, or counsel, except the representations, promises, understandings and agreements specifically contained in or referred to in the Subordination Agreement, as amended hereby. Section 3. CONFLICTING TERMS. In the event of a conflict between the terms and provisions of this Amendment and the terms and provisions of the Subordination Agreement, the terms of this Amendment shall govern. In all other respects, the Subordination Agreement, as amended and supplemented hereby, shall remain in full force and effect. Section 4. MISCELLANEOUS. This Amendment shall be governed by and construed in accordance with the laws of the State of California. This Amendment may be executed in any number of counterparts, all of which taken together shall constitute one agreement, and any party hereto may execute this Amendment by signing such counterpart. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective officers thereunto duly authorized as of the date first above written. COAST COAST BUSINESS CREDIT, a division of Southern Pacific Bank, a California corporation By: ______________________________________ Name: ____________________________________ Title: ___________________________________ 2 SUBORDINATING LENDER BORROWER THE VALUE REALIZATION FUND, L.P., a California limited partnership By: ______________________________________ Name: ____________________________________ Title: ___________________________________ CANYON VALUE REALIZATION FUND (CAYMAN), LTD. By: ______________________________________ Name: ____________________________________ Title: ___________________________________ GRS PARTNERS II By: ______________________________________ Name: ____________________________________ Title: ___________________________________ CPI SECURITIES L.P., a California limited partnership By: ______________________________________ Name: ____________________________________ Title: ___________________________________ BORROWER: MAI SYSTEMS CORPORATION, a Delaware corporation By: ______________________________________ Name: ____________________________________ Title: ___________________________________ 3 HOTEL INFORMATION SYSTEMS, INC., a Delaware corporation By: ______________________________________ Name: ____________________________________ Title: ___________________________________ 4 EX-10.24 6 a88905exv10w24.txt EXHIBIT 10.24 EXHIBIT 10.24 WARRANT AGREEMENT OF MAI SYSTEMS CORPORATION 1,000,000 SHARES Dated as of January 13, 2003 COMMON STOCK PURCHASE WARRANTS WARRANT AGREEMENT dated as of January 13, 2003, 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 1,000,000 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 only transferable with Company's prior written consent, subject to applicable securities laws restrictions, which consent shall not unreasonably be withheld or delayed. 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 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 2 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 Chief Executive Officer and President or its Chief Financial and Operating Officer , under its corporate seal reproduced thereon, and attested by its Secretary or an Assistant Secretary. 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: 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 3 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. [Omitted.] 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 (i) cash, (ii) certified check payable to the order of the Company, (iii) outstanding shares of Common Stock duly endorsed to the Company (which shares of Common Stock shall be valued at their Fair Market Value as of the day preceding the date of such exercise), (iv) by delivery to the Company and cancellation of the Company's 11% Subordinated Notes, as amended, which shall be valued for this purpose at the principal amount thereof so delivered plus the accrued interest thereon on the date of delivery of the Subordinated Notes (v) by delivery of Warrants owned by Warrant Holder having a Fair Market Value, as of the day preceding the date of such exercise, in excess of the exercise price of such Warrants, or (vi) any combination of the foregoing, or through (vii) such other method of payment as may be provided in the applicable Warrant Agreement. 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 4 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. 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 $0.40, 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 5 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 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 6 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 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 7 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 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. 8 (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 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 9 exercisable for Company Common Stock to $3.43 per share and the Holders of Warrants would receive in 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 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, 10 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 RIGHTS. (a) COMPANY REGISTRATION. The Company shall register the Warrant Shares pursuant to the Registration Rights Agreement (attached hereto as an exhibit to this 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. 11 Section 8. DEFINITIONS. 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 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 later of February 1, 2010, approximately the seventh anniversary of the date of this Agreement, and the date the Company's 11% Subordinated Notes, as amended, have been repaid in full. 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 January 13, 2003 between the Company and the Holders. 13 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 9601 Jeronimo Road, Irvine, California, 92618, 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 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 90012. 14 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. 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 19. CAPTIONS. The captions of the Sections of this Agreement have been inserted for convenience only and shall have no substantive effect. Section 20. 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. 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: __________________________________________ Title: _______________________________________ 15 THE WARRANT AGENT: MAI SYSTEMS CORPORATION, a Delaware corporation By: __________________________________________ Title: _______________________________________ Canyon Value Realization Fund, L.P., a California limited partnership as to 450,000 Warrants By: Canpartners Investments III, L.P., a California limited partnership, its general partner By: Canyon Capital Advisors LLC, a Delaware limited liability company, its general partner By: Canpartners Incorporated, a California corporation, its general partner By: ______________________________ Name: Title: The Canyon Value Realization Fund (Cayman), Ltd. as to 450,000 Warrants By: MeesPierson (Cayman) Limited, its Administrator By: ______________________________ Name: Title: 16 GRS Partners II as to 50,000 Warrants By: Grosvenor Capital Management L.P., its Administrator By: Grosvenor Capital Management, Inc., its general partner By: ______________________________ Name: Title: CPI Securities L.P., a California limited partnership as to 50,000 Warrants By: Canpartners Incorporated, a California corporation, its general partner By: ______________________________ Name: Title: 17 EXHIBIT A Form of Warrant Certificate No. ___ _______ Shares COMMON STOCK PURCHASE WARRANT Void After 5:00 P.M. Pacific Time on [February 1, 2010] 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 the later of February 1, 2010 and the date the Company's 11% Subordinated Notes, as amended, have been repaid in full (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 $0.40 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 January 13, 2003, 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 the manner described in the Warrant Agreement. 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. 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 18 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: Chief Executive Officer Attest Secretary DATED: As of_________, 2003 19 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: 20 EX-10.25 7 a88905exv10w25.txt EXHIBIT 10.25 EXHIBIT 10.25 REGISTRATION RIGHTS AGREEMENT IN FAVOR OF THE HOLDERS OF REGISTABLE SECURITIES REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (the "Agreement") is made and entered into as of January 13, 2003 by and among MAI Systems Corporation, a Delaware corporation, and the holders of Registrable Securities (the "Holders") signatory to this Agreement. This Agreement is made pursuant to the Warrant Agreement and MAI Amendment No. Three (the "Canyon Agreements") dated as of January 13, 2003 by and among MAI Systems Corporation, the ("Company"), and the Holders pursuant to which the Holders are acquiring certain shares of Common Stock of the Company and may purchase other securities of the Company at a later date pursuant to a Warrant Agreement of even date. In order to induce the Holders to purchase the Registrable Securities, the Company has agreed to provide the registration rights set forth in this Agreement for the benefit of the Holders. The execution and delivery of this Agreement is called for in the MAI Amendment No. Three. The parties hereby agree as follows: 1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms shall have the following respective meanings: (a) AFFILIATE of a specified Person means any other Person that directly, or indirectly through one or more intermediates, controls, is controlled by or is under common control with the Person specified, or who holds or beneficially owns 50% or more of the equity interest in the Person specified or 50% or more of the voting securities of the Person specified. A managed account of a Person is also an Affiliate of such Person. (b) COMMISSION means the Securities and Exchange Commission. (c) COMPANY means MAI Systems Corporation or any successor to it or to its business. (d) COMMON STOCK means (except where the context otherwise indicates) 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 corporation, acquiring corporation or Constituent Corporation (as defined in the Warrant Agreement). (e) CONTINUOUSLY EFFECTIVE means, with respect to a specified registration statement, that it shall not cease to be effective and available for transfers of Registrable Securities thereunder for longer than any forty-five (45) consecutive Business Days, during 2 which time the Company shall not be permitted to call the Warrants, prior to the Expiration Date. (f) DEMAND REGISTRATION shall have the meaning set forth in Section 2(c). (g) DEMANDING HOLDERS shall have the meaning set forth in Section 2(c). (h) EXCHANGE ACT means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission promulgated thereunder. (i) EXPIRATION DATE means the later of February 1, 2010, approximately the seventh anniversary of the date of this Agreement, and the date the Company's 11% Subordinated Notes, as amended, have been repaid in full. (j) HOLDERS shall have the meaning set forth in the first paragraph hereof. (k) PERSON means any individual, corporation, partnership, joint venture, association, joint-stock company, limited liability company, trust, unincorporated organization or government or other agency or political subdivision thereof. (l) PIGGYBACK REGISTRATION shall have the meaning set forth in Section 2(b)(i). (m) REGISTRABLE SECURITIES means any shares of Common Stock of the Company acquired pursuant to the Canyon Agreements or any Warrant Shares (as defined below) which may be acquired and owned by a Holder, or any securities received by a Holder in exchange for such securities, and any other Shares of the Company held by the Holders on the date hereof or Shares received in exchange therefor. As to any particular Registrable Securities, such securities shall cease to be Registrable Securities when (x) such securities shall have been disposed of pursuant to an effective registration statement, (y) such securities shall have been transferred to any Person other than the Holders pursuant to Rule 144 (or any successor provision) or shall be transferable pursuant to paragraph (k) thereof (or any successor provision) under the Securities Act, or (z) they shall have ceased to be held by the Holders or any Affiliate of the Holders or any Transferee of the Holders or their Affiliates. (n) REGISTRATION EXPENSES means all expenses incident to the performance of or compliance with the registration rights granted herein, including, without limitation, all registration, filing, listing and NASD fees, all fees and expenses of complying with securities or blue sky laws, all word processing, duplicating and printing expenses, messenger and delivery expenses, the fees and expenses of the Company's counsel, the fees and expenses of one counsel for the Selling Holders chosen by a majority vote of them, the fees and expenses of the Company's independent public accountants, including the expenses of any special audits or "cold comfort" letters required by or incident to such performance and compliance. (o) SECURITIES ACT means the Securities Act of 1933, as amended, or any successor statute thereto, and the rules and regulations of the Securities and Exchange Commission promulgated thereunder, all as the same shall be in effect at the time. 3 (p) SELLING HOLDERS means those Holders who have requested registration pursuant to Section 2(b) hereof and who are selling securities thereunder. (q) SHARES means the Company's common stock, as constituted on the date hereof, or any stock or other securities, for which such common stock shall have been exchanged, or any stock or other securities resulting from any reclassification of such Shares. (r) TRANSFEREE shall mean the first holder of Registrable Securities by a transfer from a Holder or an Affiliate of a Holder provided, however, that a Person acquiring such Registrable Securities pursuant to a transfer under an effective registration statement or pursuant to a sale under Rule 144 shall not be a Transferee. (s) VIOLATION shall have the meaning set forth in Section 6(a). (t) CANYON AGREEMENTS means the Canyon Agreements, dated as of January _____, 2003 between the Company and the Warrant Holders listed therein. (u) WARRANTS shall mean any warrants issued pursuant to the Canyon Agreements. (v) WARRANT SHARES shall mean the Shares of Company Common Stock and other securities issuable upon exercise of the Warrants. 2. REGISTRATION RIGHTS. (a) PIGGYBACK REGISTRATION RIGHTS. At any time after the execution of this Agreement, if the Company proposes to register any Common Stock for sale solely for cash, either for its own account or for the account of a stockholder or stockholders (a "Company Registration"), then the Company shall give the Holder written notice of its intention to do so and of the intended method of sale (the "Registration Notice") not fewer than 15 days prior to the anticipated filing date of the registration statement effecting such Company Registration. The Holder may request inclusion of any Registrable Shares in such Company Registration by delivering to the Company, within 10 days after receipt of the Registration Notice, a written notice (the "Piggyback Notice") stating the number of Registrable Shares proposed to be included and that such shares are to be included in the Company Registration only on the same terms and conditions as the shares of Common Stock otherwise being sold under such Registration. The Company shall use its reasonable efforts to cause all Registrable Shares specified in the Piggyback Notice to be included in the Company Registration and any related offering, all to the extent requisite to permit the sale by the Holder of such Registrable Shares in accordance with the method of sale applicable to the other shares of Common Stock included in the Company Registration. (b) LIMITATIONS ON PIGGYBACK REGISTRATIONS. The Company's obligation to include Registrable Shares in the Company Registration pursuant to Section 2(a) shall be subject to the following limitations: The Company shall not be obligated to include any Registrable Shares in a registration statement (i) filed on Form S-4 or Form S-8 or such other similar successor forms then in effect under the Securities Act, (ii) pursuant to which the Company is 4 offering to exchange its own securities, or (iii) relating to dividend reinvestment plans. There is no limit on the number of Piggyback Registrations which may be requested hereunder. (c) DEMAND REGISTRATION. (i) If the Holders of at least 30% of the Registrable Securities make a written request to the Company (the "Demanding Holders"), the Company shall cause there to be filed with the Commission a registration statement meeting the requirements of the Securities Act (a "Demand Registration"), and each Demanding Holder shall be entitled to have included therein all or such number of such Demanding Holder's Registrable Securities, as the Demanding Holder shall request in writing. Any request made pursuant to this Section2(c) shall be addressed to the attention of the Secretary of the Company, and shall specify the number of Registrable Securities to be registered, the intended methods of disposition thereof and that the request is for a Demand Registration pursuant to this Section 2(c). (ii) Whenever the Company shall have received a demand pursuant to Section 2(c) to effect the registration of any Registrable Securities, the Company shall promptly give written notice of such proposed registration to all Holders. Any Holder may, within twenty (20) days after receipt of such notice, request in writing that all of such Holder's Registrable Securities, or any portion thereof designated by such Holder, be included in the registration. (iii) Following receipt of a request for a Demand Registration, the Company shall: (1) File the registration statement with the Commission as promptly as practicable, and shall use the Company's best efforts to have the registration declared effective under the Securities Act as soon as reasonably practicable, in each instance giving due regard to the need to prepare current financial statements, conduct due diligence and complete other actions that are reasonably necessary to effect a registered public offering. (2) Use the Company's best efforts to keep the Demand Registration Statement Continuously Effective for up to two hundred seventy (270) days or until such earlier date as of which all the Registrable Securities under the Demand Registration Statement shall have been disposed of in the manner described in the Registration Statement, or such earlier time as the Company would not have any obligation to include the Registrable Securities that have not been disposed of in the manner described in the Registration Statement. Notwithstanding the foregoing, if for any reason the effectiveness of a registration pursuant to this Section 2(c) is suspended the foregoing period shall be extended by the aggregate number of days of such suspension or postponement. 5 (iv) The Company shall be obligated to effect no more than a total of one Demand Registration, and only if the Company is then eligible to use Form S-3 or its equivalent, and if the reasonably anticipated aggregate gross proceeds to the Holders shall exceed $1,000,000. For purposes of the preceding sentence, the registration shall not be deemed to have been effected (i) unless a registration statement with respect thereto has become effective, (ii) if after such registration statement has become effective, such registration or the related offer, sale or distribution of Registrable Securities thereunder is interfered with by any stop order, injunction or other order or requirement of the Commission or other governmental agency or court for any reason not attributable to the Selling Holders and such interference is not thereafter eliminated. The Company shall not be obligated to enter into an underwriting agreement in connection with a Demand Registration hereunder. If the Company shall have complied with its obligations under this Agreement, a right to a Demand Registration pursuant to this Section 2(c) shall be deemed to have been satisfied upon the earlier of (i) the date as of which all of the Registrable Securities included therein shall have been disposed of pursuant to the Registration Statement, and (ii) the date as of which such Demand Registration shall have been Continuously Effective for a period of two hundred seventy (270) days. Any Demand Registration Statement which, after filing with the Commission is withdrawn by the Holders, shall be deemed to have been effective in determining the number of Demand Registrations the Company is obligated to effect hereunder. (d) REGISTRATION STATEMENT FORM. The Company may, if permitted by law, effect any registration requested under Section 2 by the filing of a registration statement on Form S-3 (or any successor or similar short-form registration statement). (e) EXPENSES. The Company shall pay all Registration Expenses incurred in connection with the registration of Registrable Securities pursuant to Section 2. (f) EFFECTIVE REGISTRATION STATEMENT. The registration requested pursuant to Section 2 shall not be deemed to have been effected unless it has become effective with the Commission, provided, however, that a registration which does not become effective after the Company has filed a registration statement with respect thereto with the Commission solely by reason of the Demanding Holders failing to proceed with the registration shall be deemed to have been effected by the Company in satisfaction of the Company's obligation to register Registrable Securities pursuant to a Demand Registration, unless the Demanding Holders reimburse the Company for all of its costs and expenses incurred in connection with such registration statement. Notwithstanding the foregoing, a registration statement will not be deemed to have been effected if (i) after it has become effective with the Commission, such registration is interfered with by any stop order, injunction or other order or requirement of the Commission or other governmental agency or any court proceeding for any reason other than a misrepresentation or omission by the Holders or (ii) the conditions to closing specified in the purchase agreement or underwriting agreement entered into in connection with such registration are not satisfied, other than by reason of some act or omission or failure to agree to close by a Selling Holder. (g) CONFLICTING INSTRUCTIONS FROM HOLDERS. (i) The Company may rely and shall be protected in relying upon any resolution, certificate, opinion, request, communication, demand, receipt or other paper or document in good faith believed by it to be genuine and to 6 have been signed or presented by the proper party or parties. The Company may act in reliance upon the advice of its counsel in reference to any matter in connection with this Agreement and shall not incur any liability for any action taken in good faith in accordance with such advice. (ii) In the event the Company receives conflicting instructions regarding any action to be taken or withheld hereunder, the Company may suspend further action relating to such action until such time as the conflicting instructions are resolved by the parties giving the same or until the Company is instructed to take or withhold the requested action by a final order from which no appeal may be taken issued by a court of competent jurisdiction. 3. REGISTRATION PROCEDURES. (a) Whenever the Company is required to effect the registration of any Registrable Securities under the Securities Act as provided in Section 2, the Company, as expeditiously as possible and subject to the terms and conditions herein, will: (i) prepare and file with the Commission the requisite registration statement to effect such registration and use its best efforts to cause such registration to become effective; (ii) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement Continuously Effective and to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement until such time as all of such securities have been disposed of in accordance with the intended methods of disposition by the Selling Holders thereof set forth in such registration statement or, if earlier, until the Expiration Date; (iii) furnish to the Selling Holders such number of conformed copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus contained in such registration statement (including each preliminary prospectus and any summary prospectus) and any other prospectus filed under the Securities Act, in conformity with the requirements of the Securities Act, and such other documents, as the Selling Holders may reasonably request; (iv) use its best efforts to register or qualify all Registrable Securities covered by such registration statement under such other United States state securities or blue sky laws of such jurisdictions as the Selling Holders shall reasonably request, to keep such registration statement qualification in effect for so long as such registration remains in effect, and take any other action which may be reasonably necessary or advisable to enable the Selling Holders to consummate the disposition in such jurisdictions of the securities owned by the Selling Holders, except that the Company shall not for any such purpose be required to (a) qualify generally to do business as a foreign corporation in any jurisdiction wherein it would not but for the requirements of 7 this subdivision (iv) be obligated to be so qualified, (b) subject itself to taxation in any such jurisdiction or (c) consent to general service of process in any such jurisdiction; (v) immediately notify the Selling Holders at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made, and at the request of the Selling Holders promptly prepare and furnish to the Selling Holders a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made; (vi) otherwise use its best efforts to comply with all applicable rules and regulations of the Commission, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve months, but not more than eighteen months, beginning with the first full calendar month after the effective date of such registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act, and not file any amendment or supplement to such registration statement or prospectus to which the Selling Holders shall have reasonably objected in writing on the grounds that such amendment or supplement does not comply in all material respects with the requirements of the Securities Act or of the rules or regulations thereunder, having been furnished with a copy thereof (other than with respect to a pricing amendment) at least two business days prior to the filing thereof; (vii) provide a transfer agent and registrar for all Registrable Securities covered by such registration statement not later than the effective date of such registration statement; and (viii) use its best efforts to list all Registrable Securities covered by such registration statement on any securities exchange on which any of the Registrable Securities are then listed. (b) As a condition of these Registration Rights, the Company may require the Demanding Holders, at their own expense, to furnish the Company with such information and undertakings regarding such Holders and the distribution of such securities as the Company may from time to time reasonably request in writing, and the Holders, by their execution hereof, agree to provide such information and make such undertakings as are requested. (c) The Selling Holders agree (A) that upon receipt of any notice from the Company of the happening of any event of the kind described in subdivision (vi) of Section 3(a), the Selling Holders will forthwith discontinue their disposition of Registrable Securities pursuant to the registration statement relating to such Registrable Securities until the Selling Holders' 8 receipt of the copies of the supplemented or amended prospectus contemplated by subdivision (vi) of Section 3(a) and, if so directed by the Company, will deliver to the Company all copies, other than permanent file copies, then in the Selling Holders' possession of the prospectus relating to such Registrable Securities current at the time of receipt of such notice and (B) that they will immediately notify the Company, at any time when a prospectus relating to the registration of such Registrable Securities is required to be delivered under the Securities Act, of the happening of any event as a result of which information previously furnished by the Selling Holders to the Company for inclusion in such prospectus contains an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made. (d) Notwithstanding anything in this agreement to the contrary, the Company will not be required to file such a registration statement if it receives an opinion of counsel in form and substance reasonably satisfactory to the Selling Holders, or counsel to the Selling Holders, to the effect that the sale of the Registrable Securities in the manner contemplated by the Selling Holders may be effected without registration regardless of the identity or status of the buyer(s) of such Registrable Securities. 4. PREPARATION, REASONABLE INVESTIGATION. In connection with the preparation and filing of each registration statement under the Securities Act, the Company will give the Selling Holders, the underwriters, if any, and their respective counsel and accountants, the opportunity to participate in the preparation of such registration statement, each prospectus included therein or filed with the Commission and each amendment thereof or supplement thereto, and will give each of them such access to its books and records and such opportunities to discuss the business of the Company with its officers and the independent public accountants who have certified its financial statements as shall be necessary, in the reasonable opinion of the Selling Holders' and such underwriters' respective counsel, to conduct a reasonable investigation within the meaning of the Securities Act. 5. INDEMNIFICATION; CONTRIBUTION. If any Registrable Securities are included in a registration statement under this Agreement: (a) To the extent permitted by applicable law, the Company shall indemnify and hold harmless each Selling Holder, each Person, if any, who controls such Selling Holder within the meaning of the Securities Act, and each officer, director, partner, and employee of such Selling Holder and such controlling Person, against any and all losses, claims, damages, liabilities and expenses (joint or several), including reasonable attorneys' fees and disbursements and expenses of investigation, incurred by such party pursuant to any actual or threatened action, suit, proceeding or investigation, or to which any of the foregoing Persons may become subject under the Securities Act, the Exchange Act or other federal or state laws, insofar as such losses, claims, damages, liabilities and expenses arise out of or are based upon any of the following statements, omissions or violations (collectively a "Violation"): 9 (i) Any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein, or any amendments or supplements thereto; (ii) The omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading; or (iii) Any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any applicable state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any applicable state securities law; provided, however, that the indemnification required by this Section 6(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or expense if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability or expense to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished to the Company by the indemnified party expressly for use in connection with such registration; provided, further, that the indemnity agreement contained in this Section 6 shall not apply to any underwriter to the extent that any such loss is based on or arises out of an untrue statement or alleged untrue statement of a material fact, or an omission or alleged omission to state a material fact, contained in or omitted from any preliminary prospectus if the final prospectus shall correct such untrue statement or alleged untrue statement, or such omission or alleged omission, and a copy of the final prospectus has not been sent or given to such person at or prior to the confirmation of sale to such person if such underwriter was under an obligation to deliver such final prospectus and failed to do so. The Company shall also indemnify underwriters, selling brokers, dealer managers and similar securities industry professionals participating in the distribution, their officers, directors, agents and employees and each person who controls such persons (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) to the same extent as provided above with respect to the indemnification of the Selling Holders. (b) To the extent permitted by applicable law, each Selling Holder shall indemnify and hold harmless the Company, each of its directors, each of its officers who shall have signed the registration statement, each Person, if any, who controls the Company within the meaning of the Securities Act, any other Selling Holder, any controlling Person of any such other Selling Holder and each officer, director, partner, and employee of such other Selling Holder and such controlling Person, against any and all losses, claims, damages, liabilities and expenses (joint and several), including reasonable attorneys' fees and disbursements and expenses of investigation, incurred by such party pursuant to any actual or threatened action, suit, proceeding or investigation, or to which any of the foregoing Persons may otherwise become subject under the Securities Act, the Exchange Act or other federal or state laws, insofar as such losses, claims, damages, liabilities and expenses arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Selling Holder expressly for use in connection with such registration; provided, however, that (x) the indemnification required by this Section 6(b) shall 10 not apply to amounts paid in settlement of any such loss, claim, damage, liability or expense if settlement is effected without the consent of the relevant Selling Holder of Registrable Securities, which consent shall not be unreasonably withheld, and (y) in no event shall the amount of any indemnity under this Section 6(b) exceed the gross proceeds from the applicable offering received by such Selling Holder. (c) Promptly after receipt by an indemnified party under this Section 6 of notice of the commencement of any action, suit, proceeding, investigation or threat thereof made in writing for which such indemnified party may make a claim under this Section 6, such indemnified party shall deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party shall have the right to retain its own counsel at its own expense except as provided below. The failure to deliver written notice to the indemnifying party within a reasonable time following the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 6 but shall not relieve the indemnifying party of any liability that it may have to any indemnified party otherwise than pursuant to this Section 6. Any fees and expenses incurred by the indemnified party (including any fees and expenses incurred in connection with investigating or preparing to defend such action or proceeding) shall be paid to the indemnified party, as incurred, within sixty (60) days of written notice thereof to the indemnifying party (regardless of whether it is ultimately determined that an indemnified party is not entitled to indemnification hereunder, but in such event such amounts shall be refunded). Any such indemnified party shall have the right to employ separate counsel in any such action, claim or proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be the expenses of such indemnified party unless (i) the indemnifying party has agreed to pay such fees and expenses or (ii) the indemnifying party shall have failed to promptly assume the defense of such action, claim or proceeding or (iii) the named parties to any such action, claim or proceeding (including any impleaded parties) include both such indemnified party and the indemnifying party, and such indemnified party shall have been advised by counsel that there may be one or more legal defenses available to it which are different from or in addition to those available to the indemnifying party and that the assertion of such defenses would create a conflict of interest such that counsel employed by the indemnifying party could not faithfully represent the indemnified party (in which case, if such indemnified party notifies the indemnifying party in writing that it elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of such action, claim or proceeding on behalf of such indemnified party, it being understood, however, that the indemnifying party shall not, in connection with any one such action, claim or proceeding or separate but substantially similar or related actions, claims or proceedings in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys (together with appropriate local counsel) at any time for all such indemnified parties, unless in the reasonable judgment of such indemnified party a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such action, claim or proceeding, in which event the indemnifying party shall be obligated to pay the reasonable fees and expenses of such additional counsel or counsels). No indemnifying party shall be liable to an indemnified 11 party for any settlement of any action, proceeding or claim without the written consent of the indemnifying party, which consent shall not be unreasonably withheld. (d) If the indemnification required by this Section 6 from the indemnifying party is unavailable to an indemnified party hereunder in respect of any losses, claims, damages, liabilities or expenses referred to in this Section 6: (i) The indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party and indemnified parties in connection with the actions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified parties shall be determined by reference to, among other things, whether any Violation has been committed by, or relates to information supplied by, such indemnifying party or indemnified parties, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such Violation. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include, subject to the limitations set forth in Section 6(a) and Section 6(b), any legal or other fees or expenses reasonably incurred by such party in connection with any investigation or proceeding. (ii) The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 6(d)(ii) were determined by pro rata allocation or by any other method of allocation which does not take into account the equitable considerations referred to in Section 6(d)(i). No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. (e) If indemnification is available under this Section 6, the indemnifying parties shall indemnify each indemnified party to the full extent provided in this Section 6 without regard to the relative fault of such indemnifying party or indemnified party or any other equitable consideration referred to in Section 6(d). (f) The obligations of the Company and the Selling Holders of Registrable Securities under this Section 6 shall survive the completion of any offering of Registrable Securities pursuant to a registration statement under this Agreement, and otherwise. 6. COVENANTS OF THE COMPANY. The Company hereby agrees and covenants as follows: The Company shall file as and when applicable, on a timely basis, all reports required to be filed by it under the Exchange Act. If the Company is not required to file reports pursuant to the Exchange Act, upon the request of any Holder of Registrable Securities, the Company shall make publicly available the information specified in subparagraph (c)(2) of Rule 12 144 of the Securities Act, and take such further action as may be reasonably required from time to time and as may be within the reasonable control of the Company, to enable the Holders to transfer Registrable Securities to a Transferee without registration under the Securities Act within the limitation of the exemptions provided by Rule 144 under the Securities Act or any similar rule or regulation hereafter adopted by the Commission. 7. MISCELLANEOUS. 7.1 SPECIFIC PERFORMANCE. The parties hereto acknowledge that there may be no adequate remedy at law if any party fails to perform any of its obligations hereunder and that each party may be irreparably harmed by any such failure, and accordingly agree that each party, in addition to any other remedy to which it may be entitled at law or in equity, may be entitled to compel specific performance of the obligations of any other party under this Agreement in accordance with the terms and conditions of this Agreement. 7.2 NOTICES. All notices, requests, claims, demands, waivers and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given when delivered by hand, if delivered personally by courier, or three days after being deposited in the mail (registered or certified mail, postage prepaid, return receipt requested) as follows: (i) The Holders at the addresses indicated on the signature page hereof with a copy to Canyon Capital Management: c/o Canyon Partners Incorporated 9665 Wilshire Boulevard Suite 200 Beverly Hills, CA 90212 (ii) Company: MAI Systems Corporation 9600 Jeronimo Road Irvine, California 92718 Attention: General Counsel Telecopy No. (949) 598-6606 or to such other address as any party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 7.3 LAW GOVERNING. 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. 7.4 ATTORNEYS' FEES. In any action or proceeding brought to enforce any provision of this Agreement, or where any provision hereof is validly asserted as a defense, the successful party shall be entitled to recover reasonable attorneys' fees (including any fees incurred in any appeal) in addition to its costs and expenses and any other available remedy. 13 7.5 HEADINGS. The descriptive headings of the several Sections and paragraphs of this Agreement are inserted for convenience only, and do not constitute a part of this Agreement and shall not affect in any way the meaning or interpretation of this Agreement. 7.6 ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the other writings referred to herein or delivered pursuant hereto which form a part hereof contain the entire understanding of the parties with respect to its subject matter. This Agreement supersedes all prior agreements and understandings between the parties with respect to its subject matter. This Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) only by a written instrument duly executed by the Company and the Holders. Each holder of any Registrable Securities at the time or thereafter outstanding shall be bound by an amendment or waiver authorized by this Section 8.6, whether or not any such Registrable Securities shall have been marked to indicate such consent. 7.7 ASSIGNABILITY. This Agreement shall be binding upon and inure to the benefit of the respective successors and assigns of the parties hereto provided, however, that the Registration Rights hereunder shall only be available to the Holders, their Affiliates and to their Transferees. 7.8 COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 7.9 VALIDITY, DUE AUTHORIZATION. By its execution hereof, the Company represents and warrants that it has the corporate power to execute, deliver and perform the terms and provisions of this Agreement and that it has taken all appropriate and necessary corporate action to authorize the transactions contemplated hereby and the execution, delivery and performance of this Agreement. MAI Systems Corporation By: ________________________ 14 INVESTORS: Canyon Value Realization Fund, L.P., Address: a California limited partnership Canyon Value Realization Fund, L.P. c/o Canyon Partners Incorporated By: Canpartners Investments III, L.P., 9665 Wilshire Boulevard a California limited partnership, Suite 200 its general partner Beverly Hills, CA 90212 By: Canyon Capital Advisors LLC, 310/247-2700 (O) a Delaware limited liability 310/247-2701 (F) company, its general partner By: Canpartners Incorporated, a California corporation, its general partner By: ______________________ Name: Title: The Canyon Value Realization Fund Address: (Cayman), Ltd. The Canyon Value Realization Fund (Cayman), Ltd. By: MeesPierson (Cayman) Limited, c/o MeesPierson (Cayman) Limited its Administrator P.O. Box 2003 British American Center, Phase 3 Dr. Roy's Drive By: ______________________ Grand Cayman, B.W.I. Name: Title: 809/949-7942 (O) 809/949-8340 (F) GRS Partners II Address: By: Grosvenor Capital Management L.P., GRS Partners II its Administrator c/o Grosvenor Capital Management, L.P. 333 West Wacker Drive By: Grosvenor Capital Management, Inc., Suite 1600 its general partner Chicago, Illinois 60606 By: ________________________ 312/263-7777 (O) Name: 312/782-4759 (F) Title: 15 CPI Securities L.P., Address: a California limited partnership CPI Securities L.P. c/o Canyon Partners Incorporated By: Canpartners Incorporated, 9665 Wilshire Boulevard a California corporation, Suite 200 its general partner Beverly Hills, CA 90212 310/247-2700 (O) By: ________________________ 310/247-2701 (F) Name: Title: 16 EX-10.30 8 a88905exv10w30.txt EXHIBIT 10.30 EXHIBIT 10.30 SUBLEASE THIS SUBLEASE (this "Sublease") is made and entered into as of the _____ day of January 2003, by and between ADVANCED LOGIC RESEARCH, INC., a Delaware corporation (hereinafter called "Sublandlord"), and MAI SYSTEMS CORPORATION, a Delaware corporation (hereinafter called "Subtenant"); WITNESSETH: WHEREAS, by that certain Amended and Restated Standard Lease [Single Tenant - Triple Net] dated as of June 21, 1999 (the "Original Prime Lease"), as amended by that certain First Amendment to Lease dated as of January 27, 2000 (the "First Amendment"), a copy of which instruments are attached hereto as Exhibit "A" and by this reference made a part hereof (hereinafter, with all such amendments, called the "Prime Lease"), MSGW CALIFORNIA I, LLC, a Delaware limited liability company (hereinafter, together with its successors and assigns, called "Landlord"), leased to GATEWAY, INC., a Delaware corporation (formerly known as Gateway 2000, Inc.) three (3) buildings (known as Buildings 1, 2 and 3) located in Lake Forest, Orange County, California, which buildings contain, collectively, approximately 150,000 Rentable Square Feet (the "Prime Lease Space"). WHEREAS, pursuant to that certain Assignment of Lease and Assumption Agreement dated as of June 21, 1999, Gateway, Inc. assigned all of its right, title and interest in and to the Prime Lease to Sublandlord. WHEREAS, subject to the consent of Landlord, Subtenant desires to sublease from Sublandlord, and Sublandlord desires to sublease to Subtenant, (i) that 25,730 rentable square foot portion of the Prime Lease Space located on the first (1st) and second (2nd) floors of that building (the "Building") located at 26110 Enterprise Way in Lake Forest, Orange County, California which is known as Building 1 (the "Premises"), and (ii) that 1,225 square foot portion of the Prime Lease Space located on the first (1st) floor of the Building (the "Storage Space"; for all purposes under this Sublease other than the payment of Base Rent and other than as may be otherwise expressly set forth in this Sublease the Storage Space shall be included within the term "Premises") all as shown on the floor plans attached to this Sublease as Exhibit "B", all upon the terms and subject to the conditions and provisions hereinafter set forth; NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and promises contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby mutually acknowledged, Sublandlord and Subtenant hereby agree as follows: 1. DEMISE; USE. Sublandlord hereby leases to Subtenant and Subtenant hereby leases from Sublandlord the Premises for the term and rental and upon the other terms and conditions hereinafter set forth, to be used and occupied by Subtenant solely for the purposes permitted under the Prime Lease and otherwise in compliance with applicable zoning rules, regulations and ordinances and all covenants, conditions and restrictions of record and for no other purpose. 1 2. TERM. The term of this Sublease shall commence (the "Commencement Date") on the later of (i) February 1, 2003 or (ii) the date upon which this Sublease is fully executed and the Landlord has delivered its consent hereto, and, unless sooner terminated pursuant to the provisions hereof, shall terminate on the earlier of January 31, 2007 and the prior termination of the term of the Prime Lease. As used herein, the phrase "Lease Year" shall mean the twelve calendar month period commencing on the Rent Commencement Date (as hereinafter defined) (or, if the Rent Commencement Date is not the first day of a calendar month, then commencing on the first day of the calendar month during which the Rent Commencement Date occurs) and each anniversary thereof, except that (i) the last Lease Year may not be twelve calendar months and shall terminate on the last day of the term of this Sublease, and (ii) the first Lease Year shall include that period of time from the Commencement Date to and including the Rent Commencement Date. 3. BASE RENT. (a) As used herein, the Rent Commencement Date shall be that date which is the earlier of (i) sixty (60) days following the Commencement Date, and (ii) that date upon which Subtenant commences its business operations from all or any portion of the Premises, but in no event earlier than April 1, 2003. Commencing upon the Rent Commencement Date, Subtenant shall pay to Sublandlord base annual rental (hereinafter called "Base Rent") for the Premises as follows:

==================================================================================================== ANNUAL BASE RENT ANNUAL BASE RENT (BASED RATE PER RENTABLE ON 25,730 RENTABLE SQUARE MONTHLY TIME PERIOD SQUARE FOOT FEET) INSTALLMENTS - ---------------------------------------------------------------------------------------------------- first Lease Year $12.00 $308,760.00 $25,730.00 - ------------------------- -------------------------- ----------------------------------- ----------- second Lease Year $12.36 $318,022.80 $26,501.90 - ------------------------- -------------------------- ----------------------------------- ----------- third Lease Year $12.73 $327,542.90 $27,295.24 - ------------------------- -------------------------- ----------------------------------- ----------- fourth Lease Year* $13.11 $337,320.30 $28,110.03 ====================================================================================================

*Note: Sublandlord and Subtenant acknowledge and agree that as the expiration of the term of this Sublease is January 31, 2007, the fourth Lease Year shall be less than a full twelve (12) calendar month period and accordingly the Annual Base Rent category for such fourth Lease Year as set forth in the schedule above is for explanatory purposes only. In addition to the foregoing, Subtenant shall pay Base Rent for the Storage Space in an amount equal to $2,700.00 per month throughout the term of this Sublease. In clarification of the foregoing, the Base Rent due and owing for the Storage Space is not reflected in the schedule above. Further, notwithstanding any of the foregoing to the contrary, Subtenant's obligation to pay Base Rent for the Storage Space shall commence upon April 1, 2003. Annual Base Rent shall be due and payable in twelve equal installments. Each such installment shall be due and payable in advance on the fifth day prior to the first day of each calendar month of the term hereof. Subtenant shall pay the first due monthly installment of Base Rent due under this Lease 2 concurrently with the execution of this Sublease by Subtenant. If the term of this Sublease commences on a day other than the first day of a month or ends on a day other than the last day of a month, Base Rent for such month shall be prorated; prorated Base Rent for any such partial first month of the term hereof shall be paid on the date on which the term commences. Concurrently with the full execution and delivery of this Sublease by Subtenant, Subtenant shall pay to Sublandlord the first due installment of monthly Base Rent due and owing under this Sublease, including, without limitation, any and all Base Rent due and owing for the Storage Space. (b) All Base Rent and additional rent shall be paid without setoff or deduction whatsoever and shall be paid to Sublandlord at the following address: Real Estate Administration, c/o Gateway, Inc. 610 Gateway Drive Y91, North Sioux City, South Dakota 97049, or at such other place as Sublandlord may designate by notice to Subtenant. Notwithstanding anything to the contrary contained in this Sublease, Sublandlord and Subtenant acknowledge and agree that in the event of a default by Sublandlord, as tenant, under the Prime Lease which remains uncured beyond any applicable notice and cure period and as a result of which the Landlord directs Subtenant in writing (with a copy to Sublandlord) to remit the rent payments under this Sublease directly to the Landlord, then Subtenant shall comply with the direction of Landlord and any sums so paid to Landlord shall be credited against the rent payments due under this Sublease; provided, however, in no event shall the foregoing be deemed to permit the Landlord and Subtenant to modify in any way the obligations of Subtenant under this Sublease (e.g., Landlord shall not be permitted to forgive or waive any obligation of Subtenant under this Sublease without obtaining the consent of Sublandlord, which consent Sublandlord shall be entitled to withhold in its sole and absolute discretion). (c) Sublandlord and Subtenant acknowledge and agree that Sublandlord shall provide to Subtenant an abatement against Base Rent due hereunder for the purpose of reimbursing to Subtenant the cost of certain improvements to be performed by Subtenant within the Premises (any such improvements to be otherwise performed at Subtenant's sole cost and expense and in strict accordance with the terms and provisions of this Sublease). Sublandlord and Subtenant acknowledge and agree that so long as Subtenant is not then in default under this Sublease, Subtenant shall be entitled to an abatement of the Base Rent due and owing under this Sublease for the first sixty (60) days of the term of this Sublease following the Rent Commencement Date; provided, however, during such abatement period, Subtenant shall remain responsible to pay any and all amounts due and owing under this Sublease for additional rent due hereunder (including, without limitation, all pass-throughs from the Prime Lease and all utilities provided to the Premises). In addition, notwithstanding the foregoing, in no event shall Subtenant be entitled to any abatement of the Base Rent due and owing under this Lease with respect to the Storage Space, which Base Rent shall be due and owing to Sublandlord as of April 1, 2003 as more particularly set forth above. 4. ADDITIONAL RENT; PAYMENTS; INTEREST. (a) Except for "Monthly Base Rent" (as such term is defined in the Prime Lease and for the payment of which Subtenant shall have no obligation under this Sublease), following the Commencement Date Subtenant shall also pay to Sublandlord all other amounts payable by Sublandlord under the Prime Lease which are attributable to the Premises or attributable to Subtenant, its agents, employees, customers or invitees, including without limitation, the Operating Costs (as such term is defined herein). By way of 3 example and not by way of limitation, charges by Landlord for furnishing air conditioning or heating to the Premises at times in addition to those certain times specified in the Prime Lease, costs incurred by Landlord in repairing damage to the Building caused by an employee of Subtenant, increased insurance premiums due as a result of Subtenant's use of the Premises, and amounts expended or incurred by Landlord on account of any default by Subtenant which gives rise to a default under the Prime Lease would be amounts payable by Subtenant pursuant to this Subsection 4(a). (b) Each amount due to pursuant to Subsection 4(a) above and each other amount payable by Subtenant hereunder, unless a date for payment of such amount is provided for elsewhere in this Sublease, shall be due and payable on the fifth day following the date on which Landlord or Sublandlord has given notice to Subtenant of the amount thereof, but in no event later than the date on which any such amount is due and payable under the Prime Lease. (c) All amounts other than Base Rent payable to Sublandlord under this Sublease shall be deemed to be additional rent due under this Sublease. All past due installments of Base Rent and additional rent shall bear interest from the date due until paid at the rate per annum equal to five percent (5%) in excess of the Prime Rate (as hereinafter defined) in effect from time to time, which rate shall change from time to time as of the effective date of each change in the Prime Rate, unless a lesser rate shall then be the maximum rate permissible by law with respect thereto, in which event said lesser rate shall be charged. For the purposes of this Sublease, (i) the term "Prime Rate" shall mean the rate of interest announced from time to time by Bank One, N.A. as its prime or corporate base rate, and (ii) any and all amounts due and owing under this Sublease by Subtenant shall not be deemed to be "past due" until such failure to pay continues for a period in excess of five (5) days following the date same is otherwise due under this Lease. (d) Subtenant shall pay Landlord on the due dates for services requested by Subtenant which are billed by Landlord directly to Subtenant rather than Sublandlord. (e) Definitions. For purposes of this Sublease and in addition to the terms defined elsewhere in this Sublease, the following terms shall have the meanings set forth below: (1) "Operating Costs" shall mean (a) Operating Expenses (as defined in Paragraph 6 of the Prime Lease, which Sublandlord and Subtenant acknowledge and agree shall mean, collectively, Common Area Operating Expenses and Building Operating Expenses, as defined in the Prime Lease) charged by Landlord to Sublandlord pursuant to Paragraph 6 of the Prime Lease, and (b) Real Property Taxes (as defined in paragraph 12 of the Prime Lease) charged by Landlord to Sublandlord pursuant to Paragraph 12 of the Prime Lease. (2) "Subtenant's Percentage Share" for purposes of Tenant's Common Area Percentage (as defined in the Prime Lease) shall mean 17.97% and "Subtenant's Percentage Share" for purposes of Tenant's Building Percentage (as defined in the Prime Lease) shall mean 53.99%. Sublandlord and Subtenant acknowledge and agree that at such time as such Percentage Shares are being applied to Operating Costs, Sublandlord shall calculate the amounts owed by Subtenant hereunder by applying the appropriate Percentage Share to Common Area Operating Expenses or Building Operating Expenses, as the case may be. For purposes of Real Estate Taxes, the 4 appropriate Percentage Share shall be applied to determine Subtenant's obligations hereunder based on the assessed area which is the basis for the calculation of Real Estate Taxes under the Prime Lease. In addition to the Base Rent payable pursuant to Section 3 above, from and after the Commencement Date, for each calendar year of the term, Subtenant, as additional rent, shall pay Subtenant's Percentage Share of the Operating Costs payable by Sublandlord for the then current calendar year. Sublandlord shall give Subtenant written notice of Sublandlord's estimate of the amount of additional rent per month payable pursuant to this Subsection for each calendar year promptly following the Sublandlord's receipt of Landlord's estimate of the Operating Costs payable under the Prime Lease. Thereafter, the additional rent payable pursuant to this Subsection shall be determined and adjusted in accordance with the provisions below. (f) The determination and adjustment of additional rent contemplated under Subsection 4(e) above shall be made in accordance with the following procedures: (1) Upon receipt of a statement from Landlord specifying the estimated Operating Costs to be charged to Sublandlord under the Prime Lease with respect to each calendar year, or as soon after receipt of such statement as practicable, Sublandlord shall give Subtenant written notice of its estimate of additional rent payable under Subsection 4(e) for the ensuing calendar year, which estimate shall be prepared based on the estimate received from Landlord (as Landlord's estimate may change from time to time), together with a copy of the statement received from Landlord. Sublandlord's estimate of additional rent to be paid by Subtenant pursuant to this Sublease shall not exceed Subtenant's Percentage Share of Landlord's estimate delivered to Sublandlord pursuant to the Prime Lease (as Landlord's estimate may change from time to time). On or before the first day of each month during each calendar year, Subtenant shall pay to Sublandlord as additional rent one-twelfth (1/12th) of such estimated amount together with the Base Rent. (2) In the event Sublandlord's notice set forth in Subsection 4(f)(1) is not given in December of the calendar year preceding the calendar year for which Sublandlord's notice is applicable, as the case may be, then until the calendar month after such notice is delivered by Sublandlord, Subtenant shall continue to pay to Sublandlord monthly, during the ensuing calendar year, estimated payments equal to the amounts payable hereunder during the calendar year just ended. Upon receipt of any such post-December notice Subtenant shall (i) commence as of the immediately following calendar month, and continue for the remainder of the calendar year, to pay to Sublandlord monthly such new estimated payments and (ii) if the monthly installment of the new estimate of such additional rent is greater than the monthly installment of the estimate for the previous calendar year, pay to Sublandlord within thirty (30) days of the receipt of such notice an amount equal to the difference of such monthly installment multiplied by the number of full and partial calendar months of such year preceding the delivery of such notice. (3) Within thirty (30) days after the receipt by Sublandlord of a final statement of Operating Costs from Landlord with respect to each calendar year, Sublandlord shall deliver to Subtenant a statement of the adjustment to be made pursuant to Section 4(f) hereof for the calendar year just ended, together with a copy of the statement received by Sublandlord from Landlord. If on the basis of such statement Subtenant owes an amount that is less than the estimated payments for the calendar year just ended previously paid by Subtenant, Sublandlord shall credit such excess to the next payments of rent coming due or, if the term of this Sublease is about to expire, promptly 5 refund such excess to Subtenant. If on the basis of such statement Subtenant owes an amount that is more than the estimated payments for the calendar year just ended previously made by Subtenant, Subtenant shall pay the deficiency to Sublandlord within thirty (30) days after delivery of the statement from Sublandlord to Subtenant. (4) For partial calendar years during the term of this Sublease, the amount of additional rent payable pursuant to Subsection 4(f) that is applicable to that partial calendar year shall be prorated based on the ratio of the number of days of such partial calendar year falling during the term of this Sublease to 365. The expiration or earlier termination of this Sublease shall not affect the obligations of Sublandlord and Subtenant pursuant to this Section 4, and such obligations shall survive and remain to be performed after any expiration or earlier termination of this Sublease. 5. CONDITION OF PREMISES AND CONSTRUCTION OF IMPROVEMENTS. Except as may be otherwise expressly set forth in this Sublease, Subtenant hereby acknowledges and agrees that it is to demise the Premises in an "as-is" condition and Subtenant's taking possession of the Premises shall be conclusive evidence as against Subtenant that the Premises were in good order and satisfactory condition when Subtenant took possession. No promise of Sublandlord to alter, remodel or improve the Premises has been made by Sublandlord (or any other party taking by, through or under Sublandlord) to Subtenant, and no representation respecting the condition of the Premises have been made by Sublandlord (or any other party taking by, through or under Sublandlord) to Subtenant except as may be otherwise expressly set forth in this Sublease. Subtenant hereby represents and warrants that it has made any and all inspections of the Premises it deems necessary to satisfy itself with respect to all aspects of the conditions thereof; provided, however, to the actual knowledge of Sublandlord (without investigation or inquiry), the plumbing, electrical, heating and cooling systems servicing the Premises are in working order as of the date this Sublease is executed by Sublandlord. Upon the expiration of the term hereof, or upon any earlier termination of the term hereof or of Subtenant's right to possession, Subtenant shall surrender the Premises in at least as good condition as at the commencement of the term of this Sublease, ordinary wear and tear excepted. 6. THE PRIME LEASE. (a) Sublandlord hereby represents and warrants that as of the date this Sublease is executed by Sublandlord, (i) Sublandlord has not received any notice of default under the Prime Lease from Landlord that remains uncured, and (ii) Sublandlord has not given a notice of default to Landlord under the terms of the Prime Lease that remains uncured. This Sublease and all rights of Subtenant hereunder and with respect to the Premises are subject to the terms, conditions and provisions of the Prime Lease. Subtenant hereby assumes and agrees to perform faithfully and be bound by, with respect to the Premises, all of Sublandlord's obligations, covenants, agreements and liabilities under the Prime Lease and all terms, conditions, provisions and restrictions contained in the Prime Lease except: (i) for the payment of "Monthly Base Rent" (as such term is defined in the Prime Lease); (ii) that Subtenant shall not have any obligations to construct or install tenant improvements except as may be provided herein; and 6 (iii) that the following provisions of the Prime Lease do not apply to this Sublease: any provisions in the Prime Lease allowing or purporting to allow Sublandlord any rent concessions or abatements or construction allowances, any provisions allowing Sublandlord to extend or renew the term of the Prime Lease (including, without limitation, Paragraph 3(b) of the Prime Lease), any provisions of the Prime Lease providing for any representations and/or warranties with respect to Hazardous Materials (including, without limitation, Paragraph 8(d) of the Prime Lease), any provisions relating to warranties regarding improvements within the Premises (including, without limitation, Paragraph 14(d) of the Prime Lease), any rights granted to terminate the Prime Lease due to an interruption in utilities (including, without limitation, Paragraph 17 of the Prime Lease, any provisions permitting any right of self-help, offset or termination in the event of any default by Landlord under the terms and provisions of the Prime Lease (including, without limitation, the provisions of the last paragraph of Paragraph 23 of the Prime Lease), any rights to install signage without obtaining the consent of the Sublandlord and/or Landlord (including, without limitation, Paragraph 34 of the Prime Lease), any option to purchase the Building or other real property (including, without limitation, Paragraphs 41, 43 and 44 of the Prime Lease), any option to lease additional premises (including, without limitation, Paragraph 42 of the Prime Lease) and any right to terminate the Prime Lease (including, without limitation, Paragraph 47 of the Prime Lease), any rights granted for the use of the roof of the Building (including, without limitation, Paragraph 48 of the Prime Lease), any right to install a generator (including, without limitation, Paragraph 49 of the Prime Lease) and any provisions of the Work Letter Agreement attached to the Prime Lease as Exhibit C thereto. (b) Without limitation of the foregoing: (i) Subtenant shall not make any changes, alterations or additions in or to the Premises except as otherwise expressly provided herein. In connection therewith, Sublandlord and Subtenant acknowledge and agree that Subtenant may desire to make certain alterations, additions and/or improvements to the Premises following its occupancy thereof. In connection with such work (hereinafter referred to as the "Subtenant Work"), such work shall be performed at the sole cost and expense of Subtenant and shall strictly conform to all the terms and provisions of the Prime Lease. In connection with Subtenant's Work, Sublandlord and Subtenant acknowledge and agree that attached hereto as Exhibit "C" is a floor plan layout of the Premises which depicts the work which Subtenant desires to perform in the Premises. Sublandlord hereby consents to such floor plan layout, provided, however (i) such consent shall not limit or restrict the obligation of Subtenant to obtain the consent of Landlord and Sublandlord to all other aspects of such work, including, without limitation, the plans and specifications therefor, the contractors performing same and any other item which is required to be approved by Landlord and/or Sublandlord pursuant to the terms and provisions of the Prime Lease and/or this Sublease (and Subtenant acknowledges and agrees that such work shall require such consent), (ii) Subtenant shall be required to perform all such work in strict compliance with the terms and provisions of the Prime Lease and this Sublease, (iii) all such work shall be done at Subtenant's sole cost and expense, and (iv) Subtenant hereby covenants and agrees that Subtenant shall be responsible, at Subtenant's sole cost and expense, to remove such items of Subtenant's Work as reasonably required by Landlord and/or Sublandlord (as to Sublandlord, Sublandlord hereby covenants and agrees that within a reasonable period of time following Sublandlord's review of the construction 7 plans and specifications for Subtenant's Work, Sublandlord shall notify Subtenant of those items of Subtenant's Work which shall be required to be removed at the end of the term of this Sublease) and Subtenant shall also be responsible to repair any damage to the Premises arising as a result of the removal of same. Subtenant shall obtain the written approval of both the Landlord and Sublandlord with respect to any and all aspects of the Subtenant Work prior to commencing same. Sublandlord hereby covenants and agrees that it shall not unreasonably withhold, condition or delay its consent to any such alterations, additions and/or improvements to the Premises desired to be made by Subtenant. Notwithstanding anything in this Sublease to the contrary, Subtenant hereby acknowledges and agrees that in no event shall it have the right to install any access way or doorway from the Storage Space to the lobby of the Building; (ii) If Subtenant desires to take any other action and the Prime Lease would require that Sublandlord obtain the consent of Landlord before undertaking any action of the same kind, Subtenant shall not undertake the same without the prior written consent of Sublandlord. Sublandlord may condition its consent on the consent of Landlord being obtained and may require Subtenant to contact Landlord directly for such consent; (iii) All rights given to Landlord and its agents and representatives by the Prime Lease to enter the Premises shall inure to the benefit of Sublandlord and their respective agents and representatives with respect to the Premises, and Subtenant shall also have all the rights, and all privileges, options, reservations and remedies, granted or allowed to, or held by, Sublandlord, as Tenant, under the Prime Lease, all of which rights, privileges, options, reservations and remedies in favor of Subtenant shall be limited as set forth in this Sublease; (iv) Sublandlord shall also have all other rights, and all privileges, options, reservations and remedies, granted or allowed to, or held by, Landlord under the Prime Lease; (v) Subtenant shall maintain insurance of the kinds and in the amounts required to be maintained by Sublandlord under the Prime Lease. All policies of liability insurance shall name as additional insureds the Landlord and Sublandlord and their respective officers, directors or partners, as the case may be, and the respective agents and employees of each of them; and (vi) Subtenant shall not do anything or suffer or permit anything to be done which could result in a default under the Prime Lease or permit the Prime Lease to be canceled or terminated. (c) Notwithstanding anything contained herein or in the Prime Lease which may appear to be to the contrary, Sublandlord and Subtenant hereby agree as follows: (i) Subtenant shall not, without the prior written consent of Sublandlord, assign, mortgage, pledge, hypothecate or otherwise transfer or permit the transfer of this Sublease or any interest of Subtenant in this Sublease, by operation of law or otherwise, or permit the use of the Premises or any part thereof by any persons other than Subtenant and Subtenant's employees, or sublet the Premises or any part thereof. Sublandlord shall not unreasonably withhold, condition or delay its consent to any such transfer if (1) Subtenant is not then in default under any of the terms and conditions of this Sublease, (2) the proposed transferee is sufficiently creditworthy, in Sublandlord's sole determination, (3) the proposed transferee is not a competitor of Sublandlord 8 or is a governmental agency, and (4) the proposed transferee has experience and reputation which is satisfactory to Sublandlord (the foregoing reasons are not meant to be an exhaustive list of the bases upon which Sublandlord may withhold its consent to such a transfer). (B) Notwithstanding the foregoing, in no event shall Subtenant be obligated to obtain the consent of Sublandlord in connection with any sub-sublet of all or any portion of the Premises to any entity which is in control of, under common control, or controlled by, Subtenant (any such entity is referred to herein as an "Affiliate") or an assignment of Subtenant's interest hereunder to any Affiliate of Subtenant or in connection with the merger, consolidation or reorganization of Subtenant with any other entity or the sale of all or substantially all of Subtenant's stock or assets provided the following conditions are met: (1) to the extent that the Landlord's consent under the Prime Lease is required in connection with such a transfer, Subtenant obtains same at its sole cost and expense and provides evidence of same to Sublandlord, (2) Subtenant provides written notice to Sublandlord and Landlord not less than ten (10) business days prior to the effectiveness of such transfer, (3) in the case of a sub-sublet or actual assignment of this Sublease (as opposed to a transfer by operation of law, such as a merger), such sub-subtenant or assignee enters into an agreement in form and content reasonably satisfactory to Sublandlord assuming all of the obligations of the Subtenant hereunder, whether accruing prior to or after the effectiveness of the transfer, (4) there is no release of the Subtenant in connection with any such transfer, and (5) the net worth of the Subtenant entity which is liable for the terms and provisions of this Sublease immediately following such transfer is not less than the net worth of the Subtenant entity immediately prior to the transfer, and (6) no default has occurred under this Sublease beyond applicable notice and cure periods (the transfers noted in this clause (B) are referred to herein as "Permitted Transfers"). (C) Further, other than in connection with any Permitted Transfers, in the event of any assignment of this Sublease or sub-sublease of the Premises by Subtenant, Subtenant shall pay to Sublandlord fifty percent (50%) of any consideration received by Subtenant for such assignment or sub-sublease, as the case may be, in excess of the rent payable under this Sublease, such payment to be provided to Sublandlord no later than thirty (30) days after the determination thereof and the date such excess rent is received by Subtenant; (ii) neither rental nor other payments hereunder shall abate by reason of any damage to or destruction of the Premises or the Building or any part thereof, unless, and then only to the extent that, rental and such other payments actually abate under the Prime Lease with respect to the Premises on account of such event; (iii) Sublandlord and Subtenant acknowledge and agree that in the event the Prime Lease permits Sublandlord, as the tenant thereunder, to terminate the Prime Lease in the event of any casualty to the Premises, then in no event shall Subtenant have the right to exercise any such termination rights under this Sublease, except that in the event Sublandlord, as the tenant under the Prime Lease, elects to so exercise such termination rights, then this Sublease shall terminate at the same time and in the same manner as the Prime Lease; (iv) Subtenant shall not have any right to any portion of the proceeds of any award for a condemnation or other taking, or a conveyance in lieu thereof, of all or any portion of the Building, the premises subject to the Prime Lease or the Premises; 9 (v) Subtenant shall not have any right to exercise or have Sublandlord exercise any option under the Prime Lease, including, without limitation, any option to extend the term of the Prime Lease or lease additional space; and (vi) In the event of any conflict between the terms, conditions and provisions of the Prime Lease and of this Sublease, the terms, conditions and provisions of this Sublease shall, in all instances, govern and control. (d) It is expressly understood and agreed that Sublandlord does not assume and shall not have any of the obligations or liabilities of Landlord under the Prime Lease and that Sublandlord is not making the representations, warranties or indemnifications, if any, made by Landlord in the Prime Lease. With respect to work, services, repairs and restoration or the performance of other obligations required of Landlord under the Prime Lease, Sublandlord's sole obligation with respect thereto shall be to request the same, upon written request from Subtenant, and to use reasonable efforts, at Subtenant's sole cost and expense, to obtain the same from Landlord. Sublandlord shall not be liable in damages, nor shall rent abate hereunder, for or on account of any failure by Landlord to perform the obligations and duties imposed on it under the Prime Lease. Sublandlord and Subtenant acknowledge and agree that any repair, maintenance and/or replacement obligations with respect to the Premises which are the responsibility of the Sublandlord, as tenant under the Prime Lease, shall be performed by Subtenant at Subtenant's sole cost and expense. In the event that a condition exists in the Premises that Landlord is obligated to repair under the terms of the Prime Lease, Subtenant shall so advise Sublandlord, and Sublandlord, in turn, shall promptly advise Landlord thereof. At Subtenant's request, in the event that Landlord fails to fulfill any repair or maintenance obligation under the terms of the Prime Lease with respect to the Premises, Sublandlord shall use its reasonable efforts to have Landlord fulfill such repair and maintenance obligations, all of which reasonable efforts shall at be Subtenant's sole cost and expense. Further, in the event that Subtenant is in occupancy of any portion of the Premises which is in a building with a multi-tenant occupancy, in connection with any repairs and maintenance to the Premises contained in such a multi-tenant building which are Sublandlord's responsibility under the Prime Lease and do not relate solely to the Premises (such as, by way of example and not of limitation, HVAC maintenance and repair, elevator maintenance and repair, fire alarm monitoring, backflow testing, pest exterminator, utilities, scavenger service, generator and UPS service, etc.), then Sublandlord shall be responsible to perform same and the reasonable costs so incurred by Sublandlord in connection therewith shall be reimbursed by Subtenant to Sublandlord within ten (10) days following Sublandlord's written invoice therefor. All such amounts which are payable by Subtenant hereunder shall be deemed additional rent due under this Sublease. (e) Nothing contained in this Sublease shall be construed to create privity of estate or contract between Subtenant and Landlord, except the agreements of Subtenant in Sections 10 and 11 hereof in favor of Landlord, and then only to the extent of the same. 7. DEFAULT BY SUBTENANT. (a) Upon the happening of any of the following: (i) Subtenant fails to pay any Base Rent within five (5) days after the date it is due; 10 (ii) Subtenant fails to pay any other amount due from Subtenant hereunder and such failure continues for fifteen (15) days after notice thereof from Sublandlord to Subtenant; (iii) Subtenant fails to perform or observe any other covenant or agreement set forth in this Sublease and such failure continues for thirty (30) days after notice thereof from Sublandlord to Subtenant; or (iv) any other event occurs which involves Subtenant or the Premises and which would constitute a default under the Prime Lease if it involved Sublandlord or the Prime Lease Space and such default is not cured within the lesser of (a) thirty (30) days after notice thereof from Sublandlord to Subtenant, or (b) such period of time as permitted under the Prime Lease to cure such default. Subtenant shall be deemed to be in default hereunder, and Sublandlord may exercise, without limitation of any other rights and remedies available to it hereunder or at law or in equity, any and all rights and remedies of Landlord set forth in the Prime Lease in the event of a default by Sublandlord thereunder. (b) In the event Subtenant fails or refuses to make any payment or perform any covenant or agreement to be performed hereunder by Subtenant, Sublandlord may make such payment or undertake to perform such covenant or agreement (but shall not have any obligation to Subtenant to do so). In such event, amounts so paid and amounts expended in undertaking such performance, together with all costs, expenses and attorneys' fees incurred by Sublandlord in connection therewith, shall be additional rent hereunder. 8. NONWAIVER. Failure of Sublandlord to declare any default or delay in taking any action in connection therewith shall not waive such default. No receipt of moneys by Sublandlord from Subtenant after the termination in any way of the term or of Subtenant's right of possession hereunder or after the giving of any notice shall reinstate, continue or extend the term or affect any notice given to Subtenant or any suit commenced or judgment entered prior to receipt of such moneys. 9. CUMULATIVE RIGHTS AND REMEDIES. All rights and remedies of Sublandlord under this Sublease shall be cumulative and none shall exclude any other rights or remedies allowed by law. 10. WAIVER OF CLAIMS AND INDEMNITY. (a) Subtenant hereby releases and waives any and all claims against Landlord and Sublandlord and each of their respective officers, directors, partners, agents and employees for injury or damage to person, property or business sustained in or about the Building or the Premises by Subtenant other than by reason of gross negligence or willful misconduct and except in any case which would render this release and waiver void under law. (b) Subtenant agrees to indemnify, defend and hold harmless Landlord and its beneficiaries, Sublandlord and the managing agent of the Building and each of their respective officers, directors, partners, agents and employees, from and against any and all claims, demands, costs and expenses of every kind and nature, including attorneys' fees and litigation expenses, arising from Subtenant's 11 occupancy of the Premises, Subtenant's construction of any leasehold improvements in the Premises or from any breach or default on the part of Subtenant in the performance of any agreement or covenant of Subtenant to be performed or performed under this Sublease or pursuant to the terms of this Sublease, or from any act or neglect of Subtenant or its agents, officers, employees, guests, servants, invitees or customers in or about the Premises, except to the extent the liability, costs, damages and/or expenses arise from the intentional or grossly negligent acts of Sublandlord or its agents, contractors or employees. In case any such proceeding is brought against any of said indemnified parties, Subtenant covenants, if requested by Sublandlord, to defend such proceeding at its sole cost and expense by legal counsel reasonably satisfactory to Sublandlord. 11. WAIVER OF SUBROGATION. Anything in this Sublease to the contrary notwithstanding, Sublandlord and Subtenant each hereby waive any and all rights of recovery, claims, actions or causes of action against the other and the officers, directors, partners, agents and employees of each of them, and Subtenant hereby waives any and all rights of recovery, claims, actions or causes of action against Landlord and its agents and employees for any loss or damage that may occur to the Premises, or any improvements thereto, or any personal property of any person therein or in the Building, by reason of fire, the elements or any other cause insured against under valid and collectible fire and extended coverage insurance policies, regardless of cause or origin, including negligence, except in any case which would render this waiver void under law, to the extent that such loss or damage is actually recovered under said insurance policies. 12. BROKERAGE COMMISSIONS. Each party hereby represents and warrants to the other that other than Julien J. Studley, Inc., whose commission shall be payable by Sublandlord) it has had no dealings with any real estate broker or agent in connection with this Sublease, and that it knows of no real estate broker or agent who is or might be entitled to a commission in connection with this Sublease. Each party agrees to protect, defend, indemnify and hold the other harmless from and against any and all claims inconsistent with the foregoing representations and warranties for any brokerage, finder's or similar fee or commission in connection with this Sublease, if such claims are based on or relate to any act of the indemnifying party which is contrary to the foregoing representations and warranties. 13. SUCCESSORS AND ASSIGNS. This Sublease shall be binding upon and inure to the benefit of the successors and assigns of Sublandlord and shall be binding upon and inure to the benefit of the successors of Subtenant and, to the extent any such assignment may be approved, Subtenant's assigns. The provisions of Subsection 6(e) and Sections 10 and 11 hereof shall inure to the benefit of the successors and assigns of Landlord. 14. ENTIRE AGREEMENT. This Sublease contains all the terms, covenants, conditions and agreements between Sublandlord and Subtenant relating in any manner to the rental, use and occupancy of the Premises. No prior agreement or understanding pertaining to the same shall be valid or of any force or effect. The terms, covenants and conditions of this Sublease cannot be altered, changed, modified or added to except by a written instrument signed by Sublandlord and Subtenant. 15. NOTICES. (a) In the event any notice from the Landlord or otherwise relating to the Prime Lease is delivered to the Premises or is otherwise received by Subtenant, Subtenant shall, as soon thereafter as 12 possible, but in any event within twenty-four (24) hours, deliver such notice to Sublandlord if such notice is written or advise Sublandlord thereof by telephone if such notice is oral. (b) Notices and demands required or permitted to be given by either party to the other with respect hereto or to the Premises shall be in writing and shall not be effective for any purpose unless the same shall be served either by personal delivery with a receipt requested, by overnight air courier service or by United States certified or registered mail, return receipt requested, postage prepaid; provided, however, that all notices of default shall be served either by personal delivery with a receipt requested or by overnight air courier service, addressed as follows: if to Sublandlord: GATEWAY, INC. Real Estate Administration 610 Gateway Drive Y91 North Sioux City, South Dakota 97049 and GATEWAY, INC. 14303 Gateway Place Poway, California 92064 Attn: General Counsel if to Subtenant: MAI SYSTEMS CORPORATION 26110 Enterprise Way Lake Forest, CA Attn: Chief Financial Officer and MAI SYSTEMS CORPORATION 26110 Enterprise Way Lake Forest, CA Attn: General Counsel Notices and demands shall be deemed to have been given two (2) days after mailing, if mailed, or, if made by personal delivery or by overnight air courier service, then upon such delivery. Either party may change its address for receipt of notices by giving notice to the other party. 16. AUTHORITY OF SUBTENANT, ETC. Subtenant represents and warrants to Sublandlord that this Sublease has been duly authorized, executed and delivered by and on behalf of Subtenant and constitutes the valid, enforceable and binding agreement of Subtenant and of each party constituting Subtenant, each of whom shall be jointly and severally liable hereunder in accordance with the terms hereof. 17. LIMITATION ON LIABILITY. Sublandlord shall not be liable for personal injury or property damage to Subtenant, its officers, agents, employees, invitees, guests, licensees or any other person in the Premises, regardless of how such injury or damage may be caused; provided, however, as to any claims 13 for personal injury, the foregoing shall not limit the liability of Sublandlord with respect to any personal injury caused by the intentional or grossly negligent acts of Sublandlord or its agents, contractors or employees. Any property of Subtenant kept or stored in the Premises shall be kept or stored at the sole risk of Subtenant. Subtenant shall hold Sublandlord harmless from any claims arising out of any personal injury or property damage occurring in the Premises, including subrogation claims by Subtenant's insurance carrier(s). 18. CONSENTS AND APPROVALS. In any instance when Sublandlord's consent or approval is required under this Sublease, Sublandlord's refusal to consent to or approve any matter or thing shall be deemed reasonable if, among other matters, such consent or approval is required under the provisions of the Prime Lease incorporated herein by reference but has not been obtained from Landlord. Except as otherwise provided herein, Sublandlord shall not unreasonably withhold or delay its consent to or approval of a matter if such consent or approval is required under the provisions of the Prime Lease and Landlord has consented to or approved of such matter. If Subtenant shall seek the approval by or consent of Sublandlord and Sublandlord shall fail or refuse to give such consent or approval, Subtenant shall not be entitled to any damages for any withholding or delay of such approval or consent by Sublandlord, it being agreed that Subtenant's sole remedy in connection with an alleged wrongful refusal or failure to approve or consent shall be an action for injunction or specific performance shall be available only in those cases where Sublandlord shall have expressly agreed in this Sublease not to unreasonably withhold or delay its consent. 19. CONSENT OF LANDLORD. The obligations of Sublandlord and Subtenant under this Sublease are conditioned and contingent upon the Landlord consenting hereto. In the event Landlord's consent is not obtained within thirty (30) days after the date hereof, this Sublease shall automatically terminate and become null and void, Sublandlord shall return any security deposit and/or any other rent or other consideration paid by Subtenant which has not otherwise been appropriately applied to the payment of Base Rent or other amounts due hereunder, and neither Sublandlord nor Subtenant shall have any further obligations or liability hereunder or to each other with respect to the Premises. Following the full execution and delivery of this Sublease, Sublandlord shall submit this Sublease to Landlord for its consent hereto and Sublandlord shall use its commercially reasonable efforts to obtain such consent from the Landlord to this Sublease thereafter. 20. EXAMINATION. Submission of this instrument for examination or signature by Subtenant does not constitute a reservation of or option for the Premises or in any manner bind Sublandlord, and no lease, sublease or obligation on Sublandlord shall arise until this instrument is signed and delivered by Sublandlord and Subtenant and the consent of Landlord is obtained as described in Section 19 above. 21. SECURITY DEPOSIT. Subtenant concurrently with the execution of this Sublease, shall deposit with Sublandlord the sum of $103,800.00 (which Sublandlord and Subtenant acknowledge and agree is equal to three (3) months' gross rent due under this Sublease) as security for the faithful performance by Subtenant of all terms, covenants and conditions of this Sublease. Upon the first anniversary of the Rent Commencement Date, so long as Subtenant has not been in default under this Sublease at any time during the term of this Sublease and so long as Subtenant has paid the rent due hereunder on a timely basis during the entire term of this Sublease prior to such date, then Subtenant shall be entitled to a reduction in the security deposit so that Sublandlord is holding a security deposit equal to $69,200.00 (which is equal to two (2) months' gross rent). Upon Sublandlord's receipt of Subtenant's written request therefore 14 following the first anniversary of the Rent Commencement Date, so long as Subtenant is then entitled to such a reduction in the security deposit, Sublandlord shall return such amount of the security deposit then held by Sublandlord so as to cause Sublandlord to hold a security deposit equal to $69,200.00. Such security deposit shall be held by Sublandlord as security for the faithful performance by Subtenant of all terms, covenants and conditions of this Sublease. Subtenant agrees that Sublandlord may apply the security deposit to remedy any failure by Subtenant to repair or maintain the Premises or to perform any other terms, covenants and conditions contained herein or make any payment owing hereunder, all following the expiration of applicable notice and cure periods. If Subtenant has kept and performed all terms, covenants and conditions of this Sublease during the term, Sublandlord will, within thirty (30) days after the expiration hereof, promptly return the security deposit to Subtenant or the last permitted assignee of Subtenant's interest hereunder. Should Sublandlord use any portion of the security deposit to cure any default by Subtenant hereunder, Subtenant shall forthwith replenish the security deposit to the original amount. Sublandlord shall not be required to keep the security deposit separate from its general funds, and Subtenant shall not be entitled to interest on any such deposit. 22. FURNITURE. So long as Subtenant is not in default under this Sublease beyond applicable notice and cure periods, Subtenant shall use the furniture, fixtures and equipment located within the Premises and scheduled on the schedule attached to this Sublease as Exhibit "D" (the "FFE") at no cost during the term of this Sublease including any extensions or renewals thereof. Immediately prior to the expiration of the initial term of this Sublease (i.e., January 31, 2007), so long as Subtenant is not in default under this Sublease, Sublandlord shall convey all of its right, title and interest in and to the FFE to Subtenant by virtue of a bill of sale in the form attached to this Sublease as Exhibit "E" to convey all of Sublandlord's interest in and to such FFE to Subtenant. Sublandlord and Subtenant acknowledge and agree that such conveyance by Sublandlord shall be without representation or warranty of any kind to Subtenant, including, without limitation, any warranties of merchantability, fitness for a particular purpose or any other thing or nature whatsoever. During the term of this Sublease, including any extensions or renewals thereof. Subtenant shall be responsible to maintain such FFE in good condition and repair, reasonable wear and tear excepted, at Subtenant's sole cost and expense. Subtenant further acknowledges and agrees that Sublandlord is providing such FFE to Subtenant in its "as-is" condition and is not making any representation or warranty with respect to its condition to Subtenant hereunder. Following the expiration of the term of this Sublease, or the earlier termination of this Sublease during the Extension Term (as hereinafter defined), Subtenant shall be responsible to remove all of such FFE from the Premises and repair any damage to the Premises or the Building resulting therefrom. 23. PARKING. During the term of this Sublease, so long as Subtenant is not in default under this Sublease, Subtenant and its employees shall be entitled to use Subtenant's Percentage Share (for the Common Area Percentage) of the parking rights granted to Sublandlord as tenant, under the Prime Lease. Subtenant acknowledges and agrees that its right to use such parking area shall be upon the terms and conditions set forth in the Prime Lease, including, without limitation, any and all rules and regulations promulgated by Landlord with respect thereto. 24. OPTION TO EXTEND. Sublandlord and Subtenant acknowledge and agree that Subtenant shall have the right to extend the term (the "Extension Term") of this Sublease through January 31, 2012 (which is the expiration of the term of the Prime Lease) upon the following terms and conditions: (i) Subtenant shall provide Sublandlord with prior written notice of Subtenant's election to so extend the term of this 15 Sublease no later than April 30, 2006, time being of the essence; (ii) all of the terms and conditions of such Extension Term shall be the same as during the initial term of this Sublease except that the Base Rent shall be equal to either (a) if Subtenant provides written notice to Sublandlord of its election to so extend the term of the Sublease prior to April 1, 2004, then the Base Rent for the first year of the extension term shall be equal to $13.50 per square feet and shall increase by three percent (3%) each year thereafter, or (b) if Subtenant fails to provide its notice to so extend the term of this Sublease prior to April 1, 2004 then the Base Rent during the extension term shall be equal to the greater of (x) the Base Rent structure as noted in clause (a) above, or (y) the then current fair market rental rate for the Premises as agreed to between Sublandlord and Subtenant in their reasonable and good faith determination (if Sublandlord and Subtenant are unable to agree upon the then current fair market rental rate for the Premises within thirty (30) days following Sublandlord's receipt of Subtenant's receipt of Subtenant's exercise of its option to extend the Sublease term as set forth herein, then the parties shall submit such dispute to arbitration in accordance with the then current rules of the American Arbitration Association in order to resolve such dispute, with each party bearing one-half (1/2) of the cost of such arbitration); (iii) Subtenant shall have no right to extend the term of this Sublease (a) if upon the exercise thereof by Subtenant and/or on the date upon which such Extension Term is to begin Subtenant is in default under this Sublease and/or (b) if Subtenant has assigned this Sublease or sublet all or any portion of the Premises to any party. 25. QUIET ENJOYMENT. So long as Subtenant shall observe and perform all the covenants and agreements of Subtenant set forth in this Sublease, subject to the terms and conditions of this Sublease, Sublandlord or any other party claiming by, through or under Sublandlord shall do any act or perform any thing which would materially adversely affect Subtenant's peaceful and quiet enjoyment and possession of the Premises. 26. SIGNAGE. Subject to all the terms and conditions of this Sublease and the Prime Lease, Subtenant shall have the right to install interior signage within the Premises as permitted Sublandlord, as tenant, under the Prime Lease, and Subtenant shall further be permitted to utilize fifty percent (50%) of the exterior building signage permitted Sublandlord, as tenant under the Prime Lease subject to obtaining any and all governmental and other approvals and obtaining Landlord's and Sublandlord's consent thereto. Subtenant's right to so install such signage shall be at Subtenant's sole cost and expense and shall require the prior written consent of Sublandlord and Landlord as to the design, size, location and manner of installation of same, and Sublandlord hereby covenants and agrees that it shall not unreasonably withhold, condition or delay such consent. Upon the expiration of the term of this Sublease or the earlier termination hereof, Subtenant shall be responsible to remove any such signage and repair any damage caused by same. Such agreement by Subtenant shall survive the expiration of the term of this Sublease or the earlier expiration hereof. 27. FUTURETRADE CONTINGENCY. Sublandlord and Subtenant acknowledge and agree that in order for Subtenant to obtain possession of the Storage Space, Sublandlord must obtain an amendment to the sublease for Futuretrade, another occupant of the Prime Lease Space. This Sublease is contingent upon the full execution and delivery of such an amendment to the Futuretrade sublease providing for the surrender by Futuretrade of the Storage Space on terms and conditions satisfactory to Sublandlord, in its sole and absolute discretion. 16 IN WITNESS WHEREOF, Sublandlord and Subtenant have executed this Sublease as of the date aforesaid. SUBLANDLORD: ADVANCED LOGIC RESEARCH, INC., a Delaware corporation ATTEST: By:________________________________ Its:________________________________ STATE OF ) ) SS: COUNTY OF ) On this ____ day of _________________, 20__, before me, the undersigned Notary Public in and for said County and State, personally appeared ____________________, _______________________ of __________________________, a ___________________ who executed the foregoing instrument on behalf of said corporation for the purposes therein expressed. He is personally known to me and did not take an oath. In witness whereof, I have hereunto set my hand and official seal the day and year last above written. Notary Public Printed/Typed Name:_____________________ Commission No.:________________________ My commission expires:__________________ 17 SUBTENANT: MAI SYSTEMS CORPORATION, a Delaware corporation ATTEST: By:________________________________ Its:________________________________ STATE OF______________________) ) SS: COUNTY OF_________________) On this ____ day of _________________, 20__, before me, the undersigned Notary Public in and for said County and State, personally appeared James W. Dolan as Chief Financial and Operating Officer of MAI Systems Corporation, a Delaware corporation, who executed the foregoing instrument on behalf of said corporation for the purposes therein expressed. He is personally known to me and did not take an oath. In witness whereof, I have hereunto set my hand and official seal the day and year last above written. Notary Public Printed/Typed Name:_______________________ Commission No.:__________________________ My commission expires:____________________ 18 EXHIBIT A PRIME LEASE 19 EXHIBIT B FLOOR PLANS 20 EXHIBIT "C" FLOOR PLAN LAYOUT 21 EXHIBIT "D" SCHEDULE OF FURNITURE 22 EXHIBIT "E" FORM OF BILL OF SALE This Bill of Sale is made and entered into this _______________ day of _________, 20__ by and between ADVANCED LOGIC RESEARCH, INC. ("Seller") and MAI SYSTEMS CORPORATION ("Buyer"), in connection with that certain Sublease dated January __, 2003 by and between the Seller and the Buyer (the "Sublease"). For the consideration of Ten Dollars ($10.00) paid and in hand, and for other good and valuable consideration, receipt and sufficiency of which are acknowledged, Seller does hereby sell, assign, transfer and deliver to Buyer, here present and accepting, the tangible personal property set forth in Exhibit A attached hereto and made a part hereof (the "Assets") to have and to hold unto Buyer, its successors and assigns, forever. PURSUANT TO THE SUBLEASE, THE ASSETS ARE SOLD AND DELIVERED, AND BUYER ACKNOWLEDGES ACCEPTANCE OF THE ASSETS, IN THEIR CURRENTLY EXISTING "AS IS" CONDITION. ANY AND ALL WARRANTIES, WHETHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF QUALITY, MERCHANTABILITY AND FITNESS FOR ANY PARTICULAR PURPOSE ARE HEREBY SPECIFICALLY DISCLAIMED AND EXCLUDED, AND BUYER EXPRESSLY RELEASES AND RELIEVES SELLER, ITS EMPLOYEES AND AGENTS FROM ANY AND ALL LIABILITY WITH RESPECT THERETO. The parties have executed this Bill of Sale as of the date shown above. SELLER: ADVANCED LOGIC RESEARCH, INC. By: _______________________________ Its: _______________________________ BUYER: MAI SYSTEMS CORPORATION By: _______________________________ Its: _______________________________ 23 EX-21.1 9 a88905exv21w1.txt EXHIBIT 21.1 EXHIBIT 21.1 SUBSIDIARIES OF MAI SYSTEMS CORPORATION (12/31/02) The following is a list showing MAI Systems Corporation and each of its subsidiaries, as of December 31, 2002, indicating each jurisdiction under the laws of which it was organized:

JURISDICTION OF NAME: INCORPORATION ----- ------------- MAI SYSTEMS CORPORATION Delaware Hotel Information Systems, Inc. Delaware CLS Software International, Inc. California CLS de Mexico, S.A. de C.V. Mexico Hotel Information Systems Ltd. Hong Kong Hotel Information Systems, Pte. Limited Singapore MAI Information Solutions Limited United Kingdom Boss Solutions Limited Hong Kong MAI del Caribe, Inc. Delaware Hospitality Services and Solutions Malaysia

EX-23.1 10 a88905exv23w1.txt EXHIBIT 23.1 Exhibit 23.1 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors MAI Systems Corporation Lake Forest, California The audit referred to in our report dated April 14, 2003 relating to the consolidated financial statements of MAI Systems Corporation, as of and for the year ended December 31, 2002, which is incorporated in Item 15 of the Form 10-K by reference to the annual report to stockholders for the year ended December 31, 2002 included the audit of the financial statement schedule listed as Exhibit 23.4. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this 2002 financial statement schedule based upon our audit. In our opinion such financial statement schedule presents fairly, in all material respects, the information set forth therein. /s/ BDO Seidman, LLP Costa Mesa, California April 14, 2003 66 EX-23.2 11 a88905exv23w2.txt EXHIBIT 23.2 EXHIBIT 23.2 INDEPENDENT AUDITORS' CONSENT MAI Systems Corporation Lake Forest, California We hereby consent to incorporation by reference in the Registration Statements on Form S-8 (Nos. 33-92194, 333-72412, 333-72414 and 333-72418) and Form S-3 (No. 333-57454) of MAI Systems Corporation (the "Company") of our report dated April 14, 2003, relating to the consolidated financial statements which appears in the Annual Report to Stockholders, which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report dated April 14, 2003 relating to the financial statement schedule, which appears in this Form 10-K. /s/ BDO Seidman LLP Costa Mesa, California April 23, 2003 EX-23.3 12 a88905exv23w3.txt EXHIBIT 23.3 EXHIBIT 23.3 INDEPENDENT AUDITORS' REPORT ON SCHEDULE AND CONSENT The Board of Directors MAI Systems Corporation: The audits referred to in our report dated March 31, 2002, included the related financial statement schedule as of December 31, 2001, and for each of the years in the two-year period ended December 31, 2001, included in the December 31, 2002, annual report on Form 10-K of MAI Systems Corporation. The financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. We consent to the incorporation by reference in the registration statements on Forms S-3 and S-8 (Nos. 33-92194, 333-57454, 333-72412, 333-72414 and 333-72418) of MAI Systems Corporation of our reports dated March 31, 2002, relating to the consolidated balance sheet of MAI Systems Corporation and subsidiaries as of December 31, 2001, and the related consolidated statements of operations, stockholders' deficiency, and cash flows for each of the years in the two-year period ended December 31, 2001, and the related financial statement schedule, which reports appear in the December 31, 2002, annual report on Form 10-K of MAI Systems Corporation. /s/ KPMG LLP Costa Mesa, California April 23, 2003 -----END PRIVACY-ENHANCED MESSAGE-----

EX-10.13

                                                                   EXHIBIT 10.13

                            AMENDMENT NUMBER EIGHT TO
                           LOAN AND SECURITY AGREEMENT

         This AMENDMENT NUMBER EIGHT TO LOAN AND SECURITY AGREEMENT, dated as of
January 13, 2003 (this "Amendment"), amends that certain Loan and Security
Agreement, dated as of April 23, 1998, as amended by that certain Amendment
Number Seven To Loan And Security Agreement, dated as of September 13, 2001,
that certain Amendment Number Six To Loan And Security Agreement, dated as of
September 12, 2000, that certain Amendment Number Five To Loan And Security
Agreement, dated as of April 13, 2000, that certain Amendment Number Four To
Loan And Security Agreement, dated as of July 28, 1999, that certain Amendment
Number Three To Loan And Security Agreement, dated as of June 16, 1999, that
certain Amendment Number Two To Loan And Security Agreement, dated as of March
2, 1999, and that certain Amendment Number One To Loan And Security Agreement,
dated as of September 30, 1998 (collectively, the "Loan Agreement"), by and
among MAI SYSTEMS CORPORATION, a Delaware corporation, and HOTEL INFORMATION
SYSTEMS, INC., a Delaware corporation (collectively, "Borrowers"), on the one
hand, and COAST BUSINESS CREDIT, a division of Southern Pacific Bank, a
California corporation ("Coast"), on the other hand. All initially capitalized
terms used in this Amendment shall have the meanings ascribed thereto in the
Loan Agreement unless specifically defined herein.

                                    RECITALS

         WHEREAS, Borrowers and Coast wish to amend the Loan Agreement pursuant
to the terms and provisions set forth in this Amendment; and

         NOW, THEREFORE, the parties hereto agree as follows:

                                    ARTICLE I

                                   AMENDMENTS

         Section 1. AMENDMENT TO SECTION 1 OF THE LOAN AGREEMENT.

         (a)      Section 1 of the Loan Agreement is hereby amended by deleting
the definition of Debt Service Coverage Ratio in its entirety and replacing it
with the following:

         ""Debt Service Coverage Ratio" means the ratio, in any fiscal quarter,
         whose numerator is EBITDA minus cash capital expenditures minus cash
         tax expenses minus capitalized software development costs, and whose
         denominator is current maturity of long term debt plus current portion
         of capital leases plus all principal payments on Debt plus all interest
         payments on Debt."

         (b)      Section 1 of the Loan Agreement is hereby amended by deleting
the definition of Early Termination Fee in its entirety.

                                        1



         (c)      Section 1 of the Loan Agreement is hereby amended by adding
the following definition to such section:

         ""CSA" means CSA Private Limited, a Singapore corporation."

         ""Debt" means, as of the date of determination, the sum, but without
         duplication, of any and all of Borrowers': (i) indebtedness heretofore
         or hereafter created, issued, incurred or assumed by such Borrowers
         (directly or indirectly) for or in respect of money borrowed; (ii) all
         obligations arising out of capital leases; and (iii) all obligations
         for the deferred purchase price of property or services."

         ""Quick Ratio" means the ratio of (i) the sum of cash plus Receivables,
         to (ii) current liabilities."

         ""Subordinating Lender" means, collectively, The Value Realization
         Fund, L.P., a California limited partnership, Canyon Value Realization
         Fund (Cayman), Ltd., GRS Partners II, and CPI Securities L.P., a
         California limited partnership."

         ""Subordination Agreement" means that certain Intercreditor and
         Subordination Agreement, dated as of April 28, 1998, by and between
         Subordinating Lender and Coast, including any and all amendments
         thereto."

         Section 2. AMENDMENT TO SECTION 8.5 OF THE LOAN AGREEMENT. Section 8.5
of the Loan Agreement is hereby amended by deleting the word "or" at the end of
subsection (l), replacing the period at the end of subsection (m) with a
semicolon, and adding the following:

         "(n)     notwithstanding anything to the contrary contained herein, and
         subject to the terms and provisions of the Subordination Agreement,
         make any payment to Subordinating Lender of unpaid interest in excess
         of Fifty-two Thousand Dollars ($52,000), or any payment of principal
         that is owed to Subordinating Lender regardless of amount, in any given
         month; or

         (o)      notwithstanding anything to the contrary contained herein,
         make any payment to CSA of unpaid interest in excess of Seventeen
         Thousand Five Hundred Dollars ($17,500), or any payment of principal
         that is owed to CSA regardless of amount, in any given month."

         Section 3. AMENDMENT TO SECTION 9.2 OF THE LOAN AGREEMENT. Section 9.2
of the Loan Agreement is hereby amended by deleting the second and third
sentence in such section in their entirety.

         Section 4. AMENDMENT TO SECTION 2 OF THE SCHEDULE TO THE LOAN AND
SECURITY AGREEMENT. Section 2 of the Schedule to the Loan Agreement is hereby
amended by deleting such Section in its entirety and replacing it with the
following:

         "On January 13, 2003 (the "Conversion Date"), and so long as no Default
         or Event of Default has occurred and is continuing, the outstanding and
         unpaid

                                        2



         principal balance of One Million Eight Hundred Twenty-eight Thousand
         One Hundred Seventy-nine Dollars and .62/00 ($1,828,179.62) shall be
         converted to a term loan (the "Term Loan"), which Term Loan shall be
         amortized at thirty-six (36) months, with installments of principal and
         interest, equaling Fifty-eight Thousand Dollars ($58,000) per month and
         a final installment of the entire outstanding and unpaid principal
         balance being due and payable on February 28, 2005. Principal and
         interest accruing on the Term Loan shall be payable monthly commencing
         on the last Business Day of February 2003 and continuing monthly
         thereafter until the Term Loan is paid in full. The amount of the Term
         Loan set forth above shall be increased by a per diem amount, to cover
         interest, and other expenses, incurred for each day after the
         Conversion Date, until all the conditions required by that certain
         Amendment Number Eight To Loan And Security Agreement, dated as of
         January 13, 2003, are satisfied."

         Section 5. AMENDMENT TO SECTION 3.1 OF THE SCHEDULE TO THE LOAN AND
SECURITY AGREEMENT TITLED INTEREST RATE. Section 3.1 of the Schedule to the Loan
Agreement titled Interest Rate is hereby amended by deleting such Section in its
entirety and replacing it with the following:

         "A rate equal to 9.25% per annum, calculated on the basis of a 360-day
         year for the actual number of days elapsed."

         Section 6. AMENDMENT TO SECTION 3.1 OF THE SCHEDULE TO THE LOAN AND
SECURITY AGREEMENT TITLED MINIMUM MONTHLY INTEREST. Section 3.1 of the Schedule
to the Loan Agreement titled Minimum Monthly Interest is hereby amended by
deleting such Section in its entirety.

         Section 7. AMENDMENT TO SECTION 8.1 OF THE SCHEDULE TO THE LOAN AND
SECURITY AGREEMENT. Section 8.1 of the Schedule to the Loan Agreement is hereby
amended by deleting such Section in its entirety and replacing it with the
following:

         "1.      Borrowers shall maintain a Debt Service Coverage Ratio,
                  measured quarterly at the end of each fiscal quarter, as
                  follows: (i) 0.90 to 1.00 for the fiscal quarter ending March
                  31, 2003; (ii) 1.10 to 1.00 for fiscal quarter ending June 30,
                  2003; and (iii) 1.25 to 1.00 for fiscal quarter ending
                  September 30, 2003, and for each and every fiscal quarter
                  thereafter.

         2.       Borrowers shall maintain a Quick Ratio as follows: (i) 0.30 to
                  1.00 for the fiscal quarters ending March 31, 2003 and June
                  30, 2003; (ii) 0.31 to 1.00 for the fiscal quarter ending
                  September 30, 2003; and (iii) 0.34 to 1.00, commencing with
                  the fiscal quarter ending December 31, 2003, and for each and
                  every fiscal quarter thereafter."

         Section 8. AMENDMENT TO SECTION 9.1 OF THE SCHEDULE TO THE LOAN AND
SECURITY AGREEMENT. Section 9.1 of the Schedule to the Loan Agreement is hereby
amended by deleting such Section in its entirety and replacing it with the
following:

                                       3



         "February 28, 2005, subject to automatic renewal as provided for in
         Section 9.1 of the Agreement, and early termination as provided in
         Section 9.2 of the Agreement."

         Section 9. AMENDMENT TO SECTION 9.2 OF THE SCHEDULE TO THE LOAN AND
SECURITY AGREEMENT. Section 9.2 of the Schedule to the Loan Agreement is hereby
amended by deleting such Section in its entirety.

                                   ARTICLE II

                               GENERAL PROVISIONS

         Section 1. CONDITIONS. This Amendment shall be effective and the
effectiveness of this Amendment is expressly conditioned upon the receipt by
Coast of: (a) a copy of this Amendment duly executed by Borrowers; (b) a copy of
that certain Amendment Number One to Intercreditor And Subordination Agreement,
of even date herewith, duly executed by Borrowers and the Subordinated Lender,
as such term is defined therein; and (c) payment for all expenses, fully earned
and payable on the date hereof, incurred by Coast in connection with making the
amendments contained herein, as well as any and all unpaid expenses owed to
Coast by Borrowers pursuant to the terms and provisions of the Loan Agreement,
within a reasonable time from that date hereof.

         Section 2. ENTIRE AGREEMENT. The Loan Agreement, as amended hereby,
embodies the entire agreement and understanding between the parties hereto and
supersedes all prior agreements and understandings relating to the subject
matter hereof. Borrowers represent, warrant and agree that in entering into the
Loan Agreement, and consenting to this Amendment, they has not relied on any
representation, promise, understanding or agreement, oral or written, of, by or
with, Coast or any of its agents, employees, or counsel, except the
representations, promises, understandings and agreements specifically contained
in or referred to in the Loan Agreement, as amended hereby.

         Section 3. CONFLICTING TERMS. In the event of a conflict between the
terms and provisions of this Amendment and the terms and provisions of the Loan
Agreement, the terms of this Amendment shall govern. In all other respects, the
Loan Agreement, as amended and supplemented hereby, shall remain in full force
and effect.

         Section 4. MISCELLANEOUS. This Amendment shall be governed by and
construed in accordance with the laws of the State of California. This Amendment
may be executed in any number of counterparts, all of which taken together shall
constitute one agreement, and any party hereto may execute this Amendment by
signing such counterpart.

                                       4



         IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed by their respective officers thereunto duly authorized as of the
date first above written.

                                       BORROWER:

                                       MAI SYSTEMS CORPORATION,
                                       a Delaware corporation

                                       By: _____________________________________
                                       Name: ___________________________________
                                       Title: __________________________________

                                       HOTEL INFORMATION SYSTEMS, INC.,
                                       a Delaware corporation

                                       By: _____________________________________
                                       Name: ___________________________________
                                       Title: __________________________________

                                       COAST

                                       COAST BUSINESS CREDIT,
                                       a division of Southern Pacific Bank,
                                       a California corporation

                                       By: _____________________________________
                                       Name: ___________________________________
                                       Title: __________________________________

                                        5

EX-10.22

                                                                   EXHIBIT 10.22

                             MAI AMENDMENT NO.THREE

                  This Amendment No. Three (the "Amendment No. Three") is dated
as of January 13, 2003, by and among MAI Systems Corporation, a Delaware
corporation ("MAI") and CPI Securities LP, a California limited partnership, The
Value Realization Fund, L.P., a Delaware limited partnership, The Value
Realization Fund, L.P., a Cayman Islands corporation and GRS Partners II
(collectively, "Canyon").

                                    RECITALS

         A.       WHEREAS, MAI is as of this date obligated to Canyon for unpaid
principal and interest under that certain Note Purchase Agreement, dated as of
March 3, 1997 (as amended (i) by the Forbearance Agreement dated October 28,
1999, (ii) by Amendment No. One dated as of February 14, 2000, (iii) by
Amendment No. Two dated April 13, 2000, (iv) the MAI Supplement dated September
2000, and (v) an MAI Supplement and Amendment dated January 31, 2001
(collectively, the "Canyon Loan Agreement"), among MAI and Canyon. Capitalized
terms not defined herein shall have the meanings assigned to such terms in the
Canyon Loan Agreement; and

         B.       WHEREAS, MAI has presented to Canyon for its approval the
terms of that certain Amendment Number Eight to Loan and Security Agreement
between MAI, Coast Business Credit ("Coast"), which amendment is attached hereto
as Exhibit A (the "Coast Amendment") and a certain term sheet respecting CSA
Private Limited ("CSA"), which term sheet is attached hereto as Exhibit B (the
"CSA Note Modification") and

         C.       WHEREAS, MAI has requested that Canyon also agree to an
extension of the maturity date of the Notes and other modifications to the terms
of the Notes, which Canyon has agreed to subject to MAI's performance under this
Amendment No. Three; and

         D.       WHEREAS, MAI and Canyon wish to enter into this Amendment No.
Three to confirm the unpaid principal and interest currently owed to Canyon by
MAI and to confirm the terms of the aforesaid modifications to the Notes and
Canyon's consent to MAI's execution of the Coast and CSA Note Modifications.

                  NOW THEREFORE, the parties agree as follows:

                                    AGREEMENT

         1.       PRINCIPAL BALANCE AND AGREEMENT TO INCREASE PAYMENTS. MAI
acknowledges that as of December 31, 2002, it is obligated to Canyon in the
amount of $5,662,437. As of December 31, 2002, Canyon acknowledges that there is
no accrued interest due from MAI not reflected in the foregoing amount. MAI
confirms to Canyon that upon the repayment in full of Coast, Canyon shall
succeed to a first priority secured position in the Collateral covered by the
Security Agreement.

                                        1



         2.       MODIFIED TERMS. The parties agree to the following additional
modified terms relating to the Canyon Loan Agreement: (i) Canyon consents to
MAI's execution of the Coast Amendment and CSA Note Modifications containing the
terms set forth on Exhibits A and B hereto; (ii) the Notes shall require monthly
payments of Fifty-Two Thousand Dollars ($52,000) until the later of (a) the date
the Coast debt is paid off in full or (b) February 28, 2005 (the "Pay Date"). In
addition, MAI shall pay to Canyon the maximum amount permitted to be paid to
Canyon pursuant to Article I, Section 2 of the Amendment Number One to
Intercreditor and Subordination Agreement of January 13, 2003.

                  On the Pay Date, the Notes shall be converted to three-year
amortizing loan paying equal monthly payments of principal and interest at 11%
per annum, until February 28, 2008, at which time any and all principal and
accrued interest then outstanding shall be due an payable, and from and after
the Pay Date, MAI shall pay to Canyon on a quarterly basis, fifty percent (50%)
of all quarterly amounts greater than $125,000 of an EBITDA-based formula
calculated as follows:

                  ACTUAL EBITDA LESS EACH OF THE FOLLOWING WITHOUT DUPLICATION:
                  (1) PRINCIPAL AND INTEREST PAYMENTS ON ALL DEBT PERMITTED
                  UNDER THE CANYON LOAN AGREEMENT, (2) NON-FINANCED CAPITAL
                  EXPENDITURES PAID IN CASH NOT TO EXCEED $182,000 IN YEAR ONE,
                  $325,000 IN YEAR TWO, $379,000 IN YEAR THREE, $438,000 IN YEAR
                  FOUR, $459,000 IN YEAR FIVE AND $504,000 IN YEAR SIX, IF
                  APPLICABLE, OF THIS AMENDMENT AND (3) CASH ACTUALLY PAID FOR
                  ALL TAXES.

                  IN ALL EVENTS, THE NOTES SHALL BE FULLY DUE AND PAYABLE ON
                  FEBRUARY 28, 2008.

         3.       ISSUANCE OF MAI COMMON STOCK. MAI shall issue 200,000 Shares
of its Common Stock to Canyon in the amounts set forth on the signature page
hereof, subject to a private placement legend in customary form.

         4.       ISSUANCE OF MAI WARRANTS. MAI shall issue Warrants at $0.40
per share for 1,000,000 shares of its Common Stock to Canyon, subject to a
private placement legend in customary form, pursuant to a Warrant Agreement
attached hereto as Exhibit C in the amounts set forth on the signature page
hereof. The Warrant Shares and the 200,000 Shares above shall receive the
benefit of the Registration Rights Agreement attached hereto as Exhibit D in
favor of Canyon.

         5.       NO ADDITIONAL DEBT, AMENDMENTS. MAI may not incur any
additional indebtedness without the consent of Canyon, except for capital lease
obligations not in excess of $150,000 in the aggregate per year. MAI covenants
not to further amend the Coast Loan Agreement nor the CSA agreements without the
consent of Canyon, and MAI may not extend (or allow Coast to extend) the term of
the Coast loan agreement for more than one year (to February 28, 2006) without
Canyon's written consent. MAI shall timely exercise its right to cancel the
automatic extension of Section 9.1 of the Coast Loan Agreement.

                                        2



         6.       FAILURE TO PAY. Failure to pay any amounts set forth above
shall be an "Event of Default" under the Canyon Loan, with such 'cure' periods
as provided for in the Canyon Loan Agreement.

         7.       AGREEMENT TO EXECUTE RELATED DOCUMENTATION. MAI agrees to
cause CSA to execute any appropriate amendments requested by Canyon in respect
to this Amendment No. Three to that certain Subordination Agreement and Rider
among Canyon and CSA. MAI agrees that no payments of interest in excess of the
amount set forth on Exhibit B, or principal of any amount, may be made to CSA
until all obligations owed to Canyon have been paid in full.

         8.       REPRESENTATIONS AND WARRANTIES. MAI hereby represents and
warrants to Canyon that, as of the date of this Amendment No. Three:

                  8.1      All of MAI's representations and warranties contained
         in this Amendment No. Three, and the Canyon Loan Agreement are true and
         correct on and as of the date hereof, as if then made (other than
         representations and warranties which expressly related to an earlier
         date); No Default or Event of Default (as such terms are defined in the
         Canyon Loan Agreement) has occurred or is continuing, except for the
         Coast covenant default and the CSA financial default as previously
         disclosed.

                  8.2      The execution and delivery of this Amendment No.
         Three by MAI and the performance of the transactions contemplated
         hereby (a) are within MAI's corporate power, (b) have been duly
         authorized by all necessary or proper corporate and shareholder action,
         (c) when duly executed and delivered by MAI, shall constitute the
         legal, valid and binding obligation of MAI enforceable against MAI in
         accordance with its terms, and (d) have been consented to by Coast.

                  8.3      If any of the foregoing representations is untrue or
         incorrect in any material respect, such untruthfulness or inaccuracy
         shall constitute an Event of Default under the Canyon Loan Agreement.

         9.       EFFECTIVE DATE. This Amendment shall be effective and the
effectiveness of this Amendment is expressly conditioned upon the receipt by
Canyon of: (a) a copy of this Amendment duly executed by MAI; (b) a copy of that
certain Amendment Number One to Intercreditor and Subordination Agreement, of
even date herewith, duly executed by MAI and Coast; (c) payment for all
expenses, fully earned and payable on the date hereof, incurred by Canyon in
connection with making the amendments contained herein; and (d) delivery to
Canyon of the Warrants and Shares and the two associated agreements referred to
in Paragraphs 3 and 4.

         10.      LIMITATION. This Amendment No. Three shall be limited solely
to the matters expressly set forth herein and shall not (i) constitute an
amendment or waiver of any term of the Canyon Loan Agreement other than the
provisions thereof which are specifically and explicitly amended hereby, (ii)
constitute an amendment or waiver of any term or condition of the Canyon Loan
Agreement, the Notes or the Security Agreement, (iii) prejudice any right or
rights which Canyon may now have or may have in the future under or in
connection with the Canyon Loan Agreement the Notes or the Security Agreement,
(iv) require Canyon to agree to a similar

                                        3



transaction on a future occasion or (v) create any rights herein to another
person, entity or other beneficiary or otherwise, except to the extent
specifically provided herein.

         11.      RELEASE.

                  11.1     MAI acknowledges that Canyon would not enter into
         this Amendment No. Three without MAI's assurance that MAI has no claim
         against any of Canyon, their parents companies, subsidiaries,
         affiliates, officers, directors, shareholders, employees, attorneys,
         agents, professionals and servants, or any of their respective
         predecessors, successors, heirs and assigns (collectively, the "Canyon
         Parties" and each, a "Canyon Party"). MAI, for itself and on behalf of
         its officers and directors, and its respective predecessors, successors
         and assigns (collectively, the "Releasors") releases each Canyon Party
         from any known or unknown claims which MAI now has against any Canyon
         Party of any nature, including any claims that any Releasor, or any
         Releasor's successors, counsel and advisors may in the future discover
         they would have had now if they had known facts not now known to them,
         whether founded in contract, in tort or pursuant to any other theory of
         liability, including but not limited to any claims arising out of or
         related to the Loan Documents or the transactions contemplated thereby.
         MAI, FOR ITSELF AND ON BEHALF OF EACH RELEASOR, WAIVES THE PROVISIONS
         OF CALIFORNIA CIVIL CODE SECTION 1542, WHICH STATE:

                           A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE
                           CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS
                           FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF
                           KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
                           SETTLEMENT WITH THE DEBTOR.

                  11.2     The provisions, waivers and releases set forth in
         this section are binding upon each Releasor. The provisions, waivers
         and releases of this section shall inure to the benefit of each Canyon
         Party.

                  11.3     The provisions of this section shall survive payment
         in full of the Obligations, full performance of all of the terms of
         this Amendment No. Three, the Canyon Loan Agreement, the Notes, and the
         Security Agreement and/or any action by Canyon to exercise any remedy
         available under such documents, applicable law or otherwise.

                  11.4     MAI warrants and represents that it is the sole and
         lawful owner of all right, title and interest in and to all of the
         claims released hereby and MAI has not heretofore voluntarily, by
         operation of law or otherwise, assigned or transferred or purported to
         assign or transfer to any person any such claim or any portion thereof.
         MAI shall indemnify and hold harmless each Canyon Party from and
         against any claim, demand, damage, debt, liability (including payment
         of reasonable attorneys' fees and costs actually incurred whether or
         not litigation is commenced) based on or arising out of any such
         assignment or transfer.

                                        4



         12.      MISCELLANEOUS. The headings herein are for convenience of
reference only and shall not alter or otherwise affect the meaning hereof. No
amendment, modification, termination or waiver of any provision of this
Amendment No. Three, or any consent to any departure by MAI therefrom, shall in
any event be effective unless the same shall be in writing and signed by all of
the Canyon Parties. Any waiver or consent shall be effective only in the
specific instance and for the specific purpose for which it was given.

         13.      SOLE BENEFIT OF PARTIES. This Amendment No. 3 is solely for
the benefit of the parties hereto and their respective successors and assigns,
and no other person or entity shall have any right, benefit or interest under or
because of the existence of this Amendment No. Three.

         14.      RULE 144 COVENANT. MAI shall file as and when applicable, on a
timely basis, all reports required to be filed by it under the Securities
Exchange Act of 1934. If MAI is not required to file reports pursuant to the
Exchange Act, upon the request of Canyon, MAI shall make publicly available the
information specified in Rule 144 of the Securities Act of 1933, and take such
further action as may be reasonably required from time to time and as may be
within the reasonable control of MAI, to enable Canyon to transfer their Common
Stock Securities without registration under the Securities Act within the
limitation of the exemptions provided by Rule 144 under the Securities Act or
any similar rule or regulation hereafter adopted by the Securities and Exchange
Commission.

         15.      FURTHER ASSURANCES. MAI and Canyon shall execute such
documents and perform such further acts as may be reasonably required or
desirable to carry out the provisions of this Amendment No. Three and the
Security Agreement.

         16.      CONSENT BY COAST. MAI represents that pursuant to the
Subordination and Intercreditor Agreement among Canyon, Coast and other parties,
Coast has consented to this Amendment No. Three.

         17.      COUNTERPARTS. This Amendment No. Three may be executed in any
number of separate counterparts, each of which shall collectively and separately
constitute one agreement.

         18.      GOVERNING LAW. THIS AGREEMENT, AND ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE HEREOF, SHALL BE GOVERNED BY, AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA
APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE AND ANY APPLICABLE LAWS
OF THE UNITED STATES OF AMERICA.

         19.      OTHER CHANGES. Other than as expressly set forth herein, all
provisions of the Canyon Loan Agreement shall remain in full force and effect.

                                        5



                  IN WITNESS HEREOF, the parties have executed this Amendment
No. Three as of the date first written above.

CPI SECURITIES LP,                    CANYON VALUE REALIZATION
a California limited partnership,     FUND, L.P.,
                                      A DELAWARE LIMITED PARTNERSHIP

By:  Canpartners Incorporated,
     a California corporation,        By:  Canpartners Investments III, L.P.,
     its general partner                   a California limited partnership,
                                           its general partner

                                      By:  Canyon Capital Advisors LLC,
By:  _______________________               a Delaware limited liability company,
     Name:                                 its general partner
     Title:
                                      By:  ___________________________
10,000 Shares                              Name:
50,000 Warrants                            Its Managing Director

                                      90,000 Shares
                                      450,000 Warrants

THE CANYON VALUE REALIZATION          GRS PARTNERS II
FUND (CAYMAN), LTD.

By:  MeesPierson (Cayman) Limited,
     its Administrator
                                      By:  ___________________________
                                           Name:
By:  _______________________               Title:
     Name:
     Title:                           10,000 Shares
                                      50,000 Warrants

90,000 Shares
450,000 Warrants

MAI SYSTEMS CORPORATION,
A DELAWARE CORPORATION

By:  _______________________
     Name:
     Title:

                                        6



                                    EXHIBIT A
                              COAST LOAN AMENDMENT

                                        7



                                    EXHIBIT B
                                 CSA TERM SHEET

The proposed amendment to the terms of the December 1, 2001 secured Subordinated
Note due 2003, as amended ("Note") are as follows:

         1.       Agree to amend the 10% Subordinated Note to terms as follows:

                  a.       Extend maturity date to February 28, 2011

                  b.       The amended loan with CSA shall accrue interest at
                  10% and require monthly interest only payments not to exceed
                  $17,500 until the Coast and Canyon debt is paid off in full,
                  at which time the CSA loan shall be converted to three-year
                  amortizing loan paying equal monthly payments of principal
                  over the remaining term of the amended loan.

         2.       The parties shall be responsible for their own attorney fees
and any other costs associated in any way with the negotiation and execution of
this Amendment.

                                        8



                                    EXHIBIT C
                                WARRANT AGREEMENT

                                        9



                                    EXHIBIT D
                          REGISTRATION RIGHTS AGREEMENT

                                       10

EX-10.23

                                                                   EXHIBIT 10.23

                             AMENDMENT NUMBER ONE TO
                    INTERCREDITOR AND SUBORDINATION AGREEMENT

         This AMENDMENT NUMBER ONE TO INTERCREDITOR AND SUBORDINATION AGREEMENT,
dated as of January 13, 2003 (this "Amendment"), amends that certain
Intercreditor and Subordination Agreement, dated as of April 28, 1998 (the
"Subordination Agreement"), by and among THE VALUE REALIZATION FUND, L.P., a
California limited partnership, CANYON VALUE REALIZATION FUND (CAYMAN), LTD.,
GRS PARTNERS II, CPI SECURITIES L.P., a California limited partnership
(collectively, the "Subordinating Lender"), on the one hand, and COAST BUSINESS
CREDIT, a division of Southern Pacific Bank, a California corporation ("Coast"),
on the other hand. All initially capitalized terms used in this Amendment shall
have the meanings ascribed thereto in the Subordination Agreement unless
specifically defined herein.

                                    RECITALS

         WHEREAS, Subordinating Lender and Coast wish to amend the Subordination
Agreement pursuant to the terms and provisions set forth in this Amendment; and

         NOW, THEREFORE, the parties hereto agree as follows:

                                    ARTICLE I

                                   AMENDMENTS

         Section 1. AMENDMENT TO SECTION 1 OF THE SUBORDINATION AGREEMENT.
Section 1 of the Subordination Agreement is hereby amended by adding the
following definition to such section:

         ""Excess Cash Flow" means, in any fiscal period, Borrower's EBITDA, as
         such term is defined in the Senior Loan Agreement, minus cash capital
         expenditures, minus cash tax expenses, minus capitalized software
         development costs, minus all principal payments on all debt, minus all
         interest payments on all debt."

         Section 2. AMENDMENT TO SECTION 3(b) OF THE SUBORDINATION AGREEMENT.
Section 3(b) of the Subordination Agreement is hereby amended by deleting such
Section in its entirety and replacing it with the following:

         "Restricted Payments to Subordinating Lender. Except as expressly
         provided in this Agreement, MAI and Subordination Lender Agree that MAI
         shall not make any payments to Subordinating Lender in respect of the
         Junior Debt, whether on account of principal or interest, or whether by
         way of prepayment, payment on maturity or acceleration, redemption or
         purchase, until such time as the Senior Debt shall have been paid in
         full by MAI to Senior Lender. Notwithstanding the foregoing, and
         subject to the provisions of Section 3(c) below, provided that all
         payments then due and payable on the Senior Debt have been first paid
         in full,

                                        1



         MAI may make monthly payments of unpaid interest accrued under the
         Notes in an amount not to exceed Fifty-two Thousand Dollars ($52,000);
         provided, however, that Excess Cash Flow in excess of One Hundred
         Twenty-five Thousand Dollars in any given month shall be divided
         equally between Senior Lender and Subordinating Lender."

                                   ARTICLE II

                               GENERAL PROVISIONS

         Section 1. CONDITION PRECEDENT. This Amendment shall be effective and
the effectiveness of this Amendment is expressly conditioned upon (a) the
receipt by Coast of a copy of this Amendment duly executed by Subordinating
Lender and Borrower, and (b) the receipt by Coast of a copy of that certain
Amendment Number Seven To Loan And Security Agreement, of even date herewith,
duly executed by Borrower.

         Section 2. ENTIRE AGREEMENT. The Subordination Agreement, as amended
hereby, embodies the entire agreement and understanding between the parties
hereto and supersedes all prior agreements and understandings relating to the
subject matter hereof. Borrower represents, warrants and agrees that in entering
into the Subordination Agreement, and consenting to this Amendment, it has not
relied on any representation, promise, understanding or agreement, oral or
written, of, by or with, Coast or any of its agents, employees, or counsel,
except the representations, promises, understandings and agreements specifically
contained in or referred to in the Subordination Agreement, as amended hereby.

         Section 3. CONFLICTING TERMS. In the event of a conflict between the
terms and provisions of this Amendment and the terms and provisions of the
Subordination Agreement, the terms of this Amendment shall govern. In all other
respects, the Subordination Agreement, as amended and supplemented hereby, shall
remain in full force and effect.

         Section 4. MISCELLANEOUS. This Amendment shall be governed by and
construed in accordance with the laws of the State of California. This Amendment
may be executed in any number of counterparts, all of which taken together shall
constitute one agreement, and any party hereto may execute this Amendment by
signing such counterpart.

         IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed by their respective officers thereunto duly authorized as of the
date first above written.

                                      COAST

                                      COAST BUSINESS CREDIT,
                                      a division of Southern Pacific Bank,
                                      a California corporation

                                      By: ______________________________________
                                      Name: ____________________________________
                                      Title: ___________________________________

                                        2



                                      SUBORDINATING LENDER

                                      BORROWER

                                      THE VALUE REALIZATION FUND, L.P.,
                                      a California limited partnership

                                      By: ______________________________________
                                      Name: ____________________________________
                                      Title: ___________________________________

                                      CANYON VALUE REALIZATION FUND
                                      (CAYMAN), LTD.

                                      By: ______________________________________
                                      Name: ____________________________________
                                      Title: ___________________________________

                                      GRS PARTNERS II

                                      By: ______________________________________
                                      Name: ____________________________________
                                      Title: ___________________________________

                                      CPI SECURITIES L.P.,
                                      a California limited partnership

                                      By: ______________________________________
                                      Name: ____________________________________
                                      Title: ___________________________________

                                      BORROWER:

                                      MAI SYSTEMS CORPORATION,
                                      a Delaware corporation

                                      By: ______________________________________
                                      Name: ____________________________________
                                      Title: ___________________________________

                                        3



                                      HOTEL INFORMATION SYSTEMS, INC.,
                                      a Delaware corporation

                                      By: ______________________________________
                                      Name: ____________________________________
                                      Title: ___________________________________

                                        4

EX-10.24

                                                                   EXHIBIT 10.24

                              WARRANT AGREEMENT OF

                             MAI SYSTEMS CORPORATION

                                1,000,000 SHARES

                          Dated as of January 13, 2003

                         COMMON STOCK PURCHASE WARRANTS



         WARRANT AGREEMENT dated as of January 13, 2003, 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 1,000,000 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 only transferable
with Company's prior written consent, subject to applicable securities laws
restrictions, which consent shall not unreasonably be withheld or delayed. 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 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

                                        2



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 Chief Executive Officer and President
or its Chief Financial and Operating Officer , under its corporate seal
reproduced thereon, and attested by its Secretary or an Assistant Secretary.

                  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:

         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

                                        3



         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. [Omitted.]

                  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 (i) cash, (ii) certified check payable to the order of the Company,
(iii) outstanding shares of Common Stock duly endorsed to the Company (which
shares of Common Stock shall be valued at their Fair Market Value as of the day
preceding the date of such exercise), (iv) by delivery to the Company and
cancellation of the Company's 11% Subordinated Notes, as amended, which shall be
valued for this purpose at the principal amount thereof so delivered plus the
accrued interest thereon on the date of delivery of the Subordinated Notes (v)
by delivery of Warrants owned by Warrant Holder having a Fair Market Value, as
of the day preceding the date of such exercise, in excess of the exercise price
of such Warrants, or (vi) any combination of the foregoing, or through (vii)
such other method of payment as may be provided in the applicable Warrant
Agreement.

                  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

                                        4



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.

                  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 $0.40, 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

                                        5



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 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

                                        6



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 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

                                        7



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 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.

                                        8



                           (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 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

                                        9



exercisable for Company Common Stock to $3.43 per share and the Holders of
Warrants would receive in 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 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,

                                       10



         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 RIGHTS.

                  (a)      COMPANY REGISTRATION. The Company shall register the
         Warrant Shares pursuant to the Registration Rights Agreement (attached
         hereto as an exhibit to this 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.

                                       11



         Section 8.        DEFINITIONS.

                  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



                  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 later of February 1, 2010,
approximately the seventh anniversary of the date of this Agreement, and the
date the Company's 11% Subordinated Notes, as amended, have been repaid in full.

                  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
January 13, 2003 between the Company and the Holders.

                                       13



                  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 9601 Jeronimo
Road, Irvine, California, 92618, 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 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 90012.

                                       14



         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.       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 19.       CAPTIONS. The captions of the Sections of this
Agreement have been inserted for convenience only and shall have no substantive
effect.

         Section 20.       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.

         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: __________________________________________
                                  Title: _______________________________________

                                       15



                                  THE WARRANT AGENT:

                                  MAI SYSTEMS CORPORATION, a Delaware
                                  corporation

                                  By: __________________________________________
                                  Title: _______________________________________

Canyon Value Realization Fund, L.P.,
a California limited partnership as to 450,000 Warrants

By:   Canpartners Investments III, L.P.,
      a California limited partnership,
      its general partner

By:   Canyon Capital Advisors LLC,
      a Delaware limited liability company,
      its general partner

By:   Canpartners Incorporated,
      a California corporation,
      its general partner

By:   ______________________________
      Name:
      Title:

The Canyon Value Realization Fund (Cayman), Ltd. as to 450,000 Warrants

By:   MeesPierson (Cayman) Limited,
      its Administrator

By:   ______________________________
      Name:
      Title:

                                       16



GRS Partners II as to 50,000 Warrants

By:   Grosvenor Capital Management L.P.,
      its Administrator

By:   Grosvenor Capital Management, Inc.,
      its general partner

By:   ______________________________
      Name:
      Title:

CPI Securities L.P.,
a California limited partnership as to 50,000 Warrants

By:   Canpartners Incorporated,
      a California corporation,
      its general partner

By:   ______________________________
      Name:
      Title:

                                       17



                                    EXHIBIT A

                           Form of Warrant Certificate

No. ___                                                           _______ Shares

                          COMMON STOCK PURCHASE WARRANT

Void After 5:00 P.M.

Pacific Time on [February 1, 2010]

         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 the later of February 1, 2010 and the date the Company's 11% Subordinated
Notes, as amended, have been repaid in full (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 $0.40 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 January 13, 2003, 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 the manner described in
the Warrant Agreement. 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.

         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

                                       18



         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:
                                                Chief Executive Officer

Attest
         Secretary

DATED: As of_________, 2003

                                       19



                                    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:

                                       20

EX-10.25

                                                                   EXHIBIT 10.25

                    REGISTRATION RIGHTS AGREEMENT IN FAVOR OF

                      THE HOLDERS OF REGISTABLE SECURITIES



                          REGISTRATION RIGHTS AGREEMENT

         This Registration Rights Agreement (the "Agreement") is made and
entered into as of January 13, 2003 by and among MAI Systems Corporation, a
Delaware corporation, and the holders of Registrable Securities (the "Holders")
signatory to this Agreement.

         This Agreement is made pursuant to the Warrant Agreement and MAI
Amendment No. Three (the "Canyon Agreements") dated as of January 13, 2003 by
and among MAI Systems Corporation, the ("Company"), and the Holders pursuant to
which the Holders are acquiring certain shares of Common Stock of the Company
and may purchase other securities of the Company at a later date pursuant to a
Warrant Agreement of even date. In order to induce the Holders to purchase the
Registrable Securities, the Company has agreed to provide the registration
rights set forth in this Agreement for the benefit of the Holders. The execution
and delivery of this Agreement is called for in the MAI Amendment No. Three.

         The parties hereby agree as follows:

         1.       CERTAIN DEFINITIONS.

                  As used in this Agreement, the following terms shall have the
following respective meanings:

                  (a)      AFFILIATE of a specified Person means any other
Person that directly, or indirectly through one or more intermediates, controls,
is controlled by or is under common control with the Person specified, or who
holds or beneficially owns 50% or more of the equity interest in the Person
specified or 50% or more of the voting securities of the Person specified. A
managed account of a Person is also an Affiliate of such Person.

                  (b)      COMMISSION means the Securities and Exchange
Commission.

                  (c)      COMPANY means MAI Systems Corporation or any
successor to it or to its business.

                  (d)      COMMON STOCK means (except where the context
otherwise indicates) 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
corporation, acquiring corporation or Constituent Corporation (as defined in the
Warrant Agreement).

                  (e)      CONTINUOUSLY EFFECTIVE means, with respect to a
specified registration statement, that it shall not cease to be effective and
available for transfers of Registrable Securities thereunder for longer than any
forty-five (45) consecutive Business Days, during

                                        2



which time the Company shall not be permitted to call the Warrants, prior to the
Expiration Date.

                  (f)      DEMAND REGISTRATION shall have the meaning set forth
in Section 2(c).

                  (g)      DEMANDING HOLDERS shall have the meaning set forth in
Section 2(c).

                  (h)      EXCHANGE ACT means the Securities Exchange Act of
1934, as amended, and the rules and regulations of the Commission promulgated
thereunder.

                  (i)      EXPIRATION DATE means the later of February 1, 2010,
approximately the seventh anniversary of the date of this Agreement, and the
date the Company's 11% Subordinated Notes, as amended, have been repaid in full.

                  (j)      HOLDERS shall have the meaning set forth in the first
paragraph hereof.

                  (k)      PERSON means any individual, corporation,
partnership, joint venture, association, joint-stock company, limited liability
company, trust, unincorporated organization or government or other agency or
political subdivision thereof.

                  (l)      PIGGYBACK REGISTRATION shall have the meaning set
forth in Section 2(b)(i).

                  (m)      REGISTRABLE SECURITIES means any shares of Common
Stock of the Company acquired pursuant to the Canyon Agreements or any Warrant
Shares (as defined below) which may be acquired and owned by a Holder, or any
securities received by a Holder in exchange for such securities, and any other
Shares of the Company held by the Holders on the date hereof or Shares received
in exchange therefor. As to any particular Registrable Securities, such
securities shall cease to be Registrable Securities when (x) such securities
shall have been disposed of pursuant to an effective registration statement, (y)
such securities shall have been transferred to any Person other than the Holders
pursuant to Rule 144 (or any successor provision) or shall be transferable
pursuant to paragraph (k) thereof (or any successor provision) under the
Securities Act, or (z) they shall have ceased to be held by the Holders or any
Affiliate of the Holders or any Transferee of the Holders or their Affiliates.

                  (n)      REGISTRATION EXPENSES means all expenses incident to
the performance of or compliance with the registration rights granted herein,
including, without limitation, all registration, filing, listing and NASD fees,
all fees and expenses of complying with securities or blue sky laws, all word
processing, duplicating and printing expenses, messenger and delivery expenses,
the fees and expenses of the Company's counsel, the fees and expenses of one
counsel for the Selling Holders chosen by a majority vote of them, the fees and
expenses of the Company's independent public accountants, including the expenses
of any special audits or "cold comfort" letters required by or incident to such
performance and compliance.

                  (o)      SECURITIES ACT means the Securities Act of 1933, as
amended, or any successor statute thereto, and the rules and regulations of the
Securities and Exchange Commission promulgated thereunder, all as the same shall
be in effect at the time.

                                        3



                  (p)      SELLING HOLDERS means those Holders who have
requested registration pursuant to Section 2(b) hereof and who are selling
securities thereunder.

                  (q)      SHARES means the Company's common stock, as
constituted on the date hereof, or any stock or other securities, for which such
common stock shall have been exchanged, or any stock or other securities
resulting from any reclassification of such Shares.

                  (r)      TRANSFEREE shall mean the first holder of Registrable
Securities by a transfer from a Holder or an Affiliate of a Holder provided,
however, that a Person acquiring such Registrable Securities pursuant to a
transfer under an effective registration statement or pursuant to a sale under
Rule 144 shall not be a Transferee.

                  (s)      VIOLATION shall have the meaning set forth in Section
6(a).

                  (t)      CANYON AGREEMENTS means the Canyon Agreements, dated
as of January _____, 2003 between the Company and the Warrant Holders listed
therein.

                  (u)      WARRANTS shall mean any warrants issued pursuant to
the Canyon Agreements.

                  (v)      WARRANT SHARES shall mean the Shares of Company
Common Stock and other securities issuable upon exercise of the Warrants.

         2.       REGISTRATION RIGHTS.

                  (a)      PIGGYBACK REGISTRATION RIGHTS. At any time after the
execution of this Agreement, if the Company proposes to register any Common
Stock for sale solely for cash, either for its own account or for the account of
a stockholder or stockholders (a "Company Registration"), then the Company shall
give the Holder written notice of its intention to do so and of the intended
method of sale (the "Registration Notice") not fewer than 15 days prior to the
anticipated filing date of the registration statement effecting such Company
Registration. The Holder may request inclusion of any Registrable Shares in such
Company Registration by delivering to the Company, within 10 days after receipt
of the Registration Notice, a written notice (the "Piggyback Notice") stating
the number of Registrable Shares proposed to be included and that such shares
are to be included in the Company Registration only on the same terms and
conditions as the shares of Common Stock otherwise being sold under such
Registration. The Company shall use its reasonable efforts to cause all
Registrable Shares specified in the Piggyback Notice to be included in the
Company Registration and any related offering, all to the extent requisite to
permit the sale by the Holder of such Registrable Shares in accordance with the
method of sale applicable to the other shares of Common Stock included in the
Company Registration.

                  (b)      LIMITATIONS ON PIGGYBACK REGISTRATIONS. The Company's
obligation to include Registrable Shares in the Company Registration pursuant to
Section 2(a) shall be subject to the following limitations: The Company shall
not be obligated to include any Registrable Shares in a registration statement
(i) filed on Form S-4 or Form S-8 or such other similar successor forms then in
effect under the Securities Act, (ii) pursuant to which the Company is

                                        4



offering to exchange its own securities, or (iii) relating to dividend
reinvestment plans. There is no limit on the number of Piggyback Registrations
which may be requested hereunder.

                  (c)      DEMAND REGISTRATION.

                           (i)      If the Holders of at least 30% of the
         Registrable Securities make a written request to the Company (the
         "Demanding Holders"), the Company shall cause there to be filed with
         the Commission a registration statement meeting the requirements of the
         Securities Act (a "Demand Registration"), and each Demanding Holder
         shall be entitled to have included therein all or such number of such
         Demanding Holder's Registrable Securities, as the Demanding Holder
         shall request in writing. Any request made pursuant to this Section2(c)
         shall be addressed to the attention of the Secretary of the Company,
         and shall specify the number of Registrable Securities to be
         registered, the intended methods of disposition thereof and that the
         request is for a Demand Registration pursuant to this Section 2(c).

                           (ii)     Whenever the Company shall have received a
         demand pursuant to Section 2(c) to effect the registration of any
         Registrable Securities, the Company shall promptly give written notice
         of such proposed registration to all Holders. Any Holder may, within
         twenty (20) days after receipt of such notice, request in writing that
         all of such Holder's Registrable Securities, or any portion thereof
         designated by such Holder, be included in the registration.

                           (iii)    Following receipt of a request for a Demand
         Registration, the Company shall:

                                    (1)      File the registration statement
                           with the Commission as promptly as practicable, and
                           shall use the Company's best efforts to have the
                           registration declared effective under the Securities
                           Act as soon as reasonably practicable, in each
                           instance giving due regard to the need to prepare
                           current financial statements, conduct due diligence
                           and complete other actions that are reasonably
                           necessary to effect a registered public offering.

                                    (2)      Use the Company's best efforts to
                           keep the Demand Registration Statement Continuously
                           Effective for up to two hundred seventy (270) days or
                           until such earlier date as of which all the
                           Registrable Securities under the Demand Registration
                           Statement shall have been disposed of in the manner
                           described in the Registration Statement, or such
                           earlier time as the Company would not have any
                           obligation to include the Registrable Securities that
                           have not been disposed of in the manner described in
                           the Registration Statement. Notwithstanding the
                           foregoing, if for any reason the effectiveness of a
                           registration pursuant to this Section 2(c) is
                           suspended the foregoing period shall be extended by
                           the aggregate number of days of such suspension or
                           postponement.

                                        5



                           (iv)     The Company shall be obligated to effect no
         more than a total of one Demand Registration, and only if the Company
         is then eligible to use Form S-3 or its equivalent, and if the
         reasonably anticipated aggregate gross proceeds to the Holders shall
         exceed $1,000,000. For purposes of the preceding sentence, the
         registration shall not be deemed to have been effected (i) unless a
         registration statement with respect thereto has become effective, (ii)
         if after such registration statement has become effective, such
         registration or the related offer, sale or distribution of Registrable
         Securities thereunder is interfered with by any stop order, injunction
         or other order or requirement of the Commission or other governmental
         agency or court for any reason not attributable to the Selling Holders
         and such interference is not thereafter eliminated. The Company shall
         not be obligated to enter into an underwriting agreement in connection
         with a Demand Registration hereunder. If the Company shall have
         complied with its obligations under this Agreement, a right to a Demand
         Registration pursuant to this Section 2(c) shall be deemed to have been
         satisfied upon the earlier of (i) the date as of which all of the
         Registrable Securities included therein shall have been disposed of
         pursuant to the Registration Statement, and (ii) the date as of which
         such Demand Registration shall have been Continuously Effective for a
         period of two hundred seventy (270) days. Any Demand Registration
         Statement which, after filing with the Commission is withdrawn by the
         Holders, shall be deemed to have been effective in determining the
         number of Demand Registrations the Company is obligated to effect
         hereunder.

                  (d)      REGISTRATION STATEMENT FORM. The Company may, if
permitted by law, effect any registration requested under Section 2 by the
filing of a registration statement on Form S-3 (or any successor or similar
short-form registration statement).

                  (e)      EXPENSES. The Company shall pay all Registration
Expenses incurred in connection with the registration of Registrable Securities
pursuant to Section 2.

                  (f)      EFFECTIVE REGISTRATION STATEMENT. The registration
requested pursuant to Section 2 shall not be deemed to have been effected unless
it has become effective with the Commission, provided, however, that a
registration which does not become effective after the Company has filed a
registration statement with respect thereto with the Commission solely by reason
of the Demanding Holders failing to proceed with the registration shall be
deemed to have been effected by the Company in satisfaction of the Company's
obligation to register Registrable Securities pursuant to a Demand Registration,
unless the Demanding Holders reimburse the Company for all of its costs and
expenses incurred in connection with such registration statement.
Notwithstanding the foregoing, a registration statement will not be deemed to
have been effected if (i) after it has become effective with the Commission,
such registration is interfered with by any stop order, injunction or other
order or requirement of the Commission or other governmental agency or any court
proceeding for any reason other than a misrepresentation or omission by the
Holders or (ii) the conditions to closing specified in the purchase agreement or
underwriting agreement entered into in connection with such registration are not
satisfied, other than by reason of some act or omission or failure to agree to
close by a Selling Holder.

                  (g)      CONFLICTING INSTRUCTIONS FROM HOLDERS. (i) The
Company may rely and shall be protected in relying upon any resolution,
certificate, opinion, request, communication, demand, receipt or other paper or
document in good faith believed by it to be genuine and to

                                        6



have been signed or presented by the proper party or parties. The Company may
act in reliance upon the advice of its counsel in reference to any matter in
connection with this Agreement and shall not incur any liability for any action
taken in good faith in accordance with such advice.

                           (ii)     In the event the Company receives
         conflicting instructions regarding any action to be taken or withheld
         hereunder, the Company may suspend further action relating to such
         action until such time as the conflicting instructions are resolved by
         the parties giving the same or until the Company is instructed to take
         or withhold the requested action by a final order from which no appeal
         may be taken issued by a court of competent jurisdiction.

         3.       REGISTRATION PROCEDURES.

                  (a)      Whenever the Company is required to effect the
registration of any Registrable Securities under the Securities Act as provided
in Section 2, the Company, as expeditiously as possible and subject to the terms
and conditions herein, will:

                           (i)      prepare and file with the Commission the
         requisite registration statement to effect such registration and use
         its best efforts to cause such registration to become effective;

                           (ii)     prepare and file with the Commission such
         amendments and supplements to such registration statement and the
         prospectus used in connection therewith as may be necessary to keep
         such registration statement Continuously Effective and to comply with
         the provisions of the Securities Act with respect to the disposition of
         all securities covered by such registration statement until such time
         as all of such securities have been disposed of in accordance with the
         intended methods of disposition by the Selling Holders thereof set
         forth in such registration statement or, if earlier, until the
         Expiration Date;

                           (iii)    furnish to the Selling Holders such number
         of conformed copies of such registration statement and of each such
         amendment and supplement thereto (in each case including all exhibits),
         such number of copies of the prospectus contained in such registration
         statement (including each preliminary prospectus and any summary
         prospectus) and any other prospectus filed under the Securities Act, in
         conformity with the requirements of the Securities Act, and such other
         documents, as the Selling Holders may reasonably request;

                           (iv)     use its best efforts to register or qualify
         all Registrable Securities covered by such registration statement under
         such other United States state securities or blue sky laws of such
         jurisdictions as the Selling Holders shall reasonably request, to keep
         such registration statement qualification in effect for so long as such
         registration remains in effect, and take any other action which may be
         reasonably necessary or advisable to enable the Selling Holders to
         consummate the disposition in such jurisdictions of the securities
         owned by the Selling Holders, except that the Company shall not for any
         such purpose be required to (a) qualify generally to do business as a
         foreign corporation in any jurisdiction wherein it would not but for
         the requirements of

                                        7



         this subdivision (iv) be obligated to be so qualified, (b) subject
         itself to taxation in any such jurisdiction or (c) consent to general
         service of process in any such jurisdiction;

                           (v)      immediately notify the Selling Holders at
         any time when a prospectus relating thereto is required to be delivered
         under the Securities Act, of the happening of any event as a result of
         which the prospectus included in such registration statement, as then
         in effect, includes an untrue statement of a material fact or omits to
         state any material fact required to be stated therein or necessary to
         make the statements therein not misleading in the light of the
         circumstances under which they were made, and at the request of the
         Selling Holders promptly prepare and furnish to the Selling Holders a
         reasonable number of copies of a supplement to or an amendment of such
         prospectus as may be necessary so that, as thereafter delivered to the
         purchasers of such securities, such prospectus shall not include an
         untrue statement of a material fact or omit to state a material fact
         required to be stated therein or necessary to make the statements
         therein not misleading in the light of the circumstances under which
         they were made;

                           (vi)     otherwise use its best efforts to comply
         with all applicable rules and regulations of the Commission, and make
         available to its security holders, as soon as reasonably practicable,
         an earnings statement covering the period of at least twelve months,
         but not more than eighteen months, beginning with the first full
         calendar month after the effective date of such registration statement,
         which earnings statement shall satisfy the provisions of Section 11(a)
         of the Securities Act, and not file any amendment or supplement to such
         registration statement or prospectus to which the Selling Holders shall
         have reasonably objected in writing on the grounds that such amendment
         or supplement does not comply in all material respects with the
         requirements of the Securities Act or of the rules or regulations
         thereunder, having been furnished with a copy thereof (other than with
         respect to a pricing amendment) at least two business days prior to the
         filing thereof;

                           (vii)    provide a transfer agent and registrar for
         all Registrable Securities covered by such registration statement not
         later than the effective date of such registration statement; and

                           (viii)   use its best efforts to list all Registrable
         Securities covered by such registration statement on any securities
         exchange on which any of the Registrable Securities are then listed.

                  (b)      As a condition of these Registration Rights, the
Company may require the Demanding Holders, at their own expense, to furnish the
Company with such information and undertakings regarding such Holders and the
distribution of such securities as the Company may from time to time reasonably
request in writing, and the Holders, by their execution hereof, agree to provide
such information and make such undertakings as are requested.

                  (c)      The Selling Holders agree (A) that upon receipt of
any notice from the Company of the happening of any event of the kind described
in subdivision (vi) of Section 3(a), the Selling Holders will forthwith
discontinue their disposition of Registrable Securities pursuant to the
registration statement relating to such Registrable Securities until the Selling
Holders'

                                        8



receipt of the copies of the supplemented or amended prospectus contemplated by
subdivision (vi) of Section 3(a) and, if so directed by the Company, will
deliver to the Company all copies, other than permanent file copies, then in the
Selling Holders' possession of the prospectus relating to such Registrable
Securities current at the time of receipt of such notice and (B) that they will
immediately notify the Company, at any time when a prospectus relating to the
registration of such Registrable Securities is required to be delivered under
the Securities Act, of the happening of any event as a result of which
information previously furnished by the Selling Holders to the Company for
inclusion in such prospectus contains an untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
under which they were made.

                  (d)      Notwithstanding anything in this agreement to the
contrary, the Company will not be required to file such a registration statement
if it receives an opinion of counsel in form and substance reasonably
satisfactory to the Selling Holders, or counsel to the Selling Holders, to the
effect that the sale of the Registrable Securities in the manner contemplated by
the Selling Holders may be effected without registration regardless of the
identity or status of the buyer(s) of such Registrable Securities.

         4.       PREPARATION, REASONABLE INVESTIGATION.

                  In connection with the preparation and filing of each
registration statement under the Securities Act, the Company will give the
Selling Holders, the underwriters, if any, and their respective counsel and
accountants, the opportunity to participate in the preparation of such
registration statement, each prospectus included therein or filed with the
Commission and each amendment thereof or supplement thereto, and will give each
of them such access to its books and records and such opportunities to discuss
the business of the Company with its officers and the independent public
accountants who have certified its financial statements as shall be necessary,
in the reasonable opinion of the Selling Holders' and such underwriters'
respective counsel, to conduct a reasonable investigation within the meaning of
the Securities Act.

         5.       INDEMNIFICATION; CONTRIBUTION. If any Registrable Securities
are included in a registration statement under this Agreement:

                  (a)      To the extent permitted by applicable law, the
Company shall indemnify and hold harmless each Selling Holder, each Person, if
any, who controls such Selling Holder within the meaning of the Securities Act,
and each officer, director, partner, and employee of such Selling Holder and
such controlling Person, against any and all losses, claims, damages,
liabilities and expenses (joint or several), including reasonable attorneys'
fees and disbursements and expenses of investigation, incurred by such party
pursuant to any actual or threatened action, suit, proceeding or investigation,
or to which any of the foregoing Persons may become subject under the Securities
Act, the Exchange Act or other federal or state laws, insofar as such losses,
claims, damages, liabilities and expenses arise out of or are based upon any of
the following statements, omissions or violations (collectively a "Violation"):

                                        9



                           (i)      Any untrue statement or alleged untrue
         statement of a material fact contained in such registration statement,
         including any preliminary prospectus or final prospectus contained
         therein, or any amendments or supplements thereto;

                           (ii)     The omission or alleged omission to state
         therein a material fact required to be stated therein, or necessary to
         make the statements therein not misleading; or

                           (iii)    Any violation or alleged violation by the
         Company of the Securities Act, the Exchange Act, any applicable state
         securities law or any rule or regulation promulgated under the
         Securities Act, the Exchange Act or any applicable state securities
         law; provided, however, that the indemnification required by this
         Section 6(a) shall not apply to amounts paid in settlement of any such
         loss, claim, damage, liability or expense if such settlement is
         effected without the consent of the Company (which consent shall not be
         unreasonably withheld), nor shall the Company be liable in any such
         case for any such loss, claim, damage, liability or expense to the
         extent that it arises out of or is based upon a Violation which occurs
         in reliance upon and in conformity with written information furnished
         to the Company by the indemnified party expressly for use in connection
         with such registration; provided, further, that the indemnity agreement
         contained in this Section 6 shall not apply to any underwriter to the
         extent that any such loss is based on or arises out of an untrue
         statement or alleged untrue statement of a material fact, or an
         omission or alleged omission to state a material fact, contained in or
         omitted from any preliminary prospectus if the final prospectus shall
         correct such untrue statement or alleged untrue statement, or such
         omission or alleged omission, and a copy of the final prospectus has
         not been sent or given to such person at or prior to the confirmation
         of sale to such person if such underwriter was under an obligation to
         deliver such final prospectus and failed to do so. The Company shall
         also indemnify underwriters, selling brokers, dealer managers and
         similar securities industry professionals participating in the
         distribution, their officers, directors, agents and employees and each
         person who controls such persons (within the meaning of Section 15 of
         the Securities Act or Section 20 of the Exchange Act) to the same
         extent as provided above with respect to the indemnification of the
         Selling Holders.

                  (b)      To the extent permitted by applicable law, each
Selling Holder shall indemnify and hold harmless the Company, each of its
directors, each of its officers who shall have signed the registration
statement, each Person, if any, who controls the Company within the meaning of
the Securities Act, any other Selling Holder, any controlling Person of any such
other Selling Holder and each officer, director, partner, and employee of such
other Selling Holder and such controlling Person, against any and all losses,
claims, damages, liabilities and expenses (joint and several), including
reasonable attorneys' fees and disbursements and expenses of investigation,
incurred by such party pursuant to any actual or threatened action, suit,
proceeding or investigation, or to which any of the foregoing Persons may
otherwise become subject under the Securities Act, the Exchange Act or other
federal or state laws, insofar as such losses, claims, damages, liabilities and
expenses arise out of or are based upon any Violation, in each case to the
extent (and only to the extent) that such Violation occurs in reliance upon and
in conformity with written information furnished by such Selling Holder
expressly for use in connection with such registration; provided, however, that
(x) the indemnification required by this Section 6(b) shall

                                       10



not apply to amounts paid in settlement of any such loss, claim, damage,
liability or expense if settlement is effected without the consent of the
relevant Selling Holder of Registrable Securities, which consent shall not be
unreasonably withheld, and (y) in no event shall the amount of any indemnity
under this Section 6(b) exceed the gross proceeds from the applicable offering
received by such Selling Holder.

                  (c)      Promptly after receipt by an indemnified party under
this Section 6 of notice of the commencement of any action, suit, proceeding,
investigation or threat thereof made in writing for which such indemnified party
may make a claim under this Section 6, such indemnified party shall deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel at its own expense except as provided
below. The failure to deliver written notice to the indemnifying party within a
reasonable time following the commencement of any such action, if prejudicial to
its ability to defend such action, shall relieve such indemnifying party of any
liability to the indemnified party under this Section 6 but shall not relieve
the indemnifying party of any liability that it may have to any indemnified
party otherwise than pursuant to this Section 6. Any fees and expenses incurred
by the indemnified party (including any fees and expenses incurred in connection
with investigating or preparing to defend such action or proceeding) shall be
paid to the indemnified party, as incurred, within sixty (60) days of written
notice thereof to the indemnifying party (regardless of whether it is ultimately
determined that an indemnified party is not entitled to indemnification
hereunder, but in such event such amounts shall be refunded). Any such
indemnified party shall have the right to employ separate counsel in any such
action, claim or proceeding and to participate in the defense thereof, but the
fees and expenses of such counsel shall be the expenses of such indemnified
party unless (i) the indemnifying party has agreed to pay such fees and expenses
or (ii) the indemnifying party shall have failed to promptly assume the defense
of such action, claim or proceeding or (iii) the named parties to any such
action, claim or proceeding (including any impleaded parties) include both such
indemnified party and the indemnifying party, and such indemnified party shall
have been advised by counsel that there may be one or more legal defenses
available to it which are different from or in addition to those available to
the indemnifying party and that the assertion of such defenses would create a
conflict of interest such that counsel employed by the indemnifying party could
not faithfully represent the indemnified party (in which case, if such
indemnified party notifies the indemnifying party in writing that it elects to
employ separate counsel at the expense of the indemnifying party, the
indemnifying party shall not have the right to assume the defense of such
action, claim or proceeding on behalf of such indemnified party, it being
understood, however, that the indemnifying party shall not, in connection with
any one such action, claim or proceeding or separate but substantially similar
or related actions, claims or proceedings in the same jurisdiction arising out
of the same general allegations or circumstances, be liable for the reasonable
fees and expenses of more than one separate firm of attorneys (together with
appropriate local counsel) at any time for all such indemnified parties, unless
in the reasonable judgment of such indemnified party a conflict of interest may
exist between such indemnified party and any other of such indemnified parties
with respect to such action, claim or proceeding, in which event the
indemnifying party shall be obligated to pay the reasonable fees and expenses of
such additional counsel or counsels). No indemnifying party shall be liable to
an indemnified

                                       11



party for any settlement of any action, proceeding or claim without the written
consent of the indemnifying party, which consent shall not be unreasonably
withheld.

                  (d)      If the indemnification required by this Section 6
from the indemnifying party is unavailable to an indemnified party hereunder in
respect of any losses, claims, damages, liabilities or expenses referred to in
this Section 6:

                           (i)      The indemnifying party, in lieu of
         indemnifying such indemnified party, shall contribute to the amount
         paid or payable by such indemnified party as a result of such losses,
         claims, damages, liabilities or expenses in such proportion as is
         appropriate to reflect the relative fault of the indemnifying party and
         indemnified parties in connection with the actions which resulted in
         such losses, claims, damages, liabilities or expenses, as well as any
         other relevant equitable considerations. The relative fault of such
         indemnifying party and indemnified parties shall be determined by
         reference to, among other things, whether any Violation has been
         committed by, or relates to information supplied by, such indemnifying
         party or indemnified parties, and the parties' relative intent,
         knowledge, access to information and opportunity to correct or prevent
         such Violation. The amount paid or payable by a party as a result of
         the losses, claims, damages, liabilities and expenses referred to above
         shall be deemed to include, subject to the limitations set forth in
         Section 6(a) and Section 6(b), any legal or other fees or expenses
         reasonably incurred by such party in connection with any investigation
         or proceeding.

                           (ii)     The parties hereto agree that it would not
         be just and equitable if contribution pursuant to this Section 6(d)(ii)
         were determined by pro rata allocation or by any other method of
         allocation which does not take into account the equitable
         considerations referred to in Section 6(d)(i). No Person guilty of
         fraudulent misrepresentation (within the meaning of Section 11(f) of
         the Securities Act) shall be entitled to contribution from any Person
         who was not guilty of such fraudulent misrepresentation.

                  (e)      If indemnification is available under this Section 6,
the indemnifying parties shall indemnify each indemnified party to the full
extent provided in this Section 6 without regard to the relative fault of such
indemnifying party or indemnified party or any other equitable consideration
referred to in Section 6(d).

                  (f)      The obligations of the Company and the Selling
Holders of Registrable Securities under this Section 6 shall survive the
completion of any offering of Registrable Securities pursuant to a registration
statement under this Agreement, and otherwise.

         6.       COVENANTS OF THE COMPANY. The Company hereby agrees and
covenants as follows:

                  The Company shall file as and when applicable, on a timely
basis, all reports required to be filed by it under the Exchange Act. If the
Company is not required to file reports pursuant to the Exchange Act, upon the
request of any Holder of Registrable Securities, the Company shall make publicly
available the information specified in subparagraph (c)(2) of Rule

                                       12



144 of the Securities Act, and take such further action as may be reasonably
required from time to time and as may be within the reasonable control of the
Company, to enable the Holders to transfer Registrable Securities to a
Transferee without registration under the Securities Act within the limitation
of the exemptions provided by Rule 144 under the Securities Act or any similar
rule or regulation hereafter adopted by the Commission.

         7.       MISCELLANEOUS.

                  7.1      SPECIFIC PERFORMANCE. The parties hereto acknowledge
that there may be no adequate remedy at law if any party fails to perform any of
its obligations hereunder and that each party may be irreparably harmed by any
such failure, and accordingly agree that each party, in addition to any other
remedy to which it may be entitled at law or in equity, may be entitled to
compel specific performance of the obligations of any other party under this
Agreement in accordance with the terms and conditions of this Agreement.

                  7.2      NOTICES. All notices, requests, claims, demands,
waivers and other communications required or permitted hereunder shall be in
writing and shall be deemed to have been duly given when delivered by hand, if
delivered personally by courier, or three days after being deposited in the mail
(registered or certified mail, postage prepaid, return receipt requested) as
follows:

                           (i)      The Holders at the addresses indicated on
         the signature page hereof with a copy to Canyon Capital Management:

                                    c/o Canyon Partners Incorporated
                                    9665 Wilshire Boulevard
                                    Suite 200
                                    Beverly Hills, CA 90212

                           (ii)     Company:

                                    MAI Systems Corporation
                                    9600 Jeronimo Road
                                    Irvine, California 92718
                                    Attention: General Counsel
                                    Telecopy No. (949) 598-6606

or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.

                  7.3      LAW GOVERNING. 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.

                  7.4      ATTORNEYS' FEES. In any action or proceeding brought
to enforce any provision of this Agreement, or where any provision hereof is
validly asserted as a defense, the successful party shall be entitled to recover
reasonable attorneys' fees (including any fees incurred in any appeal) in
addition to its costs and expenses and any other available remedy.

                                       13



                  7.5      HEADINGS. The descriptive headings of the several
Sections and paragraphs of this Agreement are inserted for convenience only, and
do not constitute a part of this Agreement and shall not affect in any way the
meaning or interpretation of this Agreement.

                  7.6      ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the
other writings referred to herein or delivered pursuant hereto which form a part
hereof contain the entire understanding of the parties with respect to its
subject matter. This Agreement supersedes all prior agreements and
understandings between the parties with respect to its subject matter. This
Agreement may be amended and the observance of any term of this Agreement may be
waived (either generally or in a particular instance and either retroactively or
prospectively) only by a written instrument duly executed by the Company and the
Holders. Each holder of any Registrable Securities at the time or thereafter
outstanding shall be bound by an amendment or waiver authorized by this Section
8.6, whether or not any such Registrable Securities shall have been marked to
indicate such consent.

                  7.7      ASSIGNABILITY. This Agreement shall be binding upon
and inure to the benefit of the respective successors and assigns of the parties
hereto provided, however, that the Registration Rights hereunder shall only be
available to the Holders, their Affiliates and to their Transferees.

                  7.8      COUNTERPARTS. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.

                  7.9      VALIDITY, DUE AUTHORIZATION. By its execution hereof,
the Company represents and warrants that it has the corporate power to execute,
deliver and perform the terms and provisions of this Agreement and that it has
taken all appropriate and necessary corporate action to authorize the
transactions contemplated hereby and the execution, delivery and performance of
this Agreement.

                                                    MAI Systems Corporation

                                                    By: ________________________

                                       14



INVESTORS:

Canyon Value Realization Fund, L.P.,         Address:
a California limited partnership             Canyon Value Realization Fund, L.P.
                                             c/o Canyon Partners Incorporated
By:      Canpartners Investments III, L.P.,  9665 Wilshire Boulevard
         a California limited partnership,   Suite 200
         its general partner                 Beverly Hills, CA 90212

By:      Canyon Capital Advisors LLC,        310/247-2700 (O)
         a Delaware limited liability        310/247-2701 (F)
         company,
         its general partner

By:      Canpartners Incorporated,
         a California corporation,
         its general partner

By:      ______________________
         Name:
         Title:

The Canyon Value Realization Fund            Address:
(Cayman), Ltd.                               The Canyon Value Realization Fund
                                             (Cayman), Ltd.
By:      MeesPierson (Cayman) Limited,       c/o MeesPierson (Cayman) Limited
         its Administrator                   P.O. Box 2003
                                             British American Center, Phase 3
                                             Dr. Roy's Drive
By:      ______________________              Grand Cayman, B.W.I.
         Name:
         Title:                              809/949-7942 (O)
                                             809/949-8340 (F)

GRS Partners II                              Address:

By:      Grosvenor Capital Management L.P.,  GRS Partners II
         its Administrator                   c/o Grosvenor Capital Management,
                                             L.P.
                                             333 West Wacker Drive
By:      Grosvenor Capital Management, Inc., Suite 1600
         its general partner                 Chicago, Illinois  60606

By:      ________________________            312/263-7777 (O)
         Name:                               312/782-4759 (F)
         Title:


                                       15



CPI Securities L.P.,                         Address:
a California limited partnership             CPI Securities L.P.
                                             c/o Canyon Partners Incorporated
By:      Canpartners Incorporated,           9665 Wilshire Boulevard
         a California corporation,           Suite 200
         its general partner                 Beverly Hills, CA 90212

                                             310/247-2700 (O)
By:      ________________________            310/247-2701 (F)
         Name:
         Title:

                                       16

EX-10.30

                                                                   EXHIBIT 10.30

                                    SUBLEASE

         THIS SUBLEASE (this "Sublease") is made and entered into as of the
_____ day of January 2003, by and between ADVANCED LOGIC RESEARCH, INC., a
Delaware corporation (hereinafter called "Sublandlord"), and MAI SYSTEMS
CORPORATION, a Delaware corporation (hereinafter called "Subtenant");

                                   WITNESSETH:

         WHEREAS, by that certain Amended and Restated Standard Lease [Single
Tenant - Triple Net] dated as of June 21, 1999 (the "Original Prime Lease"), as
amended by that certain First Amendment to Lease dated as of January 27, 2000
(the "First Amendment"), a copy of which instruments are attached hereto as
Exhibit "A" and by this reference made a part hereof (hereinafter, with all such
amendments, called the "Prime Lease"), MSGW CALIFORNIA I, LLC, a Delaware
limited liability company (hereinafter, together with its successors and
assigns, called "Landlord"), leased to GATEWAY, INC., a Delaware corporation
(formerly known as Gateway 2000, Inc.) three (3) buildings (known as Buildings
1, 2 and 3) located in Lake Forest, Orange County, California, which buildings
contain, collectively, approximately 150,000 Rentable Square Feet (the "Prime
Lease Space").

         WHEREAS, pursuant to that certain Assignment of Lease and Assumption
Agreement dated as of June 21, 1999, Gateway, Inc. assigned all of its right,
title and interest in and to the Prime Lease to Sublandlord.

         WHEREAS, subject to the consent of Landlord, Subtenant desires to
sublease from Sublandlord, and Sublandlord desires to sublease to Subtenant, (i)
that 25,730 rentable square foot portion of the Prime Lease Space located on the
first (1st) and second (2nd) floors of that building (the "Building") located at
26110 Enterprise Way in Lake Forest, Orange County, California which is known as
Building 1 (the "Premises"), and (ii) that 1,225 square foot portion of the
Prime Lease Space located on the first (1st) floor of the Building (the "Storage
Space"; for all purposes under this Sublease other than the payment of Base Rent
and other than as may be otherwise expressly set forth in this Sublease the
Storage Space shall be included within the term "Premises") all as shown on the
floor plans attached to this Sublease as Exhibit "B", all upon the terms and
subject to the conditions and provisions hereinafter set forth;

         NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and promises contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby mutually
acknowledged, Sublandlord and Subtenant hereby agree as follows:

1.       DEMISE; USE. Sublandlord hereby leases to Subtenant and Subtenant
hereby leases from Sublandlord the Premises for the term and rental and upon the
other terms and conditions hereinafter set forth, to be used and occupied by
Subtenant solely for the purposes permitted under the Prime Lease and otherwise
in compliance with applicable zoning rules, regulations and ordinances and all
covenants, conditions and restrictions of record and for no other purpose.

                                        1



2.       TERM. The term of this Sublease shall commence (the "Commencement
Date") on the later of (i) February 1, 2003 or (ii) the date upon which this
Sublease is fully executed and the Landlord has delivered its consent hereto,
and, unless sooner terminated pursuant to the provisions hereof, shall terminate
on the earlier of January 31, 2007 and the prior termination of the term of the
Prime Lease. As used herein, the phrase "Lease Year" shall mean the twelve
calendar month period commencing on the Rent Commencement Date (as hereinafter
defined) (or, if the Rent Commencement Date is not the first day of a calendar
month, then commencing on the first day of the calendar month during which the
Rent Commencement Date occurs) and each anniversary thereof, except that (i) the
last Lease Year may not be twelve calendar months and shall terminate on the
last day of the term of this Sublease, and (ii) the first Lease Year shall
include that period of time from the Commencement Date to and including the Rent
Commencement Date.

3.       BASE RENT.

         (a)      As used herein, the Rent Commencement Date shall be that date
which is the earlier of (i) sixty (60) days following the Commencement Date, and
(ii) that date upon which Subtenant commences its business operations from all
or any portion of the Premises, but in no event earlier than April 1, 2003.
Commencing upon the Rent Commencement Date, Subtenant shall pay to Sublandlord
base annual rental (hereinafter called "Base Rent") for the Premises as follows:



====================================================================================================
                       ANNUAL BASE RENT        ANNUAL BASE RENT (BASED
                      RATE PER RENTABLE       ON 25,730 RENTABLE SQUARE                    MONTHLY
   TIME PERIOD           SQUARE FOOT                     FEET)                          INSTALLMENTS
- ----------------------------------------------------------------------------------------------------
                                                                               
first Lease Year          $12.00                       $308,760.00                       $25,730.00
- ------------------------- -------------------------- ----------------------------------- -----------
second Lease Year         $12.36                       $318,022.80                       $26,501.90
- ------------------------- -------------------------- ----------------------------------- -----------
third Lease Year          $12.73                       $327,542.90                       $27,295.24
- ------------------------- -------------------------- ----------------------------------- -----------
fourth Lease Year*        $13.11                       $337,320.30                       $28,110.03
====================================================================================================


*Note: Sublandlord and Subtenant acknowledge and agree that as the expiration of
the term of this Sublease is January 31, 2007, the fourth Lease Year shall be
less than a full twelve (12) calendar month period and accordingly the Annual
Base Rent category for such fourth Lease Year as set forth in the schedule above
is for explanatory purposes only.

In addition to the foregoing, Subtenant shall pay Base Rent for the Storage
Space in an amount equal to $2,700.00 per month throughout the term of this
Sublease. In clarification of the foregoing, the Base Rent due and owing for the
Storage Space is not reflected in the schedule above. Further, notwithstanding
any of the foregoing to the contrary, Subtenant's obligation to pay Base Rent
for the Storage Space shall commence upon April 1, 2003.

Annual Base Rent shall be due and payable in twelve equal installments. Each
such installment shall be due and payable in advance on the fifth day prior to
the first day of each calendar month of the term hereof. Subtenant shall pay the
first due monthly installment of Base Rent due under this Lease

                                        2



concurrently with the execution of this Sublease by Subtenant. If the term of
this Sublease commences on a day other than the first day of a month or ends on
a day other than the last day of a month, Base Rent for such month shall be
prorated; prorated Base Rent for any such partial first month of the term hereof
shall be paid on the date on which the term commences. Concurrently with the
full execution and delivery of this Sublease by Subtenant, Subtenant shall pay
to Sublandlord the first due installment of monthly Base Rent due and owing
under this Sublease, including, without limitation, any and all Base Rent due
and owing for the Storage Space.

         (b)      All Base Rent and additional rent shall be paid without setoff
or deduction whatsoever and shall be paid to Sublandlord at the following
address: Real Estate Administration, c/o Gateway, Inc. 610 Gateway Drive Y91,
North Sioux City, South Dakota 97049, or at such other place as Sublandlord may
designate by notice to Subtenant. Notwithstanding anything to the contrary
contained in this Sublease, Sublandlord and Subtenant acknowledge and agree that
in the event of a default by Sublandlord, as tenant, under the Prime Lease which
remains uncured beyond any applicable notice and cure period and as a result of
which the Landlord directs Subtenant in writing (with a copy to Sublandlord) to
remit the rent payments under this Sublease directly to the Landlord, then
Subtenant shall comply with the direction of Landlord and any sums so paid to
Landlord shall be credited against the rent payments due under this Sublease;
provided, however, in no event shall the foregoing be deemed to permit the
Landlord and Subtenant to modify in any way the obligations of Subtenant under
this Sublease (e.g., Landlord shall not be permitted to forgive or waive any
obligation of Subtenant under this Sublease without obtaining the consent of
Sublandlord, which consent Sublandlord shall be entitled to withhold in its sole
and absolute discretion).

         (c)      Sublandlord and Subtenant acknowledge and agree that
Sublandlord shall provide to Subtenant an abatement against Base Rent due
hereunder for the purpose of reimbursing to Subtenant the cost of certain
improvements to be performed by Subtenant within the Premises (any such
improvements to be otherwise performed at Subtenant's sole cost and expense and
in strict accordance with the terms and provisions of this Sublease).
Sublandlord and Subtenant acknowledge and agree that so long as Subtenant is not
then in default under this Sublease, Subtenant shall be entitled to an abatement
of the Base Rent due and owing under this Sublease for the first sixty (60) days
of the term of this Sublease following the Rent Commencement Date; provided,
however, during such abatement period, Subtenant shall remain responsible to pay
any and all amounts due and owing under this Sublease for additional rent due
hereunder (including, without limitation, all pass-throughs from the Prime Lease
and all utilities provided to the Premises). In addition, notwithstanding the
foregoing, in no event shall Subtenant be entitled to any abatement of the Base
Rent due and owing under this Lease with respect to the Storage Space, which
Base Rent shall be due and owing to Sublandlord as of April 1, 2003 as more
particularly set forth above.

4.       ADDITIONAL RENT; PAYMENTS; INTEREST.

         (a)      Except for "Monthly Base Rent" (as such term is defined in the
Prime Lease and for the payment of which Subtenant shall have no obligation
under this Sublease), following the Commencement Date Subtenant shall also pay
to Sublandlord all other amounts payable by Sublandlord under the Prime Lease
which are attributable to the Premises or attributable to Subtenant, its agents,
employees, customers or invitees, including without limitation, the Operating
Costs (as such term is defined herein). By way of

                                        3



example and not by way of limitation, charges by Landlord for furnishing air
conditioning or heating to the Premises at times in addition to those certain
times specified in the Prime Lease, costs incurred by Landlord in repairing
damage to the Building caused by an employee of Subtenant, increased insurance
premiums due as a result of Subtenant's use of the Premises, and amounts
expended or incurred by Landlord on account of any default by Subtenant which
gives rise to a default under the Prime Lease would be amounts payable by
Subtenant pursuant to this Subsection 4(a).

         (b)      Each amount due to pursuant to Subsection 4(a) above and each
other amount payable by Subtenant hereunder, unless a date for payment of such
amount is provided for elsewhere in this Sublease, shall be due and payable on
the fifth day following the date on which Landlord or Sublandlord has given
notice to Subtenant of the amount thereof, but in no event later than the date
on which any such amount is due and payable under the Prime Lease.

         (c)      All amounts other than Base Rent payable to Sublandlord under
this Sublease shall be deemed to be additional rent due under this Sublease. All
past due installments of Base Rent and additional rent shall bear interest from
the date due until paid at the rate per annum equal to five percent (5%) in
excess of the Prime Rate (as hereinafter defined) in effect from time to time,
which rate shall change from time to time as of the effective date of each
change in the Prime Rate, unless a lesser rate shall then be the maximum rate
permissible by law with respect thereto, in which event said lesser rate shall
be charged. For the purposes of this Sublease, (i) the term "Prime Rate" shall
mean the rate of interest announced from time to time by Bank One, N.A. as its
prime or corporate base rate, and (ii) any and all amounts due and owing under
this Sublease by Subtenant shall not be deemed to be "past due" until such
failure to pay continues for a period in excess of five (5) days following the
date same is otherwise due under this Lease.

         (d)      Subtenant shall pay Landlord on the due dates for services
requested by Subtenant which are billed by Landlord directly to Subtenant rather
than Sublandlord.

         (e)      Definitions. For purposes of this Sublease and in addition to
the terms defined elsewhere in this Sublease, the following terms shall have the
meanings set forth below:

         (1)      "Operating Costs" shall mean (a) Operating Expenses (as
         defined in Paragraph 6 of the Prime Lease, which Sublandlord and
         Subtenant acknowledge and agree shall mean, collectively, Common Area
         Operating Expenses and Building Operating Expenses, as defined in the
         Prime Lease) charged by Landlord to Sublandlord pursuant to Paragraph 6
         of the Prime Lease, and (b) Real Property Taxes (as defined in
         paragraph 12 of the Prime Lease) charged by Landlord to Sublandlord
         pursuant to Paragraph 12 of the Prime Lease.

         (2)      "Subtenant's Percentage Share" for purposes of Tenant's Common
         Area Percentage (as defined in the Prime Lease) shall mean 17.97% and
         "Subtenant's Percentage Share" for purposes of Tenant's Building
         Percentage (as defined in the Prime Lease) shall mean 53.99%.
         Sublandlord and Subtenant acknowledge and agree that at such time as
         such Percentage Shares are being applied to Operating Costs,
         Sublandlord shall calculate the amounts owed by Subtenant hereunder by
         applying the appropriate Percentage Share to Common Area Operating
         Expenses or Building Operating Expenses, as the case may be. For
         purposes of Real Estate Taxes, the

                                        4



         appropriate Percentage Share shall be applied to determine Subtenant's
         obligations hereunder based on the assessed area which is the basis for
         the calculation of Real Estate Taxes under the Prime Lease. In addition
         to the Base Rent payable pursuant to Section 3 above, from and after
         the Commencement Date, for each calendar year of the term, Subtenant,
         as additional rent, shall pay Subtenant's Percentage Share of the
         Operating Costs payable by Sublandlord for the then current calendar
         year. Sublandlord shall give Subtenant written notice of Sublandlord's
         estimate of the amount of additional rent per month payable pursuant to
         this Subsection for each calendar year promptly following the
         Sublandlord's receipt of Landlord's estimate of the Operating Costs
         payable under the Prime Lease. Thereafter, the additional rent payable
         pursuant to this Subsection shall be determined and adjusted in
         accordance with the provisions below.

         (f)      The determination and adjustment of additional rent
contemplated under Subsection 4(e) above shall be made in accordance with the
following procedures:

         (1)      Upon receipt of a statement from Landlord specifying the
         estimated Operating Costs to be charged to Sublandlord under the Prime
         Lease with respect to each calendar year, or as soon after receipt of
         such statement as practicable, Sublandlord shall give Subtenant written
         notice of its estimate of additional rent payable under Subsection 4(e)
         for the ensuing calendar year, which estimate shall be prepared based
         on the estimate received from Landlord (as Landlord's estimate may
         change from time to time), together with a copy of the statement
         received from Landlord. Sublandlord's estimate of additional rent to be
         paid by Subtenant pursuant to this Sublease shall not exceed
         Subtenant's Percentage Share of Landlord's estimate delivered to
         Sublandlord pursuant to the Prime Lease (as Landlord's estimate may
         change from time to time). On or before the first day of each month
         during each calendar year, Subtenant shall pay to Sublandlord as
         additional rent one-twelfth (1/12th) of such estimated amount together
         with the Base Rent.

         (2)      In the event Sublandlord's notice set forth in Subsection
         4(f)(1) is not given in December of the calendar year preceding the
         calendar year for which Sublandlord's notice is applicable, as the case
         may be, then until the calendar month after such notice is delivered by
         Sublandlord, Subtenant shall continue to pay to Sublandlord monthly,
         during the ensuing calendar year, estimated payments equal to the
         amounts payable hereunder during the calendar year just ended. Upon
         receipt of any such post-December notice Subtenant shall (i) commence
         as of the immediately following calendar month, and continue for the
         remainder of the calendar year, to pay to Sublandlord monthly such new
         estimated payments and (ii) if the monthly installment of the new
         estimate of such additional rent is greater than the monthly
         installment of the estimate for the previous calendar year, pay to
         Sublandlord within thirty (30) days of the receipt of such notice an
         amount equal to the difference of such monthly installment multiplied
         by the number of full and partial calendar months of such year
         preceding the delivery of such notice.

         (3)      Within thirty (30) days after the receipt by Sublandlord of a
         final statement of Operating Costs from Landlord with respect to each
         calendar year, Sublandlord shall deliver to Subtenant a statement of
         the adjustment to be made pursuant to Section 4(f) hereof for the
         calendar year just ended, together with a copy of the statement
         received by Sublandlord from Landlord. If on the basis of such
         statement Subtenant owes an amount that is less than the estimated
         payments for the calendar year just ended previously paid by Subtenant,
         Sublandlord shall credit such excess to the next payments of rent
         coming due or, if the term of this Sublease is about to expire,
         promptly

                                        5



         refund such excess to Subtenant. If on the basis of such statement
         Subtenant owes an amount that is more than the estimated payments for
         the calendar year just ended previously made by Subtenant, Subtenant
         shall pay the deficiency to Sublandlord within thirty (30) days after
         delivery of the statement from Sublandlord to Subtenant.

         (4)      For partial calendar years during the term of this Sublease,
         the amount of additional rent payable pursuant to Subsection 4(f) that
         is applicable to that partial calendar year shall be prorated based on
         the ratio of the number of days of such partial calendar year falling
         during the term of this Sublease to 365. The expiration or earlier
         termination of this Sublease shall not affect the obligations of
         Sublandlord and Subtenant pursuant to this Section 4, and such
         obligations shall survive and remain to be performed after any
         expiration or earlier termination of this Sublease.

5.       CONDITION OF PREMISES AND CONSTRUCTION OF IMPROVEMENTS.

         Except as may be otherwise expressly set forth in this Sublease,
Subtenant hereby acknowledges and agrees that it is to demise the Premises in an
"as-is" condition and Subtenant's taking possession of the Premises shall be
conclusive evidence as against Subtenant that the Premises were in good order
and satisfactory condition when Subtenant took possession. No promise of
Sublandlord to alter, remodel or improve the Premises has been made by
Sublandlord (or any other party taking by, through or under Sublandlord) to
Subtenant, and no representation respecting the condition of the Premises have
been made by Sublandlord (or any other party taking by, through or under
Sublandlord) to Subtenant except as may be otherwise expressly set forth in this
Sublease. Subtenant hereby represents and warrants that it has made any and all
inspections of the Premises it deems necessary to satisfy itself with respect to
all aspects of the conditions thereof; provided, however, to the actual
knowledge of Sublandlord (without investigation or inquiry), the plumbing,
electrical, heating and cooling systems servicing the Premises are in working
order as of the date this Sublease is executed by Sublandlord. Upon the
expiration of the term hereof, or upon any earlier termination of the term
hereof or of Subtenant's right to possession, Subtenant shall surrender the
Premises in at least as good condition as at the commencement of the term of
this Sublease, ordinary wear and tear excepted.

6.       THE PRIME LEASE.

         (a)      Sublandlord hereby represents and warrants that as of the date
this Sublease is executed by Sublandlord, (i) Sublandlord has not received any
notice of default under the Prime Lease from Landlord that remains uncured, and
(ii) Sublandlord has not given a notice of default to Landlord under the terms
of the Prime Lease that remains uncured. This Sublease and all rights of
Subtenant hereunder and with respect to the Premises are subject to the terms,
conditions and provisions of the Prime Lease. Subtenant hereby assumes and
agrees to perform faithfully and be bound by, with respect to the Premises, all
of Sublandlord's obligations, covenants, agreements and liabilities under the
Prime Lease and all terms, conditions, provisions and restrictions contained in
the Prime Lease except:

         (i)      for the payment of "Monthly Base Rent" (as such term is
         defined in the Prime Lease);

         (ii)     that Subtenant shall not have any obligations to construct or
         install tenant improvements except as may be provided herein; and

                                        6



         (iii)    that the following provisions of the Prime Lease do not apply
         to this Sublease: any provisions in the Prime Lease allowing or
         purporting to allow Sublandlord any rent concessions or abatements or
         construction allowances, any provisions allowing Sublandlord to extend
         or renew the term of the Prime Lease (including, without limitation,
         Paragraph 3(b) of the Prime Lease), any provisions of the Prime Lease
         providing for any representations and/or warranties with respect to
         Hazardous Materials (including, without limitation, Paragraph 8(d) of
         the Prime Lease), any provisions relating to warranties regarding
         improvements within the Premises (including, without limitation,
         Paragraph 14(d) of the Prime Lease), any rights granted to terminate
         the Prime Lease due to an interruption in utilities (including, without
         limitation, Paragraph 17 of the Prime Lease, any provisions permitting
         any right of self-help, offset or termination in the event of any
         default by Landlord under the terms and provisions of the Prime Lease
         (including, without limitation, the provisions of the last paragraph of
         Paragraph 23 of the Prime Lease), any rights to install signage without
         obtaining the consent of the Sublandlord and/or Landlord (including,
         without limitation, Paragraph 34 of the Prime Lease), any option to
         purchase the Building or other real property (including, without
         limitation, Paragraphs 41, 43 and 44 of the Prime Lease), any option to
         lease additional premises (including, without limitation, Paragraph 42
         of the Prime Lease) and any right to terminate the Prime Lease
         (including, without limitation, Paragraph 47 of the Prime Lease), any
         rights granted for the use of the roof of the Building (including,
         without limitation, Paragraph 48 of the Prime Lease), any right to
         install a generator (including, without limitation, Paragraph 49 of the
         Prime Lease) and any provisions of the Work Letter Agreement attached
         to the Prime Lease as Exhibit C thereto.

         (b)      Without limitation of the foregoing:

         (i)      Subtenant shall not make any changes, alterations or additions
         in or to the Premises except as otherwise expressly provided herein. In
         connection therewith, Sublandlord and Subtenant acknowledge and agree
         that Subtenant may desire to make certain alterations, additions and/or
         improvements to the Premises following its occupancy thereof. In
         connection with such work (hereinafter referred to as the "Subtenant
         Work"), such work shall be performed at the sole cost and expense of
         Subtenant and shall strictly conform to all the terms and provisions of
         the Prime Lease. In connection with Subtenant's Work, Sublandlord and
         Subtenant acknowledge and agree that attached hereto as Exhibit "C" is
         a floor plan layout of the Premises which depicts the work which
         Subtenant desires to perform in the Premises. Sublandlord hereby
         consents to such floor plan layout, provided, however (i) such consent
         shall not limit or restrict the obligation of Subtenant to obtain the
         consent of Landlord and Sublandlord to all other aspects of such work,
         including, without limitation, the plans and specifications therefor,
         the contractors performing same and any other item which is required to
         be approved by Landlord and/or Sublandlord pursuant to the terms and
         provisions of the Prime Lease and/or this Sublease (and Subtenant
         acknowledges and agrees that such work shall require such consent),
         (ii) Subtenant shall be required to perform all such work in strict
         compliance with the terms and provisions of the Prime Lease and this
         Sublease, (iii) all such work shall be done at Subtenant's sole cost
         and expense, and (iv) Subtenant hereby covenants and agrees that
         Subtenant shall be responsible, at Subtenant's sole cost and expense,
         to remove such items of Subtenant's Work as reasonably required by
         Landlord and/or Sublandlord (as to Sublandlord, Sublandlord hereby
         covenants and agrees that within a reasonable period of time following
         Sublandlord's review of the construction

                                        7



         plans and specifications for Subtenant's Work, Sublandlord shall notify
         Subtenant of those items of Subtenant's Work which shall be required to
         be removed at the end of the term of this Sublease) and Subtenant shall
         also be responsible to repair any damage to the Premises arising as a
         result of the removal of same. Subtenant shall obtain the written
         approval of both the Landlord and Sublandlord with respect to any and
         all aspects of the Subtenant Work prior to commencing same. Sublandlord
         hereby covenants and agrees that it shall not unreasonably withhold,
         condition or delay its consent to any such alterations, additions
         and/or improvements to the Premises desired to be made by Subtenant.
         Notwithstanding anything in this Sublease to the contrary, Subtenant
         hereby acknowledges and agrees that in no event shall it have the right
         to install any access way or doorway from the Storage Space to the
         lobby of the Building;

         (ii)     If Subtenant desires to take any other action and the Prime
         Lease would require that Sublandlord obtain the consent of Landlord
         before undertaking any action of the same kind, Subtenant shall not
         undertake the same without the prior written consent of Sublandlord.
         Sublandlord may condition its consent on the consent of Landlord being
         obtained and may require Subtenant to contact Landlord directly for
         such consent;

         (iii)    All rights given to Landlord and its agents and
         representatives by the Prime Lease to enter the Premises shall inure to
         the benefit of Sublandlord and their respective agents and
         representatives with respect to the Premises, and Subtenant shall also
         have all the rights, and all privileges, options, reservations and
         remedies, granted or allowed to, or held by, Sublandlord, as Tenant,
         under the Prime Lease, all of which rights, privileges, options,
         reservations and remedies in favor of Subtenant shall be limited as set
         forth in this Sublease;

         (iv)     Sublandlord shall also have all other rights, and all
         privileges, options, reservations and remedies, granted or allowed to,
         or held by, Landlord under the Prime Lease;

         (v)      Subtenant shall maintain insurance of the kinds and in the
         amounts required to be maintained by Sublandlord under the Prime Lease.
         All policies of liability insurance shall name as additional insureds
         the Landlord and Sublandlord and their respective officers, directors
         or partners, as the case may be, and the respective agents and
         employees of each of them; and

         (vi)     Subtenant shall not do anything or suffer or permit anything
         to be done which could result in a default under the Prime Lease or
         permit the Prime Lease to be canceled or terminated.

         (c)      Notwithstanding anything contained herein or in the Prime
Lease which may appear to be to the contrary, Sublandlord and Subtenant hereby
agree as follows:

         (i)      Subtenant shall not, without the prior written consent of
         Sublandlord, assign, mortgage, pledge, hypothecate or otherwise
         transfer or permit the transfer of this Sublease or any interest of
         Subtenant in this Sublease, by operation of law or otherwise, or permit
         the use of the Premises or any part thereof by any persons other than
         Subtenant and Subtenant's employees, or sublet the Premises or any part
         thereof. Sublandlord shall not unreasonably withhold, condition or
         delay its consent to any such transfer if (1) Subtenant is not then in
         default under any of the terms and conditions of this Sublease, (2) the
         proposed transferee is sufficiently creditworthy, in Sublandlord's sole
         determination, (3) the proposed transferee is not a competitor of
         Sublandlord

                                        8



         or is a governmental agency, and (4) the proposed transferee has
         experience and reputation which is satisfactory to Sublandlord (the
         foregoing reasons are not meant to be an exhaustive list of the bases
         upon which Sublandlord may withhold its consent to such a transfer).
         (B) Notwithstanding the foregoing, in no event shall Subtenant be
         obligated to obtain the consent of Sublandlord in connection with any
         sub-sublet of all or any portion of the Premises to any entity which is
         in control of, under common control, or controlled by, Subtenant (any
         such entity is referred to herein as an "Affiliate") or an assignment
         of Subtenant's interest hereunder to any Affiliate of Subtenant or in
         connection with the merger, consolidation or reorganization of
         Subtenant with any other entity or the sale of all or substantially all
         of Subtenant's stock or assets provided the following conditions are
         met: (1) to the extent that the Landlord's consent under the Prime
         Lease is required in connection with such a transfer, Subtenant obtains
         same at its sole cost and expense and provides evidence of same to
         Sublandlord, (2) Subtenant provides written notice to Sublandlord and
         Landlord not less than ten (10) business days prior to the
         effectiveness of such transfer, (3) in the case of a sub-sublet or
         actual assignment of this Sublease (as opposed to a transfer by
         operation of law, such as a merger), such sub-subtenant or assignee
         enters into an agreement in form and content reasonably satisfactory to
         Sublandlord assuming all of the obligations of the Subtenant hereunder,
         whether accruing prior to or after the effectiveness of the transfer,
         (4) there is no release of the Subtenant in connection with any such
         transfer, and (5) the net worth of the Subtenant entity which is liable
         for the terms and provisions of this Sublease immediately following
         such transfer is not less than the net worth of the Subtenant entity
         immediately prior to the transfer, and (6) no default has occurred
         under this Sublease beyond applicable notice and cure periods (the
         transfers noted in this clause (B) are referred to herein as "Permitted
         Transfers"). (C) Further, other than in connection with any Permitted
         Transfers, in the event of any assignment of this Sublease or
         sub-sublease of the Premises by Subtenant, Subtenant shall pay to
         Sublandlord fifty percent (50%) of any consideration received by
         Subtenant for such assignment or sub-sublease, as the case may be, in
         excess of the rent payable under this Sublease, such payment to be
         provided to Sublandlord no later than thirty (30) days after the
         determination thereof and the date such excess rent is received by
         Subtenant;

         (ii)     neither rental nor other payments hereunder shall abate by
         reason of any damage to or destruction of the Premises or the Building
         or any part thereof, unless, and then only to the extent that, rental
         and such other payments actually abate under the Prime Lease with
         respect to the Premises on account of such event;

         (iii)    Sublandlord and Subtenant acknowledge and agree that in the
         event the Prime Lease permits Sublandlord, as the tenant thereunder, to
         terminate the Prime Lease in the event of any casualty to the Premises,
         then in no event shall Subtenant have the right to exercise any such
         termination rights under this Sublease, except that in the event
         Sublandlord, as the tenant under the Prime Lease, elects to so exercise
         such termination rights, then this Sublease shall terminate at the same
         time and in the same manner as the Prime Lease;

         (iv)     Subtenant shall not have any right to any portion of the
         proceeds of any award for a condemnation or other taking, or a
         conveyance in lieu thereof, of all or any portion of the Building, the
         premises subject to the Prime Lease or the Premises;

                                        9



         (v)      Subtenant shall not have any right to exercise or have
         Sublandlord exercise any option under the Prime Lease, including,
         without limitation, any option to extend the term of the Prime Lease or
         lease additional space; and

         (vi)     In the event of any conflict between the terms, conditions and
         provisions of the Prime Lease and of this Sublease, the terms,
         conditions and provisions of this Sublease shall, in all instances,
         govern and control.

         (d)      It is expressly understood and agreed that Sublandlord does
not assume and shall not have any of the obligations or liabilities of Landlord
under the Prime Lease and that Sublandlord is not making the representations,
warranties or indemnifications, if any, made by Landlord in the Prime Lease.
With respect to work, services, repairs and restoration or the performance of
other obligations required of Landlord under the Prime Lease, Sublandlord's sole
obligation with respect thereto shall be to request the same, upon written
request from Subtenant, and to use reasonable efforts, at Subtenant's sole cost
and expense, to obtain the same from Landlord. Sublandlord shall not be liable
in damages, nor shall rent abate hereunder, for or on account of any failure by
Landlord to perform the obligations and duties imposed on it under the Prime
Lease. Sublandlord and Subtenant acknowledge and agree that any repair,
maintenance and/or replacement obligations with respect to the Premises which
are the responsibility of the Sublandlord, as tenant under the Prime Lease,
shall be performed by Subtenant at Subtenant's sole cost and expense. In the
event that a condition exists in the Premises that Landlord is obligated to
repair under the terms of the Prime Lease, Subtenant shall so advise
Sublandlord, and Sublandlord, in turn, shall promptly advise Landlord thereof.
At Subtenant's request, in the event that Landlord fails to fulfill any repair
or maintenance obligation under the terms of the Prime Lease with respect to the
Premises, Sublandlord shall use its reasonable efforts to have Landlord fulfill
such repair and maintenance obligations, all of which reasonable efforts shall
at be Subtenant's sole cost and expense. Further, in the event that Subtenant is
in occupancy of any portion of the Premises which is in a building with a
multi-tenant occupancy, in connection with any repairs and maintenance to the
Premises contained in such a multi-tenant building which are Sublandlord's
responsibility under the Prime Lease and do not relate solely to the Premises
(such as, by way of example and not of limitation, HVAC maintenance and repair,
elevator maintenance and repair, fire alarm monitoring, backflow testing, pest
exterminator, utilities, scavenger service, generator and UPS service, etc.),
then Sublandlord shall be responsible to perform same and the reasonable costs
so incurred by Sublandlord in connection therewith shall be reimbursed by
Subtenant to Sublandlord within ten (10) days following Sublandlord's written
invoice therefor. All such amounts which are payable by Subtenant hereunder
shall be deemed additional rent due under this Sublease.

         (e)      Nothing contained in this Sublease shall be construed to
create privity of estate or contract between Subtenant and Landlord, except the
agreements of Subtenant in Sections 10 and 11 hereof in favor of Landlord, and
then only to the extent of the same.

7.       DEFAULT BY SUBTENANT.

         (a)      Upon the happening of any of the following:

         (i)      Subtenant fails to pay any Base Rent within five (5) days
         after the date it is due;

                                       10



         (ii)     Subtenant fails to pay any other amount due from Subtenant
         hereunder and such failure continues for fifteen (15) days after notice
         thereof from Sublandlord to Subtenant;

         (iii)    Subtenant fails to perform or observe any other covenant or
         agreement set forth in this Sublease and such failure continues for
         thirty (30) days after notice thereof from Sublandlord to Subtenant; or

         (iv)     any other event occurs which involves Subtenant or the
         Premises and which would constitute a default under the Prime Lease if
         it involved Sublandlord or the Prime Lease Space and such default is
         not cured within the lesser of (a) thirty (30) days after notice
         thereof from Sublandlord to Subtenant, or (b) such period of time as
         permitted under the Prime Lease to cure such default.

         Subtenant shall be deemed to be in default hereunder, and Sublandlord
may exercise, without limitation of any other rights and remedies available to
it hereunder or at law or in equity, any and all rights and remedies of Landlord
set forth in the Prime Lease in the event of a default by Sublandlord
thereunder.

         (b)      In the event Subtenant fails or refuses to make any payment or
perform any covenant or agreement to be performed hereunder by Subtenant,
Sublandlord may make such payment or undertake to perform such covenant or
agreement (but shall not have any obligation to Subtenant to do so). In such
event, amounts so paid and amounts expended in undertaking such performance,
together with all costs, expenses and attorneys' fees incurred by Sublandlord in
connection therewith, shall be additional rent hereunder.

8.       NONWAIVER. Failure of Sublandlord to declare any default or delay in
taking any action in connection therewith shall not waive such default. No
receipt of moneys by Sublandlord from Subtenant after the termination in any way
of the term or of Subtenant's right of possession hereunder or after the giving
of any notice shall reinstate, continue or extend the term or affect any notice
given to Subtenant or any suit commenced or judgment entered prior to receipt of
such moneys.

9.       CUMULATIVE RIGHTS AND REMEDIES. All rights and remedies of Sublandlord
under this Sublease shall be cumulative and none shall exclude any other rights
or remedies allowed by law.

10.      WAIVER OF CLAIMS AND INDEMNITY.

         (a)      Subtenant hereby releases and waives any and all claims
against Landlord and Sublandlord and each of their respective officers,
directors, partners, agents and employees for injury or damage to person,
property or business sustained in or about the Building or the Premises by
Subtenant other than by reason of gross negligence or willful misconduct and
except in any case which would render this release and waiver void under law.

         (b)      Subtenant agrees to indemnify, defend and hold harmless
Landlord and its beneficiaries, Sublandlord and the managing agent of the
Building and each of their respective officers, directors, partners, agents and
employees, from and against any and all claims, demands, costs and expenses of
every kind and nature, including attorneys' fees and litigation expenses,
arising from Subtenant's

                                       11



occupancy of the Premises, Subtenant's construction of any leasehold
improvements in the Premises or from any breach or default on the part of
Subtenant in the performance of any agreement or covenant of Subtenant to be
performed or performed under this Sublease or pursuant to the terms of this
Sublease, or from any act or neglect of Subtenant or its agents, officers,
employees, guests, servants, invitees or customers in or about the Premises,
except to the extent the liability, costs, damages and/or expenses arise from
the intentional or grossly negligent acts of Sublandlord or its agents,
contractors or employees. In case any such proceeding is brought against any of
said indemnified parties, Subtenant covenants, if requested by Sublandlord, to
defend such proceeding at its sole cost and expense by legal counsel reasonably
satisfactory to Sublandlord.

11.      WAIVER OF SUBROGATION. Anything in this Sublease to the contrary
notwithstanding, Sublandlord and Subtenant each hereby waive any and all rights
of recovery, claims, actions or causes of action against the other and the
officers, directors, partners, agents and employees of each of them, and
Subtenant hereby waives any and all rights of recovery, claims, actions or
causes of action against Landlord and its agents and employees for any loss or
damage that may occur to the Premises, or any improvements thereto, or any
personal property of any person therein or in the Building, by reason of fire,
the elements or any other cause insured against under valid and collectible fire
and extended coverage insurance policies, regardless of cause or origin,
including negligence, except in any case which would render this waiver void
under law, to the extent that such loss or damage is actually recovered under
said insurance policies.

12.      BROKERAGE COMMISSIONS. Each party hereby represents and warrants to the
other that other than Julien J. Studley, Inc., whose commission shall be payable
by Sublandlord) it has had no dealings with any real estate broker or agent in
connection with this Sublease, and that it knows of no real estate broker or
agent who is or might be entitled to a commission in connection with this
Sublease. Each party agrees to protect, defend, indemnify and hold the other
harmless from and against any and all claims inconsistent with the foregoing
representations and warranties for any brokerage, finder's or similar fee or
commission in connection with this Sublease, if such claims are based on or
relate to any act of the indemnifying party which is contrary to the foregoing
representations and warranties.

13.      SUCCESSORS AND ASSIGNS. This Sublease shall be binding upon and inure
to the benefit of the successors and assigns of Sublandlord and shall be binding
upon and inure to the benefit of the successors of Subtenant and, to the extent
any such assignment may be approved, Subtenant's assigns. The provisions of
Subsection 6(e) and Sections 10 and 11 hereof shall inure to the benefit of the
successors and assigns of Landlord.

14.      ENTIRE AGREEMENT. This Sublease contains all the terms, covenants,
conditions and agreements between Sublandlord and Subtenant relating in any
manner to the rental, use and occupancy of the Premises. No prior agreement or
understanding pertaining to the same shall be valid or of any force or effect.
The terms, covenants and conditions of this Sublease cannot be altered, changed,
modified or added to except by a written instrument signed by Sublandlord and
Subtenant.

15.      NOTICES.

         (a)      In the event any notice from the Landlord or otherwise
relating to the Prime Lease is delivered to the Premises or is otherwise
received by Subtenant, Subtenant shall, as soon thereafter as

                                       12



possible, but in any event within twenty-four (24) hours, deliver such notice to
Sublandlord if such notice is written or advise Sublandlord thereof by telephone
if such notice is oral.

         (b)      Notices and demands required or permitted to be given by
either party to the other with respect hereto or to the Premises shall be in
writing and shall not be effective for any purpose unless the same shall be
served either by personal delivery with a receipt requested, by overnight air
courier service or by United States certified or registered mail, return receipt
requested, postage prepaid; provided, however, that all notices of default shall
be served either by personal delivery with a receipt requested or by overnight
air courier service, addressed as follows:

                  if to Sublandlord:        GATEWAY, INC.
                                            Real Estate Administration
                                            610 Gateway Drive Y91
                                            North Sioux City, South Dakota 97049

                                            and

                                            GATEWAY, INC.
                                            14303 Gateway Place
                                            Poway, California 92064
                                            Attn: General Counsel

                  if to Subtenant:          MAI SYSTEMS CORPORATION
                                            26110 Enterprise Way
                                            Lake Forest, CA
                                            Attn:  Chief Financial Officer

                                            and

                                            MAI SYSTEMS CORPORATION
                                            26110 Enterprise Way
                                            Lake Forest, CA
                                            Attn:  General Counsel

Notices and demands shall be deemed to have been given two (2) days after
mailing, if mailed, or, if made by personal delivery or by overnight air courier
service, then upon such delivery. Either party may change its address for
receipt of notices by giving notice to the other party.

16.      AUTHORITY OF SUBTENANT, ETC. Subtenant represents and warrants to
Sublandlord that this Sublease has been duly authorized, executed and delivered
by and on behalf of Subtenant and constitutes the valid, enforceable and binding
agreement of Subtenant and of each party constituting Subtenant, each of whom
shall be jointly and severally liable hereunder in accordance with the terms
hereof.

17.      LIMITATION ON LIABILITY. Sublandlord shall not be liable for personal
injury or property damage to Subtenant, its officers, agents, employees,
invitees, guests, licensees or any other person in the Premises, regardless of
how such injury or damage may be caused; provided, however, as to any claims

                                       13



for personal injury, the foregoing shall not limit the liability of Sublandlord
with respect to any personal injury caused by the intentional or grossly
negligent acts of Sublandlord or its agents, contractors or employees. Any
property of Subtenant kept or stored in the Premises shall be kept or stored at
the sole risk of Subtenant. Subtenant shall hold Sublandlord harmless from any
claims arising out of any personal injury or property damage occurring in the
Premises, including subrogation claims by Subtenant's insurance carrier(s).

18.      CONSENTS AND APPROVALS. In any instance when Sublandlord's consent or
approval is required under this Sublease, Sublandlord's refusal to consent to or
approve any matter or thing shall be deemed reasonable if, among other matters,
such consent or approval is required under the provisions of the Prime Lease
incorporated herein by reference but has not been obtained from Landlord. Except
as otherwise provided herein, Sublandlord shall not unreasonably withhold or
delay its consent to or approval of a matter if such consent or approval is
required under the provisions of the Prime Lease and Landlord has consented to
or approved of such matter. If Subtenant shall seek the approval by or consent
of Sublandlord and Sublandlord shall fail or refuse to give such consent or
approval, Subtenant shall not be entitled to any damages for any withholding or
delay of such approval or consent by Sublandlord, it being agreed that
Subtenant's sole remedy in connection with an alleged wrongful refusal or
failure to approve or consent shall be an action for injunction or specific
performance shall be available only in those cases where Sublandlord shall have
expressly agreed in this Sublease not to unreasonably withhold or delay its
consent.

19.      CONSENT OF LANDLORD. The obligations of Sublandlord and Subtenant under
this Sublease are conditioned and contingent upon the Landlord consenting
hereto. In the event Landlord's consent is not obtained within thirty (30) days
after the date hereof, this Sublease shall automatically terminate and become
null and void, Sublandlord shall return any security deposit and/or any other
rent or other consideration paid by Subtenant which has not otherwise been
appropriately applied to the payment of Base Rent or other amounts due
hereunder, and neither Sublandlord nor Subtenant shall have any further
obligations or liability hereunder or to each other with respect to the
Premises. Following the full execution and delivery of this Sublease,
Sublandlord shall submit this Sublease to Landlord for its consent hereto and
Sublandlord shall use its commercially reasonable efforts to obtain such consent
from the Landlord to this Sublease thereafter.

20.      EXAMINATION. Submission of this instrument for examination or signature
by Subtenant does not constitute a reservation of or option for the Premises or
in any manner bind Sublandlord, and no lease, sublease or obligation on
Sublandlord shall arise until this instrument is signed and delivered by
Sublandlord and Subtenant and the consent of Landlord is obtained as described
in Section 19 above.

21.      SECURITY DEPOSIT. Subtenant concurrently with the execution of this
Sublease, shall deposit with Sublandlord the sum of $103,800.00 (which
Sublandlord and Subtenant acknowledge and agree is equal to three (3) months'
gross rent due under this Sublease) as security for the faithful performance by
Subtenant of all terms, covenants and conditions of this Sublease. Upon the
first anniversary of the Rent Commencement Date, so long as Subtenant has not
been in default under this Sublease at any time during the term of this Sublease
and so long as Subtenant has paid the rent due hereunder on a timely basis
during the entire term of this Sublease prior to such date, then Subtenant shall
be entitled to a reduction in the security deposit so that Sublandlord is
holding a security deposit equal to $69,200.00 (which is equal to two (2)
months' gross rent). Upon Sublandlord's receipt of Subtenant's written request
therefore

                                       14



following the first anniversary of the Rent Commencement Date, so long as
Subtenant is then entitled to such a reduction in the security deposit,
Sublandlord shall return such amount of the security deposit then held by
Sublandlord so as to cause Sublandlord to hold a security deposit equal to
$69,200.00. Such security deposit shall be held by Sublandlord as security for
the faithful performance by Subtenant of all terms, covenants and conditions of
this Sublease. Subtenant agrees that Sublandlord may apply the security deposit
to remedy any failure by Subtenant to repair or maintain the Premises or to
perform any other terms, covenants and conditions contained herein or make any
payment owing hereunder, all following the expiration of applicable notice and
cure periods. If Subtenant has kept and performed all terms, covenants and
conditions of this Sublease during the term, Sublandlord will, within thirty
(30) days after the expiration hereof, promptly return the security deposit to
Subtenant or the last permitted assignee of Subtenant's interest hereunder.
Should Sublandlord use any portion of the security deposit to cure any default
by Subtenant hereunder, Subtenant shall forthwith replenish the security deposit
to the original amount. Sublandlord shall not be required to keep the security
deposit separate from its general funds, and Subtenant shall not be entitled to
interest on any such deposit.

22.      FURNITURE. So long as Subtenant is not in default under this Sublease
beyond applicable notice and cure periods, Subtenant shall use the furniture,
fixtures and equipment located within the Premises and scheduled on the schedule
attached to this Sublease as Exhibit "D" (the "FFE") at no cost during the term
of this Sublease including any extensions or renewals thereof. Immediately prior
to the expiration of the initial term of this Sublease (i.e., January 31, 2007),
so long as Subtenant is not in default under this Sublease, Sublandlord shall
convey all of its right, title and interest in and to the FFE to Subtenant by
virtue of a bill of sale in the form attached to this Sublease as Exhibit "E" to
convey all of Sublandlord's interest in and to such FFE to Subtenant.
Sublandlord and Subtenant acknowledge and agree that such conveyance by
Sublandlord shall be without representation or warranty of any kind to
Subtenant, including, without limitation, any warranties of merchantability,
fitness for a particular purpose or any other thing or nature whatsoever. During
the term of this Sublease, including any extensions or renewals thereof.
Subtenant shall be responsible to maintain such FFE in good condition and
repair, reasonable wear and tear excepted, at Subtenant's sole cost and expense.
Subtenant further acknowledges and agrees that Sublandlord is providing such FFE
to Subtenant in its "as-is" condition and is not making any representation or
warranty with respect to its condition to Subtenant hereunder. Following the
expiration of the term of this Sublease, or the earlier termination of this
Sublease during the Extension Term (as hereinafter defined), Subtenant shall be
responsible to remove all of such FFE from the Premises and repair any damage to
the Premises or the Building resulting therefrom.

23.      PARKING. During the term of this Sublease, so long as Subtenant is not
in default under this Sublease, Subtenant and its employees shall be entitled to
use Subtenant's Percentage Share (for the Common Area Percentage) of the parking
rights granted to Sublandlord as tenant, under the Prime Lease. Subtenant
acknowledges and agrees that its right to use such parking area shall be upon
the terms and conditions set forth in the Prime Lease, including, without
limitation, any and all rules and regulations promulgated by Landlord with
respect thereto.

24.      OPTION TO EXTEND. Sublandlord and Subtenant acknowledge and agree that
Subtenant shall have the right to extend the term (the "Extension Term") of this
Sublease through January 31, 2012 (which is the expiration of the term of the
Prime Lease) upon the following terms and conditions: (i) Subtenant shall
provide Sublandlord with prior written notice of Subtenant's election to so
extend the term of this

                                       15



Sublease no later than April 30, 2006, time being of the essence; (ii) all of
the terms and conditions of such Extension Term shall be the same as during the
initial term of this Sublease except that the Base Rent shall be equal to either
(a) if Subtenant provides written notice to Sublandlord of its election to so
extend the term of the Sublease prior to April 1, 2004, then the Base Rent for
the first year of the extension term shall be equal to $13.50 per square feet
and shall increase by three percent (3%) each year thereafter, or (b) if
Subtenant fails to provide its notice to so extend the term of this Sublease
prior to April 1, 2004 then the Base Rent during the extension term shall be
equal to the greater of (x) the Base Rent structure as noted in clause (a)
above, or (y) the then current fair market rental rate for the Premises as
agreed to between Sublandlord and Subtenant in their reasonable and good faith
determination (if Sublandlord and Subtenant are unable to agree upon the then
current fair market rental rate for the Premises within thirty (30) days
following Sublandlord's receipt of Subtenant's receipt of Subtenant's exercise
of its option to extend the Sublease term as set forth herein, then the parties
shall submit such dispute to arbitration in accordance with the then current
rules of the American Arbitration Association in order to resolve such dispute,
with each party bearing one-half (1/2) of the cost of such arbitration); (iii)
Subtenant shall have no right to extend the term of this Sublease (a) if upon
the exercise thereof by Subtenant and/or on the date upon which such Extension
Term is to begin Subtenant is in default under this Sublease and/or (b) if
Subtenant has assigned this Sublease or sublet all or any portion of the
Premises to any party.

25.      QUIET ENJOYMENT. So long as Subtenant shall observe and perform all the
covenants and agreements of Subtenant set forth in this Sublease, subject to the
terms and conditions of this Sublease, Sublandlord or any other party claiming
by, through or under Sublandlord shall do any act or perform any thing which
would materially adversely affect Subtenant's peaceful and quiet enjoyment and
possession of the Premises.

26.      SIGNAGE. Subject to all the terms and conditions of this Sublease and
the Prime Lease, Subtenant shall have the right to install interior signage
within the Premises as permitted Sublandlord, as tenant, under the Prime Lease,
and Subtenant shall further be permitted to utilize fifty percent (50%) of the
exterior building signage permitted Sublandlord, as tenant under the Prime Lease
subject to obtaining any and all governmental and other approvals and obtaining
Landlord's and Sublandlord's consent thereto. Subtenant's right to so install
such signage shall be at Subtenant's sole cost and expense and shall require the
prior written consent of Sublandlord and Landlord as to the design, size,
location and manner of installation of same, and Sublandlord hereby covenants
and agrees that it shall not unreasonably withhold, condition or delay such
consent. Upon the expiration of the term of this Sublease or the earlier
termination hereof, Subtenant shall be responsible to remove any such signage
and repair any damage caused by same. Such agreement by Subtenant shall survive
the expiration of the term of this Sublease or the earlier expiration hereof.

27.      FUTURETRADE CONTINGENCY. Sublandlord and Subtenant acknowledge and
agree that in order for Subtenant to obtain possession of the Storage Space,
Sublandlord must obtain an amendment to the sublease for Futuretrade, another
occupant of the Prime Lease Space. This Sublease is contingent upon the full
execution and delivery of such an amendment to the Futuretrade sublease
providing for the surrender by Futuretrade of the Storage Space on terms and
conditions satisfactory to Sublandlord, in its sole and absolute discretion.

                                       16



         IN WITNESS WHEREOF, Sublandlord and Subtenant have executed this
Sublease as of the date aforesaid.

                                           SUBLANDLORD:

                                           ADVANCED LOGIC RESEARCH, INC., a
                                           Delaware corporation

ATTEST:

                                             By:________________________________
                                            Its:________________________________

STATE OF                      )
                              )  SS:
COUNTY OF                     )

         On this ____ day of _________________, 20__, before me, the undersigned
Notary Public in and for said County and State, personally appeared
____________________, _______________________ of __________________________, a
___________________ who executed the foregoing instrument on behalf of said
corporation for the purposes therein expressed. He is personally known to me and
did not take an oath. In witness whereof, I have hereunto set my hand and
official seal the day and year last above written.

Notary Public
Printed/Typed Name:_____________________
Commission No.:________________________
My commission expires:__________________

                                       17



                                           SUBTENANT:

                                           MAI SYSTEMS CORPORATION, a
                                           Delaware corporation

ATTEST:

                                             By:________________________________
                                            Its:________________________________

STATE OF______________________)
                              )  SS:
COUNTY OF_________________)

         On this ____ day of _________________, 20__, before me, the undersigned
Notary Public in and for said County and State, personally appeared James W.
Dolan as Chief Financial and Operating Officer of MAI Systems Corporation, a
Delaware corporation, who executed the foregoing instrument on behalf of said
corporation for the purposes therein expressed. He is personally known to me and
did not take an oath. In witness whereof, I have hereunto set my hand and
official seal the day and year last above written.

Notary Public
Printed/Typed Name:_______________________
Commission No.:__________________________
My commission expires:____________________

                                       18



                                    EXHIBIT A

                                   PRIME LEASE

                                       19



                                    EXHIBIT B

                                   FLOOR PLANS

                                       20



                                   EXHIBIT "C"
                                FLOOR PLAN LAYOUT

                                       21



                                   EXHIBIT "D"
                              SCHEDULE OF FURNITURE

                                       22



                                   EXHIBIT "E"
                              FORM OF BILL OF SALE

         This Bill of Sale is made and entered into this _______________ day of
_________, 20__ by and between ADVANCED LOGIC RESEARCH, INC. ("Seller") and MAI
SYSTEMS CORPORATION ("Buyer"), in connection with that certain Sublease dated
January __, 2003 by and between the Seller and the Buyer (the "Sublease").

For the consideration of Ten Dollars ($10.00) paid and in hand, and for other
good and valuable consideration, receipt and sufficiency of which are
acknowledged, Seller does hereby sell, assign, transfer and deliver to Buyer,
here present and accepting, the tangible personal property set forth in Exhibit
A attached hereto and made a part hereof (the "Assets") to have and to hold unto
Buyer, its successors and assigns, forever.

PURSUANT TO THE SUBLEASE, THE ASSETS ARE SOLD AND DELIVERED, AND BUYER
ACKNOWLEDGES ACCEPTANCE OF THE ASSETS, IN THEIR CURRENTLY EXISTING "AS IS"
CONDITION. ANY AND ALL WARRANTIES, WHETHER EXPRESS OR IMPLIED, INCLUDING BUT NOT
LIMITED TO WARRANTIES OF QUALITY, MERCHANTABILITY AND FITNESS FOR ANY PARTICULAR
PURPOSE ARE HEREBY SPECIFICALLY DISCLAIMED AND EXCLUDED, AND BUYER EXPRESSLY
RELEASES AND RELIEVES SELLER, ITS EMPLOYEES AND AGENTS FROM ANY AND ALL
LIABILITY WITH RESPECT THERETO.

The parties have executed this Bill of Sale as of the date shown above.

SELLER:                                ADVANCED LOGIC RESEARCH, INC.

                                       By:      _______________________________
                                       Its:     _______________________________

BUYER:                                 MAI SYSTEMS CORPORATION

                                       By:      _______________________________
                                       Its:     _______________________________

                                       23

EX-21.1

EXHIBIT 21.1

                     SUBSIDIARIES OF MAI SYSTEMS CORPORATION

                                   (12/31/02)

The following is a list showing MAI Systems Corporation and each of its
subsidiaries, as of December 31, 2002, indicating each jurisdiction under the
laws of which it was organized:



                                                                JURISDICTION OF
         NAME:                                                   INCORPORATION
         -----                                                   -------------
                                                             
MAI SYSTEMS CORPORATION                                         Delaware

Hotel Information Systems, Inc.                                 Delaware

CLS Software International, Inc.                                California

CLS de Mexico, S.A. de C.V.                                     Mexico

Hotel Information Systems Ltd.                                  Hong Kong

Hotel Information Systems, Pte. Limited                         Singapore

MAI Information Solutions Limited                               United Kingdom

Boss Solutions Limited                                          Hong Kong

MAI del Caribe, Inc.                                            Delaware

Hospitality Services and Solutions                              Malaysia

EX-23.1

Exhibit 23.1

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


Board of Directors
MAI Systems Corporation
Lake Forest, California

The audit referred to in our report dated April 14, 2003 relating to the
consolidated financial statements of MAI Systems Corporation, as of and for the
year ended December 31, 2002, which is incorporated in Item 15 of the Form 10-K
by reference to the annual report to stockholders for the year ended December
31, 2002 included the audit of the financial statement schedule listed as
Exhibit 23.4. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on this 2002
financial statement schedule based upon our audit.

In our opinion such financial statement schedule presents fairly, in all
material respects, the information set forth therein.

                           /s/ BDO Seidman, LLP



Costa Mesa, California
April 14, 2003

                                       66

EX-23.2

EXHIBIT 23.2

                          INDEPENDENT AUDITORS' CONSENT


MAI Systems Corporation
Lake Forest, California


We hereby consent to incorporation by reference in the Registration Statements
on Form S-8 (Nos. 33-92194, 333-72412, 333-72414 and 333-72418) and Form S-3
(No. 333-57454) of MAI Systems Corporation (the "Company") of our report dated
April 14, 2003, relating to the consolidated financial statements which appears
in the Annual Report to Stockholders, which is incorporated in this Annual
Report on Form 10-K. We also consent to the incorporation by reference of our
report dated April 14, 2003 relating to the financial statement schedule, which
appears in this Form 10-K.


                              /s/ BDO Seidman LLP


Costa Mesa, California
April 23, 2003

EX-23.3

EXHIBIT 23.3

              INDEPENDENT AUDITORS' REPORT ON SCHEDULE AND CONSENT

The Board of Directors
MAI Systems Corporation:

The audits referred to in our report dated March 31, 2002, included the related
financial statement schedule as of December 31, 2001, and for each of the years
in the two-year period ended December 31, 2001, included in the December 31,
2002, annual report on Form 10-K of MAI Systems Corporation. The financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statement schedule
based on our audits. In our opinion, such financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.

We consent to the incorporation by reference in the registration statements on
Forms S-3 and S-8 (Nos. 33-92194, 333-57454, 333-72412, 333-72414 and 333-72418)
of MAI Systems Corporation of our reports dated March 31, 2002, relating to the
consolidated balance sheet of MAI Systems Corporation and subsidiaries as of
December 31, 2001, and the related consolidated statements of operations,
stockholders' deficiency, and cash flows for each of the years in the two-year
period ended December 31, 2001, and the related financial statement schedule,
which reports appear in the December 31, 2002, annual report on Form 10-K of MAI
Systems Corporation.

/s/ KPMG LLP

Costa Mesa, California
April 23, 2003