SecProbe.io

CORRESP
1
filename1.htm

January 28, 2005

United States Securities and
Exchange Commission

Division of Corporation Finance

Attn: Ms. Celeste M. Murphy

Office of Mergers and
Acquisitions

450 Fifth Street, NW. – Mail Stop
4-6

Washington, DC. 20549-0406

Re: MAI Systems Corporation –Schedule 13E-3
File No. 5-38111, filed December 16, 2004; Schedule 14C - File No. 1-09158,
filed December 16, 2004; Form 10-Q for the Quarter Ended September 30, 2004 -
File No. 1-09158

Dear
Ms. Murphy:

Pursuant to your letter of January 19, 2005,
we are responding on behalf of MAI Systems Corporation (“MAI” or the “Company”)
to your specific comments and questions. Our responses follow in the order they
were raised in your letter. We have also enclosed various exhibits to this
letter which provide the supporting details as requested.

General

1.                                             Rule 13e-3 requires that each
issuer and affiliate engaged in a going private transaction file a Schedule
13E-3 and furnish the required disclosures. Mr. Richard S. Ressler, Orchard
Capital Corporation, James W. Dolan, W. Brian Kretzmer, and HIS Holding, LLC
approved this reverse stock split by written consent and are affiliates of the
company. Therefore, we believe they must be included as filing persons on the
Schedule 13-E. Please see Section III of Release No. 34-17719 and Section
II.D.3 of our Current Issues and Rulemaking Projects Outline dated November 14,
2000 for additional guidance.

Company Response to Staff Comment No. 1.
 We
have amended the Schedule 13E-3 to treat the persons or entities listed above
as ‘filing persons’ and to make the appropriate disclosures.

[Reference: the responsive text is found in
Amendment No. 1 to Schedule 13E-3].

2.                                             Canyon Capital Advisors, LLC
approved the transaction, and will remain as one of the stockholders after the
reverse stock split. Therefore, we believe that Canyon Capital Advisors, LLC
may also be engaged in this going private transaction. Please add this company
as a filer on the Schedule 13E-3 or supplementally explain why it should not be
so included.

Company Response to Staff Comment No. 2.  We have amended the Schedule 13E-3 to treat Canyon Capital Advisors, LLC as
a ‘filing person’ and to make the required disclosures.

[Reference: the responsive text is found in
Amendment No. 1 to Schedule 13E-3].

3.                                             Please note that each new filing
person must individually comply with the filing, dissemination and disclosure
requirements of Schedule 13E-3. A joint Schedule 13E-3 may be used by all
required filers, however. Revise the information to include all of the
information required by Schedule 13E-3 and its instructions for each additional
filing person. For example, each filing person must include a statement as to
whether such person believes the Rule 13E-3 transaction to be fair to
unaffiliated security holders and an analysis of the material factors upon
which each relied in reaching such a conclusion. Please see Item 1014 with
respect to Item 8 of Schedule 13E-3. Please also note in particular Instruction
C of Schedule 13E-3 and the disclosure requirements of Items 1002(e) and (f)
with respect to Item 2 of Schedule 13E.

Company Response to Staff Comment No. 3.  As stated in our Responses to Comment
Nos. 1 and 2, we have amended our initial Schedule 13E-3 to create a joint
Schedule 13E-3 for all filing persons.  Each filing person has now included a statement
that such person believes the Rule 13E-3 transaction to be fair to unaffiliated
security holders based upon their ratification of the analysis and conclusions
of the Special Committee and Board. The information furnished complies with the
requirements of Item 1014, subparts (a) through (f) with respect to Item 8 of
Schedule 13E-3, Instruction C of Schedule 13E-3 and the disclosure requirements
of Items 1002(e) and (f) with respect to Item 2 of Schedule 13E.  Concerning the latter requirement, there have
been no prior public offerings within the past three (3) years, but there have
been prior stock purchases by the required filers.

[Reference: the responsive text is found in
Amendment No. 1 to Schedule 13E-3].

4.                                       Please provide us with your
analysis for why the investor group’s other purchases of shares during the past
year did not constitute the first steps in the going private transaction. Refer
to Rule 13e-3(a)(3) and Question and Answer No. 4 of
Exchange Act Release No. 34-17719 (April 13, 1981).

Company
Response to Staff Comment No. 4.
Under the standards set forth in
Rule 13e-3(a)(3) and Question and Answer No. 4 of Release No. 34-17719, the
Company believes that at the time the investor group’s other purchases of
shares were agreed to, there did not exist “… a reasonable likelihood or a
purpose of producing, either directly or indirectly, any of the effects
described in paragraph (a)(3)(ii) of this section…,” which effects include
either (A) causing the Company’s common stock to be held of record by fewer
than 300 shareholders, or (B) causing the Company’s common stock to cease being
quoted on the OTC Bulletin Board. Reference is made to the Company’s Definitive
Proxy Statement, Commission File No. 001-09158, filed August 25, 2004.  Under Proposal 2 entitled “To Approve the
Management Equity/Conversion Transaction – Rationale for Management
Equity/Conversion Transaction,” the Company sets forth its reasons for
undertaking the series of transactions which allowed a reduction of
approximately $3.3 million in the Company’s long term debt and provided for a
much needed equity infusion of $1,000,000 into the Company in 2004.  The

Company was in default of its senior secured debt held by CSA Private
Limited (a division of NYSE-listed Computer Sciences Corporation) and needed to
take immediate action to retire or substantially reduce this obligation.  At the same time, the Company needed to
secure an equity infusion to cover other operating expenses that were due.  The transactions were undertaken for the
purpose of allowing the Company to cure an existing debt default and improve
its working capital position in exchange for the investor group
obtaining voting control of the Company,
and not with a purpose of achieving either of the objectives set forth in Rule
12e-3(a)(3)(ii).  The transactions did
not have a purpose or reasonable likelihood of causing the Company’s common
stock to be held of record by fewer than 300 shareholders because the
transactions were not intended to and did not result in a net loss of
shareholders.  Further, the transactions
did not have a purpose or reasonable likelihood of causing the Company’s common
stock to cease being quoted on the OTC Bulletin Board. The principal
requirement for quotation on the OTC Bulletin Board is that the Company remain current in filing its periodic reports with the
Commission. The Company has continued filing its periodic reports subsequent to
the consummation of each of the transactions. Therefore, the Company’s common
stock remains quoted on the OTC Bulletin Board and was
not intended to and did not become subject to removal from quotation as a
result of the transactions.

[Reference: not applicable].

Schedule 13E-3

Item 6. Purpose of the Transaction and
Plans or Proposals.

5.                                       Please provide the disclosure
required under Item 1006(c) of Regulation M-A. Please see the Instruction to
Item 6 of Schedule 13E-3 for additional guidance.

Company Response to Staff Comment No. 5.  The
Schedule 13E-3 now states that any of the securities acquired in the Reverse Stock
Split transaction will be retired.  The
Schedule 13E-3 now states that the Reverse Stock Split transaction provides for
the achievement of the steps listed in Item 1006(c)(6),(7), and (8), e.g. the
delisting of the Company’s common stock from the OTC Bulletin Board, the
eligibility of the Company’s common stock for termination of registration under
Section 12(g)(4) of the 1934 Act, and the suspension of the Company’s
obligation to file reports under Section 15(d) of the 1934 Act.

[Reference: the responsive text is found in Item 6, Amendment
No. 1 to Schedule 13E-3].

Item 7. Purposes, Alternatives.
Reasons and Effects.

6.                                       Please incorporate the section
titled ‘Substantive Factors Disfavoring the Reverse Stock Split” into Item 7(d)
of your Schedule 13E-3.

Company Response to Staff Comment No. 6.  As requested by the Staff, the Company
has now incorporated the section titled ‘Substantive Factors Disfavoring the
Reverse Stock Split’ is now incorporated into Item 7(d) of Schedule 13E-3.

[Reference: the responsive text is found in Item 7(d), Amendment
No. 1 to Schedule 13E-3].

Item 8. Fairness of the Transaction.

7.                                       With respect to Item 8(f) of
your Schedule 13E-3, please state whether any offer of the type described in
paragraph (viii) of Instruction 2 to Item 1014 of Regulation M-A has been
received.

Company Response to Staff Comment No. 7.  Item
8(f) of the Schedule 13E-3 now states that none of the filing persons are aware
of an offer of the type described in paragraph (viii) of Instruction 2 to Item
1014 of Regulation M-A.

[Reference: the responsive text is found in Item 8(f), Amendment
No. 1 to Schedule 13E-3].

Item 9. Reports.  Opinions.  Appraisals and Negotiations.

8.                                       Your incorporation by reference
of the section titled “Special Committee of the Board of Directors” does not
appear to address the requirements of Item 1015(a) of Regulation M­-A. We note
your disclosure on page 15, however. Please incorporate the section entitled “Procedural
Factors Disfavoring the Reverse Stock Split; Interests of Our Chairman and
Executive Officers in the Reverse Stock Split” or add the required disclosure
to the section you have currently incorporated by reference.

Company Response to Staff Comment No. 8.
 The
section entitled “Procedural Factors Disfavoring the Reverse Stock Split;
Interests of Our Chairman and Executive Officers in the Reverse Stock Split” is
now incorporated from our Preliminary Information Statement into Item 9 of
Schedule 13E-3.

[Reference: the responsive text is found in Item 9, Amendment
No. 1 to Schedule 13E-3].

Schedule 14C

9.                                       We note your use of such
defined terms “Effective Time,” “Cashed-Out Stockholders,” “Common Stock” and “Registration
and Periodic Reporting Obligations.” Please refrain from using so many defined
terms in your disclosure as it inhibits the readability of the document.
Over-reliance on defined terms forces readers to learn a new vocabulary in
order to understand the disclosure. Please revise your disclosure so that the
definitions of your terms are clear from their context.

Company Response to Staff Comment No. 9.  The
Company has now reviewed those sections of the Preliminary Information
Statement where it has employed defined terms and made appropriate revisions to
reduce its reliance on defined terms.

[Reference: the responsive text has been ‘marked
to show changes’ throughout our Preliminary Information Statement].

10.                                                                                 The individual members of the “Investors
Group” should be identified where that term is first used.

Company Response to Staff Comment No. 10.  The
individual members of the “Investors Group,” Mr. Richard S. Ressler, Orchard Capital
Corporation, Mr. James W. Dolan, Mr. W. Brian Kretzmer, HIS Holding, LLC and
Canyon Capital Advisors, LLC are identified where we first use the term, “Investor
Group.”

[Reference: the responsive text is set forth
on the cover page of the Preliminary Information Statement].

Summary Term Sheet, pp.
4-6

11.                                 Please revise your summary term sheet to include a discussion
of the additional filing persons referred to above and their relationships to
you. Please also briefly discuss their recent transactions with you. The
expanded disclosure should include a section discussing their interests in this
transaction that are different from and potentially in conflict with those of
unaffiliated shareholders generally.

Company Response to Staff Comment No. 11.  Additional ‘bullet points’ addressing (i)
the additional filing persons and their relationship to the Company, (ii) their
recent transactions with the Company, and (iii) how their interests may
potentially conflict with the interests of unaffiliated shareholders have been
added.

[Reference:
the responsive text is found in the Preliminary Information Statement under the
section entitled “Summary of the Proposed Reverse Stock Split,” page 4].

12.                                 The summary term sheet should
discuss only the most material features of this transaction. In this regard,
consider deleting or relocating extraneous information that detracts from the
presentation of the most material aspects of the reverse stock split. For
example, consider whether the information presented under “Effects if Reverse
Stock Split is not Consummated” is critical, given the consents you have
received. In addition, is the disclosure under “Regulatory Filings and
Approvals” necessary to a shareholder’s understanding of the most materials
terms of the reverse stock split? Please make these and any other necessary
changes in order to enhance the readability of this section.

Company Response to Staff Comment No. 12.  We
have deleted from the Summary Term Sheet the sections entitled “Effects if Reverse Stock Split is not
Consummated” and “Regulatory Filings and Approvals” and made other changes to
improve the readability of this section.

[Reference:
the responsive text is “marked to show changes” in the Preliminary Information
Statement under the section entitled “Summary of the Proposed Reverse Stock
Split, page 4”.

13.                                 Please confirm that there were
no negotiations with the investor group prior to November 15, 2004. If there
were any such negotiations, please amend your disclosure here, in your summary
term sheet, and in your Special Factors section to describe the entirety of the
company’s dealings with the investor group, including, but not limited to, the
identity of the members of the investor group, the date and circumstances of
the initial suggestion that the investor group would become involved in the
company’s going-private transaction, members’ relationship to the company, if
any, and the dates and topics of discussion of all meetings and

all persons in attendance. In this
respect, we note that in view of the possible conflicts of interest involved in
the reverse stock split, your board of directors unanimously decided on
November 15, 2004, that it would be advisable to form the special committee of
independent members of your board of directors consisting of Messrs. Mayer and
Ross, with Mr. Ross as the chairman of the special committee, to evaluate the reverse
stock split proposal and assess whether the proposal is in the best interests
of stockholders.

Company Response to Staff Comment No. 13.  The
Company confirms that there were no negotiations with the Investor Group
concerning the Reverse Stock Split, prior to November 15, 2004 and the
formation of the Special Committee.
Therfore, no supplemental disclosure is required.

[Reference:
not applicable].

14.                                 Please revise your disclosure
to clearly state the record date for the reverse stock split. Please reconcile
your current disclosure that the record date is to be the “Effective Date” with
your disclosure on the first page which defines ‘Record Date” as December 30,
2004.

Company
Response to Staff Comment No. 14.  Please
note that the record date for receiving the Information Statement is different
from the e