-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MELjkEKvjQeu3c/uqvIwE6SLgxjAk03meM3gsFvzP06omfXJzzrvnn5XdhkbrJBP jihtIOVzn3gx4S5Zo5LdEQ== 0000950144-98-006786.txt : 19980522 0000950144-98-006786.hdr.sgml : 19980522 ACCESSION NUMBER: 0000950144-98-006786 CONFORMED SUBMISSION TYPE: 10-K405/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980521 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTELLIGENT SYSTEMS CORP CENTRAL INDEX KEY: 0000320340 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HOSPITALS [8060] IRS NUMBER: 581964787 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405/A SEC ACT: SEC FILE NUMBER: 001-09330 FILM NUMBER: 98629927 BUSINESS ADDRESS: STREET 1: 4355 SHACKLEFORD RD CITY: NORCROSS STATE: GA ZIP: 30093 BUSINESS PHONE: 4043812900 MAIL ADDRESS: STREET 1: 4355 SHACKLEFORD ROAD CITY: NORCROSS STATE: GA ZIP: 30093 10-K405/A 1 INTELLIGENT SYSTEMS CORPORATION 1 ================================================================================ - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 Commission file number 1-9330 INTELLIGENT SYSTEMS CORPORATION - -------------------------------------------------------------------------------- (Exact name of Registrant as specified in its charter) GEORGIA 58-1964787 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4355 SHACKLEFORD ROAD, NORCROSS, GEORGIA 30093 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (770) 381-2900 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED ------------------- ----------------------------------------- COMMON STOCK, $.01 PAR VALUE AMERICAN STOCK EXCHANGE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None 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] As of March 20, 1998, 5,104,467 shares of Common Stock were outstanding. The aggregate market value of the Common Stock held by non-affiliates of the registrant was $15,111,949 (computed using the closing price of the Common Stock on March 20, 1998 as reported by the American Stock Exchange). DOCUMENTS INCORPORATED BY REFERENCE: Portions of the registrant's Proxy Statement for the Annual Meeting of Shareholders to be held on June 12, 1998 are incorporated by reference in Part III hereof. - -------------------------------------------------------------------------------- ================================================================================ 2 Consolidated Statements of Cash Flow for the years ended December 31, 1997, 1996 and 1995 Notes to Consolidated Financial Statements 2. Financial Statement Schedules The following financial statement schedules are included in this report. All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission have been omitted because such schedules are not required under the related instructions or are inapplicable or because the information required is included in the consolidated financial statements or notes thereto. See the Index to Financial Statements and Supplemental Schedules on page F-1 hereof. Schedule II - Valuation and Qualifying Accounts and Reserves Report of Independent Auditors for InterQuad Services Limited Report of Independent Auditors for PaySys International, Inc. Consolidated Balance Sheets of PaySys at December 31, 1997 and 1996 Consolidated Statements of Operations of PaySys for the three years ended December 31, 1997 Consolidated Statements of Changes in Stockholders' Equity (Deficit) of PaySys for the three years ended December 31, 1997 Consolidated Statements of Cash Flows of PaySys for the three years ended December 31, 1997 Notes to Consolidated Financial Statements of PaySys Report of Independent Auditors for Visibility Inc. and Subsidiaries Consolidated Balance Sheets of Visibility Inc. and Subsidiaries at December 31, 1997 and 1996 Consolidated Statements of Operations of Visibility Inc. and Subsidiaries for the years ended December 31, 1997 and 1996 Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit) of Visibility Inc. and Subsidiaries for the years ended December 31, 1997 and 1996 Consolidated Statements of Cash Flows of Visibility Inc. and Subsidiaries for the years ended December 31, 1997 and 1996 Notes to Consolidated Financial Statements of Visibility Inc. and Subsidiaries Schedule II - Valuation and Qualifying Accounts of Visibility Inc. and Subsidiaries 3. Exhibits The following exhibits are filed with or incorporated by reference in this report. The Company will furnish any exhibit upon request to Bonnie L. Herron, Secretary, Intelligent Systems Corporation, 4355 Shackleford Road, Norcross, Georgia 30093; telephone (770) 381-2900. There is a charge of $.50 per page to cover expenses of copying and mailing. 2.1 Stock Exchange Agreement between OrCAD, Inc., Intelligent Systems Corporation, Stuart A. Harrington, Michel A. Burton, and various ISJ minority shareholders dated December 2, 1995. (Incorporated by reference to Exhibit 2.1 to the Registrant's Form 10-K for the year ended December 31, 1995.) 2.2 Piggyback Registration Rights Agreement regarding stock of OrCAD, Inc. dated December 1, 1995. (Incorporated by reference to Exhibit 2.2 to the Registrant's Form 10-K for the year ended December 31, 1995.) 2.3 Stock Purchase Agreement between Intelligent Systems Corporation and Francis Crowder, Sr., Marion S. Crowder, Kevin W. Davidson and Charles S. Verdin III dated July 1, 1997. 2.4 Stock Purchase Agreement between Intelligent Systems Corporation and Oak Investment Partners V, L.P. and Oak V Affiliate Fund, L.P. dated March 31, 1997. 3(i) Articles of Amendment of Articles of Incorporation dated November 25, 1997. (Incorporated by reference to Exhibit 3.1 to the Registrant's Report on Form 8-K dated November 25, 1996.) 3(ii) Bylaws of the Registrant dated June 6, 1997.* 4.1 See Exhibits 3(i) and 3(ii) for instruments defining rights of holders of Common Stock and Preferred Stock of Registrant. INTELLIGENT SYSTEMS CORPORATION - 13 - 3 4.2 Rights Agreement dated as of November 25, 1997 between the Registrant and American Stock Transfer & Trust Company as Rights Agent. (Incorporated by reference to Exhibit 4.1 of the Registrant's Report on Form 8-K dated November 25, 1997.) 4.3 Form of Rights Certificate. (Incorporated by reference to Exhibit 4.2 of the Registrant's Report on Form 8-K dated November 25, 1997.) 10.1 Lease Agreement dated March 11, 1985, between a subsidiary of the Registrant and A.R. Weeks. (Incorporated by reference to Exhibit 10.1 to Intelligent Systems Corporation Annual Report on Form 10-K for the fiscal year ended March 31, 1986.) 10.2 Second Amendment to Lease Agreement dated June 19, 1997 between a subsidiary of the Registrant and A.R. Weeks. 10.3 Promissory Note of Registrant in favor of NationsBank dated September 29, 1995 and related Security Agreement. (Incorporated by reference to Exhibit 10.5 to the Registrant's Form 10-K for the year ended December 31, 1995.) 10.4 Management Compensation Plans and Arrangements: (a) Intelligent Systems Corporation 1991 Stock Incentive Plan, amended June 6, 1997. (b) Intelligent Systems Corporation Change in Control Plan for Officers. (c) Intelligent Systems Corporation Outside Director's Retirement Plan. Item 10.6 (a) is incorporated by reference to Exhibit 4.1 of the Registrant's Form S-8 dated July 25, 1997. Items 10.6 (b) and (c) are incorporated by reference to Exhibit 10.4 to Registrant's Form 10-K for the year ended December 31, 1993. 10.5 Form of Promissory Note of Registrant in favor of sellers of QS, Inc. dated as of July 1, 1997. 10.6 Loan Agreement dated February 17, 1998 between Registrant and NationsBank, N.A. 10.7 Pledge Agreement dated February 17, 1998 between Registrant and NationsBank, N.A. 21.0 List of subsidiaries of Registrant. 23.1 Consent of Arthur Andersen LLP. 23.2 Consent of Morley and Scott. 23.3 Consent of Ernst and Young LLP. 23.4 Consent of Arthur Andersen LLP.* (b) REPORTS ON FORM 8-K. The Registrant filed a report on Form 8-K dated November 25, 1997. (c) SEE ITEM 14(a)(3) ABOVE. (d) SEE ITEM 14(a)(2) ABOVE. * Filed herewithin. INTELLIGENT SYSTEMS CORPORATION - 14 - 4 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized. INTELLIGENT SYSTEMS CORPORATION Registrant By: /s/ J. LELAND STRANGE ----------------------------------- J. Leland Strange Chairman of the Board, President and Chief Executive Officer 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 and on the dates indicated:
SIGNATURE CAPACITY DATE /s/ J. LELAND STRANGE Chairman of the Board, President, May 15, 1998 - ----------------------------------- Chief Executive Officer and Director J. Leland Strange (Principal Executive Officer) /s/ HENRY H. BIRDSONG Chief Financial Officer May 15, 1998 - ----------------------------------- (Principal Accounting and Financial Officer) Henry H. Birdsong /s/ DONALD A. MCMAHON Director May 15, 1998 - ----------------------------------- Donald A. McMahon /s/ JAMES V. NAPIER Director May 15, 1998 - ----------------------------------- James V. Napier /s/ JOHN B. PEATMAN Director May 15, 1998 - ----------------------------------- John B. Peatman /s/ PARKER H. PETIT Director May 15, 1998 - ----------------------------------- Parker H. Petit
INTELLIGENT SYSTEMS CORPORATION - 15 - 5 INTELLIGENT SYSTEMS CORPORATION INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULES The following consolidated financial statements and schedules of the Registrant and its subsidiaries are submitted herewith in response to Item 8:
FINANCIAL STATEMENTS: Report of Independent Public Accountants...............................................................F-2 Consolidated Balance Sheets - December 31, 1997 and 1996...............................................F-3 Consolidated Statements of Operations - Years Ended December 31, 1997, 1996 and 1995........................................................F-4 Consolidated Statements of Changes in Stockholders' Equity - Years Ended December 31, 1997, 1996 and 1995........................................................F-5 Consolidated Statements of Cash Flow - Years Ended December 31, 1997, 1996 and 1995........................................................F-6 Notes to Consolidated Financial Statements.............................................................F-7 FINANCIAL STATEMENT SCHEDULES: The following supplemental schedules of the Registrant and its subsidiaries are submitted herewith in response to Item 14(a)(2): Schedule II - Valuation and Qualifying Accounts and Reserves...........................................S-1 Report of Independent Auditors for InterQuad Services Limited..........................................S-2 Report of Independent Auditors for PaySys International, Inc...........................................S-3 Consolidated Balance Sheets of PaySys at December 31, 1997 and 1996.................................S-4 Consolidated Statements of Operations of PaySys for the three years ended December 31, 1997.........S-5 Consolidated Statements of Changes in Shareholders' Equity (Deficit) of PaySys for the three years ended December 31, 1997......................................................S-6 Consolidated Statements of Cash Flow of PaySys for the three years ended December 31, 1997..........S-7 Notes to Consolidated Financial Statements of PaySys................................................S-8 Report of Independent Auditors for Visibility Inc. and Subsidiaries...................................S-26 Consolidated Balance Sheets of Visibility Inc. and Subsidiaries at December 31, 1997 and 1996......S-27 Consolidated Statements of Operations of Visibility Inc. and Subsidiaries for the years ended December 31, 1997 and 1996..................................................................... S-28 Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit) of Visibility Inc. and Subsidiaries for the years ended December 31, 1997 and 1996........................................................................................S-29 Consolidated Statements of Cash Flow of Visibility Inc. and Subsidiaries for the years ended December 31, 1997 and 1996......................................................................S-30 Notes to Consolidated Financial Statements of Visibility Inc. and Subsidiaries.....................S-31 Schedule II - Valuation and Qualifying Accounts of Visibility Inc. and Subsidiaries................S-43
INTELLIGENT SYSTEMS CORPORATION F-1 6 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of Visibility Inc. and Subsidiaries: We have audited the accompanying consolidated balance sheets of Visibility Inc. (a Delaware corporation) and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of operations, redeemable convertible preferred stock and stockholders' equity (deficit) and cash flows for the years then ended. These financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. 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 financial statements referred to above present fairly, in all material respects, the financial position of Visibility Inc. and subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for the years then ended, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The schedule of Visibility Inc. and subsidiaries listed in Item 14(a) (2) is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. The schedule has been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. Arthur Andersen LLP Boston, Massachusetts April 23, 1998 S-26 7 VISIBILITY INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1997 AND 1996 ASSETS
1997 1996 CURRENT ASSETS: Cash and cash equivalents $ 2,629,725 $ 802,393 Accounts receivable, net of allowance for doubtful accounts of $484,000 and $518,000 in 1997 and 1996, respectively 3,820,103 3,825,742 Prepaid expenses and other current assets 304,997 176,278 ------------ ------------ Total current assets 6,754,825 4,804,413 PROPERTY AND EQUIPMENT, NET 1,308,133 1,712,890 OTHER ASSETS 144,090 49,435 ------------ ------------ Total assets $ 8,207,048 $ 6,566,738 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Short-term bank loans $ 1,500,000 $ 2,100,000 Notes payable to stockholders -- 800,000 Current portion of capital lease obligations 285,997 412,956 Accounts payable 2,156,923 2,405,539 Accrued expenses 3,234,427 3,236,553 Deferred revenue 4,716,824 4,159,437 ------------ ------------ Total current liabilities 11,894,171 13,114,485 LONG-TERM DEBT 1,525,453 345,539 CAPITAL LEASE OBLIGATIONS 122,441 353,577 DEFERRED RENT 92,409 66,009 DEFERRED INCOME TAXES 115,000 115,000 ------------ ------------ Total liabilities 13,749,474 13,994,610 ------------ ------------ COMMITMENTS AND CONTINGENCIES (Note 10) REDEEMABLE CONVERTIBLE PREFERRED STOCK: Series A redeemable convertible preferred stock, $.001 par value- Authorized, issued and outstanding--1,881,721 and 0 at 5,250,000 -- December 31, 1997 and 1996, respectively at redemption value (liquidation preference of $5,250,000) Series B redeemable convertible preferred stock, $.001 par value- Authorized, issued and outstanding--1,628,700 and 0 at 879,500 -- December 31, 1997 and 1996, respectively at redemption value (liquidation preference of $879,500) Series C redeemable convertible preferred stock, $.001 par value- Authorized, issued and outstanding--337,331 and 0 at December 31, 1997 and 1996, respectively at redemption value (liquidation preference of $2,250,000) 2,250,000 -- ------------ ------------ Total redeemable convertible preferred stock 8,379,500 -- STOCKHOLDERS' EQUITY (DEFICIT): Common stock, $.001 par value- Authorized--15,000,000 and 7,000,000 shares in 1997 and 1996, respectively Issued and outstanding--1,189,669 and 3,155,700 shares 1,190 3,156 in 1997 and 1996, respectively Additional paid-in capital 452,397 3,579,931 Accumulated deficit (14,371,273) (11,010,959) Foreign currency translation adjustment (4,240) -- ------------ ------------ Total stockholders' equity (deficit) (13,921,926) (7,427,872) ------------ ------------ Total liabilities and stockholders' equity (deficit) $ 8,207,048 $ 6,566,738 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. S-27 8 VISIBILITY INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996 REVENUES: Software licenses $ 7,468,984 $ 4,981,589 Maintenance and support services 11,866,985 11,214,147 Hardware equipment sales 2,513,204 3,786,319 ------------ ------------ 21,849,173 19,982,055 ------------ ------------ COST OF REVENUES: Software licenses 1,382,908 1,212,307 Maintenance and support services 7,825,208 7,722,279 Hardware equipment sales 1,997,848 3,296,766 ------------ ------------ 11,205,964 12,231,352 ------------ ------------ Gross profit 10,643,209 7,750,703 OPERATING EXPENSES: Selling and marketing 5,231,012 6,347,771 Research and development 5,370,082 3,931,914 General and administrative 2,934,459 3,230,043 ------------ ------------ 13,535,553 13,509,728 ------------ ------------ Loss from operations (2,892,344) (5,759,025) INTEREST EXPENSE, NET 448,801 252,996 OTHER EXPENSE, NET 19,169 25,695 ------------ ------------ Loss before provision for income taxes (3,360,314) (6,037,716) PROVISION FOR INCOME TAXES -- 10,440 ------------ ------------ Net loss $ (3,360,314) $ (6,048,156) ============ ============
The accompanying notes are an integral part of these consolidated financial statements. S-28 9 VISIBILITY INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
REDEEMABLE CONVERTIBLE PREFERRED STOCK ------------------------------------------------------------------------------------------------------ REDEEMABLE CONVERTIBLE PREFERRED REDEEMABLE CONVERTIBLE PREFERRED REDEEMABLE CONVERTIBLE PREFERRED STOCK SERIES A STOCK SERIES B STOCK SERIES C SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT BALANCE, DECEMBER 31, 1995 -- $ -- -- $ -- -- $ -- Net loss -- -- -- -- -- -- --------- ---------- ---------- -------- ------- ---------- BALANCE, DECEMBER 31, 1996 -- -- -- -- -- -- Issuance of Series A 1,881,721 5,250,000 -- -- -- -- preferred stock Conversion of common stock -- -- 1,628,700 879,500 337,331 2,250,000 to preferred stock Net loss -- -- -- -- -- -- Foreign currency translation adjustment -- -- -- -- -- -- --------- ---------- ---------- -------- ------- ---------- BALANCE, DECEMBER 31, 1997 1,881,721 $5,250,000 1,628,700 $879,500 337,331 $2,250,000 ========= ========== ========== ======== ======= ========== STOCKHOLDERS' EQUITY (DEFICIT) ----------------------------------------------------------------------------------------------------- FOREIGN ADDITIONAL CURRENCY TOTAL COMMON STOCK PAID-IN ACCUMULATED TRANSLATION STOCKHOLDERS' SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT DEFICIT BALANCE, DECEMBER 31, 1995 3,155,700 $ 3,156 $ 3,579,931 $ (4,962,803) $ -- $ (1,379,716) Net loss -- -- -- (6,048,156) -- (6,048,156) ---------- ------- ----------- ------------ ------- ------------ BALANCE, DECEMBER 31, 1996 3,155,700 3,156 3,579,931 (11,010,959) -- (7,427,872) Issuance of Series A -- -- -- -- -- -- preferred stock Conversion of common stock (1,966,031) (1,966) (3,127,534) -- -- (3,129,500) to preferred stock Net loss -- -- -- (3,360,314) -- (3,360,314) Foreign currency translation adjustment -- -- -- -- (4,240) (4,240) ---------- ------- ----------- ------------ ------- ------------ BALANCE, DECEMBER 31, 1997 1,189,669 $ 1,190 $ 452,397 $(14,371,273) $(4,240) $(13,921,926) ========== ======= =========== ============ ======= ============
The accompanying notes are an integral part of these consolidated financial statements. S-29 10 VISIBILITY INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(3,360,314) $(6,048,156) Adjustments to reconcile net loss to net cash used in operating activities- Depreciation and amortization 911,003 1,140,699 Interest expense capitalized to debt 57,016 -- Changes in assets and liabilities, net of assets acquired- Accounts receivable, net (377,113) 987,236 Prepaid expenses and other current assets (128,544) 163,168 Accounts payable (167,529) 670,570 Accrued expenses 201,367 380,577 Deferred revenue 557,387 1,760,649 Deferred rent 26,403 26,402 ----------- ----------- Net cash used in operating activities (2,280,324) (918,855) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition, net of cash acquired (23,346) -- Purchases of fixed assets (380,772) (1,026,353) Other assets 15,626 3,858 ----------- ----------- Net cash used in investing activities (388,492) (1,022,495) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of Series A preferred stock 3,500,000 -- Proceeds from issuance of notes payable 2,200,000 800,000 Repayment of notes payable (250,000) (172,817) Payment of capital lease obligation (358,092) (352,771) (Payments of) proceeds from short-term bank loans, net (600,000) 2,100,000 ----------- ----------- Net cash provided by financing activities 4,491,908 2,374,412 ----------- ----------- FOREIGN EXCHANGE IMPACT ON CASH 4,240 -- ----------- ----------- NET INCREASE IN CASH AND CASH EQUIVALENTS 1,827,332 433,062 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 802,393 369,331 ----------- ----------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,629,725 $ 802,393 =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for- Interest $ 236,980 $ 183,487 =========== =========== Income taxes $ -- $ -- =========== =========== SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING AND INVESTING ACTIVITIES: Acquisition of equipment under capital lease $ -- $ 32,768 =========== =========== Conversion of notes payable into 627,240 shares of Series A Redeemable $ 1,750,000 $ -- Convertible Preferred Stock =========== =========== On May 15, 1997, the Company's subsidiary, Visibility Europe Ltd., acquired certain assets as follows- Fair value of assets acquired- Equipment $ 109,135 $ -- Goodwill and other intangible assets 140,865 -- ----------- ----------- 250,000 -- Forgiveness of Visibility debt, net (226,654) -- ----------- =========== Cash payment for acquisition $ 23,346 $ -- =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. S-30 11 VISIBILITY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 (1) NATURE OF THE BUSINESS Visibility Inc., a Delaware corporation, and subsidiaries (the Company), develops, markets, sells and supports an integrated line of business application software for manufacturers. The Company is subject to a number of risks similar to those of other companies in a similar stage of development. Principal among these risks are the ability to obtain adequate financing, dependence on key individuals, successful development and marketing of services and products, and competition from other companies. Management believes that its current cash reserves and available borrowings under the Company's bank line of credit will provide sufficient working capital to finance the Company through December 31, 1998. The Company may attempt to raise additional capital during 1998 in order to fund operations, product marketing and development, and working capital requirements. There can be no assurance that additional financing will be available or on terms favorable to the Company. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the Company's significant accounting policies follows: Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassification Certain prior-year balances have been reclassified in order to conform with current year presentation. Principles of Consolidation The accompanying financial statements include the accounts of the Company and its wholly owned subsidiaries after elimination of intercompany accounts and transactions. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. The Company invests in a money market account and believes the investment is subject to minimal credit and market risk. The carrying amounts of cash and cash equivalents approximate their fair value due to the short-term maturities of these investments. S-31 12 VISIBILITY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 (Continued) Foreign Currency Translation The functional currency for the Company's United Kingdom subsidiary is the British pound sterling. Gains (losses) from foreign currency translations of the United Kingdom Subsidiary are credited or charged to foreign currency translation adjustment, which is included as a component of stockholders' equity in the accompanying consolidated balance sheets. The functional currency of the Company's other foreign operations is the U.S. dollar. Gains and losses resulting from the remeasurement of foreign currencies into U.S. dollars for these subsidiaries are included in the results of operations and the amounts are insignificant. Fair Value of Financial Instruments The Company's financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable and long-term debt. The carrying amounts of the Company's cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to their short-term nature. See Note 6 for fair value information pertaining to the Company's long-term debt. Revenue Recognition The Company recognizes revenue from noncancelable software licenses upon product shipment, provided collection is probable and no significant vendor and postcontract customer obligations remain at the time of shipment. The Company accounts for insignificant vendor obligations by deferring a portion of the revenue and recognizing it when the related services are performed. Postcontract support (maintenance) service fees are typically billed separately and are recognized on a straight-line basis over the life of the applicable agreement. The Company recognizes service revenues from consulting and implementation services, including training, provided by both its own personnel and by third parties, upon performance of the services. Long-term service contracts are recognized using the percentage of completion method. Revenue from equipment sales is recognized upon shipment of the equipment. In October 1997, the American Institute of Certified Public Accountants issued Statement of Position (SOP) 97-2, Software Revenue Recognition. The statement provides specific industry guidance and stipulates that revenue recognized from software arrangements is to be allocated to each element of the arrangement based on the relative fair values of the elements, such as software products, upgrades, enhancements, post contract customer support, installation or training. Under SOP 97-2, the determination of fair value is based on objective evidence that is specific to the vendor. If such evidence of fair value for each element of the arrangement does not exist, all revenue from the arrangement is deferred until such time that evidence of fair value does exist or until all elements of the arrangement are delivered. Revenue allocated to software products, specified upgrades and enhancements is generally recognized upon delivery of the related products, upgrades and S-32 13 VISIBILITY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 (Continued) enhancements. Revenue allocated to postcontract customer support is generally recognized ratably over the term of the support, and revenue allocated to service elements is generally recognized as the services are performed. SOP 97-2 will be adopted by the Company effective January 1, 1998 and is not expected to have a material effect on revenue recognition. Impairment of Long-Lived Assets In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. This statement addresses the accounting for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to assets to be held and used and for long-lived assets and certain identifiable intangibles to be disposed of. This statement requires that long-lived assets, including intangibles, be reviewed for impairment whenever events or changes in circumstances, such as a change in market value, indicates that the asset's carrying amounts may not be recoverable. In performing the review for recoverability, if future undiscounted cash flows (without interest charges) from the use and ultimate dispositions of the assets are less than their carrying value, an impairment loss is recognized. Impairment losses are to be measured based on the fair value of the asset. To date, the Company has not experienced any such impairments. Capitalized Software Development Costs The Company capitalizes certain software development costs after technological feasibility of the product has been established. Costs incurred prior to the establishment of technological feasibility are charged to research and development expense. The Company capitalized no software developments costs during 1997 and 1996, as the costs incurred after technological feasibility was established were deemed to be immaterial. Capitalized software costs are amortized ratably over the useful life of the product, generally two years, and are charged to cost of revenues. Amortization expense for the years ended December 31, 1997 and 1996 relating to capitalized software amounted to approximately $0 and $201,000, respectively. In 1996, the Company also charged approximately $111,000 of previously capitalized software costs to cost of revenues because their future realizability was uncertain. Income Taxes The Company accounts for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences, utilizing current tax rates, of temporary differences between the carrying amounts and the tax bases of assets and liabilities. S-33 14 VISIBILITY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 (Continued) (3) ACQUISITION On May 15, 1997, the Company established a wholly owned UK subsidiary, Visibility Europe Ltd. (the Subsidiary), which acquired certain equipment and intangible assets of the Company's then European distributor, whose parent company was formerly also a minority stockholder of the Company, for $250,000. The purchase price was allocated $109,135 to equipment and $140,865 to goodwill and other intangibles, which are being amortized on a straight line basis over three years. This acquisition was accounted for as a purchase. Additional purchase price is contingent on the Subsidiary achieving certain pretax income levels for 1997 and 1998, which the Company did not meet in 1997. The purchase price will be increased by 30% of the Subsidiary's 1998 pretax income in excess of $500,000. Any future contingent payments will be accounted for as an addition to goodwill. Pro forma information for this acquisition has not been presented as the impact was not material. (4) PROPERTY AND EQUIPMENT Property, plant and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets. Maintenance and repair costs are charged to expense as incurred. Fixed assets consist of the following at December 31, 1997 and 1996:
ESTIMATED USEFUL LIVES 1997 1996 Furniture and fixtures 5 years $ 591,253 $ 572,019 Equipment 1-3 years 2,717,463 2,332,960 Computer software 3 years 463,482 390,105 Leasehold improvements 2-10 years 350,493 350,493 ---------- ---------- 4,122,691 3,645,577 Less--Accumulated depreciation and 2,814,558 1,932,687 amortization ---------- ---------- $1,308,133 $1,712,890 ========== ==========
Included above is equipment held under capital leases with a cost of $1,683,114 and $1,683,114, and accumulated amortization of $1,358,397 and $1,051,233 at December 31, 1997 and 1996, respectively. S-34 15 VISIBILITY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 (Continued) (5) LINE OF CREDIT At December 31, 1997, the Company had a line of credit with a bank which allowed for borrowings of up to $2,500,000. Borrowings were limited to the lesser of a borrowing base calculation based on certain percentages of accounts receivable, as defined, or $2,500,000. The available borrowing base at December 31, 1997 was approximately $2,500,000. Borrowings under the line were due on April 5, 1998. Interest accrued at the bank's prime lending rate (8.5% at December 31, 1997) plus 2.5%. Borrowings were secured by substantially all assets of the Company. At December 31, 1997, the Company had borrowed $1,500,000 under the line of credit. In connection with the November 1997 amendment of this agreement, the Company issued the bank a warrant to purchase 71,685 shares of common stock at an exercise price of $2.79 per share. The fair value of this warrant was immaterial. The warrant expires on June 30, 2004. The agreement also requires the Company to achieve minimum levels of profitability, quick ratio and tangible net worth. The bank also requires the Company to cause the line to not exceed $1,500,000 for at least five consecutive days per quarter. The Company was in compliance with its covenants as of December 31, 1997. Effective April 5, 1998, the Bank renewed the line of credit through April 4, 1999 under similar terms and conditions, except that the interest rate was reduced to prime plus 2%. In addition, the Company will be required to issue the Bank another warrant to purchase 10,526 shares of common stock at an exercise price of $4.75 per share in the event the Company defaults under this agreement, as defined. (6) LONG-TERM DEBT In conjunction with the acquisition of the Company in February 1993, the Company entered into term note agreements aggregating $500,000 with certain stockholders, of which approximately $173,000 was repaid in 1996. The notes accrue interest at the prime rate (8.5% at December 31, 1997) plus 3% per annum. During 1997, the maturity date was extended to March 31, 1999 and, accordingly, is reflected as long-term in the accompanying balance sheet. The notes are secured by the Company's accounts receivable. During November 1996, the Company entered into several stockholder note agreements, totaling $800,000. During 1997, the Company entered into several additional stockholder note agreements, totaling $1,200,000, of which $250,000 was repaid during 1997. All of these notes were due upon demand, carried a rate of 10% per annum and were unsecured. All of the outstanding notes were converted into Series A Preferred Stock in 1997 (see Note 12). On January 2, 1997, the Company borrowed $250,000 from the parent company of its then European distributor pursuant to a demand note. On May 15, 1997, the Company secured the replacement of the demand note and the right to borrow up to an additional $750,000 from the parent company of its then European distributor pursuant to a $1,000,000 senior subordinated note due May 15, 2000. The S-35 16 VISIBILITY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 (Continued) Company received an additional $250,000 on May 15, 1997, June 30, 1997 and September 30, 1997, respectively. The note accrues interest at 8% per annum, payable upon maturity, and is unsecured. As part of the financing, the Company also issued a warrant for the purchase of up to 50,000 shares of common stock at $6.67 per share. The fair value of the warrant was not material. The warrant expires upon repayment of the senior subordinated note. The following summarizes the debt outstanding as of December 31, 1997 and 1996, including accrued interest:
1997 1996 Notes payable to stockholders $ 476,078 $1,145,539 Notes payable 1,049,375 -- ---------- ---------- $1,525,453 $1,145,539 ========== ==========
The fair value of the Company's debt approximates its carrying value based on the current rate offered to the Company for obligations of the same remaining maturities. (7) RELATED PARTY TRANSACTIONS During 1996 and the beginning of 1997, the Company had a distribution agreement that provided a stockholder with exclusive distribution rights in certain European markets in exchange for royalties which management believes represented fair value as negotiated on an arms-length basis. Royalty income received during the years ended December 31, 1997 and 1996 amounted to approximately $0 and $592,000, respectively. Related maintenance and service revenue for the years ended December 31, 1997 and 1996 amounted to approximately $48,000 and $44,000, respectively. At December 31, 1996, accounts receivable included approximately $292,000, and accounts payable included approximately $139,000, respectively, related to this stockholder. The Company reimbursed this stockholder approximately $188,000 and $323,000 in 1997 and 1996, respectively, for expenses incurred by the Company but paid by this stockholder. (8) BENEFIT PLAN The Company has a defined contribution plan, which is qualified under Section 401(k) of the Internal Revenue Code. The plan covers substantially all employees who meet minimum age and service requirements and allows participants to defer a portion of their salary. After one year of employment, the Company contributes 25% of the employee's contribution, up to a maximum of 6% of the employee's salary. Employer contributions may be suspended at the option of the Board of Directors. The Company's contributions to the plan for the years ended December 31, 1997 and 1996 amounted to approximately $86,000 and $21,000, respectively. S-36 17 VISIBILITY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 (Continued) (9) INCOME TAXES The provision for income taxes consists of state taxes at December 31, 1996. A reconciliation of the federal statutory rate to the Company's effective tax rate is as follows:
1997 1996 Income tax provision (benefit) at statutory rate (34)% (34)% State tax provision (4) (4) Impact of foreign tax rates 3 4 Increase in valuation allowance 29 35 Other 6 (1) ---- ---- --% --% ==== ====
The Company has approximately $5,600,000 of U.S. federal net operating loss carryforwards available to reduce future taxable income, if any. These net operating loss carryforwards expire in varying amounts through 2012 and are subject to the review and possible adjustment by the Internal Revenue Service. The Company has approximately $2,860,000 of foreign net operating loss carryforwards available to reduce future taxable income in the foreign jurisdictions, if any. Section 382 of the Internal Revenue Code also contains provisions that could place annual limitations on the utilization of these net operating loss carryforwards in the event of a change in ownership, as defined. Significant components of deferred income taxes are as follows:
1997 1996 Deferred tax liabilities- Property, plant and equipment $ -- $ 5,000 Other 115,000 110,000 ----------- ----------- Total deferred tax liabilities $ 115,000 $ 115,000 =========== =========== Deferred tax assets- Net operating loss carryforwards $ 3,290,962 $ 2,189,815 Allowance for doubtful accounts 178,196 212,580 Deferred rent 37,887 27,062 Accrued benefits 195,330 302,706 Other accruals 88,560 88,355 Other 14,176 -- ----------- ----------- 3,805,111 2,820,518 Valuation allowance (3,805,111) (2,820,518) ----------- ----------- Total deferred tax assets $ -- $ -- =========== ===========
S-37 18 VISIBILITY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 (Continued) The valuation allowance at December 31, 1997 and 1996 relates to the uncertainty of realizing the tax benefits of the deferred tax assets. (10) COMMITMENTS AND CONTINGENCIES The Company leases facilities under various operating leases. The Company also leases certain equipment under noncancelable capital and operating leases. Future minimum lease commitments under all noncancelable operating and capital leases at December 31, 1997 are as follows:
OPERATING CAPITAL LEASES LEASES 1998 $ 342,416 $ 322,198 1999 301,329 126,322 2000 285,352 -- 2001 284,819 -- 2002 287,668 -- Thereafter 448,980 -- ---------- ---------- Total minimum lease payments $1,950,564 448,520 ========== Less--Amount representing interest 40,082 ---------- Present value of minimum lease payments (including current portion of $285,997) $ 408,438 ==========
Total rent expense under noncancelable operating leases was approximately $491,000 and $389,000 for the years ended December 31, 1997 and 1996, respectively. (11) CONCENTRATIONS OF CREDIT RISK Financial instruments that potentially expose the Company to concentrations of credit risk include trade accounts receivable. To minimize this risk, ongoing credit evaluations of customers' financial condition are performed, although collateral is not required. The Company maintains reserves for potential credit losses. At December 31, 1997, no customer represented 10% of gross accounts receivable. At December 31, 1996, accounts receivable from one customer accounted for 13% of gross accounts receivable. No customer accounted for greater than 10% of revenues in 1997 and 1996. s-38 19 VISIBILITY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 (Continued) (12) REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) (a) Redeemable Convertible Preferred Stock On October 6, 1997, the Company amended and restated its Certification of Incorporation, whereby the Company's authorized shares of $.001 par value common stock was increased to 15,000,000. The Company also authorized the issuance of 3,847,752 shares of $.001 par value preferred stock, of which 1,881,721 shares are designated as Series A Preferred Stock, 1,628,700 shares are designated as Series B Preferred Stock and 337,331 shares are designated as Series C Preferred Stock. The Company issued 1,881,721 shares of Series A Redeemable Convertible Preferred Stock in exchange for $3,500,000 plus the conversion of the $1,750,000 notes payable issued in 1997 and 1996. The Company also allowed common stockholders to convert 1,966,031 shares of common stock into 1,628,700 shares of Series B Redeemable Convertible Preferred Stock and 337,331 shares of Series C Redeemable Convertible Preferred Stock. The Series A, Series B and Series C Redeemable Convertible Preferred Stock have the following rights and preferences: VOTING Preferred stockholders are entitled to vote on an as-converted basis together with common stockholders as one class. DIVIDENDS The preferred stockholders are entitled to receive dividends or other distributions equal to the dividend or distribution that would be received had the preferred stockholders converted their shares into common stock. LIQUIDATION In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of Series A, B and C Redeemable Convertible Preferred Stock are entitled to receive a $2.79, $.54 and $6.67 per share liquidation preference, respectively, plus accrued or unpaid dividends. If the assets available for distribution are insufficient to permit payment of the liquidation preference amount, then the holders of the preferred stock shall share ratably in any distribution, as defined. After distribution to the preferred stockholders of the full liquidation preference amount, any remaining assets available for distribution are distributed both to holders of common stock and preferred stock on a pro rata basis, assuming the preferred stock is converted into common stock. Any dissolution or liquidation resulting S-39 20 VISIBILITY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 (Continued) from an event of sale, as defined, with proceeds of greater than or equal to $15.00 per share on an as-converted basis, will not result in distributions in accordance with the foregoing, but rather all preferred stock will be converted into common and share in the proceeds on a pro rata basis. CONVERSION Each share of preferred stock is convertible, at the option of the holder, into one share of common stock, adjusted for certain dilutive events, as defined. In the event of an initial public offering with a per share price of less than $15.00, each holder of the preferred stock will receive a cash payment equal to the liquidation preference (the IPO Preference Amount) and all shares shall convert automatically into common stock. The shares automatically convert upon the occurrence of a qualified offering with a per share price greater than or equal to $15.00 without any IPO Preference Amount. REDEMPTION As of March 31, 2003, the holders of the preferred stock may require the Company, with 30 days' written notice, to redeem outstanding preferred stock. The redemption price equals the liquidation preference plus all accrued but unpaid dividends. OTHER RESTRICTIONS The Corporation is restricted, without the approval of 51% of the holders of preferred stock, from issuing additional shares of preferred stock, common stock or convertible debt, altering the terms of outstanding preferred stock, amending its articles of incorporation, selling or otherwise disposing of all or substantially all of its assets or voluntary dissolving or otherwise liquidating the Company. (b) Stock Option Plans In 1994, the Company adopted the Visibility Inc. and Subsidiaries Stock Option Plan (the 1994 Plan), which is administered by the Board of Directors. The 1994 Plan provides for the issuance to key employees and directors of the Company options to purchase shares of common stock. The maximum number of shares of common stock that may be issued under the 1994 Plan is 300,000 shares. Options are granted under the 1994 Plan at exercise prices not less than the fair value of the stock on the date of grant. The options are exercisable over periods determined by the Board of Directors and expire after 10 years from the date of grant. Subsequent to December 31, 1997, the Board of Directors reduced the maximum number of shares available under this plan to 202,500. The Company is currently evaluating using the 97,500 shares from the 1994 Plan to establish a separate stock option plan for the Company's foreign employees. S-40 21 VISIBILITY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 (Continued) On February 2, 1996, the Company adopted the Visibility Inc. and Subsidiaries 1996 Stock Plan (the Plan), which is administered by the Board of Directors. The Plan provides for the issuance of incentive and nonqualified options to purchase shares of common stock to key employees and directors of the Company. The maximum number of shares of common stock that may be issued under the Plan is 1,050,000 shares. Incentive stock options may be granted under the Plan at exercise prices not less than the fair value of the stock on the date of grant. The options are exercisable over periods determined by the Board of Directors and expire 10 years from the date of grant. The following summarizes the stock option activity under the Company's stock option plans:
WEIGHTED AVERAGE OUTSTANDING EXERCISE OPTIONS PRICE Balance, December 31, 1995 202,500 $ 0.67 Granted 758,400 1.38 Exercised - -- Canceled (232,500) 1.60 ---------- --------- Balance, December 31, 1996 728,400 1.11 Granted 1,098,850 0.20 Exercised - -- Canceled (674,700) 0.63 ---------- --------- Balance, December 31, 1997 1,152,550 $ 0.40 ========== =========
At December 31, 1997, options to purchase 364,600 shares were exercisable, and 197,450 shares were available for future option grants. The options exercisable at December 31, 1997 had a weighted average exercise price of $0.55. Options generally vest over three to four years. During 1995, the Financial Accounting Standards Board issued SFAS No. 123, Accounting for Stock-Based Compensation, which defines a fair value-based method of accounting for employee stock options or similar equity instruments and encourages all entities to adopt that method of accounting for all their employee stock compensation plans. However, it also allows an entity to continue to measure compensation costs for those plans using the intrinsic method of accounting prescribed by APB Opinion 25. Entities electing to remain with the accounting in APB Opinion 25 must make pro forma disclosures of net income as if the fair-value-based method of accounting defined in SFAS No. 123 has been applied. The Company has elected to account for its stock-based compensation plans under APB Opinion 25. S-41 22 VISIBILITY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 (Continued) Had compensation costs for the stock option plan been determined using the fair value-based method as prescribed by SFAS No. 123, the Company's 1997 and 1996 net losses would have been increased to the following pro forma amounts:
1997 1996 Net loss- As reported (3,360,314) (6,048,156) Pro forma (3,373,765) (6,062,922)
Consistent with SFAS No. 123, pro forma compensation cost has not been calculated for options granted prior to January 1, 1995. Pro forma compensation cost may not be representative of that to be expected in future years. The weighted average fair values of options granted during 1997 and 1996 were $0.05 and $0.33, respectively. The values were estimated on the date of grant using the minimum value method with the following weighted average assumptions used for grants in 1997 and 1996: risk-free interest rate of 6.15% and 5.99%, respectively, expected life of five years, expected dividend yield of 0% and volatility factor of 0%. The weighted average remaining contractual life of outstanding options was 9.32 years and the range of exercise prices was $0.20 to $1.67 at December 31, 1997. (13) FOREIGN OPERATIONS The following table summarizes the Company's operations by geographic area:
1997 1996 Net sales- North America $19,592,990 $19,869,482 Europe 2,256,183 112,573 ----------- ----------- Total 21,849,173 19,982,055 =========== =========== Operating loss- North America (1,767,792) (4,883,118) Europe (1,124,552) (875,907) ----------- ----------- Consolidated total (2,892,344) (5,759,025) =========== =========== Identifiable assets- North America 6,204,875 6,500,699 Europe 2,002,173 66,039 ----------- ----------- Consolidated total $ 8,207,048 $ 6,566,738 =========== ===========
Export sales were not material in 1997 or 1996, respectively. S-42 23 Schedule II VISIBILITY INC. AND SUBSIDIARIES "Valuation and Qualifying Accounts" For The Years Ended December 31, 1997 and December 1996 (In Thousands) Allowance for Doubtful Accounts
Net Balance at Provisions Deductions Balance at Beginning of Charged to from End of Period Operations Allowance (1) Period ------------ ---------- ------------ ---------- Year Ended December 31, 1997............ $518 $ 99 $(133) $484 Year Ended December 31, 1996............ $325 $223 $ (30) $518
- -------- (1) Accounts deemed uncollectible, net of recoveries. S-43 EX-3.(II) 2 BYLAWS OF THE REGISTRANT 1 EXHIBIT 3(ii) BYLAWS OF INTELLIGENT SYSTEMS CORPORATION As of June 6, 1997 (unless otherwise noted) 2 TABLE OF CONTENTS
PAGE ARTICLE ONE OFFICE...................................................................1 1.1 Registered Office and Agent..................................................1 1.2 Principal Office.............................................................1 1.3 Other Offices................................................................1 ARTICLE TWO SHAREHOLDERS' MEETINGS...................................................1 2.1 Place of Meetings............................................................1 2.2 Annual Meetings..............................................................1 2.3 Special Meetings.............................................................1 2.4 Notice of Meetings...........................................................2 2.5 Waiver of Notice.............................................................2 2.6 Voting Group; Quorum; Vote Required to Act...................................2 2.7 Voting of Shares.............................................................3 2.8 Proxies......................................................................3 2.9 Presiding Officer............................................................3 2.10 Adjournments.................................................................3 2.11 Conduct of the Meeting.......................................................4 2.12 Action of Shareholders Without a Meeting.....................................4 2.13 Matters Considered at Annual Meetings........................................4 ARTICLE THREE BOARD OF DIRECTORS.....................................................5 3.1 General Powers...............................................................5 3.2 Number, Election and Term of Office..........................................5 3.3 Removal of Directors.........................................................5 3.4 Vacancies....................................................................5 3.5 Compensation.................................................................6 3.6 Committees of the Board of Directors.........................................6 3.7 Qualification of Directors...................................................6 3.8 Certain Nomination Requirements..............................................6 ARTICLE FOUR MEETINGS OF THE BOARD OF DIRECTORS......................................7 4.1 Regular Meetings.............................................................7 4.2 Special Meetings.............................................................7 4.3 Place of Meetings............................................................7 4.4 Notice of Meetings...........................................................7 4.5 Quorum.......................................................................7 4.6 Vote Required for Action.....................................................7 4.7 Participation by Conference Telephone........................................7 4.8 Action by Directors Without a Meeting........................................8 4.9 Adjournments.................................................................8 4.10 Waiver of Notice.............................................................8 ARTICLE FIVE OFFICERS................................................................8 5.1 Offices......................................................................8
3 5.2 Term.........................................................................9 5.3 Compensation.................................................................9 5.4 Removal......................................................................9 5.5 Chairman of the Board........................................................9 5.6 Chief Executive Officer......................................................9 5.7 President....................................................................9 5.8 Vice Presidents..............................................................9 5.9 Secretary...................................................................10 5.10 Treasurer...................................................................10 ARTICLE SIX DISTRIBUTIONS AND DIVIDENDS.............................................10 ARTICLE SEVEN SHARES ...............................................................10 7.1 Share Certificates..........................................................10 7.2 Rights of Corporation with Respect to Registered Owners......................................................................11 7.3 Transfers of Shares.........................................................11 7.4 Duty of Corporation to Register Transfer....................................11 7.5 Lost, Stolen, or Destroyed Certificates.....................................11 7.6 Fixing of Record Date.......................................................11 7.7 Record Date if None Fixed...................................................12 ARTICLE EIGHT INDEMNIFICATION.......................................................12 8.1 Indemnification of Directors................................................12 8.2 Indemnification of Others...................................................12 8.3 Other Organizations.........................................................12 8.4 Advances....................................................................13 8.5 Non-Exclusivity.............................................................13 8.6 Insurance...................................................................13 8.7 Notice......................................................................14 8.8 Security....................................................................14 8.9 Amendment...................................................................14 8.10 Agreements..................................................................14 8.11 Continuing Benefits.........................................................14 8.12 Successors..................................................................15 8.13 Severability................................................................15 8.14 Additional Indemnification..................................................15 ARTICLE NINE MISCELLANEOUS..........................................................15 9.1 Inspection of Books and Records.............................................15 9.2 Fiscal Year.................................................................15 9.3 Corporate Seal..............................................................15 9.4 Annual Statements...........................................................15 9.5 Notice......................................................................16 ARTICLE TEN AMENDMENTS..............................................................16
4 BYLAWS OF INTELLIGENT SYSTEMS CORPORATION References in these Bylaws to "Articles of Incorporation" are to the Articles of Incorporation of Intelligent Systems Corporation, a Georgia corporation (the "Corporation"), as amended and restated from time to time. All of these Bylaws are subject to contrary provisions, if any, of the Articles of Incorporation (including provisions designating the preferences, limitations, and relative rights of any class or series of shares), the Georgia Business Corporation Code (the "Code"), and other applicable law, as in effect on and after the effective date of these Bylaws. References in these Bylaws to "Sections" shall refer to sections of the Bylaws, unless otherwise indicated. ARTICLE ONE OFFICE 1.1 REGISTERED OFFICE AND AGENT. The Corporation shall maintain a registered office and shall have a registered agent whose business office is the same as the registered office. 1.2 PRINCIPAL OFFICE. The principal office of the Corporation shall be at the place designated in the Corporation's annual registration with the Georgia Secretary of State. 1.3 OTHER OFFICES. In addition to its registered office and principal office, the Corporation may have offices at other locations either in or outside the State of Georgia. ARTICLE TWO SHAREHOLDERS' MEETINGS 2.1 PLACE OF MEETINGS. Meetings of the Corporation's shareholders may be held at any location inside or outside the State of Georgia designated by the Board of Directors or any other person or persons who properly call the meeting, or if the Board of Directors or such other person or persons do not specify a location, at the Corporation's principal office. 2.2 ANNUAL MEETINGS. The Corporation shall hold an annual meeting of shareholders, at a time determined by the Board of Directors, to elect directors and to transact any business that properly may come before the meeting. The annual meeting may be combined with any other meeting of shareholders, whether annual or special. 2.3 SPECIAL MEETINGS. Special meetings of the shareholders of one or more classes of the series of the Corporation's shares may be called at any time by the Board of Directors, the Chairman of the Board, the President, or the Chief Executive Officer, and shall be called by the Corporation upon the written request (in compliance with applicable requirements of 1 5 the Code) of the holders of shares representing fifty percent (50%) or more of the votes entitled to be cast on each issue proposed to be considered at the special meeting. The business that may be transacted at any special meeting of the shareholders shall be limited to that proposed in the notice of the special meeting given in accordance with Section 2.4 (including related or incidental matters that may be necessary or appropriate to effectuate the proposed business). Special meetings of shareholders that are called by the shareholders in accordance with the above requirements will be held at least fifty (50) days after receipt by the Corporation's Secretary of the notice meeting such requirements. 2.4 NOTICE OF MEETINGS. In accordance with Section 9.5 and subject to waiver by a shareholder pursuant to Section 2.5, the Corporation shall give written notice of the date, time, and place of each annual and special shareholders' meeting no fewer than SO days nor more than 60 days before the meeting date to each shareholder of record entitled to vote at the meeting. The notice of an annual meeting need not state the purpose of the meeting unless these Bylaws require otherwise. The notice of a special meeting shall state the purpose for which the meeting is called. If an annual or special shareholders' meeting is adjourned to a different date, time, or location, the Corporation shall give shareholders notice of the new date, time, or location of the adjourned meeting, unless a quorum of shareholders was present at the meeting and information regarding the adjournment was announced before the meeting was adjourned; provided, however, that if a new record date is or must be fixed in accordance with Section 7.6, the Corporation must give notice of the adjourned meeting to all shareholders of record as of the new record date who are entitled to vote at the adjourned meeting. 2.5 WAIVER OF NOTICE. A shareholder may waive any notice required by the Code, the Articles of Incorporation, or these Bylaws, before or after the date and time of the matter to which the notice relates, by delivering to the Corporation a written waiver of notice signed by the shareholder entitled to the notice. In addition, a shareholder's attendance at a meeting shall be (a) a waiver of objection to lack of notice or defective notice of the meeting unless the shareholder at the beginning of the meeting objects to holding the meeting or transacting business at the meeting, and (b) a waiver of objection to consideration of a particular matter at the meeting that is not within the purpose stated in the meeting notice, unless the shareholder objects to considering the matter when it is presented. Except as otherwise required by the Code, neither the purpose of nor the business transacted at the meeting need be specified in any waiver. 2.6 VOTING GROUP: QUORUM: VOTE REQUIRED TO ACT. (a) Unless otherwise required by the Code or the Articles of Incorporation, all classes or series of the Corporation's shares entitled to vote generally on a matter shall for that purpose be considered a single voting group (a "Voting Group"). If either the Articles of Incorporation or the Code requires separate voting by two or more Voting Groups on a matter, action on that matter is taken only when voted upon by each such Voting Group separately. At all meetings of shareholders, any Voting Group entitled to vote on a matter may take action on the matter only if a quorum of that Voting Group exists at the meeting, and if a quorum exists, the Voting Group may take action on the matter notwithstanding the absence of a quorum of any other Voting Group that may be entitled to vote separately on the matter. Unless the Articles of Incorporation, these Bylaws, or the Code provides otherwise, the presence (in 2 6 person or by proxy) of shares representing a majority of votes entitled to be cast on a matter by a Voting Group shall constitute a quorum of that Voting Group with regard to that matter. Once a share is present at any meeting other than solely to object to holding the meeting or transacting business at the meeting, the share shall be deemed present for quorum purposes for the remainder of the meeting and for any adjournments of that meeting, unless a new record date for the adjourned meeting is or must be set pursuant to Section 7.6 of these Bylaws. (b) Except as provided in Section 3.4, if a quorum exists, action on a matter by a Voting Group is approved by that Voting Group if the votes cast within the Voting Group favoring the action exceed the votes cast opposing the action, unless the Articles of Incorporation, a provision of these Bylaws that has been adopted pursuant to Section 14-2-1021 of the Code (or any successor provision), or the Code requires a greater number of affirmative votes. 2.7 VOTING OF SHARES. Unless otherwise required by the Code or the Articles of Incorporation, each outstanding share of any class or series having voting rights shall be entitled to one vote on each matter that is submitted to a vote of shareholders. 2.8 PROXIES. A shareholder entitled to vote on a matter may vote in person or by proxy pursuant to an appointment executed in writing by the shareholder or by his or her attorney-in-fact. An appointment of a proxy shall be valid for 11 months from the date of its execution, unless a longer or shorter period is expressly stated in the proxy. 2.9 PRESIDING OFFICER. Except as otherwise provided in this Section 2.9, the Chairman of the Board, and in his or her absence or disability the President, and in his or her absence or disability the Chief Executive Officer, shall preside at every shareholders' meeting (and any adjournment thereof) as its chairman, if either of them is present and willing to serve. If neither the Chairman of the Board nor the President nor the Chief Executive Officer is present and willing to serve as chairman of the meeting, and if the Chairman of the Board has not designated another person who is present and willing to serve, then a majority of the Corporation's directors present at the meeting shall be entitled to designate a person to serve as chairman. If no director of the Corporation is present at the meeting or if a majority of the directors who are present cannot be established, then a chairman of the meeting shall be selected by a majority vote of (a) the shares present at the meeting that would be entitled to vote in an election of directors, or (b) if no such shares are present at the meeting, then the shares present at the meeting comprising the Voting Group with the largest number of shares present at the meeting and entitled to vote on a matter properly proposed to be considered at the meeting. The chairman of the meeting may designate other persons to assist with the meeting. 2.10 ADJOURNMENTS. At any meeting of shareholders (including an adjourned meeting), a majority of shares of any Voting Group present and entitled to vote at the meeting (whether or not those shares constitute a quorum) may adjourn the meeting, but only with respect to that Voting Group, to reconvene at a specific time and place. If more than one Voting Group is present and entitled to vote on a matter at the meeting, then the meeting may be continued with respect to any such Voting Group that does not vote to adjourn as provided above, and such Voting Group may proceed to vote on any matter to which it is otherwise 3 7 entitled to do so; provided, however, that if (a) more than one Voting Group is required to take action on a matter at the meeting and (b) any one of those Voting Groups votes to adjourn the meeting (in accordance with the preceding sentence), then the action shall not be deemed to have been taken until the requisite vote of any adjourned Voting Group is obtained at its reconvened meeting. The only business that may be transacted at any reconvened meeting is business that could have been transacted at the meeting that was adjourned, unless further notice of the adjourned meeting has been given in compliance with the requirements for a special meeting that specifies the additional purpose or purposes for which the meeting is called. Nothing contained in this Section 2.10 shall be deemed or otherwise construed to limit any lawful authority of the chairman of a meeting to adjourn the meeting. 2.11 CONDUCT OF THE MEETING. At any meeting of shareholders, the chairman of the meeting shall be entitled to establish the rules of order governing the conduct of business at the meeting. 2.12 ACTION OF SHAREHOLDERS WITHOUT A MEETING. Action required or permitted to be taken at a meeting of shareholders may be taken without a meeting if the action is taken by all shareholders entitled to vote on the action. The action must be evidenced by one or more written consents describing the action taken, signed by all the shareholders entitled to take action without a meeting, and delivered to the Corporation for inclusion in the minutes or filing with the corporate records. 2.13 MATTERS CONSIDERED AT ANNUAL MEETINGS. Notwithstanding anything to the contrary in these Bylaws, the only business that may be conducted at an annual meeting of shareholders shall be business brought before the meeting (a) by or at the direction of the Board of Directors prior to the meeting, (b) by or at the direction of the Chairman of the Board, the President, or the Chief Executive Officer or by a shareholder of the Corporation who is entitled to vote with respect to the business and who complies with the notice procedures set forth in this Section 2.13. For business to be brought properly before an annual meeting by a shareholder, the shareholder must have given timely notice of the business in writing to the Secretary of the Corporation. To be timely a shareholder's notice must be delivered or mailed to and received at the principal offices of the Corporation at least 120 days before the anniversary of the date of the proxy statement for the immediately preceding annual meeting of the Corporation. A shareholder's notice to the Secretary shall set forth a brief description of each matter of business the shareholder proposes to bring before the meeting and the reasons for conducting that business at the meeting; the name, as it appears on the Corporation's books and address of the shareholder proposing the business; the series or class and number of shares of the Corporation's stock that are beneficially owned by the shareholder; and any material interest of the shareholder in the proposed business. The Chairman of the meeting shall have the discretion to declare to the meeting that any business proposed by a shareholder to be considered at the meeting is out of order and that such business shall not be transacted at the meeting if (i) the Chairman concludes that the matter has been proposed in a manner inconsistent with this Section 2.13 or (ii) the Chairman concludes that the subject matter of the proposed business is inappropriate for consideration by the shareholders at the meeting. 4 8 ARTICLE THREE BOARD OF DIRECTORS 3.1 GENERAL POWERS. All corporate powers shall be exercised by or under the authority of, and the business and affairs of the Corporation shall be managed by, the Board of Directors, subject to any limitation set forth in the Articles of Incorporation, in bylaws approved by the shareholders, or in agreements among all the shareholders that are otherwise lawful. 3.2 NUMBER. ELECTION AND TERM OF OFFICE. The number of directors of the Corporation shall be fixed by resolution of the Board of Directors or of the shareholders from time to time; provided, however, that no decrease in the number of directors shall have the effect of shortening the term of an incumbent director. The Board of Directors shall be divided into three classes, Class I, Class II and Class III, as nearly equal in number as possible. The term of office of the Directors in Class I shall expire at the 1998 Annual Meeting of Shareholders. The term of office of the Directors in Class II shall expire at the 1999 Annual Meeting of Shareholders. The term of office of the Directors in Class III shall expire at the 2000 Annual Meeting of Shareholders. At each Annual Meeting of the Shareholders, Directors chosen to succeed those whose terms then expire shall be elected for a term of office expiring at the third succeeding Annual Meeting of Shareholders after the election. When the number of Directors is changed, subject to any requirements of the Code, any newly-created directorships or any decrease in directorships shall be apportioned among the classes by the Board of Directors as to make all classes as nearly equal in number as possible. A director shall hold office until the Annual Meeting of Shareholders for the year in which his or her term expires and until his or her successor shall be elected. 3.3 REMOVAL OF DIRECTORS. The entire Board of Directors or any individual director may be removed only for cause by the shareholders, provided that directors elected by a particular Voting Group may be removed only by the shareholders in that Voting Group. Removal action may be taken only at a shareholders' meeting for which notice of the removal action has been given. A removed director's successor, if any, may be elected at the same meeting to serve the unexpired term. 3.4 VACANCIES. A vacancy occurring in the Board of Directors may be filled for the unexpired term, unless the shareholders have elected a successor, by the affirmative vote of a majority of the remaining directors, whether or not the remaining directors constitute a quorum; provided, however, that if the vacant office was held by a director elected by a particular Voting Group, only the holders of shares of that Voting Group or the remaining directors elected by that Voting Group shall be entitled to fill the vacancy; provided further, however, that if the vacant office was held by a director elected by a particular Voting Group and there is no remaining director elected by that Voting Group, the other remaining directors or director (elected by another Voting Group or Groups) may fill the vacancy during an interim period before the shareholders of the vacated director's Voting Group act to fill the vacancy. A vacancy or vacancies in the Board of Directors may result from the death, resignation, disqualification, or removal of any director, or from an increase in the number of directors. 5 9 3.5 COMPENSATION. Directors may receive such compensation for their services as directors as may be fixed by the Board of Directors from time to time. A director may also serve the Corporation in one or more capacities other than that of director and receive compensation for services rendered in those other capacities. 3.6 COMMITTEES OF THE BOARD OF DIRECTORS. The Board of Directors may designate from among its members an executive committee or one or more other standing or ad hoc committees, each consisting of one or more directors, who serve at the pleasure of the Board of Directors. Subject to the limitations imposed by the Code, each committee shall have the authority set forth in the resolution establishing the committee or in any other resolution of the Board of Directors specifying, enlarging, or limiting the authority of the committee. 3.7 QUALIFICATION OF DIRECTORS. No person elected to serve as a director of the Corporation shall assume office and begin serving unless and until duly qualified to serve, as determined by reference to the Code, the Articles of Incorporation, and any further eligibility requirements established in these Bylaws. 3.8 CERTAIN NOMINATION REQUIREMENTS. No person may be nominated for election as a director at any annual or special meeting of shareholders unless (a) the nomination has been or is being made pursuant to a recommendation or approval of the Board of Directors of the Corporation or a properly constituted committee of the Board of Directors previously delegated authority to recommend or approve nominees for director; (b) the person is nominated by a shareholder of the Corporation who is entitled to vote for the election of the nominee at the subject meeting, and the nominating shareholder has furnished written notice to the Secretary of the Corporation, at the Corporation's principal office, not later than 14 days before the date of the meeting or 5 days after notice is given pursuant to Section 2.4, whichever is later, and the notice (i) sets forth with respect to the person to be nominated his or her name, age, business and residence addresses, principal business or occupation during the past five years, any affiliation with or material interest in the Corporation or any transaction involving the Corporation, and any affiliation with or material interest in any person or entity having an interest materially adverse to the Corporation, and (ii) is accompanied by the sworn or certified statement of the shareholder that the nominee has consented to being nominated and that the shareholder believes the nominee will stand for election and will serve if elected; or (c) (i) the person is nominated to replace a person previously identified as a proposed nominee (in accordance with the provisions of subpart (b) of this Section 3.8) who has since become unable or unwilling to be nominated or to serve if elected, (ii) the shareholder who furnished such previous identification makes the replacement nomination and delivers to the Secretary of the Corporation (at the time of or prior to making the replacement nomination) an affidavit or other sworn statement affirming that the shareholder had no reason to believe the original nominee would be so unable or unwilling, and (iii) such shareholder also furnishes in writing to the Secretary of the Corporation (at the time of or prior to making the replacement nomination) the same type of information about the replacement nominee as required by subpart (b) of this Section 3.8 to have been furnished about the original nominee. The chairman of any meeting of shareholders at which one or more directors are 6 10 to be elected, for good cause shown and with proper regard for the orderly conduct of business at the meeting, may waive in whole or in part the operation of this Section 3.8. ARTICLE FOUR MEETINGS OF THE BOARD OF DIRECTORS 4.1 REGULAR MEETINGS. A regular meeting of the Board of Directors shall be held in conjunction with each annual meeting of shareholders. In addition, the Board of Directors may, by prior resolution, hold regular meetings at other times. 4.2 SPECIAL MEETINGS. Special meetings of the Board of Directors may be called by or at the request of the Chairman of the Board, the President, the Chief Executive Officer, or any two directors in office at that time. 4.3 PLACE OF MEETINGS. Directors may hold their meetings at any place in or outside the State of Georgia that the Board of Directors may establish from time to time. 4.4 NOTICE OF MEETINGS. Directors need not be provided with notice of any regular meeting of the Board of Directors. Unless waived in accordance with Section 4.10, the Corporation shall give at least two days' notice to each director of the date, time, and place of each special meeting. Notice of a meeting shall be deemed to have been given to any director in attendance at any prior meeting at which the date, time, and place of the subsequent meeting was announced. 4.5 QUORUM. At meetings of the Board of Directors, the majority of the directors then in office shall constitute a quorum for the transaction of business. 4.6 VOTE REQUIRED FOR ACTION. If a quorum is present when a vote is taken, the vote of a majority of the directors present at the time of the vote will be the act of the Board of Directors, unless the vote of a greater number is required by the Code, the Articles of Incorporation, or these Bylaws. A director who is present at a meeting of the Board of Directors when corporate action is taken is deemed to have assented to the action taken unless (a) he or she objects at the beginning of the meeting (or promptly upon his or her arrival) to holding the meeting or transacting business at it; (b) his or her dissent or abstention from the action taken is entered in the minutes of the meeting; or (c) he or she delivers written notice of dissent or abstention to the presiding officer of the meeting before its adjournment or to the Corporation immediately after adjournment of the meeting. The right of dissent or abstention is not available to a director who votes in favor of the action taken. 4.7 PARTICIPATION BY CONFERENCE TELEPHONE. Members of the Board of Directors may participate in a meeting of the Board by means of conference telephone or similar communications equipment through which all persons participating may hear and speak to 7 11 each other. Participation in a meeting pursuant to this Section 4.7 shall constitute presence in person at the meeting. 4.8 ACTION BY DIRECTORS WITHOUT A MEETING. Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if a written consent, describing the action taken, is signed by each director and delivered to the Corporation for inclusion in the minutes or filing with the corporate records. The consent may be executed in counterpart, and shall have the same force and effect as a unanimous vote of the Board of Directors at a duly convened meeting. 4.9 ADJOURNMENTS. A meeting of the Board of Directors, whether or not a quorum is present, may be adjourned by a majority of the directors present to reconvene at a specific time and place. It shall not be necessary to give notice to the directors of the reconvened meeting or of the business to be transacted, other than by announcement at the meeting that was adjourned, unless a quorum was not present at the meeting that was adjourned, in which case notice shall be given to directors in the same manner as for a special meeting. At any such reconvened meeting at which a quorum is present, any business may be transacted that could have been transacted at the meeting that was adjourned. 4.10 WAIVER OF NOTICE. A director may waive any notice required by the Code, the Articles of Incorporation, or these Bylaws before or after the date and time of the matter to which the notice relates, by a written waiver signed by the director and delivered to the Corporation for inclusion in the minutes or filing with the corporate records. Attendance by a director at a meeting shall constitute waiver of notice of the meeting, except where a director at the beginning of the meeting (or promptly upon his or her arrival) objects to holding the meeting or to transacting business at the meeting and does not thereafter vote for or assent to action taken at the meeting. ARTICLE FIVE OFFICERS 5.1 OFFICES. The officers of the Corporation shall consist of a President, a Secretary, and a Treasurer, and may include a Chief Executive Officer separate from the President, each of whom shall be elected or appointed by the Board of Directors. The Board of Directors may also elect a Chairman of the Board from among its members. The Board of Directors from time to time may, or may authorize the Chief Executive Officer to, create and establish the duties of other offices and may, or may authorize the Chief Executive Officer to, elect or appoint, or authorize specific senior officers to appoint, the persons who shall hold such other offices, including one or more Vice Presidents (including Executive Vice Presidents, Senior Vice Presidents, Assistant Vice Presidents, and the like), one or more Assistant Secretaries, and one or more Assistant Treasurers. Whether or not so provided by the Board of Directors, the Chairman of the Board or the Chief Executive Officer may appoint one or more Assistant Secretaries, and one or more Assistant Treasurers. Any two or more offices may be held by the same person. 8 12 5.2 TERM. Each officer shall serve at the pleasure of the Board of Directors (or, if appointed by the Chief Executive Officer or a senior officer pursuant to this Article Five, at the pleasure of the Board of Directors, the Chief Executive Officer, or the senior officer authorized to have appointed the officer) until his or her death, resignation, or removal, or until his or her replacement is elected or appointed in accordance with this Article Five. 5.3 COMPENSATION. The compensation of all officers of the Corporation shall be fixed by the Board of Directors or by a committee or officer appointed by the Board of Directors. Officers may serve without compensation. 5.4 REMOVAL. All officers (regardless of how elected or appointed) may be removed, with or without cause, by the Board of Directors, and any officer appointed by the Chief Executive Officer or another senior officer may also be removed, with or without cause, by the Chief Executive Officer or by any senior officer authorized to have appointed the officer to be removed. Removal will be without prejudice to the contract rights, if any, of the person removed, but shall be effective notwithstanding any damage claim that may result from infringement of such contract rights. 5.5 CHAIRMAN OF THE BOARD. The Chairman of the Board (if there be one) shall preside at and serve as chairman of meetings of the shareholders and of the Board of Directors (unless another person is selected under Section 2.9 to act as chairman). The Chairman of the Board shall perform other duties and have other authority as may from time to time be delegated by the Board of Directors. 5.6 CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall be charged with the general and active management of the Corporation, shall see that all orders and resolutions of the Board of Directors are carried into effect, shall have the authority to select and appoint employees and agents of the Corporation, and shall, in the absence or disability of the Chairman of the Board, perform the duties and exercise the powers of the Chairman of the Board. The Chief Executive Officer shall perform any other duties and have any other authority as may be delegated from time to time by the Board of Directors, and shall be subject to the limitations fixed from time to time by the Board of Directors. 5.7 PRESIDENT. If there shall be no separate Chief Executive Officer of the Corporation, then the President shall be the chief executive officer of the Corporation and shall have all the duties and authority given under these Bylaws to the Chief Executive Officer. The President shall otherwise be the chief operating officer of the Corporation and shall, subject to the authority of the Chief Executive Officer, have responsibility for the conduct and general supervision of the business operations of the Corporation. The President shall perform such other duties and have such other authority as may from time to time be delegated by the Board of Directors or the Chief Executive Officer. In the absence or disability of the Chief Executive Officer, the President shall perform the duties and exercise the powers of the Chief Executive Officer. 5.8 VICE PRESIDENTS. The Vice President (if there be one) shall, in the absence or disability of the President, perform the duties and exercise the powers of the President, whether the duties and powers are specified in these Bylaws or otherwise. If the Corporation has more 9 13 than one Vice President, the one designated by the Board of Directors or the Chief Executive Officer (in that order of precedence) shall act in the event of the absence or disability of the President. Vice Presidents shall perform any other duties and have any other authority as from time to time may be delegated by the Board of Directors, the Chief Executive Officer, or the President. 5.9 SECRETARY. The Secretary shall be responsible for preparing minutes of the meetings of shareholders, directors, and committees of directors and for authenticating records of the Corporation. The Secretary or any Assistant Secretary shall have authority to give all notices required by law or these Bylaws. The Secretary shall be responsible for the custody of the corporate books, records, contracts, and other documents. The Secretary or any Assistant Secretary may affix the corporate seal to any lawfully executed documents requiring it, may attest to the signature of any officer of the Corporation, and shall sign any instrument that requires the Secretary's signature. The Secretary or any Assistant Secretary shall perform any other duties and have any other authority as from time to time may be delegated by the Board of Directors, the Chief Executive Officer, or the President. 5.10 TREASURER. Unless otherwise provided by the Board of Directors, the Treasurer shall be responsible for the custody of all funds and securities belonging to the Corporation and for the receipt, deposit, or disbursement of these funds and securities under the direction of the Board of Directors. The Treasurer shall cause full and true accounts of all receipts and disbursements to be maintained and shall make reports of these receipts and disbursements to the Board of Directors, the Chief Executive Officer and President upon request. The Treasurer or Assistant Treasurer shall perform any other duties and have any other authority as from time to time may be delegated by the Board of Directors, the Chief Executive Officer, or the President. ARTICLE SIX DISTRIBUTIONS AND DIVIDENDS Unless the Articles of Incorporation provide otherwise, the Board of Directors, from time to time in its discretion, may authorize or declare distributions or share dividends in accordance with the Code. ARTICLE SEVEN SHARES 7.1 SHARE CERTIFICATES. The interest of each shareholder in the Corporation shall be evidenced by a certificate or certificates representing shares of the Corporation, which shall be in such form as the Board of Directors from time to time may adopt in accordance with the Code. Share certificates shall be in registered form and shall indicate the date of issue, the name of the Corporation, that the Corporation is organized under the laws of the State of Georgia, the name of the shareholder, and the number and class of shares and designation of the series, if any, represented by the certificate. Each certificate shall be signed by the President or a Vice President (or in lieu thereof, by the Chairman of the 10 14 Board or Chief Executive Officer, if there be one) and may be signed by the Secretary or an Assistant Secretary; provided, however, that where the certificate is signed (either manually or by facsimile) by a transfer agent, or registered by a registrar, the signatures of those officers may be facsimiles. 7.2 RIGHTS OF CORPORATION WITH RESPECT TO REGISTERED OWNERS. Prior to due presentation for transfer of registration of its shares, the Corporation may treat the registered owner of the shares (or the beneficial owner of the shares to the extent of any rights granted by a nominee certificate on file with the Corporation pursuant to any procedure that may be established by the Corporation in accordance with the Code) as the person exclusively entitled to vote the shares, to receive any dividend or other distribution with respect to the shares, and for all other purposes; and the Corporation shall not be bound to recognize any equitable or other claim to or interest in the shares on the part of any other person, whether or not it has express or other notice of such a claim or interest, except as otherwise provided by law. 7.3 TRANSFERS OF SHARES. Transfers of shares shall be made upon the books of the Corporation kept by the Corporation or by the transfer agent designated to transfer the shares, only upon direction of the person named in the certificate or by an attorney lawfully constituted in writing. Before a new certificate is issued, the old certificate shall be surrendered for cancellation or, in the case of a certificate alleged to have been lost, stolen, or destroyed, the provisions of Section 7.5 of these Bylaws shall have been complied with. 7.4 DUTY OF CORPORATION TO REGISTER TRANSFER. Notwithstanding any of the provisions of Section 7.3 of these Bylaws, the Corporation is under a duty to register the transfer of its shares only if: (a) the share certificate is endorsed by the appropriate person or persons; (b) reasonable assurance is given that each required endorsement is genuine and effective; (c) the Corporation has no duty to inquire into adverse claims or has discharged any such duty; (d) any applicable law relating to the collection of taxes has been complied with; (e) the transfer is in fact rightful or is to a bona fide purchaser; and (f) the transfer is in compliance with applicable provisions of any transfer restrictions of which the Corporation shall have notice. 7.5 LOST, STOLEN, OR DESTROYED CERTIFICATES. Any person claiming a share certificate to be lost, stolen, or destroyed shall make an affidavit or affirmation of this claim in such a manner as the Corporation may require and shall, if the Corporation requires, give the Corporation a bond of indemnity in form and amount, and with one or more sureties satisfactory to the Corporation, as the Corporation may require, whereupon an appropriate new certificate may be issued in lieu of the one alleged to have been lost, stolen or destroyed. 7.6 FIXING OF RECORD DATE. For the purpose of determining shareholders (a) entitled to notice of or to vote at any meeting of shareholders or, if necessary, any adjournment thereof, (b) entitled to receive payment of any distribution or dividend, or (c) for any other proper purpose, the Board of Directors may fix in advance a date as the record date. The record date may not be more than 70 days (and, in the case of a notice to shareholders of a shareholders' meeting, not less than 10 days) prior to the date on which the particular 11 15 action, requiring the determination of shareholders, is to be taken. A separate record date may be established for each Voting Group entitled to vote separately on a matter at a meeting. A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting, unless the Board of Directors shall fix a new record date for the reconvened meeting, which it must do if the meeting is adjourned to a date more than 120 days after the date fixed for the original meeting. 7.7 RECORD DATE IF NONE FIXED. If no record date is fixed as provided in Section 7.6, then the record date for any determination of shareholders that may be proper or required by law shall be, as appropriate, the date on which notice of a shareholders' meeting is mailed, the date on which the Board of Directors adopts a resolution declaring a dividend or authorizing a distribution, or the date on which any other action is taken that requires a determination of shareholders. ARTICLE EIGHT INDEMNIFICATION 8.1 INDEMNIFICATION OF DIRECTORS. The Corporation shall indemnify and hold harmless any director of the Corporation (an "Indemnified Person") who was or is a party, or is threatened to be made a party, to any threatened, pending or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative, whether formal or informal, including any action or suit by or in the right of the Corporation (for purposes of this Article Eight, collectively, a Proceeding") because he or she is or was a director, officer, employee, or agent of the Corporation, against any judgment, settlement, penalty, fine, or reasonable expenses (including, but not limited to, attorneys' fees and disbursements, court costs, and expert witness fees) incurred with respect to the Proceeding (for purposes of this Article Eight, a "Liability/'), provided, however, that no indemnification shall be made for: (a) any appropriation by a director, in violation of the director's duties, of any business opportunity of the corporation; (b) any acts or omissions of a director that involve intentional misconduct or a knowing violation of law; (c) the types of liability set forth in Code Section 14-2-832; or (d) any transaction from which the director received an improper personal benefit. 8.2 INDEMNIFICATION OF OTHERS. The Board of Directors shall have the power to cause the Corporation to provide to officers, employees, and agents of the Corporation all or any part of the right to indemnification permitted for such persons by appropriate provisions of the Code. Persons to be indemnified may be identified by position or name, and the right of indemnification may be different for each of the persons identified. Each officer, employee, or agent of the Corporation so identified shall be an "Indemnified Person" for purposes of the provisions of this Article Eight. 8.3 OTHER ORGANIZATIONS. The Corporation shall provide to each director, and the Board of Directors shall have the power to cause the Corporation to provide to any officer, 12 16 employee, or agent, of the Corporation who is or was serving as a director, officer, partner, trustee, employee, or agent of (a) Intelligent Systems Master, L.P., INTS Management Company or any of their current or former affiliates, or (b) another corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise at the Corporation's request all or any part of the right to indemnification and other rights of the type provided under Sections 8.1, 8.2, &.4, and 8.10 of this Article Eight (subject to the conditions, limitations, and obligations specified in those Sections) permitted for such persons by appropriate provisions of the Code. Persons to be indemnified may be identified by position or name, and the right of indemnification may be different for each of the persons identified. Each person so identified shall be an "Indemnified Person" for purposes of the provisions of this Article Eight. 8.4 ADVANCES. Expenses (including, but not limited to, attorneys' fees and disbursements, court costs, and expert witness fees) incurred by an Indemnified Person in defending any Proceeding of the kind described in Sections 8.1 or 8.3, as to an Indemnified Person who is a director of the Corporation, or in Sections 8.' or 8.3 as to other Indemnified Persons, if the Board of Directors has specified that advancement of expenses be made available to any such Indemnified Person, shall be paid by the Corporation in advance of the final disposition of such Proceeding as set forth herein. The Corporation shall promptly pay the amount of such expenses to the Indemnified Person, but in no event later than 10 days following the Indemnified Person's delivery to the Corporation of a written request for an advance pursuant to this Section 8.4, together with a reasonable accounting of such expenses; provided, however, that the Indemnified Person shall furnish the C Corporation a written affirmation of his or her good faith belief that he or she has met the applicable standard of conduct and a written undertaking and agreement to repay to the Corporation any advances made pursuant to this Section 8.4 if it shall be determined that the Indemnified Person is not entitled(l to be indemnified by the Corporation for such amounts. The Corporation may make the advances contemplated by this Section 8.4 regardless of the Indemnified Person's financial ability to make repayment. Any advances and undertakings to repay pursuant to this Section 8.4 may be unsecured and interest-free 8.5 NON-EXCLUSIVITY. Subject to any applicable limitation imposed by the Code or the Articles of Incorporation, the indemnification and advancement of expenses provided by or granted pursuant to this Article Eight shall not be exclusive of any other rights to which a person seeking indemnification or advancement of expenses may be entitled under any provision of the Articles of Incorporation, or any Bylaw, resolution, or agreement specifically or in general terms approved or ratified by the affirmative vote of holders of a majority of the shares entitled to be voted thereon. 8.6 INSURANCE. The Corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee, or agent of the Corporation, or who, while serving in such a capacity, is also or was also serving at the 13 17 request of the Corporation as a director, officer, trustee, partner, employee, or agent of any corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise, against any Liability that may be asserted against or incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify him or her against such liability under the provisions of this Article Eight. 8.7 NOTICE. If the Corporation indemnifies or advances expenses to a director under any of Sections 142-851 through 14-2-854 of the Code in connection with a Proceeding by or in the right of the Corporation, the Corporation shall, to the extent required by Section 14-2-1621 or any other applicable provision of the Code, report the indemnification or advance in writing to the shareholders with or before the notice of the next shareholders' meeting. 8.8 SECURITY. The Corporation may designate certain of its assets as collateral, provide self-insurance, establish one or more indemnification trusts, or otherwise secure or facilitate its ability to meet its obligations under this Article Eight, or under any indemnification agreement or plan of indemnification adopted and entered into in accordance with the provisions of this Article Eight, as the Board of Directors deems appropriate. 8.9 AMENDMENT. Any amendment to this Article Eight that limits or otherwise adversely affects the right of indemnification, advancement of expenses, or other rights of any Indemnified Person hereunder shall, as to such Indemnified Person, apply only to Proceedings based on actions, events, or omissions (collectively, "Post Amendment Events") occurring after such amendment and after delivery of notice of such amendment to the Indemnified Person so affected. Any Indemnified Person shall. as to any Proceeding based on actions, events, or omissions occurring prior to the date of receipt of such notice, be entitled to the right of indemnification, advancement of expenses, and other rights under this Article Eight to the same extent as if such provisions had continued as part of the Bylaws of the Corporation without such amendment. This Section 8.9 cannot be altered, amended, or repealed in a manner effective as to any Indemnified Person (except as to Post Amendment Events) without the prior written consent of such Indemnified Person. 8.10 AGREEMENTS. The provisions of this Article Eight shall be deemed to constitute an agreement between the Corporation and each Indemnified Person hereunder. In addition to the rights provided in this Article Eight, the Corporation shall have the power, upon authorization by the Board of Directors, to enter into an agreement or agreements providing to any Indemnified Person indemnification rights substantially similar to those provided in this Article Eight. 8.11 CONTINUING BENEFITS. The rights of indemnification and advancement of expenses permitted or authorized by this Article Eight shall, unless otherwise provided when such rights are granted or conferred, continue as to a person who has ceased to be a director, officer, employee. or agent and shall inure to the benefit of the heirs, executors, and administrators of such person. 14 18 8.12 SUCCESSORS. For purposes of this Article Eight, the term "Corporation" shall include any corporation. joint venture, trust, partnership, or unincorporated business association that is the successor to all or substantially all of the business or assets of this Corporation, as a result of merger, consolidation, sale, liquidation. or otherwise, and any such successor shall be liable to the persons indemnified under this Article Eight on the same terms and conditions and to the same extent as this Corporation. 8.13 SEVERABILITY. Each of the Sections of this Article Eight, and each of the clauses set forth herein, shall be deemed separate and independent, and should any part of any such Section or clause be declared invalid or unenforceable by any court of competent jurisdiction, such invalidity or unenforceability shall in no way render invalid or unenforceable any other part thereof or any separate Section or clause of this Article Eight that is not declared invalid or unenforceable. 8.14 ADDITIONAL INDEMNIFICATION. In addition to the specific indemnification rights set forth herein, the Corporation shall indemnify each of its directors and such of its officers as have been designated by the Board of Directors to the full extent permitted by action of the Board of Directors without shareholder approval under the Code or other laws of the State of Georgia as in effect from time to time. ARTICLE NINE MISCELLANEOUS 9.1 INSPECTION OF BOOKS AND RECORDS. The Board of Directors shall have the power to determine which accounts, books, and records of the Corporation shall be available for shareholders to inspect or copy, except for those books and records required by the Code to be made available upon compliance by a shareholder with applicable requirements, and shall have the power to fix reasonable rules and regulations (including confidentiality restrictions and procedures) not in conflict with applicable law for the inspection and copying of accounts, books, and records that by law or by determination of the Board of Directors are made available. Unless required by the Code or otherwise provided by the Board of Directors, a shareholder of the Corporation holding less than two percent of the total shares of the Corporation then outstanding shall have no right to inspect the books and records of the Corporation. 9.2 FISCAL YEAR. The Board of Directors is authorized to fix the fiscal year of the Corporation and to change the fiscal year from time to time as it deems appropriate. 9.3 CORPORATE SEAL. The corporate seal will be in such form as the Board of Directors may from time to time determine. The Board of Directors may authorize the use of one or more facsimile forms of the corporate seal. The corporate seal need not be used unless its use is required by law, by these Bylaws, or by the Articles of Incorporation. 9.4 ANNUAL STATEMENTS. Not later than four months after the close of each fiscal year, and in any case prior to the next annual meeting of shareholders, the Corporation shall prepare (a) a balance sheet showing in reasonable detail the financial condition of the Corporation 15 19 as of the close of its fiscal year, and (b) a profit and loss statement showing the results of its operations during its fiscal year. Upon receipt of written request, the Corporation promptly shall mail to any shareholder of record a copy of the most recent such balance sheet and profit and loss statement, in such form and with such information as the Code may require. 9.5 NOTICE. (a) Whenever these Bylaws require notice to be given to any shareholder or to any director, the notice may be given by mail, in person, by courier delivery, by telephone, or by telecopier, telegraph, or similar electronic means. Whenever notice is given to a shareholder or director by mail, the notice shall be sent by depositing the notice in a post office or letter box in a postage-prepaid, sealed envelope addressed to the shareholder or director at his or her address as it appears on the books of the Corporation. Any such written notice given by mail shall be effective: (i) if given to shareholders, at the time the same is deposited in the United States mail, and (ii) in all other cases, at the earliest of (x) when received or when delivered, properly addressed, to the addressee's last known principal place of business or residence, (y) five days after its deposit in the mail, as evidenced by the postmark, if mailed with first-class postage prepaid and correctly addressed, or (z) on the date shown on the return receipt, if sent by registered or certified mail, return receipt requested, and the receipt is signed by or on behalf of the addressee. Whenever notice is given to a shareholder or director by any means other than mail, the notice shall be deemed given when received. (b) In calculating time periods for notice, when a period of time measured in days, weeks, months, years, or other measurement of time is prescribed for the exercise of any privilege or the discharge of any duty, the first day shall not be counted but the last day shall be counted. ARTICLE TEN AMENDMENTS Except as otherwise provided under the Code, the Board of Directors shall have the power to alter, amend, or repeal these Bylaws or adopt new Bylaws. Any Bylaws adopted by the Board of Directors may be altered, amended, or repealed, and new Bylaws adopted, by the shareholders. The shareholders may prescribe in adopting any Bylaw or Bylaws that the Bylaw or Bylaws so adopted shall not be altered, amended, or repealed by the Board of Directors. 16 EX-23.4 3 CONSENT OF ARTHUR ANDERSEN 1 EXHIBIT 23.4 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference of our report dated April 23, 1998 covering the consolidated financial statements and schedule of Visibility Inc. and subsidiaries as of and for the years ended December 31, 1997 and 1996, in this Form 10-K/A for the fiscal year ended December 31, 1997 into Intelligent Systems Corporation's previously filed Registration Statements on Form S-8 (File No. 33-99432 and No. 333-32157). ARTHUR ANDERSEN LLP Boston, Massachusetts May 15, 1998 -----END PRIVACY-ENHANCED MESSAGE-----