<PAGE> 1
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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
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(Exact name of Registrant as specified in its charter)
GEORGIA 58-1964787
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4355 SHACKLEFORD ROAD, NORCROSS, GEORGIA 30093
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(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.
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<PAGE> 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
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<PAGE> 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
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<PAGE> 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:
<TABLE>
<CAPTION>
<S> <C> <C>
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
</TABLE>
INTELLIGENT SYSTEMS CORPORATION
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<PAGE> 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:
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS:
<S> <C>
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
</TABLE>
INTELLIGENT SYSTEMS CORPORATION
F-1
<PAGE> 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
<PAGE> 7
VISIBILITY INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
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
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
S-27
<PAGE> 8
VISIBILITY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
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)
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
S-28
<PAGE> 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
<TABLE>
<CAPTION>
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
<S> <C> <C> <C> <C> <C> <C>
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
========= ========== ========== ======== ======= ==========
<CAPTION>
STOCKHOLDERS' EQUITY (DEFICIT)
-----------------------------------------------------------------------------------------------------
FOREIGN
ADDITIONAL CURRENCY TOTAL
COMMON STOCK PAID-IN ACCUMULATED TRANSLATION STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT DEFICIT
<S> <C> <C> <C> <C> <C> <C>
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)
========== ======= =========== ============ ======= ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
S-29
<PAGE> 10
VISIBILITY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
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 $ --
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
S-30
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES 1997 1996
<S> <C> <C> <C>
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
========== ==========
</TABLE>
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
<PAGE> 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
<PAGE> 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:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Notes payable to stockholders $ 476,078 $1,145,539
Notes payable 1,049,375 --
---------- ----------
$1,525,453 $1,145,539
========== ==========
</TABLE>
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
<PAGE> 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:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
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)
---- ----
--% --%
==== ====
</TABLE>
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:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
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 $ -- $ --
=========== ===========
</TABLE>
S-37
<PAGE> 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:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
<S> <C> <C>
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
==========
</TABLE>
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
<PAGE> 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
<PAGE> 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
<PAGE> 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:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OUTSTANDING EXERCISE
OPTIONS PRICE
<S> <C> <C>
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
========== =========
</TABLE>
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
<PAGE> 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:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Net loss-
As reported (3,360,314) (6,048,156)
Pro forma (3,373,765) (6,062,922)
</TABLE>
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:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
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
=========== ===========
</TABLE>
Export sales were not material in 1997 or 1996, respectively.
S-42
<PAGE> 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
<TABLE>
<CAPTION>
Net
Balance at Provisions Deductions Balance at
Beginning of Charged to from End of
Period Operations Allowance (1) Period
------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
Year Ended December 31, 1997............ $518 $ 99 $(133) $484
Year Ended December 31, 1996............ $325 $223 $ (30) $518
</TABLE>
- --------
(1) Accounts deemed uncollectible, net of recoveries.
S-43
<PAGE> 1
EXHIBIT 3(ii)
BYLAWS
OF
INTELLIGENT SYSTEMS CORPORATION
As of June 6, 1997
(unless otherwise noted)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
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
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
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
</TABLE>
<PAGE> 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
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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
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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
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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.
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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.
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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
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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
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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.
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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
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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
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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
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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,
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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
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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.
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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
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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.
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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
