<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
FILED BY THE REGISTRANT [X] FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
- --------------------------------------------------------------------------------
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
ARTIFICIAL LIFE, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act
Rule 0-11 (Set forth the amount on which the filing fee is calculated and
state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
ARTIFICIAL LIFE, INC.
FOUR COPLEY PLACE, SUITE 102
BOSTON, MASSACHUSETTS 02116
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Artificial Life, Inc. (the "Company") to be held at 10:00 a.m. on Friday, August
13, 1999 at the offices of Artificial Life, Inc., Four Copley Place, Suite 102,
Boston, Massachusetts, 02116.
At the Annual Meeting, you will be asked to elect one (1) member of the
Board of Directors of the Company and to approve an amendment to the Company's
1998 Equity Incentive Plan to increase the number of shares of the Company's
common stock as to which awards may be granted under such plan by 1,500,000
shares. The Board of Directors recommends the approval of each of these
proposals.
Further details of these matters to be considered at the Annual Meeting are
contained in the attached Proxy Statement that we urge you to consider
carefully. The Company's 1998 Annual Report is also enclosed and provides
additional information regarding the financial results of the Company in 1998.
We hope that you will be able to attend the Annual Meeting. Whether or not
you plan to attend the Annual Meeting, it is important that your shares are
represented. Therefore, please complete, date, sign and return the enclosed
proxy card promptly in the enclosed envelope, which requires no postage if
mailed in the United States. This will ensure your proper representation at the
Annual Meeting. If you attend the Annual Meeting, you may vote in person if you
wish, even if you have previously returned your Proxy.
Sincerely,
/s/ Eberhard Schoneburg
----------------------------------
EBERHARD SCHONEBURG
Chief Executive Officer, President
and Chairman of the Board
Boston, Massachusetts
July 16, 1999
YOUR VOTE IS IMPORTANT.
PLEASE RETURN YOUR PROXY PROMPTLY.
<PAGE> 3
ARTIFICIAL LIFE, INC.
FOUR COPLEY PLACE, SUITE 102
BOSTON, MASSACHUSETTS 02116
(617) 266-5542
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 13, 1999
------------------------
NOTICE IS HEREBY GIVEN that the 1999 Annual Meeting of Stockholders of
Artificial Life, Inc., a Delaware corporation (the "Company"), will be held on
Friday, August 13, 1999 at 10:00 a.m. at the offices of Artificial Life, Inc.,
Four Copley Place, Suite 102, Boston, Massachusetts, 02116, to consider and act
upon the following matters:
1. To elect one (1) member of the Board of Directors.
2. To approve an amendment to the Company's 1998 Equity Incentive Plan to
increase the number of shares of the Company's common stock as to which
awards may be granted under such plan by 1,500,000 shares.
3. To consider and act upon any matters incidental to the foregoing and any
other matters that may properly come before the meeting or any adjournment
or adjournments thereof.
The Board of Directors has fixed the close of business on July 9, 1999 as
the record date for the determination of Stockholders entitled to notice of and
to vote at the Annual Meeting and at any adjournment or adjournments thereof.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING. THEREFORE,
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE YOUR PROXY
AND RETURN IT IN THE ENCLOSED ENVELOPE, WHICH REQURIES NO POSTAGE IF MAILED IN
THE UNTIED STATES. IF YOU ATTEND THE MEETING AND WISH TO VOTE IN PERSON, YOUR
PROXY WILL NOT BE USED.
By Order of the Board of Directors
/s/ Robert Duggan
---------------------------------
ROBERT DUGGAN
Secretary
Boston, Massachusetts
July 16, 1999
<PAGE> 4
ARTIFICIAL LIFE, INC.
FOUR COPLEY PLACE, SUITE 102
BOSTON, MASSACHUSETTS 02116
(617) 266-5542
------------------------------
PROXY STATEMENT
------------------------------
GENERAL INFORMATION
The enclosed Proxy is solicited by the Board of Directors of Artificial
Life, Inc., a Delaware corporation (the "Company"), for use at the 1999 Annual
Meeting of Stockholders to be held on Friday, August 13, 1999 at 10:00 a.m. at
the offices of Artificial Life, Inc., Four Copley Place, Suite 102, Boston,
Massachusetts, and at any adjournment or adjournments thereof (the "Annual
Meeting").
Where the Stockholder specifies a choice on the enclosed Proxy as to how
his or her shares are to be voted on a particular matter, the shares will be
voted accordingly. If no choice is specified, the shares will be voted FOR the
election of the one (1) member of the Board of Directors named herein and FOR
the approval of an amendment to the Company's 1998 Equity Incentive Plan to
increase the number of shares of the Company's common stock as to which awards
may be granted under such plan by 1,500,000 shares, and with respect to other
proposals, in accordance with the recommendations of the Board. Any Proxy given
pursuant to this solicitation may be revoked by the person giving it at any time
before its use by delivery to the Company of a written notice of revocation or a
duly executed Proxy bearing a later date. Any Stockholder who has executed a
Proxy but is present at the Annual Meeting, and who wishes to vote in person,
may do so by revoking his or her Proxy as described in the preceding sentence.
Shares represented by valid Proxies received in time for use at the Annual
Meeting and not revoked at or prior to the Annual Meeting, will be voted at the
Annual Meeting.
VOTING SECURITIES AND VOTES REQUIRED
The close of business on July 9, 1999 has been fixed as the record date for
determining the Stockholders entitled to notice of and to vote at the Annual
Meeting (the "Record Date"). On the Record Date, there were 9,310,574 shares of
Common Stock of the Company, $.01 par value per share (the "Common Stock"),
issued and outstanding and entitled to vote. Each share of Common Stock entitles
the holder to one vote with respect to all matters submitted to Stockholders at
the Annual Meeting.
The presence, in person or by proxy, of the holders of a majority of the
Company's Common Stock entitled to vote at the Annual Meeting is necessary to
constitute a quorum at the Annual Meeting. Pursuant to the Delaware General
Corporation Law and the Company's Certificate of Incorporation and Restated
Bylaws (the "Bylaws"), the directors are elected by a plurality of the votes
properly cast at the Annual Meeting. Abstentions, votes withheld and broker
non-votes will not be treated as votes cast for this purpose and will not affect
the outcome of the election. A "broker non-vote" occurs when a registered broker
holding a customer's shares in the name of the broker has not received voting
instructions on a matter from the customer and is barred by applicable rules
from exercising discretionary authority to vote on the matter and so indicates
on the proxy.
The affirmative vote of the holders of a majority of the shares of Common
Stock present, or represented, and entitled to vote is required to approve the
proposed amendment to the Company's 1998 Equity Incentive Plan (the "Equity
Plan"). Broker non-votes will not be counted as present, or represented, and
entitled to vote for these purposes and, therefore, will not affect the outcome
of the vote.
<PAGE> 5
Members of the Board of Directors of the Company and officers of the
Company, as a group, own or may be deemed to control approximately 68.5% of the
outstanding shares of Common Stock. As there is no cumulative voting provided
for in the Company's Certificate of Incorporation, the Board of Directors and
officers are able to exert substantial influence over the election of the Board
of Directors and the outcome of any issues that may be subject to a vote by the
Company's Stockholders at the Annual Meeting. The Board of Directors and
officers have indicated their intent to vote all shares of Common Stock owned or
controlled by them in favor of each item set forth herein.
The cost of soliciting Proxies, including expenses in connection with
preparing and mailing this Proxy Statement, will be borne by the Company. In
addition, the Company will reimburse brokerage firms and other persons
representing beneficial owners of Common Stock for their expenses in forwarding
proxy materials to such beneficial owners. Solicitation of proxies by mail may
be supplemented by telephone, telex and personal solicitation by directors,
officers or employees of the Company. No additional compensation will be paid
for such solicitation.
The Annual Report to Stockholders for the fiscal year ended December 31,
1998 is being mailed to the Stockholders with this Proxy Statement. This Proxy
Statement and the accompanying Proxy are first being mailed on or about July 16,
1999 to all Stockholders entitled to notice of and to vote at the Annual
Meeting.
2
<PAGE> 6
PROPOSAL 1
ELECTION OF DIRECTORS
The Bylaws of the Company provide that the number of directors shall be
fixed by the Board of Directors. The Bylaws also provide that the Board of
Directors shall be divided into three classes, as equal in number as possible,
with terms expiring in successive years. Directors are elected for terms of
three years and until their successors are elected and qualified. The Board of
Directors has nominated Mr. Elmar Wohlgensinger, the current Class III Director,
for re-election at the Annual Meeting (the "Director Nominee") for a term
expiring in 2002. The Class I Director, with a term expiring in 2001, is Mr.
Eberhard Schoneburg. The Class II Directors, with terms expiring in 2000, are
Messrs. Bruno Gabriel and Harmut Bergmann.
A plurality of the votes of the shares present in person or represented by
proxy at the Annual Meeting and entitled to vote is required to elect the
Director Nominee. Unless authority to vote for the Director Nominee is withheld,
the shares represented by all Proxies received by the Board of Directors will be
voted for the Director Nominee. In the event that the Director Nominee shall
become unable or unwilling to serve, the shares represented by Proxies will be
voted for the election of such other person as the Board of Directors may
recommend in his place. The Board has no reason to believe that the Director
Nominee will be unable or unwilling to serve.
THE BOARD OF DIRECTORS RECOMMENDS THE ELECTION OF MR. WOHLGENSINGER AS A
DIRECTOR, AND PROXIES SOLICITED BY THE BOARD WILL BE VOTED IN FAVOR THEREOF
UNLESS A STOCKHOLDER HAS INDICATED OTHERWISE ON THE PROXY.
The following table contains certain information about the Director
Nominee, each other person whose term of office as a director will continue
after the Annual Meeting and each executive officer of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Eberhard Schoneburg......................... 42 President, Chief Executive Officer and
Chairman of the Board
Bruno Gabriel............................... 53 Director
Elmar Wohlgensinger*........................ 59 Director
Hartmut Bergmann............................ 48 Director
Robert Pantano.............................. 38 Chief Financial Officer
Klaus Kater................................. 32 Chief Technology Officer
</TABLE>
* Director Nominee
EBERHARD SCHONEBURG has been President and a member of the Board of
Directors of the Company since November 1994. He was Chief Executive Officer
from November 1994 to May 1996 and from October 1997 to the present. Mr.
Schoneburg has been the Chairman of the Board of Directors of the Company since
the founding of the Company. The Company was founded in November 1994 as
Neurotec International Corp., a wholly owned subsidiary of Neurotec GmbH, a
German multimedia and Internet solutions company owned by Mr. Schoneburg and two
corporate investors: a major German retailer and an industrial conglomerate.
Neurotec GmbH was part of the Neurotec Group, a group of high tech companies
founded in Germany by Mr. Schoneburg in 1993. In 1997 he sold all of his shares
in Neurotec GmbH to the remaining stockholders and contemporaneously purchased
100% of the shares of the Company from Neurotec GmbH. From 1989 to 1994 Mr.
Schoneburg was a professor for industrial applications of artificial
intelligence at Fachhochschule Furtwangen, Germany. From 1988 to 1993, he was
the Chairman of the BIT Group, a group of five German high tech companies which
he founded in 1988.
Mr. Schoneburg was awarded the First Prize of the Berlin Innovation Award
in 1990 for the development of the First European Neural Compiler and again in
1992 for the development of an expert system for detecting chemical hazards for
Procter and Gamble. He has published five course books on a wide variety of
topics such as computer viruses, neural networks, evolution strategies and
genetic programming and over 60 research papers on related topics. He is also a
member of the jury of the Golden Award of Montreux.
3
<PAGE> 7
BRUNO GABRIEL joined the Company's Board of Directors in September 1998.
Since 1989, Mr. Gabriel has been a management consultant to several European
companies. From 1984 to 1989, he was the Chief Executive Officer and President
of the ALSO Group, a European distributor of personal computers and computer
equipment which he founded in 1984. From 1978 to 1984, Mr. Gabriel was the Chief
Executive Officer of ADV/ORGA Switzerland, a software and consulting company.
From 1976 until 1978, he was manager for new media at Tagesanzeiger Zurich, a
Swiss newspaper company. Mr. Gabriel began his career in 1971 as a manager for
software development at Telekurs AG, a Swiss telecommunications company.
ELMAR WOHLGENSINGER joined the Company's Board of Directors in September
1998. He has worked for the IHA Institute, a Swiss market research company,
since 1961 where he has been a member of the board since 1970 and President
since 1980. Mr. Wohlgensinger is a Vice President of ATAG Holding, an accounting
firm, and has been a member of ATAG Ernst & Young management, an accounting
firm, since 1991. Mr. Wohlgensinger also serves on the board of German GFK, EKN
Bank Nidwalden, Schweizerische Gesellschaft Fuer Marketing and the Chamber of
Commerce of Central Switzerland.
HARTMUT BERGMANN joined the Company's Board of Directors in December 1998,
upon completion of the Company's initial public offering, pursuant to an
agreement between the Company and the underwriters for the initial public
offering, New York Broker, Inc. and New York Broker Deutschland AG. Mr. Bergmann
has been Chairman of the Management Board of New York Broker Deutschland AG
since 1990. From 1976 until he joined New York Broker Deutschland AG, he was
with Hornblower Fischer AG, a regional German brokerage firm where he was a
Member of the Management Board from 1976 through 1989. Previously he was a
financial consultant with Merrill Lynch in Germany.
ROBERT PANTANO, the Company's Chief Financial Officer, joined the Company
in April 1995 as an accountant, was appointed Controller and Director of Human
Resources in 1996 and was promoted to his present position in September 1997.
From 1993 until joining the Company, Mr. Pantano worked as the Controller and
General Manager of Intertech International Corp., an international engineering
firm. From 1990 to 1993, he was a Principal with Global Vision International, an
international export trade consulting firm specializing in central and eastern
Europe. Mr. Pantano holds a B.S. in accounting from Bentley College.
KLAUS KATER joined the Company as Chief Technology Officer in May 1998.
From December 1997 through April 1998, Mr. Kater provided consulting services to
the Company. Prior to that time, from June 1997 to December 1997, he was
Managing Director for the mediaCenter Research Institute GmbH, a German
multimedia research center and a subsidiary of Neurotec Gmbh. From March 1996 to
July 1997, Mr. Kater worked as a freelance consultant, coordinating the
activities of the Wirtschaftsforderungsgesellschaft Business Development
Institute in the context of Multimedia initiatives, and concurrently from 1993
to 1996, he worked for Neurotec GmbH, where he served as project manager for
chemical expert systems.
MEETINGS OF THE BOARD OF DIRECTORS. During the year ended December 31,
1998, the Board did not hold any meetings; however, the Board acted by unanimous
written consent on 12 occasions.
THE AUDIT COMMITTEE. The Audit Committee was formed in December 1998
shortly after the Company's initial public offering was completed and currently
consists of Messrs. Wohlgensinger and Bergmann. The Audit Committee reviews with
the Company's independent accountants the scope of the annual audit, discusses
the adequacy of internal accounting controls and procedures, and performs
general oversight with respect to the accounting principles applied in the
financial reporting of the Company. The Audit Committee did not meet in 1998.
THE COMPENSATION COMMITTEE. The Compensation Committee was also formed in
December 1998 shortly after the Company's initial public offering was completed
and currently consists of Messrs. Wohlgensinger and Bergmann, both non-employee
directors. The Compensation Committee's functions are to recommend to the full
Board the amount, nature and method of payment of compensation of all executive
officers and certain other key employees and consultants of the Company and to
administer the Company's equity incentive, stock option and stock purchase
plans. The Compensation Committee did not meet in 1998.
4
<PAGE> 8
The Company does not have a standing nominating committee or a committee
performing similar functions.
DIRECTOR COMPENSATION. Directors who are not employees of the Company
receive $3,000 for each meeting of the Board of Directors attended and are
reimbursed for reasonable out-of-pocket expenses incurred in attending such
meetings. Non-employee directors are also eligible for participation in the
Equity Plan, and the Company may, in the future grant non-qualified stock
options to non-employee directors as an incentive to join or remain on the Board
of Directors.
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee was formed in December 1998 shortly after the
Company's initial public offering was completed and all of the fiscal year 1998
compensation for the Company's executive officers was set by Mr. Schneburg prior
to that time. Therefore, the Company's Compensation Committee does not have a
report for 1998.
The Compensation Committee is reviewing the Company's compensation position
and policies as a whole as a result of the Company becoming a public company in
December 1998. The Compensation Committee is currently considering salary, bonus
and equity incentive plans, the historical and current arrangements at the
Company and arrangements in place at similar companies. The Compensation
Committee expects to evaluate such plans and arrangements during 1999, and to
adopt and implement policies that apply to all of the Company's executive
officers which are based, in part, on the Company's performance.
The Compensation Committee
Elmar Wohlgensinger
Hartmut Bergmann
5
<PAGE> 9
COMPARATIVE STOCK PERFORMANCE GRAPH
The following graph shows the cumulative stockholder return of the
Company's Common Stock from December 18, 1998 (the first trading day for the
Common Stock) through May 31, 1999 as compared with that of the Nasdaq Market
Index and the SIC Code Index (Prepackaged Software). The graph assumes the
investment of $100 in the Company's Common Stock and each of the comparison
groups on December 18, 1998 and assumes the reinvestment of dividends. The
Company has never declared a dividend on its Common Stock. The stock price
performance depicted in the graph below is not necessarily indicative of future
price performance.
<TABLE>
<CAPTION>
SIC CODE INDEX
ARTIFICIAL LIFE, INC. (PREPACKAGED SOFTWARE) NASDAQ MARKET INDEX
--------------------- ---------------------- -------------------
<S> <C> <C> <C>
12/18/98 100.00 100.00 100.00
12/31/98 58.51 100.00 100.00
1/29/99 69.68 119.82 114.30
2/26/99 52.39 105.28 104.30
3/31/99 64.63 114.54 112.22
4/30/99 76.60 107.28 115.82
5/31/99 68.09 107.51 112.40
</TABLE>
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION. The following tables set forth certain information
with respect to compensation paid or accrued for services rendered to the
Company in all capacities for the fiscal year ended December 31, 1998 by its
Chief Executive Officer and the one other most highly compensated executive
officer of the Company whose salary and bonus exceeded $100,000 (the "Named
Executive Officers"). No other executive officer of the Company earned greater
than $100,000 in the fiscal year ended December 31, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------------- ----------------------
NAME AND PRINCIPAL OTHER ANNUAL SECURITIES
POSITION(1) YEAR SALARY($) COMPENSATION UNDERLYING OPTIONS
------------------ ---- --------- ------------ ------------------
<S> <C> <C> <C> <C>
Eberhard Schoneburg......................... 1998 $240,414 $ 0 0
President and Chief 1997 54,254 22,500(3) 0
Executive Officer(2) 1996 200,439 0 0
Robert Pantano.............................. 1998 $100,080 $ 0 41,442
Chief Financial Officer 1997 70,079 0 0
1996 56,253 0 0
</TABLE>
6
<PAGE> 10
- ---------------
(1) Klaus Kater became the Company's Chief Technology Officer in September 1997,
but did not have a total compensation which exceeded $100,000 in the fiscal
years ended December 31, 1997 and 1998. However, pursuant to an Employment
Agreement dated as of May 1, 1998, Mr. Kater currently has an annual base
salary of $100,000.
(2) Mr. Schoneburg assumed the position of Chief Executive Officer in October
1997.
(3) Consists of rent paid by the Company for an apartment occupied by Mr.
Schoneburg.
OPTION GRANTS. The following table sets forth certain information
regarding options granted during the fiscal year ended December 31, 1998 by the
Company to the Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANT POTENTIAL REALIZABLE
----------------------------------------------------- VALUE AT
PERCENT OF ASSUMED ANNUAL RATES
NUMBER OF TOTAL OPTIONS OF STOCK
SECURITIES GRANTED TO EXERCISE PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES IN OR BASE OPTION TERM
OPTIONS FISCAL PRICE EXPIRATION -----------------------
NAME GRANTED(#) YEAR(%) ($/SHARE) DATE 5%($) 10%($)
---- ---------- ------------- --------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Eberhard Schoneburg............ -- -- -- -- -- --
Robert Pantano................. 16,442 2.1% $3.66 5/1/00 $ 6,168.00 $12,637.00
25,000 3.2% 6.50 10/1/00 $16,656.00 $34,125.00
</TABLE>
OPTION EXERCISES. The Named Executive Officers did not exercise any
options during the fiscal year ended December 31, 1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
ACQUIRED OPTIONS AT IN-THE-MONEY OPTIONS
ON VALUE FISCAL YEAR END(#) AT FISCAL YEAR-END ($)
EXERCISE REALIZED --------------------------- ---------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Eberhard Schoneburg............ 0 0 0 0 0 0
Robert Pantano................. 0 0 41,442 0 $347,150 0
</TABLE>
EMPLOYMENT AGREEMENTS. Under an Executive Employment Agreement dated July
1, 1998, and amended and restated as of September 1, 1998, the Company has
agreed to employ Eberhard Schoneburg as President, Chief Executive Officer and
Chairman of the Board of Directors for a period of three years at an initial
annual base salary of $240,000 plus an incentive bonus equal to 3% of the
Company's income from operations. The Agreement also provides that the annual
base salary will increase as determined by the Board but at not less than 10%
per year. If Mr. Schoneburg is terminated without cause (including a failure to
renew the agreement) or if he terminates his employment for "good reason" (as
defined in the agreement), he will be entitled to receive a lump sum payment of
one to three times (depending upon whether such termination occurs before or
after a change of control of the Company) the sum of (i) his base salary plus
(ii) the greater of the average of his two most recent annual bonuses or his
annual bonus payable in the year of termination. The Agreement also contains a
non-compete and non-solicitation provision which covers the longer of the term
of his employment or any time period during which he serves as a director of the
Company, plus a period of one year thereafter.
Pursuant to an Employment Agreement dated May 1, 1998, the Company has
agreed to employ Robert Pantano as Chief Financial Officer and Klaus Kater as
Chief Technology Officer (each an "Officer" and together, the "Officers") for at
least eighteen months at initial annual base salaries of $100,000. The
agreements also provide that the Officers are entitled to participate in any
bonus and incentive programs that may be in effect for employees of the Company
and that the Officers' base salaries will be reviewed at least annually by the
Company's Chief Executive Officer and may be adjusted upward at such time at the
sole discretion of the Chief Executive Officer. Pursuant to the agreements, on
May 1, 1999, the Officers each received stock options with a fair market value
of $25,000. If either Officer is terminated by the Company
7
<PAGE> 11
without "cause" (as defined in the agreement) or if he terminates his employment
for "good reason" (as defined in the agreement) he is entitled to severance pay,
at the rate in effect on the termination date, for a period of six months. The
agreements also contain non-compete and non-solicitation provisions which cover
the term of the Officers' employment plus any additional time during which the
Officer is receiving any severance benefits from the Company, as well as
confidentiality and assignment of invention and intellectual property
provisions.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. Messrs.
Wohlgensinger and Bergmann, both non-employee directors, constitute the
Company's Compensation Committee.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of June 15, 1999 by (i) each person
known by the Company to own beneficially 5% or more of the Common Stock; (ii)
each Named Executive Officer; (iii) each Director of the Company and (iv) all
current Directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
BENEFICIALLY OWNED (1)
-----------------------
NAME AND ADDRESS OF BENEFICIAL OWNER (2) SHARES PERCENT(3)
---------------------------------------- --------- ----------
<S> <C> <C>
Eberhard Schoneburg......................................... 5,567,377 59.8%
Robert Pantano (4).......................................... 42,831 *
Klaus Kater (4)............................................. 42,831 *
Bruno Gabriel (5)........................................... 774,426 8.2%
Elmar Wohlgensinger (6)..................................... 243,934 2.6%
Hartmut Bergmann............................................ 0 *
All current directors and executive officers as a group (6
persons) (7).............................................. 6,671,399 68.5%
</TABLE>
- ---------------
* Less than 1%
(1) Shares of Common Stock that an individual or group has the right to acquire
within 60 days of June 15, 1999, pursuant to the exercise of options or
warrants are deemed to be outstanding for the purposes of computing the
percentage ownership of such individual or group, but are not deemed to be
outstanding for the purpose of computing the percentage ownership of any
other person shown in the table. Except as indicated in footnotes to this
table, the Company believes that the beneficial owners named in this table
have sole voting and investment power with respect to all shares of Common
Stock shown to be beneficially owned by them based on information provided
to the Company by such beneficial owners.
(2) The address of all persons who are executive officers or directors of the
Company is: c/o Artificial Life, Inc., Four Copley Place, Suite 102, Boston,
Massachusetts, 02116.
(3) Percentage of ownership is based on 9,310,574 shares of Common Stock
outstanding as of June 15, 1999.
(4) Consists solely of shares subject to stock options which are currently
exercisable.
(5) Includes 184,426 shares subject to stock options which are currently
exercisable.
(6) Includes 163,934 shares subject to stock options which are currently
exercisable.
(7) Includes 434,022 shares subject to stock options which are currently
exercisable.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company was founded in November 1994 as Neurotec International Corp., a
wholly owned subsidiary of Neurotec GmbH, a German multimedia and Internet
solutions company owned by Eberhard Schoneburg, Artificial Life's President,
Chief Executive Officer and Chairman, and two corporate investors: a major
German retailer and an industrial conglomerate. In July 1997, Mr. Schoneburg
sold all of his shares of Neurotec GmbH to the remaining two stockholders for
approximately $1,027,000 and contemporaneously purchased 100% of the shares of
the Company (Neurotec International Corp.) from Neurotec GmbH for approximately
$500,000 (the "Management Buyout").
8
<PAGE> 12
On June 29, 1998, Mr. Schoneburg loaned the Company $500,000 at an annual
interest rate of 10%. The full amount of the loan, including principal and all
accumulated interest thereon, is due and payable on January 1, 2000.
Prior to the date of the Management Buyout, Mr. Schoneburg received fixed
compensation payments of $5,000 each month with additional compensation, if any,
determined by the former parent based on the level of activities dedicated by
Mr. Schoneburg to the Company versus other subsidiaries of the former parent.
Beginning January 1, 1998, Mr. Schoneburg's salary was deferred. During the
time that his salary was deferred, the Company made net advances to Mr.
Schoneburg of approximately $273,000 for living and personal expenses. On
September 25, 1998 the Company paid Mr. Schoneburg a total of $175,385
representing 38 weeks of deferred salary. Mr. Schoneburg used the after tax
proceeds of this payment to repay a portion of the advances made to him during
the deferral period.
Prior to the time that they became Directors of the Company in September
1998, Bruno Gabriel and Elmar Wohlgensinger provided consulting services to the
Company. During that time, Messrs. Gabriel and Wohlgensinger advised the Company
on strategic and logistical issues regarding the establishment of business
opportunities outside the United States. In consideration for such services, in
1998, Mr. Gabriel was paid or had accrued an aggregate of $173,537 by the
Company and on June 30, 1998, Messrs. Gabriel and Wohlgensinger were granted
options to purchase 184,426 and 163,934 shares of Common Stock, respectively.
These options are exercisable immediately for a period of one year at an
exercise price of $3.66 per share.
In September 1998, the Company raised gross proceeds of $4,120,000 by
completing a private placement of 824,000 shares of Common Stock with 23
investors at a price of $5.00 per share. Mr. Wohlgensinger purchased 80,000
shares of the Common Stock in this private placement offering for an aggregate
purchase price of $400,000.
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<PAGE> 13
PROPOSAL 2
AMENDMENT TO
1998 EQUITY INCENTIVE PLAN
In July 1999, the Board of Directors voted, subject to stockholder
approval, to amend the Equity Plan to increase the aggregate number of shares of
Common Stock available for grants thereunder by an additional 1,500,000 shares
to an aggregate of 2,700,000 shares, subject to adjustment for stock-splits and
similar capital changes. The Company believes that this increase is necessary
and appropriate to enable the Company to attract and retain the quality of
employees and consultants whose services are considered essential to the
Company's future progress, to encourage such employees' and consultants'
ownership in the Company and to provide them with an incentive to remain as
employees or consultants of the Company.
If this Proposal Two is approved by the Company's stockholders, the
following options will immediately be granted pursuant to the Equity Plan:
NEW PLAN BENEFITS
1998 EQUITY INCENTIVE PLAN
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME AND POSITION UNDERLYING THE OPTIONS
----------------- ----------------------
<S> <C>
Eberhard Schoneburg, President, Chief Executive Officer,
Director.................................................. 300,000
Executive Group............................................. 300,000
Non-Executive Director Group................................ 225,000
Non-Executive Officer Employee Group........................ 301,300
</TABLE>
All of the above options will be granted at Fair Market Value, as defined
in the Equity Plan, with the exception of the options granted to the Company's
President and Chief Executive Officer, Eberhard Schoneburg, whose options will
be granted at 110% of Fair Market Value. All of the above options will vest
ratably over a three year period.
SUMMARY DESCRIPTION OF THE PLAN
GENERAL. The Equity Plan was originally adopted by the Company in April
1998, and the aggregate number of shares of Common Stock reserved for issuance
thereunder is currently 1,200,000 shares (including shares subject to options
already granted and shares issued pursuant to options already exercised). The
Equity Plan is designed to provide the Company flexibility in awarding equity
incentives by providing for multiple types of incentives that may be awarded.
The purpose of the Equity Plan is to attract and retain key employees of and
consultants to the Company and to enable them to participate in the long-term
growth of the Company.
ADMINISTRATION AND ELIGIBILITY. The Equity Plan provides for the grant of
stock options (incentive and nonstatutory), stock appreciation rights,
performance shares, restricted stock or performance units for the purchase of
shares of Common Stock. Awards under the Equity Plan can be granted to
directors, officers, employees, consultants, advisors and other individuals as
determined by the Compensation Committee. The Compensation Committee administers
the Equity Plan and selects the participants and establishes the terms and
conditions of each option or other equity right granted under the Equity Plan,
including the exercise price, the number of shares subject to options or other
equity rights and the time at which such options become exercisable. Subject to
certain limitations, the Compensation Committee may delegate to one or more
executive officers of the Company the power to make awards to participants who
are not subject to Section 16 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act").
The exercise price of all "incentive stock options" ("ISOs") within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended, (the
"Code") granted under the Equity Plan must be at least equal to the fair market
value of the option shares on the date of grant. The term of any ISO granted
under the Equity Plan may not exceed ten years. The Company's standard vesting
schedule provides that a portion of the shares subject to each option vest and
become exercisable yearly over a three-year period.
As of June 15, 1999, approximately 120 employees, directors, advisors and
consultants were eligible to participate in the Equity Plan. The closing price
of the Company's Common Stock as reported on the Nasdaq SmallCap Market on June
15, 1999 was $14.75.
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<PAGE> 14
EQUITY PLAN ACTIVITY. As of June 15, 1999, options to purchase an
aggregate of 1,019,569 shares of Common Stock had been granted under the Equity
Plan, of which options to purchase 5,015 shares had been canceled. Options to
purchase 26,083 shares had been exercised as of such date. As of such date,
1,685,446 shares remained available for the granting of awards under the Equity
Plan, including the 1,500,000 shares added by the amendment for which
stockholder approval is being requested. No stock appreciation rights or awards
other than option grants have been granted under the Equity Plan to date.
FEDERAL INCOME TAX CONSEQUENCES RELATING TO STOCK OPTIONS
Incentive Stock Options. An optionee does not realize taxable income upon
the grant or exercise of an ISO under the Equity Plan. If no disposition of
shares issued to an optionee pursuant to the exercise of an ISO is made by the
optionee within two years from the date of grant or within one year from the
date of exercise, then (a) upon sale of such shares, any amount realized in
excess of the option price (the amount paid for the shares) is taxed to the
optionee as long-term capital gain and any loss sustained will be a long-term
capital loss and (b) no deduction is allowed to the Company for Federal income
tax purposes. The exercise of ISOs gives rise to an adjustment in computing
alternative minimum taxable income that may result in alternative minimum tax
liability for the optionee.
If shares of Common Stock acquired upon the exercise of an ISO are disposed
of prior to the expiration of the two-year and one-year holding periods
described above (a "disqualifying disposition") then (a) the optionee realizes
ordinary income in the year of disposition in an amount equal to the excess (if
any) of the fair market value of the shares at exercise (or, if less, the amount
realized on a sale of such shares) over the option price thereof and (b) the
Company is entitled to deduct such amount. Any further gain realized is taxed as
a short-term or long-term capital gain and does not result in any deduction to
the Company. A disqualifying disposition in the year of exercise will generally
avoid the alternative minimum tax consequences of the exercise of an ISO.
Nonstatutory Stock Options. No income is realized by the optionee at the
time a nonstatutory option is granted. Upon exercise, (a) ordinary income is
realized by the optionee in an amount equal to the difference between the option
price and the fair market value of the shares on the date of exercise and (b)
the Company receives a tax deduction for the same amount. Upon disposition of
the shares, appreciation or depreciation after the date of exercise is treated
as a short-term or long-term capital gain or loss and will not result in any
deduction by the Company.
VOTES REQUIRED
The affirmative vote of the holders of a majority of the shares of Common
Stock present, or represented, and entitled to vote at the Annual Meeting is
required for the approval of the proposed amendment to the Equity Plan.
BOARD RECOMMENDATION
The Board of Directors of the Company believes that the amendment to the
Equity Plan is in the best interest of the Company and its stockholders and
recommends a vote FOR the proposal to approve the amendment to the Equity Plan.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company's executive officers and directors are required under Section
16(a) of the Exchange Act to file reports of ownership of Company securities and
changes in ownership with the Securities and Exchange Commission. Copies of
those reports must also be furnished to the Company. Based solely on a review of
the copies of reports furnished to the Company and written representations that
no other reports were required, the Company believes that during 1998 the
executive officers and directors of the Company complied with all applicable
Section 16(a) filing requirements.
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<PAGE> 15
INFORMATION CONCERNING AUDITORS
The firm of Wolf & Company, P.C., independent auditors, audited the
Company's financial statements for the year ended December 31, 1998. The Board
of Directors has appointed Wolf & Company, P.C. to serve as the Company's
independent auditors for the fiscal year ending December 31, 1999.
Representatives of Wolf & Company, P.C. are expected to be present at the Annual
Meeting to respond to appropriate questions and will be given the opportunity to
make a statement should they desire to do so.
STOCKHOLDER PROPOSALS FOR THE 2000 ANNUAL MEETING
In order to be considered for inclusion in the Company's proxy materials
for the 2000 Annual Meeting of Stockholders, stockholder nominations of persons
for election to the Board and proposals of business to be considered by the
stockholders must be received by the Company no later than March 18, 2000.
Proposals should be sent to the attention of the Secretary at the Company's
offices at Four Copley Place, Suite 102, Boston, Massachusetts, 02116.
ADVANCE NOTICE PROVISIONS FOR
STOCKHOLDER PROPOSALS AND NOMINATIONS
The Bylaws provide that in order for a stockholder to bring business before
or propose director nominations at an annual meeting, the stockholder must give
written notice to the Secretary of the Company not less than 60 days nor more
than 90 days prior to the first anniversary of the prior year's annual meeting
date. The notice must contain specified information about the proposed business
or each nominee and the stockholder making the proposal or nomination. If the
date of the annual meeting is more than 30 days before or 60 days after the date
of the anniversary of the prior year's meeting date, the notice given by the
stockholder must be received not later than the 10th day following the day on
which the notice of such annual meeting date was first publicly announced or in
accordance with the dates in the preceding sentence, whichever is later.
EXPENSES OF SOLICITATION
The cost of soliciting proxies, including expenses in connection with
preparing and mailing this Proxy Statement, will be borne by the Company.
Proxies may be solicited by directors, officers or regular employees of the
Company by mail, by telephone, in person or otherwise. No such person will
receive additional compensation for such solicitation. In addition, the Company
will request banks, brokers and other custodians, nominees and fiduciaries to
forward proxy material to the beneficial owners of Common Stock and to obtain
voting instructions from such beneficial owners. The Company will reimburse such
firms for their reasonable expenses in forwarding proxy materials and obtaining
voting instructions.
OTHER MATTERS
The Annual Meeting is called for the purposes set forth in the notice. The
Board of Directors does not know of any matter for action by the stockholders at
the Annual Meeting other than the matters described in the notice. However, the
enclosed proxy confers discretionary authority on the persons named therein with
respect to matters which are not known to the directors at the date of printing
hereof and which may properly come before the Annual Meeting. It is the
intention of the persons named in the proxy to vote in accordance with their
best judgment on any such matter.
Copies of the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998 as filed with the Securities and Exchange Commission are
available to stockholders upon written request addressed to the President at the
Company's offices at Four Copley Place, Suite 102, Boston, Massachusetts, 02116.
Whether or not you intend to be present at the Annual Meeting, you are
urged to fill out, sign, date and return the enclosed proxy at your earliest
convenience.
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<PAGE> 16
APPENDIX A
ARTIFICIAL LIFE, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 13, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
THE UNDERSIGNED hereby appoint Robert Pantano and Robert Duggan, and
each of them acting singly, as attorneys and proxies, with full power of
substitution, with all the powers which the undersigned would possess if
personally present, to vote for and on behalf of the undersigned at the Annual
Meeting of Stockholders of ARTIFICIAL LIFE, INC. (the "Company") to be held at
10:00 a.m. at the offices of Artificial Life, Inc., Four Copley Place, Suite
102, Boston, Massachusetts, on Friday, August 13, 1999, and at any adjournment
or adjournments thereof, upon and with respect to all shares of the Common Stock
of the Company to which the undersigned would be entitled to vote and act if
personally present. The undersigned hereby directs Robert Pantano and Robert
Duggan to vote in accordance with their judgment on any matters which may
properly come before the meeting, all as indicated in the Notice of the Meeting,
receipt of which is hereby acknowledged, and to act on the following matters set
forth in such Notice as specified by the undersigned:
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF
THE DIRECTOR IDENTIFIED BELOW AND FOR PROPOSALS 2 AND 3.
(1) Proposal to elect the following person as a member of the
Board of Directors of the Company:
Elmar Wohlgensinger [ ] FOR [ ] WITHHOLD VOTE
(2) Proposal to approve the amendment of the Company's 1998 Equity
Incentive Plan to increase the aggregate number of shares of
the Company's Common Stock as to which awards may be granted
under such plan by 1,500,000 shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(3) IN THEIR DISCRETION TO TRANSACT SUCH OTHER BUSINESS AS MAY
PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT OR
ADJOURNMENTS THEREOF.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED FOR AND IN FAVOR OF
THE ITEMS SET FORTH ABOVE UNLESS A CONTRARY SPECIFICATION IS MADE.
PLEASE MARK, DATE, SIGN AND RETURN THE PROXY PROMPTLY USING THE
ENCLOSED ENVELOPE.
<PAGE> 17
Please sign exactly as name appears below.
Dated: ___________________________
__________________________________
Signature
__________________________________
Signature if held jointly
__________________________________
Printed Name
__________________________________
Address
NOTE: When shares are held by joint tenants, both should sign. When signing as
attorney, executor, administrator, trustee or guardian, please give full title
as such. If the person named on the stock certificate has died, please submit
evidence of your authority. If a corporation, please sign in full corporate name
by the President or authorized officer and indicate the signer's office. If a
partnership, please sign in the partnership name by an authorized person.
<PAGE> 18
APPENDIX B
ARTIFICIAL LIFE, INC.
1998 EQUITY INCENTIVE PLAN
1. PURPOSE
The purpose of the Artificial Life, Inc. 1998 Equity Incentive Plan
(the "Plan") is to attract and retain key employees, directors, advisers and
consultants of the Company and its Affiliates, to provide an incentive for them
to achieve long-range performance goals, and to enable them to participate in
the long-term growth of the Company by the granting of awards ("Awards") with
respect to the Company's Common Stock. Certain capitalized terms used herein are
defined in section 7 below.
2. ADMINISTRATION
The Plan shall be administered by the Committee. The Committee shall
select the Participants to receive Awards and shall determine the terms and
conditions of all Awards. The Committee shall have authority to adopt, alter and
repeal such administrative rules, guidelines and practices governing the
operation of the Plan as it shall from time to time consider advisable, and to
interpret the provisions of the Plan. The Committee's decisions shall be final
and binding. To the extent permitted by applicable law, the Committee may
delegate to one or more executive officers of the Company the power to make
Awards to Participants who are not Reporting Persons or Covered Employees and
all determinations under the Plan with respect thereto, provided that the
Committee shall fix the maximum amount of such Awards for all such Participants
and a maximum for any one Participant.
3. ELIGIBILITY
All employees, directors, advisers and consultants of the Company or
any Affiliate capable of contributing significantly to the successful
performance of the Company, other than a person who has irrevocably elected not
to be eligible, are eligible to be Participants in the Plan. However, Incentive
Stock Options may be granted only to persons eligible to receive such Stock
Options under the Code.
4. STOCK AVAILABLE FOR AWARDS
(a) AMOUNT. Subject to adjustment under subsection (b), Awards may
be made under the Plan for up to 1,200,000 shares of Common Stock in the
aggregate. If any Award expires or is terminated unexercised or is forfeited or
settled in a manner that results in fewer shares outstanding than were awarded,
the shares subject to such Award, to the extent of such expiration, termination,
forfeiture or decrease, shall again be available for award under the Plan.
Common Stock issued through the assumption or substitution of outstanding grants
from an acquired company shall not reduce the shares available for Awards under
the Plan. Shares issued under the Plan may consist in whole or in part of
authorized but unissued shares or treasury shares.
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<PAGE> 19
(b) ADJUSTMENT. In the event that the Committee determines that any
stock dividend, extraordinary cash dividend, recapitalization, reorganization,
merger, consolidation, split-up, spin-off, combination, exchange of shares or
other transaction affects the Common Stock such that an adjustment is required
in order to preserve the benefits intended to be provided by the Plan, then the
Committee (subject in the case of Incentive Stock Options to any limitation
required under the Code) shall equitably adjust any or all of (i) the number and
kind of shares for which Awards may be made under the Plan, (ii) the number and
kind of shares subject to outstanding Awards and (iii) the exercise price with
respect to any of the foregoing, provided that the number of shares subject to
any Award shall always be a whole number, and if considered appropriate, the
Committee may make provision for a cash payment with respect to all or part of
an outstanding Award instead of or in addition to any such adjustment.
(c) LIMIT ON INDIVIDUAL GRANTS. The maximum number of shares of
Common Stock subject to Awards that may be granted to any Participant in the
aggregate in any calendar year shall not exceed 300,000 shares, subject to
adjustment under subsection (b) above.
5. TYPES OF AWARDS.
(a) STOCK GRANTS. The Committee may make awards of shares of Common
Stock ("Stock Grants") upon such terms and conditions as the Committee
determines. Stock Grants may include without limitation restricted stock,
performance shares, performance-accelerated restricted stock and bonus stock.
Stock Grants may be issued for no cash consideration, such minimum consideration
as may be required by applicable law or such other consideration as the
Committee may determine.
(b) GRANT OF STOCK OPTIONS. Subject to the provisions of the Plan,
the Committee may grant options ("Stock Options") to purchase shares of Common
Stock (i) complying with the requirements of Section 422 of the Code or any
successor provision and any regulations thereunder ("Incentive Stock Options")
and (ii) not intended to comply with such requirements ("Nonstatutory Stock
Options"). The Committee shall determine the number of shares subject to each
Stock Option and all other applicable terms and conditions. No Incentive Stock
Option may be granted hereunder more than ten years after the effective date of
the Plan.
(c) STOCK EQUIVALENTS. The Committee may grant rights to receive
payment from the Company based in whole or in part on the value of the Common
Stock ("Stock Equivalents") upon such terms and conditions as the Committee
determines. Stock Equivalents may include without limitation phantom stock,
performance units, dividend equivalents and stock appreciation rights ("SARs").
SARs granted in tandem with a Stock Option will terminate to the extent that the
related Stock Option is exercised, and the related Stock Option will terminate
to the extent that the tandem SARs are exercised. The Committee will determine
at the time of grant or thereafter whether Stock Equivalents are to be settled
in cash, Common Stock or other securities of the Company, other Awards or other
property.
(d) TERMS AND CONDITIONS. Each Award shall be exercisable at such
times and subject to such terms and conditions as the Committee may specify in
the applicable grant or thereafter, except that the exercise price for each
Stock Option or SAR shall be established by the Committee on the date of grant.
The Committee may impose such conditions with respect to the
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<PAGE> 20
exercise of Awards, including conditions relating to applicable federal or state
securities laws, as it considers necessary or advisable.
(e) PAYMENT. No shares shall be delivered pursuant to any exercise
of any Stock Option and no SAR may be exercised until payment in full of the
exercise price therefor is received by the Company. Such payment may be made in
whole or in part in cash or, to the extent permitted by the Committee at or
after the grant of the Stock Option or SAR, by delivery of a note or other
commitment satisfactory to the Committee or shares of Common Stock owned by the
Participant or by retaining shares otherwise issuable pursuant to the Stock
Option or cash or other property otherwise issuable pursuant to the SAR, in each
case valued at their Fair Market Value on the date of delivery or retention, or
such other lawful consideration, including without limitation a payment
commitment of a financial or brokerage institution, as the Committee may
determine.
6. GENERAL PROVISIONS
(a) DOCUMENTATION. Each Award under the Plan shall be evidenced by a
writing delivered to the Participant specifying the terms and conditions thereof
and containing such other terms and conditions not inconsistent with the
provisions of the Plan as the Committee considers necessary or advisable to
achieve the purposes of the Plan or to comply with applicable tax and regulatory
laws and accounting principles. Such terms and conditions may include, without
limitation, performance criteria, vesting requirements, restrictions on transfer
and payment rules. The Committee may establish terms and conditions at the time
the Award is granted or may provide that such terms and conditions will be
determined at any time thereafter.
(b) COMMITTEE DISCRETION. Each type of Award may be made alone, in
addition to or in relation to any other Award. SARs granted in tandem with a
Stock Option will terminate to the extent that the related Stock Option is
exercised, and the related Stock Option will terminate to the extent that the
tandem SARs are exercised. The terms of each type of Award need not be
identical, and the Committee need not treat Participants uniformly. Except as
otherwise provided by the Plan or a particular Award, any determination with
respect to an Award may be made by the Committee at the time of grant or at any
time thereafter.
(c) DIVIDENDS AND CASH AWARDS. In the discretion of the Committee,
any Award under the Plan may provide the Participant with (i) dividends or
dividend equivalents payable (in cash or in the form of Awards under the Plan)
currently or deferred with or without interest and (ii) cash payments in lieu of
or in addition to an Award.
(d) TERMINATION OF EMPLOYMENT. The Committee shall determine the
effect on an Award of the disability, death, retirement or other termination of
employment of a Participant and the extent to which, and the period during
which, the Participant's legal representative, guardian or Designated
Beneficiary may receive payment of an Award or exercise rights thereunder.
(e) CHANGE IN CONTROL. In order to preserve a Participant's rights
under an Award in the event of a change in control of the Company (as defined by
the Committee), the Committee in its discretion may, at the time an Award is
made or at any time thereafter, take one or more of
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<PAGE> 21
the following actions: (i) provide for the acceleration of any time period
relating to the exercise or payment of the Award, (ii) provide for payment to
the Participant of cash or other property with a Fair Market Value equal to the
amount that would have been received upon the exercise or payment of the Award
had the Award been exercised or paid upon the change in control, (iii) adjust
the terms of the Award in a manner determined by the Committee to reflect the
change in control, (iv) cause the Award to be assumed, or new rights substituted
therefor, by another entity, or (v) make such other provision as the Committee
may consider equitable to Participants and in the best interests of the Company.
(f) TRANSFERABILITY. In the discretion of the Committee, any Award
may be made transferable upon such terms and conditions and to such extent as
the Committee determines, provided that Incentive Stock Options may be
transferable only to the extent permitted by the Code. The Committee may in its
discretion waive any restriction on transferability.
(g) LOANS. The Committee may authorize the making of loans or cash
payments to Participants in connection with the grant or exercise of any Award
under the Plan, which loans may be secured by any security, including Common
Stock, underlying or related to such Award (provided that the loan shall not
exceed the Fair Market Value of the security subject to such Award), and which
may be forgiven upon such terms and conditions as the Committee may establish at
the time of such loan or at any time thereafter.
(h) WITHHOLDING TAXES. The Participant shall pay to the Company, or
make provision satisfactory to the Committee for payment of, any taxes required
by law to be withheld in respect of Awards under the Plan no later than the date
of the event creating the tax liability. The Company and its Affiliates may, to
the extent permitted by law, deduct any such tax obligations from any payment of
any kind otherwise due to the Participant. In the Committee's discretion, such
tax obligations may be paid in whole or in part in shares of Common Stock,
including shares retained from the Award creating the tax obligation, valued at
their Fair Market Value on the date of delivery.
(i) FOREIGN NATIONALS. Awards may be made to Participants who are
foreign nationals or employed outside the United States on such terms and
conditions different from those specified in the Plan as the Committee considers
necessary or advisable to achieve the purposes of the Plan or to comply with
applicable laws, including without limitation foreign tax laws.
(j) AMENDMENT OF AWARDS. The Committee may amend, modify or
terminate any outstanding Award, including substituting therefor another Award
of the same or a different type, changing the date of exercise or realization
and converting an Incentive Stock Option to a Nonstatutory Stock Option,
provided that the Participant's consent to such action shall be required unless
the Committee determines that the action, taking into account any related
action, would not materially and adversely affect the Participant.
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<PAGE> 22
7. CERTAIN DEFINITIONS
"Affiliate" means any business entity in which the Company owns
directly or indirectly 50% or more of the total voting power or has a
significant financial interest as determined by the Committee.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time, or any successor law.
"Committee" means the committee of the Board to which the Board has
delegated power to act under or pursuant to the provisions of the Plan. If the
Board has not delegated such power to act under or pursuant to the provisions of
the Plan to a committee, Committee means the Board.
"Common Stock" or "Stock" means the Common Stock, $0.01 par value, of
the Company.
"Company" means Artificial Life, Inc., a Delaware corporation.
"Covered Employee" means a "covered employee" within the meaning of
Section 162(m) of the Code.
"Designated Beneficiary" means the beneficiary designated by a
Participant, in a manner determined by the Committee, to receive amounts due or
exercise rights of the Participant in the event of the Participant's death. In
the absence of an effective designation by a Participant, "Designated
Beneficiary" means the Participant's estate.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor law.
"Fair Market Value" means, with respect to Common Stock or any other
property, the fair market value of such property as determined by the Committee
in good faith or in the manner established by the Committee from time to time.
"Participant" means a person selected by the Committee to receive an
Award under the Plan.
"Reporting Person" means a person subject to Section 16 of the
Exchange Act.
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<PAGE> 23
8. MISCELLANEOUS
(a) NO RIGHT TO EMPLOYMENT. No person shall have any claim or right
to be granted an Award. Neither the Plan nor any Award hereunder shall be deemed
to give any employee the right to continued employment or to limit the right of
the Company to discharge any employee at any time.
(b) NO RIGHTS AS STOCKHOLDER. Subject to the provisions of the
applicable Award, no Participant or Designated Beneficiary shall have any rights
as a stockholder with respect to any shares of Common Stock to be distributed
under the Plan until he or she becomes the holder thereof. A Participant to whom
Common Stock is awarded shall be considered the holder of such Common Stock at
the time of the Award, except as otherwise provided in such Award.
(c) EFFECTIVE DATE. Subject to the approval of the stockholders of
the Company, the Plan shall be effective as of April 1, 1998, or as soon
thereafter as is consistent with applicable law.
(d) AMENDMENT OF PLAN. The Board may amend, suspend or terminate the
Plan or any portion thereof at any time, subject to such stockholder approval as
the Board determines to be necessary or advisable to comply with any tax or
regulatory requirement.
(e) GOVERNING LAW. The provisions of the Plan shall be governed by
and interpreted in accordance with the laws of State of Delaware.
This Plan was approved by the Board of Directors on April 1, 1998.
This Plan was approved by the stockholders on April 2, 1998.
6
