<PAGE>
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 [_] Confidential, For Use of the
Commission Only
(as permitted by Rule 14a-
6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Under Rule 14a-12
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>
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 Tuesday,
October 31, 2000 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 two (2) members 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 1,000,000
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 1999 Annual Report is also enclosed and provides
additional information regarding the financial results of the Company in 1999.
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 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 card.
Sincerely,
/s/ Eberhard Schoneburg
_____________________________________
EBERHARD SCHONEBURG
Chief Executive Officer, President
and Chairman of the Board
Boston, Massachusetts
September 28, 2000
YOUR VOTE IS IMPORTANT.
PLEASE RETURN YOUR PROXY PROMPTLY.
<PAGE>
ARTIFICIAL LIFE, INC.
FOUR COPLEY PLACE, SUITE 102
BOSTON, MASSACHUSETTS 02116
(617) 266-5542
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD OCTOBER 31, 2000
NOTICE IS HEREBY GIVEN that the 2000 Annual Meeting of Stockholders of
Artificial Life, Inc., a Delaware corporation (the "Company"), will be held on
Tuesday, October 31, 2000 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 two (2) members 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 1,000,000 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 September 20, 2000
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 REQUIRES 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
September 28, 2000
<PAGE>
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 2000 Annual
Meeting of Stockholders to be held on Tuesday, October 31, 2000 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 two (2) members 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 1,000,000 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 September 20, 2000 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 10,291,280
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 thereof 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.
1
<PAGE>
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 65.4% 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,
1999 is being mailed to the Stockholders with this Proxy Statement. This Proxy
Statement and the accompanying Proxy are first being mailed on or about
September 29, 2000 to all Stockholders entitled to notice of and to vote at
the Annual Meeting.
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. Felix Widmer, a current Class II Director, and Mr.
Gerhard Zink for election at the Annual Meeting (together, the "Director
Nominees") for a term expiring in 2003. The Class I Director, with a term
expiring in 2001, is Mr. Eberhard Schoneburg. The Class III Director, with a
term expiring in 2002, is Mr. Elmar Wohlgensinger.
A plurality of the shares present in person or represented by proxy at the
Annual Meeting and entitled to vote is required to elect the Director
Nominees. Unless authority to vote for the Director Nominees is withheld, the
shares represented by all Proxies received by the Board of Directors will be
voted for the Director Nominees. In the event that either of the Director
Nominees 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
either of the Director Nominees will be unable or unwilling to serve.
THE BOARD OF DIRECTORS RECOMMENDS THE ELECTION OF EACH OF MR. WIDMER AND MR.
ZINK AS A DIRECTOR, AND PROXIES SOLICITED BY THE BOARD WILL BE VOTED IN FAVOR
THEREOF UNLESS A STOCKHOLDER HAS INDICATED OTHERWISE ON THE PROXY.
2
<PAGE>
The following table contains certain information about the Director
Nominees, 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
---- --- --------
<C> <C> <S>
President, Chief Executive Officer and
Eberhard Schoneburg...... 43 Chairman of the Board
Elmar Wohlgensinger...... 59 Director
Felix Widmer*............ 49 Director
Gerhard Zink*............ 39 Director Nominee
Robert Pantano........... 39 Chief Financial 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.
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.
FELIX WIDMER joined the Company's Board of Directors in March 2000, filling
the vacancy created by the resignation of Mr. Hartmut Bergmann. Mr. Widmer has
worked for Widmer Management, a consulting firm he founded in Switzerland,
since 1997. Prior to that he worked at Guebelin Ltd/Guebelin Inc. of Lucerne,
Switzerland and New York, New York from 1972 to 1996 in a variety of
capacities, including Executive Vice President, Vice President and Director of
Finance and Administration. Previously he worked for the Federal Tax Authority
of Switzerland.
GERHARD ZINK is the founder and principal of Zink Consulting Group, Bad
Homburg, Germany, focusing on design, implementation and execution of
strategic business initiatives for both start-ups and established firms
focusing on the financial services, healthcare and entertainment industries.
Mr. Zink founded the Zink Consulting Group in 1993. Prior to that, Mr. Zink
held various positions in the financial services and banking industry.
Mr. Zink holds a degree in Economics from the University of Freiburg.
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
3
<PAGE>
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.
Meetings of the Board of Directors. During the year ended December 31, 1999,
the Board did not meet, but acted by unanimous written consent on 14
occasions.
The Audit Committee. The Audit Committee currently consists of Messrs.
Wohlgensinger and Widmer. The Audit Committee met one time in 1999. The
primary function of the Audit Committee is to assist the Board of Directors in
fulfilling its oversight responsibilities by reviewing: the financial reports
and other financial information provided by the Company to any governmental
body or the public; the Company's systems of internal controls regarding
finance, accounting, legal compliance and ethics that management and the Board
have established; and the Company's auditing, accounting and financial
reporting processes generally. Consistent with this function, the Audit
Committee encourages continuous improvement of, and fosters adherence to, the
Company's policies, procedures and practices at all levels. The Audit
Committee's primary duties and responsibilities are to:
. Serve as an independent and objective party to monitor the Company's
financial reporting process and internal control system.
. Review and appraise the audit efforts of the Company's independent
accountants and internal auditing department.
. Provide an open avenue of communication among the independent
accountants, financial and senior management, the internal auditing
department, and the Board of Directors.
The Compensation Committee. The Compensation Committee currently consists of
Messrs. Wohlgensinger and Widmer, 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 Plan. The Compensation Committee met one time
in 1999.
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.
4
<PAGE>
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
Compensation Philosophy. The design and implementation of the Company's
executive compensation programs are based on a series of guiding principles
derived from its values, business strategy and management requirements. These
principles may be summarized as follows:
. attract, motivate and retain high caliber individuals who are
responsible for leading the Company in achieving or exceeding corporate
goals and to increase total return to stockholders;
. provide a total compensation program where a significant portion of
compensation is linked to the achievement of individual performance
objectives as well as both short-term and long-term corporate
performance;
. align the financial interests of the management team with the Company's
financial interests and those of its stockholders; and
. emphasize reward for performance at the individual, team and corporate
levels.
Base Salary. Each fiscal year, the Committee establishes base salaries for
individual executive officers based upon (i) industry and peer group surveys
prepared by independent consultants, (ii) the responsibilities, scope and
complexity of each position, (iii) the individual's tenure in the position and
(iv) performance judgments as to each individual's past and expected future
contributions. The performance of the companies surveyed is not considered by
the Committee. The Chief Executive Officer recommends the base salary amount
for each officer other than himself. The Committee then reviews with the Chief
Executive Officer and approves, with appropriate modifications, an annual base
salary plan for our executive officers other than the Chief Executive Officer.
In general, the Committee reviews and fixes the base salary of the Chief
Executive Officer based on comparable competitive compensation data as well as
the Committee's assessment of such officer's past performance and its
expectations as to such officer's future contributions to our leadership. The
Company has entered into an Executive Employment Agreement dated July 1, 1998
and restated as of September 1, 1998 with the Chief Executive Officer. This
Employment Agreement expires September 1, 2001. For 1999, under the terms of
the Employment Agreement, the Chief Executive Officer's base salary was
increased to $264,000 from $240,000 in accordance with his employment
contract. For 2000, a 10% base salary increase to $290,400 that will be
effective for the Chief Executive Officer under the terms of the agreement.
Annual Bonus. Our executive officers are eligible for an annual cash bonus,
which is based primarily on corporate achievements and individual performance
objectives that are established at the beginning and in the course of each
year. After the completion of the year, the Committee reviews the attainment
of corporate and individual objectives and awards bonuses in the first quarter
of the subsequent year, based on the extent to which corporate objectives were
met or exceeded and individual contributions to our overall performance.
We achieved several milestones in 1999, including the establishment and
commencement of operations of our German subsidiary, the completion of several
of our first products and a gross revenue increase of over 767% from the prior
year. Although these milestones were significant in the Company's history, the
Chief Executive Officer did not receive an annual bonus in 1999.
Equity-based Long-term Incentive Compensation. Long-term incentives for our
employees are provided through stock option grants under the Equity Plan,
which generally are provided through initial stock option grants at the date
of hire and periodic additional grants. The option grants are intended to
motivate the executive officers to improve our long-term performance and to
align the financial interests of the management team with our financial
interests and those of our stockholders. Awards take into account each
officer's scope of responsibility and specific assignments, strategic and
operational goals applicable to the officer, anticipated performance and
contributions of the officer and competitive market data for similar
positions. Options are granted with an exercise price equal to the fair market
value of our common stock on the date of grant. The standard vesting schedule
provides that a portion of the shares subject to each option vest and become
exercisable annually over a three-year period. Certain options granted under
the Equity Plan are subject to different vesting schedules, including
schedules that are based on the achievement of certain milestone events.
5
<PAGE>
In 1999, the Chief Executive Officer received an option to purchase 300,000
shares of common stock.
Compensation Deductibility. The Committee has considered the potential
impact of Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code") on our compensation programs. Section 162(m) of the Code limits a
publicly held company's tax deduction for compensation paid to the chief
executive officer and the other four most highly paid officers. Generally,
amounts paid in excess of $1 million to a covered executive in any year cannot
be deducted. Certain performance-based compensation that has been approved by
stockholders is not subject to the limit. Our policy is to qualify our
executive officers' compensation for deductibility under applicable tax laws
to the extent reasonable. The Committee will continue to assess the impact of
Section 162(m) of the Code on its compensation practices and determine what
further action, if any, is appropriate.
By the Artificial Life, Inc. Compensation Committee
Elmar Wohlgensinger Felix Widmer
6
<PAGE>
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 August 31, 2000 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.
COMPARE CUMULATIVE TOTAL RETURN
AMONG ARTIFICIAL LIFE, INC.,
NASDAQ MARKET INDEX AND SIC CODE INDEX
[GRAPH]
ASSUMES $100 INVESTED ON DEC. 17, 1998
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING AUG. 31, 2000
<TABLE>
<CAPTION>
SIC Code Index NASDAQ
Artificial Life, Inc. (Prepackaged Software) Market Index
--------------------- ---------------------- ------------
<S> <C> <C> <C>
12/18/98....... 100.00 100.00 100.00
12/31/98....... 58.51 100.00 100.00
3/31/99........ 64.63 113.54 111.72
6/30/99........ 63.83 121.04 121.57
9/30/99........ 52.66 126.82 123.55
12/31/99....... 76.06 198.32 182.47
3/31/00........ 102.13 207.45 207.62
6/30/00........ 82.71 172.41 178.57
8/31/00........ 63.30 175.23 188.68
</TABLE>
7
<PAGE>
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, 1999 by its
Chief Executive Officer and the three other most highly compensated executive
officers of the Company whose salary and bonus exceeded $100,000 (the "Named
Executive Officers"). No other executive officer of the Company earned greater
than $100,000 in the fiscal year ended December 31, 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
---------------------- ------------
Securities
Other Annual Underlying
Name and Principal Position Year Salary($) Compensation Options
--------------------------- ---- -------- ------------ ------------
<S> <C> <C> <C> <C>
Eberhard Schoneburg(1)................ 1999 $263,538 $ 0 300,000
President and Chief 1998 240,414 0 0
Executive Officer 1997 54,254 22,500(2) 0
Bruno Gabriel(3)...................... 1999 $216,496 $ 0 200,000
Chief Executive Officer --
Artificial Life Europe AG
Robert Pantano........................ 1999 $121,923 $ 0 61,388
Chief Financial Officer 1998 100,080 0 41,442
1997 70,079 0 0
Klaus Kater(4)........................ 1999 $121,923 $ 0 61,388
Chief Technical Officer 1998 57,692 0 41,442
</TABLE>
--------
(1) Mr. Schoneburg assumed the position of Chief Executive Officer in October
1997.
(2) Consists of rent paid by the Company for an apartment occupied by Mr.
Schoneburg.
(3) Mr. Gabriel became Chief Executive Officer of Artificial Life Europe AG in
October 1998 and resigned this position effective June 2000 and is
currently a member of the Board of Directors of Artificial Life Schweiz
AG. Prior to that in 1998 Mr. Gabriel provided services to the Company as
an independent consultant. Total compensation in 1998 amounted to
$173,537. In addition, on June 30, 1998, he was granted options to
purchase 184,426 shares of Common Stock at an exercise price of $3.66 per
share, exercisable immediately.
(4) Klaus Kater became the Company's Chief Technology Officer in September
1997, but did not have a total compensation which exceeded $100,000 in the
fiscal years ended December 31, 1997 and 1998. Mr. Kater resigned this
position effective June 30, 2000 and is currently a Project Manager at
Artificial Life Schweiz AG.
Option Grants. The following table sets forth certain information regarding
options granted during the fiscal year ended December 31, 1999 by the Company
to the Named Executive Officers.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
----------------------------------------------
Potential
Realizable Value at
Assumed Annual
Number of Percent of Rates of Stock
Securities Total Options Exercise Price Appreciation
Underlying Granted to or Base for Option Term
Options Employees in Price Expiration -------------------
Name Granted(#) Fiscal Year(%) ($/Share) Date 5%($) 10%($)
---- ---------- -------------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Eberhard Schoneburg..... 300,000 20.1% $14.50 8/13/02 $685,669 $1,439,850
Bruno Gabriel........... 200,000 13.4% $14.50 8/13/02 458,000 960,000
Robert Pantano.......... 60,000 4.0% $14.50 4/1/02 137,400 288,000
1,388 0.1% $17.94 11/15/01 2,554 5,233
Klaus Kater............. 60,000 4.0% $14.50 4/1/02 137,400 288,000
1,388 0.1% $17.94 11/15/01 2,554 5,233
</TABLE>
8
<PAGE>
Option Exercises.
Aggregated Option Exercises in Last Fiscal Year and
Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options at Options at
Shares Fiscal Year-End(#) Fiscal Year-End($)
Acquired on Value ------------------------- -------------------------
Name Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Eberhard Schoneburg..... 0 $ 0 0 300,000 $ 0 $1,012,500
Bruno Gabriel(1)........ 139,426 2,091,387 0 200,000 0 675,000
Robert Pantano.......... 0 0 62,830 40,000 585,508 135,000
Klaus Kater............. 0 0 62,830 40,000 585,508 135,000
</TABLE>
--------
(1) Bruno Gabriel exercised an option to purchase 184,426 shares of Common
Stock utilizing a net exercise feature, resulting in the issuance of
139,426 shares of Common Stock.
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.
Compensation Committee Interlocks and Insider Participation. Messrs.
Wohlgensinger and Widmer, both non-employee directors, constitute the
Company's Compensation Committee.
9
<PAGE>
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 July 31, 2000 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 each
Director Nominee 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(4)................................... 5,667,377 54.5%
Elmar Wohlgensinger(5)................................... 246,267 2.4%
Felix Widmer(6).......................................... 9,333 *
Robert Pantano(7)........................................ 120,676 1.2%
Gerhard Zink............................................. 0 *
Bruno Gabriel(8)......................................... 1,029,426 9.7%
All current directors and executive officers as a group
(5 persons)(9).......................................... 7,073,079 65.4%
</TABLE>
--------
*Less than 1%
(1) Shares of Common Stock that an individual or group has the right to
acquire within 60 days of July 31, 2000, pursuant to the exercise of
options 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 10,291,280 shares of Common Stock
outstanding as of July 31, 2000.
(4) Includes 100,000 shares subject to stock options which are exercisable
within 60 days of July 31, 2000.
(5) Includes 8,333 shares subject to stock options which are exercisable
within 60 days of July 31, 2000.
(6) Consists solely of 3,333 shares subject to stock options which are
exercisable within 60 days of July 31, 2000.
(7) Includes 106,388 shares subject to stock options which are exercisable
within 60 days of July 31, 2000.
(8) Includes 300,000 shares subject to stock options which are exercisable
within 60 days of July 31, 2000.
(9) Includes 518,054 shares subject to stock options which are exercisable
within 60 days of July 31, 2000.
10
<PAGE>
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").
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, was due and payable on January 1, 2000, and was
extended until and repaid in full on June 6, 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. Each of Mr. Wohlgensinger and Mr. Gabriel
exercised these options in June 1999.
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.
In June 1999, the Company acquired 51% of the outstanding stock of Cybermind
Ventures, Inc. ("Cybermind") for $75,000 from two of the Company's
stockholders, Eberhard Schoneburg and Cybermind Interactive AG. Cybermind was
inactive with a net loss in 1999 through the date of acquisition of $5,520. At
the time of the acquisition, Cybermind's name was changed to Artificial Life
Ventures, Inc. In November 1999, the Company acquired the remaining 49% of the
outstanding stock of Artificial Life Ventures, Inc. from Cybermind Interactive
AG. The company acquired this stock for $75,000 cash and the issuance of 5,000
stock options at an exercise price of $14.50 per share. The options are valued
at $25,000 and have a three year life and vest in equal amount on the first,
second and third anniversary of the grant date. Goodwill recognized in
connection with this acquisition amounted to approximately $86,000, and is
being amortized over five years.
PROPOSAL 2
AMENDMENT TO
1998 EQUITY INCENTIVE PLAN
In September 2000, 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 1,000,000
shares to an aggregate of 3,700,000 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.
11
<PAGE>
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 2,700,000 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 July 31, 2000, approximately 300 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 National Market on
July 31, 2000 was $13.625.
Equity Plan Activity. As of July 31, 2000, options to purchase an aggregate
of 2,864,128 shares of Common Stock had been granted under the Equity Plan, of
which options to purchase 172,404 shares had been canceled. Options to
purchase 704,603 shares had been exercised as of such date. As of such date,
1,008,276 shares remained available for the granting of awards under the
Equity Plan, including the 1,000,000 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
12
<PAGE>
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.
13
<PAGE>
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 us and written representations
that no other reports were required, we believe that during 1999 our executive
officers and directors complied with all applicable Section 16(a) filing
requirements, with the following exceptions: Mr. Gabriel, one of our
Directors, filed a late Form 4 reporting the net exercise of an option to
purchase 184,426 shares of common stock and the sale of 45,000 shares pursuant
to that net exercise for which a Form 4 was due on July 10, 1999;
Mr. Wohlgensinger, one of our Directors, filed a late Form 4 reporting the
exercise of an option to purchase 163,934 shares of common stock for which a
Form 4 was due on July 10, 1999.
INFORMATION CONCERNING AUDITORS
The firm of Wolf & Company, P.C., independent auditors, audited the
Company's financial statements for the year ended December 31, 1999. 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, 2000.
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 2001 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 May 24, 2001.
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.
14
<PAGE>
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, 1999 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.
15
<PAGE>
APPENDIX A
ARTIFICIAL LIFE, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD TUESDAY, OCTOBER 31, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
THE UNDERSIGNED hereby appoint Robert Duggan and Robert Pantano, 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 Tuesday, October 31, 2000, 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 Eberhard Schoneburg and
Robert Pantano 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
DIRECTORS 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:
<TABLE>
<S> <C> <C>
Felix Widmer [_] FOR [_] WITHHOLD VOTE
Gerhard Zink [_] FOR [_] WITHHOLD VOTE
</TABLE>
(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 1,000,000 shares.
<TABLE>
<S> <C> <C>
[_] FOR [_] AGAINST [_] ABSTAIN
</TABLE>
(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.
A-1
<PAGE>
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.
A-2
<PAGE>
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 2,700,000 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.
(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.
B-1
<PAGE>
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 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.
B-2
<PAGE>
(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 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.
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.
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"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.
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.
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