<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
FILED BY THE REGISTRANT [ ] 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))
GENSYM CORPORATION
(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:
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<PAGE> 2
GENSYM CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 21, 1997
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Stockholders of
Gensym Corporation, a Delaware corporation (the "Company"), will be held on
Wednesday, May 21, 1997 at 10:00 a.m., at the offices of Hale and Dorr LLP, 60
State Street, Boston, Massachusetts (the "Meeting") for the purpose of
considering and voting upon the following matters:
1. To elect two Class I Directors of the Company to serve for the ensuing
three years;
2. To approve the Company's 1997 Stock Incentive Plan;
3. To approve an amendment to the Company's 1995 Director Stock Option
Plan to increase the annual stock option grant thereunder from 2,000
shares to 3,000 shares;
4. To ratify the appointment by the Board of Directors of Arthur Andersen
LLP as independent auditors for the fiscal year ending December 31,
1997; and
5. To transact such other business as may properly come before the
Meeting or any adjournment thereof.
The Board of Directors has no knowledge of any other business to be
transacted at the Meeting.
The Board of Directors has fixed the close of business on March 31, 1997 as
the record date for the determination of stockholders entitled to notice of and
to vote at the Meeting and at any adjournments thereof.
A copy of the Company's Annual Report to Stockholders for the year ended
December 31, 1996, which contains consolidated financial statements and other
information of interest to stockholders, accompanies this Notice and the
enclosed Proxy Statement.
By Order of the Board of Directors,
Lowell B. Hawkinson
Secretary
April 18, 1997
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE PROMPTLY COMPLETE,
DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE. NO
POSTAGE NEED BE AFFIXED IF THE PROXY IS MAILED IN THE UNITED STATES.
<PAGE> 3
GENSYM CORPORATION
125 CambridgePark Drive
Cambridge, MA 02140
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 21, 1997
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Gensym Corporation (the "Company") at the
Annual Meeting of Stockholders to be held on Wednesday, May 21, 1997 at 10:00
a.m. at the offices of Hale and Dorr LLP, 60 State Street, Boston, Massachusetts
and at any adjournments thereof (the "Meeting").
All proxies will be voted in accordance with the instructions of the
stockholder. If no choice is specified, the proxies will be voted in favor of
the matters set forth in the accompanying Notice of Meeting. Any proxy may be
revoked by a stockholder at any time before its exercise by delivery of a
written revocation to the Secretary of the Company. Attendance at the Meeting
will not itself be deemed to revoke a Proxy unless the stockholder gives
affirmative notice at the Meeting that the stockholder intends to revoke the
Proxy and vote in person.
On March 31, 1997, the record date for determination of stockholders
entitled to vote at the Meeting, there were outstanding and entitled to vote an
aggregate of 6,268,486 shares of Common Stock of the Company, $.01 par value per
share (the "Common Stock"). Each share entitles the record holder to one vote on
each of the matters to be voted upon at the Meeting.
THE NOTICE OF MEETING, THIS PROXY STATEMENT, THE ENCLOSED PROXY AND THE
COMPANY'S ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR ENDED DECEMBER 31, 1996 ARE
BEING MAILED TO STOCKHOLDERS ON OR ABOUT APRIL 18, 1997. THE COMPANY WILL, UPON
WRITTEN REQUEST OF ANY STOCKHOLDER, FURNISH WITHOUT CHARGE A COPY ITS ANNUAL
REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996, AS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION, WITHOUT EXHIBITS. EXHIBITS WILL BE PROVIDED
UPON WRITTEN REQUEST AND PAYMENT OF AN APPROPRIATE PROCESSING FEE. PLEASE
ADDRESS ALL SUCH REQUESTS TO THE COMPANY, ATTENTION OF MARCIA A. TALBOT,
INVESTOR RELATIONS ADMINISTRATOR, 125 CAMBRIDGEPARK DRIVE, CAMBRIDGE, MA 02140.
<PAGE> 4
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of March 31, 1997
with respect to the beneficial ownership of shares of Common Stock by (i) each
person known to the Company to own beneficially more than 5% of the outstanding
shares of Common Stock, (ii) the directors and director nominees of the Company,
(iii) the Chief Executive Officer and the four executive officers listed in the
Summary Compensation Table below (the "Named Executive Officers"), and (iv) the
directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP(1)
-----------------------------
PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OF SHARES CLASS(2)
- ------------------------------------ ---------------- ----------
<S> <C> <C>
Kopp Investment Advisors, Inc. (3).................................. 758,050 12.1%
6600 France Avenue South
Suite 672
Edina, MN 55435
Edward Fredkin (4).................................................. 664,884 10.6
Hyslop Road
Brookline, MA
The TCW Group, Inc. (5)............................................. 541,700 8.6
865 Figueroa Street
Los Angeles, CA 90017
Lowell B. Hawkinson (6)(7).......................................... 440,000 7.0
Robert L. Moore (6)................................................. 335,000 5.3
John A. Shane (8)................................................... 277,970 4.4
Theodore G. Johnson (9)............................................. 203,675 3.2
Nancy E. Pfund (10)................................................. 197,438 3.1
Stephen N. Gregorio (11)............................................ 27,200 *
Thomas E. Swithenbank............................................... 2,000 *
Raymond T. Wood, Jr. (12)........................................... -- *
James T. Pepe....................................................... -- *
All executive officers and directors as a group (10 persons) (13)... 1,602,903 25.4%
</TABLE>
- ---------------
* Less than 1%
(1) The number of shares beneficially owned by each director and executive
officer is determined under rules promulgated by the Securities and
Exchange Commission, and the information is not necessarily indicative of
beneficial ownership for any other purpose. Under such rules, beneficial
ownership includes any shares as to which the individual has sole or shared
voting power or investment power and also any shares which the individual
has the right to acquire within 60 days after March 31, 1997 through the
exercise of any stock option or other right. The inclusion herein of such
shares, however, does not constitute an admission that the named
stockholder is a direct or indirect beneficial owner of such shares. Unless
otherwise indicated, each person or entity named in the table has sole
voting power and investment power (or shares such power with his or her
spouse) with respect to all shares of capital stock listed as owned by such
person or entity.
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<PAGE> 5
(2) Number of shares deemed outstanding includes 6,268,486 shares outstanding
as of March 31, 1997 plus any shares subject to options held by the person
in question which are currently exercisable or exercisable within 60 days
after March 31, 1997.
(3) The information reported is based on a Schedule 13G, dated January 27,
1997, filed with the Securities and Exchange Commission by Kopp Investment
Advisors, Inc. ("KIA") and LeRoy C. Kopp, the sole stockholder of KIA, as
amended on February 7, 1997. KIA is a registered investment advisor, in
which capacity it has sole voting power over 50,000 shares and shared
dispositive power over 748,050 shares. Mr. Kopp has sole voting power over
60,000 shares, sole dispositive power over 10,000 shares and, through his
control of KIA, shared dispositive power over 748,050 shares.
(4) Includes shares of Common Stock held jointly with Mr. Fredkin's spouse.
Includes 6,000 shares of Common Stock subject to outstanding stock options
which are exercisable within the 60 day period following March 31, 1997.
Mr. Fredkin resigned from the Board of Directors in August 1996.
(5) The information reported is based on a Schedule 13G, dated February 12,
1997, filed with the Securities and Exchange Commission by The TCW Group,
Inc. ("TCW") and Robert Day. TCW is a Parent Holding Company, in which
capacity it controls several registered investment advisors and has sole
voting and sole dispositive power over 541,700 shares. Mr. Day, an
individual who may be deemed to control TCW, has sole voting power and sole
dispositive power over 541,700 shares.
(6) The business address of the stockholder is c/o Gensym Corporation, 125
CambridgePark Drive, Cambridge, MA 02140.
(7) Includes 6,000 shares held by The Laura Elizabeth Hawkinson Irrevocable
Trust, and 6,000 shares held by The Sarah Almer Irrevocable Trust, the
beneficiaries of which are Mr. Hawkinson's children, as to which shares Mr.
Hawkinson disclaims beneficial ownership. Also includes 8,000 shares held
by Jacquelyn Hawkinson, the spouse of Mr. Hawkinson, as to which shares Mr.
Hawkinson disclaims beneficial ownership.
(8) Includes 257,685 shares held by The Palmer Organization III L.P., as to
which shares Mr. Shane disclaims beneficial ownership except to the extent
of his pecuniary interest therein. Mr. Shane is a General Partner of Palmer
Partners, L.P., the General Partner of The Palmer Organization III L.P.
Also includes 894 shares held by Palmer Service Corporation of which Mr.
Shane is the President and sole stockholder. Also includes 6,800 shares of
Common Stock subject to outstanding stock options which are exercisable
within the 60 day period following March 31, 1997.
(9) Includes 6,800 shares of Common Stock subject to outstanding stock options
which are exercisable within the 60 day period following March 31, 1997.
(10) Includes 189,959 shares held by Hambrecht & Quist Environmental Technology
Fund, a California limited partnership. The general partner of Hambrecht &
Quist Environmental Technology Fund is Hambrecht & Quist Environmental
Managers. The general partner of Hambrecht & Quist Environmental Managers
is Hambrecht & Quist Environmental Principals. Ms. Pfund is a general
partner of Hambrecht & Quist Environmental Principals. Also includes 6,800
shares of Common Stock subject to outstanding stock options which are
exercisable within the 60 day period following March 31, 1997.
(11) Includes 2,000 shares of Common Stock subject to outstanding stock options
which are exercisable within the 60 day period following March 31, 1997.
Mr. Gregorio resigned his position with the Company effective January 29,
1997.
(12) Mr. Wood resigned his position with the Company effective December 31,
1996.
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<PAGE> 6
(13) Includes 30,820 shares of Common Stock subject to outstanding stock options
which are exercisable within the 60 day period following March 31, 1997.
VOTES REQUIRED
The holders of a majority of the shares of Common Stock issued and
outstanding and entitled to vote at the Meeting shall constitute a quorum for
the transaction of business at the Meeting. Shares of Common Stock present in
person or represented by proxy (including shares which abstain or do not vote
with respect to one or more of the matters presented for stockholder approval)
will be counted for purposes of determining whether a quorum exists at the
Meeting.
The affirmative vote of the holders of a plurality of the votes cast by the
stockholders entitled to vote at the Meeting is required for the election of
directors. The affirmative vote of the holders of a majority of the shares of
Common Stock present or represented and voting on the matter is required for the
ratification of the appointment of the Company's independent auditors and for
the approval of the Company's 1997 Stock Incentive Plan and the proposed
amendment to the Company's 1995 Directors Stock Option Plan.
Shares which abstain from voting as to a particular matter, and shares held
in "street name" by brokers or nominees who indicate on their proxies that they
do not have discretionary authority to vote such shares as to a particular
matter, will not be counted as votes in favor of such matter, and will also not
be counted as votes cast or shares voting on such matter. Accordingly,
abstentions and "broker non-votes" will have no effect on the voting on a matter
that requires the affirmative vote of a certain percentage of the votes cast or
shares voting on a matter.
PROPOSAL 1 -- ELECTION OF DIRECTORS
The Board of Directors is divided into three classes, with members of each
class holding office for a staggered three-year term. The terms of Ms. Pfund and
Mr. Shane (Class I Directors) will expire at the 1997 Annual Meeting of
Stockholders; the terms of Messrs. Johnson and Hawkinson (Class II Directors)
will expire at the 1998 Annual Meeting of Stockholders; and the term of Dr.
Moore (Class III Director) will expire at the 1999 Annual Meeting of
Stockholders. Upon the expiration of the term of a class of directors at each
annual meeting of stockholders, directors will be elected (or reelected) to
serve within such class for a succeeding three-year term. Ms. Pfund has elected
not to be a candidate for reelection as a Class I Director.
The persons named in the enclosed proxy will vote to elect, as Class I
Directors, Mr. Shane and Thomas E. Swithenbank, the director nominees named
below, unless the proxy is marked otherwise. Mr. Shane is currently a director
of the Company.
Each Class I Director will be elected to hold office until the Annual
Meeting of Stockholders held in 2000 and until his or her successor is elected
and qualified. The nominees have indicated their willingness to serve, if
elected; however, if any nominee should be unable to serve, the person acting
under the proxy may vote the proxy for a substitute nominee. The Board of
Directors has no reason to believe that either of the nominees will be unable to
serve if elected.
For each member of the Board of Directors and the director nominees for
election as Class I Directors, there follows information given by each
concerning his principal occupation and business experience for the past five
years, the names of other publicly held companies of which he serves as a
director, and his age and, if applicable, length of service as a director of the
Company.
4
<PAGE> 7
NOMINEES FOR TERMS EXPIRING IN 2000 (CLASS I DIRECTORS)
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION, OTHER BUSINESS EXPERIENCE DIRECTOR
NAME AGE DURING THE PAST FIVE YEARS AND OTHER DIRECTORSHIPS SINCE
- ---- --- -------------------------------------------------- --------
<S> <C> <C> <C>
John A. Shane............ 64 Since 1972, Mr. Shane has been president of Palmer 1995
Service Corporation, a venture capital management
company and, since 1981, a general partner of
Palmer Partners L.P., the general partner of The
Palmer Organization III L.P. Mr. Shane is also a
director of Arch Communications Group, Inc.,
Eastern Bank Corporation, Overland Data, Inc.,
Summa Four, Inc., and United Asset Management
Corporation, and a Trustee of the New England
Investment Company's Family of Mutual Funds.
Thomas E. Swithenbank.... 52 Since 1990, President and Chief Executive Officer N/A
of Harte-Hankes Data Technologies, a computer
software and service company specializing in
database marketing systems. Mr. Swithenbank is
also a director of Pegasystems, Inc.
</TABLE>
DIRECTORS WHOSE TERMS EXPIRE IN 1998 (CLASS II DIRECTORS)
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION, OTHER BUSINESS EXPERIENCE DIRECTOR
NAME AGE DURING THE PAST FIVE YEARS AND OTHER DIRECTORSHIPS SINCE
- ---- --- -------------------------------------------------- --------
<S> <C> <C> <C>
Lowell B. Hawkinson...... 53 Chairman of the Board, Chief Executive Officer, 1986
Director, Treasurer and Secretary of the Company
since 1986. Mr. Hawkinson is also a director of
Genrad Corporation.
Theodore G. Johnson...... 64 Independent consultant since 1982. Mr. Johnson is 1986
also a director of Candela Corporation and a
number of privately held corporations.
</TABLE>
DIRECTOR WHOSE TERM EXPIRES IN 1999 (CLASS III DIRECTORS)
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION, OTHER BUSINESS EXPERIENCE DIRECTOR
NAME AGE DURING THE PAST FIVE YEARS AND OTHER DIRECTORSHIPS SINCE
- ---- --- -------------------------------------------------- --------
<S> <C> <C> <C>
Robert L. Moore.......... 54 President of the Company since 1986. 1986
</TABLE>
For information relating to shares of Common Stock owned by each of the
directors and the director nominees, see "Security Ownership of Certain
Beneficial Owners and Management."
BOARD AND COMMITTEE MEETINGS
The Board of Directors met 13 times during 1996. All directors attended at
least 75% of the meetings of the Board of Directors and of the committees on
which they served.
The Board of Directors has a Compensation Committee, which makes
recommendations concerning salaries and incentive compensation for employees of
and consultants to the Company and administers and grants stock options pursuant
to the Company's employee stock plans. The Compensation Committee met four times
during 1996. The members of the Compensation Committee are Messrs. Johnson and
Shane.
The Board of Directors has an Audit Committee, which reviews the results
and scope of the audit, and other services provided by the Company's independent
public accountants and reviews the Company's internal
5
<PAGE> 8
controls. The Audit Committee held three meetings during 1996. The members of
the Audit Committee are Mr. Shane and Ms. Pfund.
The Board of Directors has a Finance Committee, which reviews and makes
recommendations on the Company's investment and financing strategies. The
Finance Committee did not meet in 1996. The members of the Finance Committee are
Dr. Moore, Ms. Pfund and Mr. Shane.
DIRECTOR COMPENSATION
Directors of the Company did not receive any cash compensation for their
services for 1996, although directors are reimbursed for their reasonable
out-of-pocket expenses incurred in attending meetings. Non-employee directors
are eligible to receive stock options under the Company's 1995 Director Stock
Option Plan, and all directors are eligible to receive stock options under the
Company's 1994 Stock Option Plan and will be eligible to receive awards under
the Company's 1997 Stock Incentive Plan, if such plan is approved by the
stockholders.
On December 10, 1996 the Board of Directors approved the payment of
director's fees commencing on January 1, 1997. Directors who are not employees
of the Company will receive $12,000 per year for the fiscal year ending December
31, 1997, plus $1,000 for attendance at each meeting of the Board of Directors
and $750 for attendance at each meeting of a committee on which the director
serves.
In July 1995, the Company granted nonqualified options to purchase 15,000
shares of Common Stock at an option exercise price of $7.50 per share to Messrs.
Johnson and Shane and Ms. Pfund, each a non-employee director of the Company,
under the 1994 Stock Option Plan. Each option vested immediately with respect to
3,000 shares and vests in four equal annual installments with respect to the
balance of the shares.
6
<PAGE> 9
COMPENSATION TO EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
annual and long-term compensation of the Chief Executive Officer of the Company
and each of the Named Executive Officers for the two years ended December 31,
1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ---------------
------------------------- SECURITIES
NAME AND SALARY BONUS UNDERLYING
PRINCIPAL POSITION YEAR ($) ($)(1) OPTIONS/SARS(#)
- ------------------ ---- -------- ------- ---------------
<S> <C> <C> <C> <C>
Lowell B. Hawkinson.................................. 1996 $200,000 -- --
Chief Executive Officer 1995 $197,538 -- --
Robert L. Moore...................................... 1996 $200,000 -- --
President 1995 $191,308 -- --
Stephen N. Gregorio (2).............................. 1996 $137,000 -- --
Vice President, Finance and 1995 $136,770 -- 10,000
Chief Financial Officer
Raymond T. Wood, Jr. (3)............................. 1996 $190,000 $28,500 --
Vice President, Sales 1995 $184,731 $74,000 --
James T. Pepe........................................ 1996 $160,000 -- --
Vice President, Engineering 1995 $155,654 -- --
</TABLE>
- ---------------
(1) In accordance with the rules of the Securities Exchange Commission, other
compensation in the form of perquisites and other personal benefits has
been omitted in those instances where the aggregate amount of such
perquisites and other personal benefits constituted less than the lesser of
$50,000 or 10% of the total of annual salary and bonus for the Named
Executive Officer for such year.
(2) Mr. Gregorio resigned his position with the Company effective January 29,
1997.
(3) Mr. Wood resigned his position with the Company effective December 31,
1996.
OPTION GRANTS
There were no stock option grants made during fiscal 1996 to any of the
Named Executive Officers.
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<PAGE> 10
YEAR-END OPTION TABLE
The following table summarizes certain information regarding stock option
exercises by each of the Named Executive Officers during 1996 and stock options
held as of December 31, 1996 by each of the Named Executive Officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
NUMBER OF SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED ON VALUE OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END
EXERCISE REALIZED (EXERCISABLE/UNEXERCISABLE) (EXERCISABLE/UNEXERCISABLE)
NAME (#) ($)(1) (#) ($)(2)
- ---- ---------------- -------- --------------------------- ---------------------------
<S> <C> <C> <C> <C>
Lowell B. Hawkinson....... -- -- -- --
Robert L. Moore........... -- -- -- --
Stephen N. Gregorio (3)... 2,800 $ 54,320 48,400/18,800 $329,776/$ 86,472
Raymond T. Wood, Jr. (4).. -- -- 40,000/-- $177,600/--
James T. Pepe............. 8,000 $100,000 8,000/24,000 $ 35,520/$106,560
</TABLE>
- ---------------
(1) Value represents the difference between the closing price of the Common
Stock on the date of exercise and the exercise price, multiplied by the
number of shares acquired on exercise.
(2) Value of unexercised in-the-money options represents the difference between
the closing price of the Company's Common Stock on December 31, 1996
($11.94) and the exercise price of the option, multiplied by the number of
shares subject to the option.
(3) Mr. Gregorio resigned his position with the Company effective January 29,
1997.
(4) Mr. Wood resigned his position with the Company effective December 31, 1996.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee of the Company's Board of Directors is
responsible for establishing compensation policies with respect to the Company's
executive officers, including the Chief Executive Officer, the President and the
other executive officers named in the Summary Compensation Table, and setting
the compensation for these individuals.
The Compensation Committee seeks to achieve three broad goals in connection
with the Company's executive compensation programs and decisions regarding
individual compensation. First, the Compensation Committee structures executive
compensation programs in a manner that the Committee believes will enable the
Company to attract and retain key executives. Second, the Compensation Committee
establishes compensation programs that are designed to reward executives for the
achievement by the Company of net income goals and the achievement by the
executives of certain assigned objectives. By tying compensation in part to
particular goals, the Compensation Committee believes that a
performance-oriented environment is created for the Company's executives.
Finally, the Company's executive compensation programs are intended to provide
executives with an equity interest in the Company so as to link a portion of the
compensation of the Company's executives with the performance of the Company's
Common Stock.
The compensation programs for the Company executives generally consist of
three elements based upon the foregoing objectives: base salary; annual cash
bonus; and a stock-based equity incentive in the form of participation in the
Company's stock option plans. In establishing base salaries for executives,
including the
8
<PAGE> 11
Chief Executive Officer, the Compensation Committee monitors salaries at other
companies, particularly those that are in the same industry as the Company or
related industries and/or located in the same general geographic area as the
Company, considers historic salary levels of the individual and the nature of
the individual's responsibilities and compares the individual's base salary with
those of other executives at the Company. To the extent determined to be
appropriate, the Compensation Committee also considers general economic
conditions, the Company's financial performance and the individual's performance
in establishing base salaries of executives. In addition, in 1996 the
Compensation Committee hired the consulting firm of William Mercer Inc. to
review its compensation arrangements.
The Compensation Committee generally structures cash bonuses by linking
them to annual financing goals and the achievement by the executives of certain
assigned objectives. The individual objectives set for executive officers of the
Company are generally both objective and subjective in nature and include such
goals as bookings, revenue, profit and departmental objectives. The Compensation
Committee believes that these arrangements tie the executive's performance
closely to a key measure of success of the Company or the executive's business
unit. In 1996 neither Mr. Hawkinson nor Dr. Moore received a bonus. The
Compensation Committee believes that the substantial equity position in the
Company held by these executive officers provides them with adequate incentives.
Stock option grants are designed to make a portion of the overall
compensation of the executive officers receiving such award vary depending upon
the performance of the Company Common Stock. As a result of the applicable
vesting arrangements, such grants also serve as a means for the Company to
retain the services of these individuals. No stock option grants were made to
the Named Executive Officers in 1996.
The compensation philosophy applied by the Compensation Committee in
establishing the compensation for the Company's Chief Executive Officer is the
same as for the other executive officers. The Compensation Committee set Mr.
Hawkinson's salary for 1996 at $200,000. The Compensation Committee believes
that such a base salary is appropriate in light of the factors described above.
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), generally disallows a tax deduction to public companies for
compensation over $1,000,000 paid to its chief executive officer and its four
other most highly compensated executive officers. Qualifying performance-based
compensation will not be subject to the deduction limit if certain requirements
are met. In this regard, the Company has limited the number of shares subject to
stock options which may be granted to Company employees in a manner that
complies with the performance-based requirements of Section 162(m). Based on the
compensation awarded to the executive officers of the Company, it does not
appear that the Section 162(m) limitation will have a significant impact on the
Company in the near term. While the Committee does not currently intend to
qualify its incentive awards as a performance-based plan, it will continue to
monitor the impact of Section 162(m) on the Company.
John A. Shane
Theodore G. Johnson
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Company's Compensation Committee are Messrs.
Shane and Johnson. No executive officer of the Company has served as director or
member of the compensation committee (or other committee serving an equivalent
function) of any other entity, whose executive officers served as a director of
or member of the Compensation Committee of the Company.
9
<PAGE> 12
CERTAIN TRANSACTIONS
Mr. Raymond T. Wood, Jr., the Company's Vice President, Marketing resigned
his position with the Company effective December 31, 1996. In accordance with a
Severance Agreement dated December 6, 1996, Mr. Wood will receive severance
compensation in the total amount of $147,605.34 from January 1, 1997 to
September 30, 1997.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely on its review of copies of reports filed by individuals
required to make filings ("Reporting Persons") pursuant to Section 16(a) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") or written
representations from certain Reporting Persons that no Form 5 filing was
required for such persons, the Company believes that during fiscal 1996 all
filings required to be made by its Reporting Persons were timely made in
accordance with the requirements of the Exchange Act, except as follows. On
February 16, 1996, Mr. Troy A. Heindel, the Company's Vice President, Support
Services and Chief Information Officer, purchased 800 shares of Common Stock and
on February 21, 1996 Mr. Heindel sold 300 shares of Common Stock. Such
transactions were reported on a Form 4 filed on May 10, 1996. Within six months
prior to the Company's initial public offering, Ms. Kathy L. Kessel, the
Company's Vice President, Marketing, acquired shares of Common Stock of the
Company and on February 16, 1996 Ms. Kessel purchased 1,500 shares of Common
Stock. Such transactions were reported on a Form 4 filed on September 10, 1996.
On December 12, 1996, Ms. Kessel sold 627 shares of Common Stock. Such
transaction was reported on a Form 5 filed on February 10, 1997. Within six
months prior to the Company's initial public offering, Mr. Michael Levin, the
Company's then Vice President, Technology, sold shares of Common Stock. Such
transaction was reported on an amended Form 4 for February 1996, filed on
September 10, 1996. On December 10, 1996, the Company canceled an option held by
Mr. Andrew Zoldan, the Company's then Vice President, Business Applications, and
issued a new option to Mr. Zoldan. Such transactions were reported on a Form 4
filed on March 13, 1997.
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<PAGE> 13
COMPARATIVE STOCK PERFORMANCE
The graph below compares the cumulative total stockholder return on the
Common Stock of the Company for the period from February 16, 1996 through
December 31, 1996 with the cumulative total return on (i) the Nasdaq Composite
Index, and (ii) the Nasdaq Computer & Data Processing Services Index. The
comparison assumes the investment of $100 on February 16, 1996 in the Company's
Common Stock and in each of the indices and, in each case, assumes reinvestment
of all dividends. Prior to February 16, 1996, the Company's Common Stock was not
registered under the Exchange Act.
[LINE GRAPH]
<TABLE>
- ----------------------------------------------------------------------------------------------
<CAPTION>
2/16/96 12/31/96
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Gensym 100 115
- ----------------------------------------------------------------------------------------------
Nasdaq Composite Index 100 119
- ----------------------------------------------------------------------------------------------
Nasdaq Computer & Data Processing Services 100 128
- ----------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 14
STOCK PLANS
The Company's stock plans are comprised of the 1987 Stock Plan, the 1994
Stock Option Plan, the 1995 Director Stock Option Plan and the 1995 Employee
Stock Purchase Plan. The Board of Directors has resolved not to grant any more
options under the 1987 Stock Plan. The terms of the 1995 Director Stock Option
Plan are summarized below under "PROPOSAL 3 -- APPROVAL OF AMENDMENT TO 1995
DIRECTOR STOCK OPTION PLAN." The following is a summary of the material terms of
the Company's 1994 Stock Option Plan and 1995 Employee Stock Purchase Plan.
1994 STOCK OPTION PLAN
The 1994 Stock Option Plan (the "1994 Plan") was adopted by the Board of
Directors in January 1994 and approved by the stockholders of the Company in May
1994. Under the terms of the 1994 Plan, the Company is authorized to grant
incentive and nonstatutory options to purchase shares of the Common Stock of the
Company to employees and directors of, and consultants and advisors to, the
Company. A total of 534,850 shares of Common Stock may be issued upon exercise
of options granted or awards made under the 1994 Plan. As of March 31, 1997,
options to purchase a total of 304,500 shares at a weighted average exercise
price of $11.11 per share were outstanding under the 1994 Plan and 206,980
shares remained available for future grants and awards. These options generally
vest in five equal annual installments commencing on the date of grant.
Stock option grants under the 1994 Plan, and all questions of
interpretation with respect to the 1994 Plan, are determined by the Compensation
Committee of the Board of Directors. Stock option grants under the 1994 Plan
entitle the optionee to purchase Common Stock from the Company, for a specified
exercise price, during the periods specified in the applicable option agreement.
The Compensation Committee selects the persons to whom options are granted, and
determines the number of shares covered by each option, its exercise price, its
vesting schedule and its expiration date. Options are generally not assignable
or transferable except by will or the laws of descent and distribution or, in
the case of nonstatutory options only, pursuant to a qualified domestic
relations order. Generally, no incentive stock option may be exercised more than
three months following termination of the optionholder's employment, unless
termination is due to death or disability, in which case the option is
exercisable for a maximum of one year after such termination.
As of March 31, 1997, the Company had approximately 307 employees, all of
whom were eligible to participate in the 1994 Plan. The granting of options
under the 1994 Plan is discretionary, and the Company cannot now determine the
number or type of options to be granted in the future to any particular person
or group. Pursuant to the 1994 Plan (i) Stephen N. Gregorio and James T. Pepe
have received options to purchase 10,000 shares of Common Stock and 40,000
shares of Common Stock, respectively, (ii) all current executive officers of the
Company, as a group, have received options to purchase 127,500 shares of Common
Stock, (iii) all non-employee directors have received options to purchase 60,000
shares of Common Stock, and (iv) all employees, including all current officers
who are not executive officers, as a group, have received options to purchase
133,700 shares of Common Stock.
For a description of the federal income tax consequences of stock options
granted under the 1994 Plan see "PROPOSAL 2 -- APPROVAL OF 1997 STOCK INCENTIVE
PLAN -- Federal Income Tax Consequences" below.
1995 EMPLOYEE STOCK PURCHASE PLAN
In November 1995 the Board of Directors adopted, and in January 1996 the
stockholders approved, the Company's 1995 Employee Stock Purchase Plan (the
"Purchase Plan"), which became effective on February 16, 1996. The Purchase Plan
authorizes the issuance of up to a total of 200,000 shares of Common Stock to
participating employees.
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<PAGE> 15
All employees of the Company, including directors of the Company who are
employees, and all employees of any participating subsidiaries, (i) whose
customary employment is more than 20 hours per week and for more than five
months in any calendar year, (ii) who have been employed by the Company or a
subsidiary for at least three months prior to enrolling in the Purchase Plan,
and (iii) who are employees on the first day of the designated payroll deduction
period (the "Offering Period"), are eligible to participate in the Purchase
Plan. Employees who would immediately after the grant own 5% or more of the
total combined voting power or value of the stock of the Company or any
subsidiary are not eligible to participate. As of March 31, 1997, approximately
307 of the Company's employees would have been eligible to participate in the
Purchase Plan.
On the first day of an Offering Period (an "Offering Date"), the Company
will grant to each eligible employee who has elected to participate in the
Purchase Plan an option to purchase shares of Common Stock as follows: the
employee may authorize an amount (a whole percentage from 1% to 10% of such
employee's regular pay) to be deducted by the Company from such pay during the
Offering Period. On the last day of the Offering Period, the employee is deemed
to have exercised the option, at the option exercise price, to the extent of
accumulated payroll deductions. Under the terms of the Purchase Plan, the option
price is an amount equal to 85% of the fair market value per share of Common
Stock on either the Offering Date or the last day of the Offering Period,
whichever is lower. In no event may an employee purchase in any one Offering
Period a number of shares which is more than 15% of the employee's annualized
base pay divided by 85% of the market value of a share of Common Stock on the
Offering Date. The Compensation Committee may, in its discretion, choose an
Offering Period of twelve months or less for each of the offerings and choose a
different Offering Period for each offering. The first Offering Period commenced
on June 1, 1996, and the second offering commenced on December 1, 1996.
If an employee is not a participant on the last day of the Offering period,
such employee is not entitled to exercise any option, and the amount of such
employee's accumulated payroll deductions will be refunded. An employee's rights
under the Purchase Plan terminate upon voluntary withdrawal from the Purchase
Plan at any time, or when the employment of such employee ceases for any reason.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the United States federal income tax
consequences that generally will arise with respect to participation in the
Purchase Plan and with respect to the sale of Common Stock acquired under the
Purchase Plan. The Purchase Plan is intended to qualify as an "Employee Stock
Purchase Plan" within the meaning of Section 423 of the Code. The Purchase Plan
is not a qualified plan under Section 401(a) of the Code.
Tax Consequences to Participants. In general, a participant will not
recognize taxable income upon enrolling in the Purchase Plan or upon purchasing
shares of Common Stock at the end of an Offering. Instead, if a participant
sells Common Stock acquired under the Purchase Plan at a sale price that exceeds
the price at which the participant purchased the Common Stock, then the
participant will recognize taxable income. A portion of that taxable income will
be ordinary income, and a portion may be capital gain.
If the participant sells the Common Stock more than one year after
acquiring it and more than two years after the applicable Offering Date, then
the participant will be taxed as follows. If the sale price of the Common Stock
is higher than the price at which the participant purchased the Common Stock,
then the participant will recognize ordinary compensation income in an amount
equal to the lesser of (i) the excess of the fair market value of the Common
Stock on the Offering Date over the price at which the participant purchased the
Common Stock, and (ii) the excess of the sale price of the Common Stock over the
price at which the participant purchased the Common Stock. Any further income
will be long-term capital gain. If the
13
<PAGE> 16
sale price of the Common Stock is less than the price at which the participant
purchased the Common Stock, then the participant will recognize long-term
capital loss in an amount equal to the excess of the price at which the
participant purchased the Common Stock over the sale price of the Common Stock.
If the participant sells the Common Stock within one year after acquiring
it or within two years after the applicable Offering Date (a "Disqualifying
Disposition"), then the participant will recognize ordinary compensation income
in an amount equal to the excess of the fair market value of the Common Stock on
the date that it was purchased over the price at which the participant purchased
the Common Stock. The participant will also recognize capital gain in an amount
equal to the excess of the sale price of the Common Stock over the fair market
value of the Common Stock on the date that it was purchased, or capital loss in
an amount equal to the excess of the fair market value of the Common Stock on
the date that it was purchased over the sale price of the Common Stock. This
capital gain or loss will be long-term capital gain or loss if the participant
has held the Common Stock for more than one year prior to the date of the sale
and will be a short-term capital gain or loss if the participant has held the
Common Stock for a shorter period.
Tax Consequences to the Company. The offering of Common Stock under the
Purchase Plan will have no tax consequences to the Company. Moreover, in
general, neither the purchase nor the sale of Common Stock acquired under the
Purchase Plan will have any tax consequences to the Company except that the
Company will be entitled to a business-expense deduction with respect to any
ordinary compensation income recognized by a participant upon making a
Disqualifying Disposition. Any such deduction will be subject to the limitations
of Section 162(m) of the Code.
Withholding. The amount that a participant elects to have deducted from
his or her base pay for the purchase of Common Stock under the Purchase Plan
constitutes taxable wages and is subject to withholding.
PROPOSAL 2 -- APPROVAL OF 1997 STOCK INCENTIVE PLAN
On April 8, 1997, the Board of Directors of the Company adopted, subject to
stockholder approval, the 1997 Stock Incentive Plan (the "1997 Plan"). Up to
500,000 shares of Common Stock (subject to adjustment in the event of stock
splits and other similar events) may be issued pursuant to awards granted under
the 1997 Plan.
The Board of Directors believes that the future success of the Company
depends, in large part, upon the ability of the Company to maintain a
competitive position in attracting, retaining and motivating key personnel.
ACCORDINGLY, THE BOARD OF DIRECTORS BELIEVES ADOPTION OF THE 1997 PLAN IS
IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE
"FOR" THIS PROPOSAL.
SUMMARY OF THE 1997 PLAN
The following is a brief summary of the material terms of the 1997 Plan.
Description of Awards
The 1997 Plan provides for the grant of incentive stock options intended to
qualify under Section 422 of the Code, nonstatutory stock options, restricted
stock awards and other stock-based awards, including the grant of shares based
upon certain conditions, the grant of securities convertible into Common Stock
and the grant of stock appreciation rights (collectively "Awards").
Incentive Stock Options and Nonstatutory Stock Options. Optionees receive
the right to purchase a specified number of shares of Common Stock at a
specified option price and subject to such other terms and
14
<PAGE> 17
conditions as are specified in connection with the option grant. Options may be
granted at an exercise price which may be less than, equal to or greater than
the fair market value of the Common Stock on the date of grant. Under present
law, however, incentive stock options and options intended to qualify as
performance-based compensation under Section 162(m) of the Code may not be
granted at an exercise price less than the fair market value of the Common Stock
on the date of grant (or less than 110% of the fair market value in the case of
incentive stock options granted to optionees holding more than 10% of the voting
power of the Company). The 1997 Plan permits the Board to determine the manner
of payment of the exercise price of options, including through payment by cash,
check or in connection with a "cashless exercise" through a broker, by surrender
to the Company of shares of Common Stock, by delivery to the Company of a
promissory note, or by any other lawful means.
Restricted Stock Awards. Restricted stock Awards entitle recipients to
acquire shares of Common Stock, subject to the right of the Company to
repurchase all or part of such shares from the recipient in the event that the
conditions specified in the applicable Award are not satisfied prior to the end
of the applicable restriction period established for such Award.
Other Stock-Based Awards. Under the 1997 Plan, the Board has the right to
grant other Awards based upon the Common Stock having such terms and conditions
as the Board may determine, including the grant of shares based upon certain
conditions, the grant of securities convertible into Common Stock and the grant
of stock appreciation rights.
Eligibility to Receive Awards
Officers, employees, directors, consultants and advisors of the Company and
its subsidiaries are eligible to be granted Awards under the 1997 Plan. Under
present law, however, incentive stock options may only be granted to employees.
The maximum number of shares with respect to which an Award may be granted to
any participant under the 1997 Plan may not exceed 100,000 shares per calendar
year.
As of March 31, 1997, approximately 310 persons would have been eligible to
receive Awards under the 1997 Plan, including the Company's seven executive
officers and three non-employee directors. The granting of Awards under the 1997
Plan is discretionary, and the Company cannot now determine the number or type
of Awards to be granted in the future to any particular person or group.
On April 8, 1997, the last reported sale price of the Company's Common
Stock on the Nasdaq National Market was $6.50.
Administration
The 1997 Plan is administered by the Board of Directors. The Board has the
authority to adopt, amend and repeal the administrative rules, guidelines and
practices relating to the 1997 Plan and to interpret the provisions of the 1997
Plan. Pursuant to the terms of the 1997 Plan, the Board of Directors may
delegate authority under the 1997 Plan to one or more committees of the Board,
and subject to certain limitations, to one or more executive officers of the
Company. The Board has authorized the Compensation Committee to administer
certain aspects of the 1997 Plan, including the granting of options to executive
officers. Subject to any applicable limitations contained in the 1997 Plan, the
Board of Directors, the Compensation Committee, or any other committee or
executive officer to whom the Board delegates authority, as the case may be,
selects the recipients of Awards and determines (i) the number of shares of
Common Stock covered by options and the dates upon which such options become
exercisable, (ii) the exercise price of options, (iii) the duration of options,
and (iv) the number of shares of Common Stock subject to any restricted stock or
other stock-based Awards and the terms and conditions of such Awards, including
conditions for repurchase, issue price and repurchase price.
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<PAGE> 18
The Board of Directors is required to make appropriate adjustments in
connection with the 1997 Plan and any outstanding Awards to reflect stock
dividends, stock splits and certain other events. In the event of a merger,
liquidation or other Acquisition Event (as defined in the 1997 Plan), the Board
of Directors is authorized to provide for outstanding options or other
stock-based Awards to be assumed or substituted for (in which case such assumed
or substituted options or Awards will include a provision to the effect that
such option or Award shall become immediately exercisable in full if, within the
remaining period during which such option or Award shall otherwise become
exercisable pursuant to its terms, the plan participant terminates his or her
employment for Good Reason (as defined in the 1997 Plan) or is terminated
without Cause (as defined in the 1997 Plan) by the surviving or acquiring
corporation), to accelerate the Awards to make them fully exercisable prior to
consummation of the Acquisition Event or to provide for a cash out of the value
of any outstanding options. If any Award expires or is terminated, surrendered,
canceled or forfeited, the unused shares of Common Stock covered by such Award
will again be available for grant under the 1997 Plan.
Amendment or Termination
No Award may be made under the 1997 Plan after April 8, 2007, but Awards
previously granted may extend beyond that date. The Board of Directors may at
any time amend, suspend or terminate the 1997 Plan, except that no Award
designated as subject to Section 162(m) of the Code by the Board of Directors
after the date of such amendment shall become exercisable, realizable or vested
(to the extent such amendment was required to grant such Award) unless and until
such amendment shall have been approved by the Company's stockholders.
Federal Income Tax Consequences
The following is a summary of the United States federal income tax
consequences that generally will arise with respect to Awards granted under the
1997 Plan and with respect to the sale of Common Stock acquired under the 1997
Plan.
Incentive Stock Options. In general, a participant will not recognize
taxable income upon the grant or exercise of an incentive stock option. Instead,
a participant will recognize taxable income with respect to an incentive stock
option only upon the sale of Common Stock acquired through the exercise of the
option ("ISO Stock"). The exercise of an incentive stock option, however, may
subject the participant to the alternative minimum tax.
Generally, the tax consequences of selling ISO Stock will vary with the
length of time that the participant has owned the ISO Stock at the time it is
sold. If the participant sells ISO Stock after having owned it for at least two
years from the date the option was granted (the "Grant Date") and one year from
the date the option was exercised (the "Exercise Date"), then the participant
will recognize long-term capital gain in an amount equal to the excess of the
sale price of the ISO Stock over the exercise price.
If the participant sells ISO Stock for more than the exercise price prior
to having owned it for at least two years from the Grant Date and one year from
the Exercise Date (a "Disqualifying Disposition"), then all or a portion of the
gain recognized by the participant will be ordinary compensation income and the
remaining gain, if any, will be a capital gain. This capital gain will be a
long-term capital gain if the participant has held the ISO Stock for more than
one year prior to the date of sale.
If a participant sells ISO Stock for less than the exercise price, then the
participant will recognize capital loss equal to the excess of the exercise
price over the sale price of the ISO Stock. This capital loss will be a
long-term capital loss if the participant has held the ISO Stock for more than
one year prior to the date of sale.
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<PAGE> 19
Nonstatutory Stock Options. As in the case of an incentive stock option, a
participant will not recognize taxable income upon the grant of a nonstatutory
stock option. Unlike the case of an incentive stock option, however, a
participant who exercises a nonstatutory stock option generally will recognize
ordinary compensation income in an amount equal to the excess of the fair market
value of the Common Stock acquired through the exercise of the option ("NSO
Stock") on the Exercise Date over the exercise price.
With respect to any NSO Stock, a participant will have a tax basis equal to
the exercise price plus any income recognized upon the exercise of the option.
Upon selling NSO Stock, a participant generally will recognize capital gain or
loss in an amount equal to the excess of the sale price of the NSO Stock over
the participant's tax basis in the NSO Stock. This capital gain or loss will be
a long-term gain or loss if the participant has held the NSO Stock for more than
one year prior to the date of the sale.
Restricted Stock Awards. A participant will not recognize taxable income
upon the grant of a restricted stock Award, unless the participant makes an
election under Section 83(b) of the Code (a "Section 83(b) Election"). If the
participant makes a Section 83(b) Election within 30 days of the date of the
grant, then the participant will recognize ordinary income, for the year in
which the Award is granted, in an amount equal to the difference between the
fair market value of the Common Stock at the time the Award is granted and the
purchase price paid for the Common Stock. If a Section 83(b) Election is not
made, the participant will recognize ordinary income, at the time that the
forfeiture provisions or restrictions on transfer lapse, in an amount equal to
the difference between the fair market value of the Common Stock at the time of
such lapse and the original purchase price paid for the Common Stock. The
participant will have a basis in the Common Stock acquired equal to the sum of
the price paid and the amount of ordinary compensation income recognized.
Upon the disposition of the Common Stock acquired pursuant to a restricted
stock Award, the participant will recognize a capital gain or loss equal to the
difference between the sale price of the Common Stock and the participant's
basis in the Common Stock. The gain or loss will be a long-term gain or loss if
the shares are held for more than one year. For this purpose, the holding period
shall begin just after the date on which the forfeiture provisions or
restrictions lapse if a Section 83(b) Election is not made, or just after the
Award is granted if a Section 83(b) Election is made.
Other Stock-Based Awards. The tax consequences associated with any other
stock-based Award granted under the 1997 Plan will vary depending on the
specific terms of such Award. Among the relevant factors are whether or not the
Award has a readily ascertainable fair market value, whether or not the Award is
subject to forfeiture provisions or restrictions on transfer, the nature of the
property to be received by the participant under the Award and the participant's
holding period and tax basis for the Award or underlying Common Stock.
Tax Consequences to the Company. The grant of an Award under the 1997 Plan
will have no tax consequences to the Company. Moreover, in general, neither the
exercise of an incentive stock option nor the sale of any Common Stock acquired
under the 1997 Plan will have any tax consequences to the Company. The Company
generally will be entitled to a business-expense deduction, however, with
respect to any ordinary compensation income recognized by a participant under
the 1997 Plan, including as a result of the exercise of a nonstatutory stock
option, a Disqualifying Disposition, or a Section 83(b) Election. Any such
deduction will be subject to the limitations of Section 162(m) of the Code. The
Company will have a withholding obligation with respect to any ordinary
compensation income recognized by participants under the 1997 Plan who are
employees or otherwise subject to withholding.
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<PAGE> 20
PROPOSAL 3 -- APPROVAL OF AMENDMENT TO 1995 DIRECTOR
STOCK OPTION PLAN
The Board of Directors believes that the continued growth and success of
the Company depends, in large part, upon its ability to attract and retain
highly-qualified non-employee directors of the Company. Accordingly, on December
10, 1996, the Board of Directors adopted, subject to stockholder approval, an
amendment to the Company's 1995 Director Stock Option Plan (the "1995 Director
Plan") to increase the annual option grant under the 1995 Director Plan from an
option to purchase 2,000 shares of Common Stock at an option exercise price
equal to the fair market value of the Common Stock on the date of grant, to an
option to purchase 3,000 shares of Common Stock at an option exercise price
equal to the fair market value of the Common Stock on the date of grant.
THE BOARD OF DIRECTORS BELIEVES THAT THE APPROVAL OF THIS PROPOSAL IS IN
THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE
"FOR" THE APPROVAL OF THIS PROPOSAL.
The following is a brief summary of the provisions of the 1995 Director
Plan.
Under the 1995 Director Plan, each director who is not also an employee of
the Company or any subsidiary of the Company (an "Eligible Director") receives
on June 30 of each year, beginning 1997, a nonstatutory option to purchase
shares of Common Stock of the Company. The amendment to the 1995 Director Plan
submitted to the stockholders for approval will increase the annual option grant
from an option to purchase 2,000 shares of the Company's Common Stock, to an
option to purchase 3,000 shares of the Company's Common Stock. In addition,
pursuant to the 1995 Director Plan, each Eligible Director received an option to
purchase 2,000 shares on February 16, 1996. To date, options to purchase 6,000
shares of the Company's Common Stock, net of cancellations, have been granted
under the 1995 Director Plan, and 94,000 shares are available for grant under
the plan.
Options granted under the 1995 Director Plan become exercisable in five
equal installments commencing on the date of grant and on each of the first four
anniversaries of the date of grant. In the event an optionee ceases to serve as
a director, each option granted under the 1995 Director Plan may be exercised by
the optionee at any time within 90 days after the date of cessation of service
to the extent such option was exercisable at the time of such cessation of
service. Notwithstanding the foregoing, no option is exercisable after the
expiration of ten years from the date of grant. Generally, an option granted
under the 1995 Director Plan is nontransferable otherwise than by the laws of
descent and distribution or pursuant to a qualified domestic relations order.
The 1995 Director Plan contains provisions relating to the disposition of
options in the event of certain mergers, acquisitions and other extraordinary
corporate transactions involving the Company.
The 1995 Director Plan is administered by the Compensation Committee of the
Board of Directors. The Board of Directors may modify or amend the 1995 Director
Plan in any respect, from time to time, subject to stockholder approval if so
required by applicable laws or regulations, provided, however, that the
provisions of the 1995 Director Plan relating to eligibility, the option grant
dates, the number of shares subject to options granted under the 1995 Director
Plan and the option exercise prices for such options may not be amended more
than once every six months, other than to comport with changes in the Code, the
Employee Retirement Income Security Act of 1974, or the rules thereunder. For a
description of the federal income tax consequences of nonstatutory stock options
granted under the 1995 Director Plan, see "PROPOSAL 2 -- APPROVAL OF 1997 STOCK
INCENTIVE PLAN -- Federal Income Tax Consequences" above.
During fiscal 1996, Messrs. Shane and Johnson and Ms. Pfund were each
granted an option under the 1995 Director Plan to purchase 2,000 shares of
Common Stock at an exercise price of $10.00.
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<PAGE> 21
PROPOSAL 4 -- RATIFICATION OF THE APPOINTMENT OF AUDITORS
The Board of Directors has selected Arthur Andersen LLP as auditors of the
Company for the year ending December 31, 1997, subject to ratification by
stockholders at the Meeting. If the stockholders do not ratify the selection of
Arthur Andersen LLP, the Board of Directors will reconsider the matter. A
representative of Arthur Andersen LLP, which served as auditors for the year
ended December 31, 1996, is expected to be present at the Meeting to respond to
appropriate questions, and to make a statement if he or she so desires.
STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Any proposal that a stockholder intends to present at the 1998 Annual
Meeting of Stockholders must be submitted to the Secretary of the Company at its
offices, 125 CambridgePark Drive, Cambridge, MA 02140, no later than December
19, 1997 in order to be considered for inclusion in the Proxy Statement relating
to that meeting.
OTHER MATTERS
The Board of Directors knows of no other business which will be presented
for consideration at the Meeting other than that described above. However, if
any other business should come before the Meeting, it is the intention of the
persons named in the enclosed Proxy to vote, or otherwise act, in accordance
with their best judgment on such matters.
The Company will bear the costs of soliciting proxies. In addition to
solicitations by mail, the Company's directors, officers and regular employees
may, without additional remuneration, solicit proxies by telephone, telegraph,
facsimile and personal interviews. The Company will also request brokerage
houses, custodians, nominees and fiduciaries to forward copies of the proxy
material to those persons for whom they hold shares and request instructions for
voting the Proxies. The Company will reimburse such brokerage houses and other
persons for their reasonable expenses in connection with this distribution.
THE BOARD OF DIRECTORS HOPES THAT STOCKHOLDERS WILL ATTEND THE MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND, YOU ARE URGED TO COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE. PROMPT RESPONSE WILL
GREATLY FACILITATE ARRANGEMENTS FOR THE MEETING AND YOUR COOPERATON IS
APPRECIATED. STOCKHOLDERS WHO ATTEND THE MEETING MAY VOTE THEIR STOCK PERSONALLY
EVEN THOUGH THEY HAVE SENT IN THEIR PROXIES.
By order of the Board of Directors,
Lowell B. Hawkinson
Secretary
April 18, 1997
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<PAGE> 22
APPENDIX A
Gensym Corporation
1997 STOCK INCENTIVE PLAN
1. Purpose
The purpose of this 1997 Stock Incentive Plan (the "Plan") of Gensym
Corporation, a Delaware corporation (the "Company"), is to advance the interests
of the Company's stockholders by enhancing the Company's ability to attract,
retain and motivate persons who make (or are expected to make) important
contributions to the Company by providing such persons with equity ownership
opportunities and performance-based incentives and thereby better aligning the
interests of such persons with those of the Company's stockholders. Except where
the context otherwise requires, the term "Company" shall include any present or
future subsidiary corporations of Gensym Corporation as defined in Section
424(f) of the Internal Revenue Code of 1986, as amended, and any regulations
promulgated thereunder (the "Code").
2. Eligibility
All of the Company's employees, officers, directors, consultants and
advisors are eligible to be granted options, restricted stock, or other
stock-based awards (each, an "Award") under the Plan. Any person who has been
granted an Award under the Plan shall be deemed a "Participant".
3. Administration, Delegation
(a) Administration by Board of Directors. The Plan will be administered
by the Board of Directors of the Company (the "Board"). The Board shall have
authority to grant Awards and to adopt, amend and repeal such administrative
rules, guidelines and practices relating to the Plan as it shall deem advisable.
The Board may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Award in the manner and to the extent it shall
deem expedient to carry the Plan into effect and it shall be the sole and final
judge of such expediency. All decisions by the Board shall be made in the
Board's sole discretion and shall be final and binding on all persons having or
claiming any interest in the Plan or in any Award. No director or person acting
pursuant to the authority delegated by the Board shall be liable for any action
or determination relating to or under the Plan made in good faith.
<PAGE> 23
(b) Delegation to Executive Officers. To the extent permitted by
applicable law, the Board may delegate to one or more executive officers of the
Company the power to make Awards and exercise such other powers under the Plan
as the Board may determine, provided that the Board shall fix the maximum number
of shares subject to Awards and the maximum number of shares for any one
Participant to be made by such executive officers.
(c) Appointment of Committees. The Board shall appoint a committee or
subcommittee of the Board (a "Committee") consisting of not less than two
members, each member of which shall be an "outside director" within the meaning
of Section 162(m) of the Code and a "non-employee director" as defined in Rule
16b-3 promulgated under the Securities Exchange Act of 1934 (the "Exchange Act")
and shall delegate its powers under the Plan to such Committee. All references
in the Plan to the "Board" shall mean the Board or a Committee of the Board or
the executive officer referred to in Section 3(b) to the extent that the Board's
powers or authority under the Plan have been delegated to such Committee or
executive officer.
4. Stock Available for Awards
(a) Number of Shares. Subject to adjustment under Section 4(c), Awards
may be made under the Plan for up to 500,000 shares of common stock, $.01 par
value per share, of the Company (the "Common Stock"). If any Award expires or is
terminated, surrendered or canceled without having been fully exercised or is
forfeited in whole or in part or results in any Common Stock not being issued,
the unused Common Stock covered by such Award shall again be available for the
grant of Awards under the Plan, subject, however, in the case of Incentive Stock
Options (as hereinafter defined), to any limitation required under the Code.
Shares issued under the Plan may consist in whole or in part of authorized but
unissued shares or treasury shares.
(b) Per-Participant Limit. Subject to adjustment under Section 4(c),
the maximum number of shares with respect to which an Award may be granted to
any Participant under the Plan shall be 100,000 per calendar year. The
Per-Participant limit described in this Section 4(b) shall be construed and
applied consistently with Section 162(m) of the Code.
(c) Adjustment to Common Stock. In the event of any stock split, stock
dividend, recapitalization, reorganization, merger, consolidation, combination,
exchange of shares, liquidation, spin-off or other similar change in
capitalization or event, or any distribution to holders of Common Stock other
than a normal cash dividend, (i) the number and class of securities available
under this Plan, (ii) the
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<PAGE> 24
number and class of security and exercise price per share subject to each
outstanding Option, (iii) the repurchase price per security subject to each
outstanding Restricted Stock Award, and (iv) the terms of each other outstanding
stock-based Award shall be appropriately adjusted by the Company (or substituted
Awards may be made, if applicable) to the extent the Board shall determine, in
good faith, that such an adjustment (or substitution) is necessary and
appropriate. If this Section 4(c) applies and Section 8(e)(1) also applies to
any event, Section 8(e)(1) shall be applicable to such event, and this Section
4(c) shall not be applicable.
5. Stock Options
(a) General. The Board may grant options to purchase Common Stock
(each, an "Option") and determine the number of shares of Common Stock to be
covered by each Option, the exercise price of each Option and the conditions and
limitations applicable to the exercise of each Option, including conditions
relating to applicable federal or state securities laws, as it considers
necessary or advisable. An Option which is not intended to be an Incentive Stock
Option (as hereinafter defined) shall be designated a "Nonstatutory Stock
Option".
(b) Incentive Stock Options. An Option that the Board intends to be an
"incentive stock option" as defined in Section 422 of the Code (an "Incentive
Stock Option") shall only be granted to employees of the Company and shall be
subject to and shall be construed consistently with the requirements of Section
422 of the Code. The Company shall have no liability to a Participant, or any
other party, if an Option (or any part thereof) which is intended to be an
Incentive Stock Option is not an Incentive Stock Option.
(c) Exercise Price. The Board shall establish the exercise price at the
time each Option is granted and specify it in the applicable option agreement.
(d) Duration of Options. Each Option shall be exercisable at such times
and subject to such terms and conditions as the Board may specify in the
applicable option agreement.
(e) Exercise of Option. Options may be exercised only by delivery to
the Company of a written notice of exercise signed by the proper person together
with payment in full as specified in Section 5(f) for the number of shares for
which the Option is exercised.
(f) Payment Upon Exercise. Common Stock purchased upon the exercise of
an Option granted under the Plan shall be paid for as follows:
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<PAGE> 25
(1) in cash or by check, payable to the order of the Company;
(2) except as the Board may otherwise provide in an Option
Agreement, (i) by delivery of an irrevocable and unconditional undertaking by a
credit worthy broker to deliver promptly to the Company sufficient funds to pay
the exercise price, or delivery by the Participant to the Company of a copy of
irrevocable and unconditional instructions to a credit worthy broker to deliver
promptly to the Company cash or a check sufficient to pay the exercise price or
(ii) by delivery of shares of Common Stock owned by the Participant valued at
their fair market value as determined by the Board in good faith ("Fair Market
Value"), which Common Stock was owned by the Participant at least six months
prior to such delivery.
(3) to the extent permitted by the Board and explicitly provided in
an Option Agreement (i) by delivery of a promissory note of the Participant to
the Company on terms determined by the Board, or (ii) by payment of such other
lawful consideration as the Board may determine; or
(4) any combination of the above permitted forms of payment.
6. Restricted Stock
(a) Grants. The Board may grant Awards entitling recipients to acquire
shares of Common Stock, subject to the right of the Company to repurchase all or
part of such shares at their issue price or other stated or formula price (or to
require forfeiture of such shares if issued at no cost) from the recipient in
the event that conditions specified by the Board in the applicable Award are not
satisfied prior to the end of the applicable restriction period or periods
established by the Board for such Award (each, "Restricted Stock Award").
(b) Terms and Conditions. The Board shall determine the terms and
conditions of any such Restricted Stock Award, including the conditions for
repurchase (or forfeiture) and the issue price, if any. Any stock certificates
issued in respect of a Restricted Stock Award shall be registered in the name of
the Participant and, unless otherwise determined by the Board, deposited by the
Participant, together with a stock power endorsed in blank, with the Company (or
its designee). At the expiration of the applicable restriction periods, the
Company (or such designee) shall deliver the certificates no longer subject to
such restrictions to the Participant or if the Participant has died, to the
beneficiary designated, in a manner determined by the Board, by a Participant to
receive amounts due or exercise rights of the Participant in the event of the
Participant's death (the "Designated Beneficiary"). In the absence of an
effective designation by a Participant, Designated Beneficiary shall mean the
Participant's estate.
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<PAGE> 26
7. Other Stock-Based Awards
The Board shall have the right to grant other Awards based upon the
Common Stock having such terms and conditions as the Board may determine,
including the grant of shares based upon certain conditions, the grant of
securities convertible into Common Stock and the grant of stock appreciation
rights.
8. General Provisions Applicable to Awards
(a) Transferability of Awards. Except as the Board may otherwise
determine or provide in an Award, Awards shall not be sold, assigned,
transferred, pledged or otherwise encumbered by the person to whom they are
granted, either voluntarily or by operation of law, except by will or the laws
of descent and distribution, and, during the life of the Participant, shall be
exercisable only by the Participant. References to a Participant, to the extent
relevant in the context, shall include references to authorized transferees.
(b) Documentation. Each Award under the Plan shall be evidenced by a
written instrument in such form as the Board shall determine. Each Award may
contain terms and conditions in addition to those set forth in the Plan.
(c) Board Discretion. Except as otherwise provided by the Plan, each
type of Award may be made alone or in addition or in relation to any other type
of Award. The terms of each type of Award need not be identical, and the Board
need not treat Participants uniformly.
(d) Termination of Status. The Board shall determine the effect on an
Award of the disability, death, retirement, authorized leave of absence or other
change in the employment or other status of a Participant and the extent to
which, and the period during which, the Participant, the Participant's legal
representative, conservator, guardian or Designated Beneficiary may exercise
rights under the Award.
(e) Acquisition Events
(1) Consequences of Acquisition Events. Upon the occurrence of an
Acquisition Event (as defined below), or the execution by the Company of any
agreement with respect to an Acquisition Event, the Board shall take any one or
more of the following actions with respect to then outstanding Awards: (i)
provide that outstanding Options shall be assumed, or equivalent Options shall
be substituted, by the acquiring or succeeding corporation (or an affiliate
thereof), provided that any
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<PAGE> 27
such Options substituted for Incentive Stock Options shall satisfy, in the
determination of the Board, the requirements of Section 424(a) of the Code; (ii)
upon written notice to the Participants, provide that all then unexercised
Options will become exercisable in full as of a specified date (the
"Acceleration Date") prior to the Acquisition Event and will terminate
immediately prior to the consummation of such Acquisition Event, except to the
extent exercised by the Participants between the Acceleration Date and the
consummation of such Acquisition Event; (iii) in the event of an Acquisition
Event under the terms of which holders of Common Stock will receive upon
consummation thereof a cash payment for each share of Common Stock surrendered
pursuant to such Acquisition Event (the "Acquisition Price"), provide that all
outstanding Options shall terminate upon consummation of such Acquisition Event
and each Participant shall receive, in exchange therefor, a cash payment equal
to the amount (if any) by which (A) the Acquisition Price multiplied by the
number of shares of Common Stock subject to such outstanding Options (whether or
not then exercisable), exceeds (B) the aggregate exercise price of such Options;
(iv) provide that all Restricted Stock Awards then outstanding shall become free
of all restrictions prior to the consummation of the Acquisition Event; and (v)
provide that any other stock-based Awards outstanding (A) shall become
exercisable, realizable or vested in full, or shall be free of all conditions or
restrictions, as applicable to each such Award, prior to the consummation of the
Acquisition Event, or (B), if applicable, shall be assumed, or equivalent Awards
shall be substituted, by the acquiring or succeeding corporation (or an
affiliate thereof).
Each Option or other Award assumed or substituted pursuant to clause
(i) or (v)(B) above shall include a provision to the effect that such Option or
Award shall become immediately exercisable (or vested) in full if, within the
remaining period during which such Option or Award shall otherwise become
exercisable pursuant to its terms, the Participant terminates his or her
employment for Good Reason or is terminated without Cause by the surviving or
acquiring corporation. "Good Reason" shall mean any significant diminution in
the optionee's title, authority or responsibilities from and after such
Acquisition Event or any reduction in the annual cash compensation payable to
the Participant from and after such Acquisition Event. "Cause" shall mean any
willful misconduct by the Participant which affects the business reputation of
the Company or willful failure by the Participant to perform his or her material
responsibilities to the Company (including, without limitation, breach by the
Participant of any provision of any employment, consulting, advisory,
nondisclosure, non-competition or other similar agreement between the
Participant and the Company). The Participant shall be considered to have been
discharged for "Cause" if the Company determines, within 30 days after the
Participant's resignation, that discharge for cause was warranted.
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<PAGE> 28
An "Acquisition Event" shall mean: (a) any merger or consolidation
which results in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving or acquiring entity)
less than 50% of the combined voting power of the voting securities of the
Company or such surviving or acquiring entity outstanding immediately after such
merger or consolidation; (b) any sale of all or substantially all of the assets
of the Company; (c) the complete liquidation of the Company; or (d) the
acquisition of "beneficial ownership" (as defined in Rule 13d-3 under the
Exchange Act) of securities of the Company representing 50% or more of the
combined voting power of the Company's then outstanding securities (other than
through a merger or consolidation or an acquisition of securities directly from
the Company) by any "person", as such term is used in Sections 13(d) and 14(d)
of the Exchange Act other than the Company, any trustee or other fiduciary
holding securities under an employee benefit plan of the Company or any
corporation owned directly or indirectly by the stockholders of the Company in
substantially the same proportion as their ownership of stock of the Company.
(2) Assumption of Options Upon Certain Events. The Board may grant
Awards under the Plan in substitution for stock and stock-based awards held by
employees of another corporation who become employees of the Company as a result
of a merger or consolidation of the employing corporation with the Company or
the acquisition by the Company of property or stock of the employing
corporation. The substitute Awards shall be granted on such terms and conditions
as the Board considers appropriate in the circumstances.
(f) Withholding. Each Participant shall pay to the Company, or make
provision satisfactory to the Board for payment of, any taxes required by law to
be withheld in connection with Awards to such Participant no later than the date
of the event creating the tax liability. The Board may allow Participants to
satisfy such tax obligations 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. The Company may, to the extent permitted by law, deduct
any such tax obligations from any payment of any kind otherwise due to a
Participant.
(g) Amendment of Award. The Board may amend, modify or terminate any
outstanding Award, including but not limited to, 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 Board determines that the action, taking into account any related
action, would not materially and adversely affect the Participant.
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<PAGE> 29
(h) Conditions on Delivery of Stock. The Company will not be obligated
to deliver any shares of Common Stock pursuant to the Plan or to remove
restrictions from shares previously delivered under the Plan until (i) all
conditions of the Award have been met or removed to the satisfaction of the
Company, (ii) in the opinion of the Company's counsel, all other legal matters
in connection with the issuance and delivery of such shares have been satisfied,
including any applicable securities laws and any applicable stock exchange or
stock market rules and regulations, and (iii) the Participant has executed and
delivered to the Company such representations or agreements as the Company may
consider appropriate to satisfy the requirements of any applicable laws, rules
or regulations.
(i) Acceleration. The Board may at any time provide that any Options
shall become immediately exercisable in full or in part, that any Restricted
Stock Awards shall be free of all restrictions or that any other stock-based
Awards may become exercisable in full or in part or free of some or all
restrictions or conditions, or otherwise realizable in full or in part, as the
case may be.
9. Miscellaneous
(a) No Right To Employment or Other Status. No person shall have any
claim or right to be granted an Award, and the grant of an Award shall not be
construed as giving a Participant the right to continued employment or any other
relationship with the Company. The Company expressly reserves the right at any
time to dismiss or otherwise terminate its relationship with a Participant free
from any liability or claim under the Plan, except as expressly provided in the
applicable Award.
(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
with respect to an Award until becoming the record holder of such shares.
(c) Effective Date and Term of Plan. The Plan shall become effective on
the date on which it is adopted by the Board, but no Award granted to a
Participant designated as subject to Section 162(m) by the Board shall become
exercisable, vested or realizable, as applicable to such Award, unless and until
the Plan has been approved by the Company's stockholders. No Awards shall be
granted under the Plan after the completion of ten years from the earlier of (i)
the date on which the Plan was adopted by the Board or (ii) the date the Plan
was approved by the Company's stockholders, but Awards previously granted may
extend beyond that date.
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<PAGE> 30
(d) Amendment of Plan. The Board may amend, suspend or terminate the
Plan or any portion thereof at any time, provided that no Award granted to a
Participant designated as subject to Section 162(m) by the Board after the date
of such amendment shall become exercisable, realizable or vested, as applicable
to such Award (to the extent that such amendment to the Plan was required to
grant such Award to a particular Participant), unless and until such amendment
shall have been approved by the Company's stockholders.
(e) Stockholder Approval. For purposes of this Plan, stockholder
approval shall mean approval by a vote of the stockholders in accordance with
the requirements of Section 162(m) of the Code.
(f) Governing Law. The provisions of the Plan and all Awards made
hereunder shall be governed by and interpreted in accordance with the laws of
the State of Delaware, without regard to any applicable conflicts of law.
Adopted by the Board of Directors on
April 8, 1997
Approved by the Stockholders on
__________, 1997
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<PAGE> 31
APPENDIX B
GENSYM CORPORATION
1995 DIRECTOR STOCK OPTION PLAN
-------------------------------
1. Purpose
-------
The purpose of this 1995 Director Stock Option Plan (the "Plan") of Gensym
Corporation (the "Company") is to encourage ownership in the Company by outside
directors of the Company whose continued services are considered essential to
the Company's future progress and to provide them with a further incentive to
remain as directors of the Company.
2. Administration
--------------
The Compensation Committee of the Board of Directors shall supervise and
administer the Plan. Grants of stock options under the Plan and the amount and
nature of the awards to be granted shall be automatic and non-discretionary in
accordance with Section 5. However, all questions of interpretation of the Plan
or of any options issued under it shall be determined by the Compensation
Committee of the Board of Directors and such determination shall be final and
binding upon all persons having an interest in the Plan.
3. Participation in the Plan
-------------------------
Directors of the Company who are not employees of the Company or any
subsidiary of the Company shall be eligible to participate in the Plan.
4. Stock Subject to the Plan
-------------------------
(a) The maximum number of shares which may be issued under the Plan
shall be 100,000 shares of the Company's Common Stock, par value $.0l per share
("Common Stock"), subject to adjustment as provided in Section 9 of the Plan.
(b) If any outstanding option under the Plan for any reason expires
or is terminated without having been exercised in full, the shares allocable to
the unexercised portion of such option shall again become available for grant
pursuant to the Plan.
(c) All options granted under the Plan shall be non-statutory
options not intended to meet the requirements of Section 422 of the Internal
Revenue Code of 1986, as amended to date and as it may be amended from time to
time (the "Code").
5. Terms, Conditions and Form of Options
-------------------------------------
<PAGE> 32
Each option granted under the Plan shall be evidenced by a written
agreement in such form as the Board of Directors shall from time to time
approve, which agreements shall comply with and be subject to the following
terms and conditions:
(a) OPTION GRANT DATES. Options shall be granted on (i) the
effective date of the Company's registration statement on Form S-1 relating to
the Company's initial public offering of Common Stock to all eligible directors
who are directors as of such date, and (ii) to all eligible directors on June 30
of each year commencing June 30, 1997.
(b) SHARES SUBJECT TO OPTION. Each option granted under the Plan
shall be exercisable for 2,000 shares of Common Stock.
(c) OPTION EXERCISE PRICE. The option exercise price per share for
the options granted upon the effective date of the Company's registration
statement on Form S-1 relating to the Company's initial public offering shall
equal the initial public offering price of the Common Stock. The option exercise
price per share for subsequent options granted under the Plan shall equal (i)
the last reported sale price per share of the Company's Common Stock on the
Nasdaq National Market (or such other national securities exchange or trading
system on which the Company's Common Stock may then be listed or quoted) on the
date of grant (or if no such price is reported on such date such price as
reported on the nearest preceding day) or (ii) if the Common Stock is not traded
on the Nasdaq National Market or an exchange, the fair market value per share on
the date of grant as determined by the Board of Directors.
(d) OPTIONS NON-TRANSFERABLE. Each option granted under the Plan
by its terms shall not be transferable by the optionee otherwise than by will,
or by the laws of descent and distribution or pursuant to a qualified domestic
relations order (as defined in Section 414(p) of the Code) and shall be
exercised during the lifetime of the optionee only by him. No option or interest
therein may be transferred, assigned, pledged or hypothecated by the optionee
during his or her lifetime, whether by operation of law or otherwise, or be made
subject to execution, attachment or similar process.
(e) EXERCISE PERIOD. Each option may be exercised on a cumulative
basis as to one-fifth of the shares subject to the option on each of the date of
grant and the first, second, third and fourth anniversaries of the date of grant
of such option, PROVIDED THAT (i) this option shall be exercisable only to the
extent exercisable on the date that the optionee ceased to serve as a director
of the Company, and (ii) subject to the provisions of Section 5(f), no option
may be exercised more than 90 days after the optionee ceases to serve as a
director of the Company. No option shall be exercisable after the expiration of
ten years from the date of grant.
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<PAGE> 33
(f) EXERCISE PERIOD UPON DISABILITY OR DEATH. Notwithstanding the
provisions of Section 5(e), any option granted under the Plan may be exercised,
to the extent then exercisable, by an optionee who becomes disabled (within the
meaning of Section 22(e)(3) of the Code or any successor provision thereto)
while acting as a director of the Company, or may be exercised, to the extent
then exercisable, upon the death of such optionee while a director of the
Company by the person to whom it is transferred by will, by the laws of descent
and distribution, pursuant to a qualified domestic relations order or by written
notice filed pursuant to Section 5(h), in each case within the period of one
year after the date the optionee ceases to be such a director by reason of such
disability or death; provided that, no option shall be exercisable after the
expiration of ten years from the date of grant.
(g) EXERCISE PROCEDURE. Options may be exercised only by written
notice to the Company at its principal office accompanied by payment in cash of
the full consideration for the shares as to which they are exercised.
(h) EXERCISE BY REPRESENTATIVE FOLLOWING DEATH OF DIRECTOR. A
director, by written notice to the Company, may designate one or more persons
(and from time to time change such designation) including his legal
representative, who, by reason of the director's death, shall acquire the right
to exercise all or a portion of the option. If the person or persons so
designated wish to exercise any portion of the option, they must do so within
the term of the option as provided herein. Any exercise by a representative
shall be subject to the provisions of the Plan.
6. Assignments
-----------
The rights and benefits under the Plan may not be assigned except as
provided in Section 5.
7. Time for Granting Options
-------------------------
All options for shares subject to the Plan shall be granted, if at all,
not later than five years after the approval of the Plan by the Company's
stockholders.
8. Limitation of Rights
--------------------
(a) NO RIGHT TO CONTINUE AS A DIRECTOR. Neither the Plan, nor the
granting of an option nor any other action taken pursuant to the Plan, shall
constitute or be evidence of any agreement or understanding, express or implied,
that the Company will retain a director for any period of time.
(b) NO STOCKHOLDER RIGHTS FOR OPTIONS. An optionee shall have no
rights as a stockholder with respect to the shares covered by his option until
the date of the issuance to him of a stock certificate therefor, and no
adjustment will be made
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<PAGE> 34
for dividends or other rights (except as provided in Section 9) for which the
record date is prior to the date such certificate is issued.
9. Changes in Common Stock
-----------------------
(a) If the outstanding shares of Common Stock are increased,
decreased or exchanged for a different number or kind of shares or other
securities, or if additional shares or new or different shares or other
securities are distributed with respect to such shares of Common Stock or other
securities, through merger, consolidation, sale of all or substantially all of
the assets of the Company, reorganization, recapitalization, reclassification,
stock dividend, stock split, reverse stock split or other distribution with
respect to such shares of Common Stock, or other securities, an appropriate and
proportionate adjustment will be made in (i) the maximum number and kind of
shares reserved for issuance under the Plan, (ii) the number and kind of shares
or other securities subject to then outstanding options under the Plan and (iii)
the price for each share subject to any then outstanding options under the Plan,
without changing the aggregate purchase price as to which such options remain
exercisable, provided that no adjustment shall be made pursuant to this Section
9 if such adjustment would cause the Plan to fail to comply with Rule 16b-3
under the Securities Exchange Act of 1934 (the "Exchange Act"), or any successor
rule ("Rule 16b-3"). No fractional shares will be issued under the Plan on
account of any such adjustments.
(b) In the event that the Company is merged or consolidated into
or with another corporation (in which consolidation or merger the stockholders
of the Company receive distributions of cash or securities of another issuer as
a result thereof), or in the event that all or substantially all of the assets
of the Company are acquired by any other person or entity, or in the event of a
reorganization or liquidation of the Company, the Board of Directors of the
Company, or the board of directors of any corporation assuming the obligations
of the Company, shall, as to outstanding options, either (i) provide that such
options shall be assumed, or equivalent options shall be substituted, by the
acquiring or successor corporation (or an affiliate thereof), or (ii) upon
written notice to the optionees, provide that all unexercised options will
terminate immediately prior to the consummation of such merger, consolidation,
acquisition, reorganization or liquidations unless exercised by the optionee
within a specified number of days following the date of such notice.
10. Amendment of The Plan
---------------------
(a) The provisions of Sections 3, 5(a), (b) and (c) of the Plan
shall not be amended more than once every six months, other than to comport with
changes in the Code, the Employee Retirement Income Security Act of 1974, or the
rules thereunder. Subject to the foregoing, the Board of Directors may at any
time, and from time to time, modify or amend the Plan in any respect, except
that if at any
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<PAGE> 35
time the approval of the stockholders of the Company is required as to such
modification or amendment under Rule 16b-3, the Board of Directors may not
effect such modification or amendment without such approval.
(b) The termination or any modification or amendment of the Plan
shall not, without the consent of the optionee, affect his or her rights under
an option previously granted to him or her. With the consent of the optionees
affected, the Board of Directors may amend outstanding option agreements in a
manner not inconsistent with the Plan. The Board of Directors shall have the
right to amend or modify the terms and provisions of the Plan and of any
outstanding option to the extent necessary to ensure the qualification of the
Plan under Rule 16b-3.
11. Withholding
-----------
The Company shall have the right to deduct from payments of any kind
otherwise due to the optionee any federal, state or local taxes of any kind
required by law to be withheld with respect to any shares issued upon exercise
of options under the Plan. Subject to the prior approval of the Company, which
may be withheld by the Company in its sole discretion, the optionee may elect to
satisfy such obligations, in whole or in part, (i) by causing the Company to
withhold shares of Common Stock otherwise issuable pursuant to the exercise of
an option or (ii) by delivering to the Company shares of Common Stock already
owned by the optionee. The shares so delivered or withheld shall have a fair
market value equal to such withholding obligation. The fair market value of the
shares used to satisfy such withholding obligation shall be determined by the
Company as of the date that the amount of tax to be withheld is to be
determined. An optionee who has made an election pursuant to this Section 11 may
only satisfy his or her withholding obligation with shares of Common Stock which
are not subject to any repurchase, forfeiture, unfulfilled vesting or other
similar requirements. Notwithstanding the foregoing, no election to use shares
for the payment of withholding taxes shall be effective unless made in
compliance with any applicable requirements of Rule 16b-3.
l2. Notice
------
Any written notice to the Company required by any of the provisions of the
Plan shall be addressed to the Treasurer of the Company and shall become
effective when it is received.
13. Effective Date and Duration of the Plan
---------------------------------------
(a) The Plan shall become effective upon the closing of the
Company's initial public offering, but no option granted under the Plan shall
become exercisable unless and until the Plan shall have been approved by the
Company's stockholders. If such stockholder approval is not obtained within
twelve months after the date of
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<PAGE> 36
the Board's adoption of the Plan, all options granted under the Plan shall
terminate and no further options shall be granted under the Plan. Amendments to
the Plan not requiring stockholder approval shall become effective when adopted
by the Board of Directors; amendments requiring stockholder approval (as
provided in Section 10(a)) shall become effective when adopted by the Board of
Directors, but no option issued after the date of such amendment shall become
exercisable (to the extent that such amendment to the Plan was required to
enable the Company to grant such option to a particular optionee) unless and
until such amendment shall have been approved by the Company's stockholders. If
such stockholder approval is not obtained within twelve months of the Board's
adoption of such amendment, any options granted on or after the date of such
amendment shall terminate to the extent that such amendment to the Plan was
required to enable the Company to grant such option to a particular optionee.
Subject to this limitation, options may be granted under the Plan at any time
after the effective date and before the date fixed for termination of the Plan.
(b) Unless earlier terminated pursuant to Section 9, the Plan
shall terminate upon the earlier of (i) November 2, 2000 or (ii) the date on
which all shares available for issuance under the Plan shall have been issued
pursuant to the exercise of options granted under the Plan. If the date of
termination is determined under (i) above, then options outstanding on such date
shall continue to have force and effect in accordance with the provisions of the
instruments evidencing such options.
14. General Restrictions.
--------------------
(a) The Company may require any person to whom an option is
granted, as a condition of exercising such option, to give written assurances in
substance and form satisfactory to the Company to the effect that such person is
acquiring the Common Stock subject to the option for his or her own account for
investment and not with any present intention of selling or otherwise
distributing the same, and to such other effects as the Company deems necessary
or appropriate in order to comply with federal and applicable state securities
laws.
(b) Each option shall be subject to the requirement that if, at
any time, counsel to the Company shall determine that the listing, registration
or qualification of the shares subject to such option upon any securities
exchange or under any state or federal law, or the consent or approval of any
governmental or regulatory body, or that the disclosure of non-public
information or the satisfaction of any other condition is necessary as a
condition of, or in connection with, the issuance or purchase of shares
thereunder, such option may not be exercised, in whole or in part, unless such
listing, registration, qualification, consent or approval, or satisfaction of
such condition shall have been deemed to require the Company to apply for or to
obtain such listing, registration or qualification, or to satisfy such
condition.
-6-
<PAGE> 37
l5. Governing Law
-------------
The Plan and all determinations made and actions taken pursuant hereto
shall be governed by the laws of the State of Delaware.
Adopted by the Board of Directors on
November 22, 1995
Approved by the Stockholders on
January 16, 1996.
-7-
<PAGE> 38
AMENDMENT NO. 1 TO THE 1995 DIRECTOR STOCK OPTION PLAN
OF GENSYM CORPORATION
Section 5(b) of the 1995 Director Stock Option Plan (the "Plan") of Gensym
Corporation is hereby amended and restated in its entirety, subject to
stockholder approval, to provide as follows:
"(b) SHARES SUBJECT TO OPTION. Each option granted under the Plan
shall be exercisable for 3,000 shares of Common Stock."
Adopted by the Board of Directors on
December 10, 1996
<PAGE> 39
GENSYM CORPORATION
ANNUAL MEETING OF STOCKHOLDERS -- MAY 21, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
P
R
O The undersigned, revoking all prior proxies, hereby appoints Lowell B.
X Hawkinson and Robert L. Moore, and each of them, with full power of
Y substitution, as Proxies to represent and vote, as designated hereon, all
shares of stock of Gensym Corporation (the "Company") which the undersigned
would be entitled to vote if personally present at the Annual Meeting of
Stockholders of the Company to be held on Wednesday, May 21, 1997, at 10:00
a.m., Boston time, at the offices of Hale and Dorr LLP, 26th Floor, 60 State
Street, Boston, Massachusetts and at any adjournment thereof, with respect to
the matters set forth on the reverse side hereof.
PLEASE VOTE, DATE, SIGN ON REVERSE AND RETURN PROMPTLY
IN THE ENCLOSED ENVELOPE.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
------------------------- -------------------------
------------------------- -------------------------
------------------------- -------------------------
SEE REVERSE
SIDE
<PAGE> 40
X Please mark votes
- ----- as in this example.
GENSYM CORPORATION
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE CLASS
I DIRECTOR NOMINEES AND FOR PROPOSALS 2, 3 AND 4.
MARK BOX AT RIGHT
IF AN ADDRESS CHANGE MARK BOX AT RIGHT
OR COMMENT HAS BEEN IF YOU PLAN
NOTED ON THE REVERSE TO ATTEND
SIDE OF THIS CARD. ____ THE MEETING. _____
Please be sure to sign and date this Proxy.
____________________________________
Date
_____________________________ ____________________________________
Stockholder sign here Co-owner sign here
1. To elect two Class I Directors to the Board of Directors for the ensuing
three years.
NOMINEES: John A. Shane and Thomas E. Swithenbank
For ___ Withheld ___ For All Except ___
Note: If you do not wish your shares voted "For" a particular nominee,
mark the "For All Except" box and strike through the nominee's name.
Your shares will be voted for the remaining nominee.
2. To approve the Company's 1997 Stock Incentive Plan.
For ___ Against ___ Abstain ___
3. To approve an amendment to the Company's 1995 Director Stock Option Plan to
increase the annual stock option grant from 2,000 to 3,000 shares.
For ___ Against ___ Abstain ___
4. To ratify and approve the appointment by the Board of Directors of Arthur
Andersen LLP as the Company's independent auditors for the current year.
For ___ Against ___ Abstain ___
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT
THEREOF.
Please sign exactly as name(s) appear(s) hereon. If the stock is registered
in the names of two or more persons, each should sign. When signing as an
executor, administrator, trustee, guardian, or attorney, please give full
title as such. If a corporation, please sign in full corporate name by an
authorized officer. If a partnership, please sign in full partnership name
by an authorized person.
