<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
FOR THREE MONTHS ENDED JUNE 30, 1997
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
COMMISSION FILE NUMBER: 0-27696
GENSYM CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 04-2932756
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
125 CAMBRIDGEPARK DRIVE
CAMBRIDGE, MA 02140
(Address of principal executive offices)
TELEPHONE NUMBER (617) 547-2500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
Yes [X] No [ ]
As of August 6, 1997 there were 6,336,112 shares of the Registrant's
Common Stock outstanding.
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GENSYM CORPORATION
Form 10-Q INDEX
PART I. FINANCIAL INFORMATION
PAGE NO.
--------
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets
June 30, 1997 and December 31, 1996 3
Condensed Consolidated Statements of Operations
Three and six months ended June 30, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows
Six months ended June 30, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-17
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
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Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements
GENSYM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
(in thousands) JUNE 30, DECEMBER 31,
1997 1996
------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 9,587 $11,679
Short-term investments 6,202 7,911
Accounts receivable, net 8,616 9,736
Prepaid expenses 1,915 1,754
Deferred income taxes 1,579 1,579
------- -------
Total current assets 27,899 32,659
------- -------
Property and Equipment, net 2,847 2,641
Long-term investments 1,036 742
Deposits and other assets 280 215
------- -------
$32,062 $36,257
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,244 $ 1,262
Accrued expenses 5,339 5,109
Deferred revenue 5,421 5,818
------- -------
Total current liabilities 12,004 12,189
------- -------
Stockholders' Equity:
Common stock 63 62
Capital in excess of par value 19,558 18,727
Retained earnings 763 5,356
Cumulative translation adjustment (326) (77)
------- -------
Total stockholders' equity 20,058 24,068
------- -------
$32,062 $36,257
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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GENSYM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
(in thousands except per share amounts)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
------- ------ ------- -------
<S> <C> <C> <C> <C>
REVENUES:
Product $ 3,337 $5,649 $ 9,269 $10,372
Service 4,538 3,852 8,637 7,570
------- ------ ------- -------
Total revenues 7,875 9,501 17,906 17,942
------- ------ ------- -------
COST OF REVENUES 2,409 1,811 4,740 3,457
------- ------ ------- -------
Gross profit 5,466 7,690 13,166 14,485
------- ------ ------- -------
OPERATING EXPENSES:
Sales and marketing 5,038 4,344 9,749 8,558
Research and development 1,902 1,462 3,769 2,858
General and administrative 1,293 920 2,293 1,653
Restructuring charge 2,042 0 2,042 0
------- ------ ------- -------
10,275 6,726 17,853 13,069
------- ------ ------- -------
Operating income (loss) (4,809) 964 (4,687) 1,416
OTHER INCOME, NET 150 153 134 217
------- ------ ------- -------
Income (loss) before
provision for income taxes (4,659) 1,117 (4,553) 1,633
PROVISION FOR INCOME TAXES -- 414 40 596
------- ------ ------- -------
Net income (loss) $(4,659) $ 703 $(4,593) $ 1,037
======= ====== ======= =======
Net income (loss) per share $ (0.74) $ 0.11 $ (0.73) $ 0.17
======= ====== ======= =======
Weighted average common and common
equivalent shares outstanding 6,302 6,496 6,262 6,117
======= ====== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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GENSYM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
(in thousands) SIX MONTHS ENDED
JUNE 30,
1997 1996
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(4,593) $ 1,037
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 574 540
Deferred taxes -- 3
Restructuring charge 2,019 --
Changes in assets and liabilities:
Accounts receivable 1,079 (757)
Prepaid expenses (652) (439)
Accounts payable 8 (199)
Accrued expenses (1,310) 823
Deferred revenue (390) 322
------- -------
Net cash provided by (used in)
operating activities (3,265) 1,330
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Purchases) sales of short-term investments 1,709 (1,414)
Purchases of long-term investments (294) --
Purchases of property and equipment (779) (410)
(Increase) decrease in other assets (75) 51
------- -------
Net cash provided by (used in)
investing activities 561 (1,773)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock under stock plans 832 254
Proceeds from initial public offering - net -- 11,953
------- -------
Net cash provided by financing activities 832 12,207
EFFECT OF EXCHANGE RATE CHANGES ON CASH (220) (54)
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,092) 11,710
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 11,679 2,126
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 9,587 $13,836
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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GENSYM CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Operations
Gensym Corporation (the "Company") is a leading supplier of software products
and services for developing and deploying intelligent solutions in a broad range
of industrial, scientific, commercial and government markets.
2. Basis of Presentation
The unaudited condensed consolidated financial statements included herein have
been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission (the "SEC"). Certain information and footnote
disclosures, normally included in financial statements prepared in accordance
with generally accepted accounting principles, have been condensed or omitted
pursuant to such SEC rules and regulations; nevertheless, the management of the
Company believes that the disclosures herein are adequate to make the
information presented not misleading. In the opinion of management, the
condensed consolidated financial statements reflect all adjustments (of a normal
and recurring nature) which are necessary to present fairly the consolidated
financial position of the Company as of June 30, 1997 and the results of its
operations for the three and six month periods ended June 30, 1997 and 1996 and
its cash flows for the six months then ended. These condensed consolidated
financial statements and notes thereto should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K filed with the SEC on March 31, 1997. The results of
operations for the interim period are not necessarily indicative of the results
of operations for the full year.
3. Joint Venture
In October 1996, the Company entered into a joint venture, PDS Technologies LLC
("PDS"), in which it holds a 50% interest. The Company is accounting for this
joint venture using the equity method and has recorded its share of the loss
from the joint venture in other income. Since October 1996, the Company invested
a total of $800,000 in PDS and is not obligated to further fund the joint
venture.
4. Investments
The Company applies Statement of Financial Accounting Standards ("SFAS") No.
115, Accounting for Certain Investments in Debt and Equity Securities.
Accordingly, the Company's investments are classified as available-for-sale and
are recorded at fair value, which approximates amortized cost at June 30, 1997
and December 31, 1996. Cash equivalents are short-term, highly liquid
investments with original maturity dates of less than three months. Short-term
investments held as of June 30, 1997 and December 31, 1996 consist of municipal
bonds with original maturity dates greater than three months and less than one
year. Long-term investments held as of June 30, 1997 and December 31, 1996,
consist of municipal bonds with original maturity dates of greater than one
year.
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5. Restructuring Charge
In June, 1997, the Company formalized a plan of restructuring intended to lower
operating expenses by reducing its workforce by 15% and closing and
consolidating several sales offices, as well as consolidating office space in
its corporate headquarters. Accordingly, the Company has recorded a
restructuring charge of approximately $2.0 million in the quarter ended June
30, 1997. This amount includes $850,000 for estimated rent and lease
termination costs for consolidating facilities and equipment, $725,000 for
severance and other employee termination costs, and $425,000 for the write-off
of certain assets that will provide no future benefit to the Company as a
result of the restructuring plan. The Company anticipates the restructuring
efforts to be completed in the next twelve months. As of June 30, 1997,
approximately $400,000 of restructuring costs have been incurred and charged
against the restructuring liability.
6. Significant Accounting Policies
In March 1997, the Financial Accounting Standards Board issued SFAS No. 128,
Earnings Per Share. SFAS No. 128 establishes standards for computing and
presenting earnings per share and applies to entities with publicly held common
stock or potential common stock. This statement is effective for fiscal years
ending after December 15, 1997 and early adoption is not permitted. When
adopted, the statement will require restatement of prior years' earnings per
share. The Company will adopt this statement for its fiscal year ended December
31, 1997. In addition, the Company believes that the adoption of SFAS No. 128
will not have a material effect on its reported earnings per share.
7. Stockholders' Equity and Per Share Data
For the three and six months ended June 30, 1996, net income per common and
common equivalent share was computed using the weighted average number of common
and common equivalent shares outstanding during the period in accordance with
the treasury stock method. For the three and six months ended June 30, 1997, net
loss per common and common equivalent share was computed using the weighted
average number of common shares outstanding and excludes shares issuable from
assumed exercise of options as their effect would be antidilutive.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company was incorporated in 1986 to provide software products for
developing and deploying intelligent systems for decision support and control.
The Company released the first version of G2, its core product, in May 1988, and
since that time has introduced enhanced versions of G2 and has expanded its
product line to include several G2-based application products as well as several
G2 connectivity products. In addition, the Company derives significant service
revenues from maintenance contracts, consulting services, and training courses
related to its software products.
The Company markets and sells products through its direct sales force in
the United States, Europe, Africa, and Asia, as well as through selected
distributors in other countries, including Japan. The Company also sells its
products through a network of value-added resellers and systems integrators who
provide consulting services and integrated solutions to their customers. The
Company believes that there is a trend among end-users in its markets toward
purchasing complete solutions, rather than software tools with which to develop
such solutions. This trend has increased the Company's reliance on such
value-added resellers and systems integrators to provide consulting services and
integrated solutions to end-users, and has led the Company to increase its own
capabilities to deliver complete solutions directly. In January 1997, the
Company established three strategic business units, Manufacturing,
Communications, and Advanced Systems, to manage domain-specific expertise,
products, and services required to serve mainstream customers. The Company has
also adopted a solutions-oriented approach in its sales, marketing, product
development and service organizations.
This Quarterly Report on Form 10-Q contains forward-looking statements.
For this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without
limiting the foregoing, the words "believes," "anticipates," "plans,"
"expects", "intends" and similar expressions are intended to identify
forward-looking statements. There are a number of important factors that could
cause the Company's actual results to differ materially from those indicated by
such forward-looking statements. These factors include, without limitation,
those set forth below under the caption "Certain Factors That May Affect Future
Results."
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RESULTS OF OPERATIONS
The following table sets forth, as a percentage of total revenues,
consolidated statement of operations data for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
----- ----- ----- -----
<S> <C> <C> <C> <C>
REVENUES:
Product 42.4% 59.5% 51.8% 57.8%
Service 57.6% 40.5% 48.2% 42.2%
----- ----- ----- -----
Total revenues 100.0% 100.0% 100.0% 100.0%
----- ----- ----- -----
COST OF REVENUES: 30.6% 19.1% 26.5% 19.3%
----- ----- ----- -----
Gross profit 69.4% 80.9% 73.5% 80.7%
----- ----- ----- -----
OPERATING EXPENSES:
Sales and marketing 64.0% 45.7% 54.4% 47.7%
Research and development 24.2% 15.4% 21.0% 15.9%
General and administrative 16.4% 9.7% 12.8% 9.2%
Restructuring charge 25.9% 0.0% 11.4% 0.0%
----- ----- ----- -----
130.5% 70.8% 99.7% 72.8%
----- ----- ----- -----
Operating income (loss) (61.1%) 10.2% (26.2%) 7.9%
----- ----- ----- -----
OTHER INCOME, NET 1.9% 1.6% 0.7% 1.2%
----- ----- ----- -----
Income (loss) before
provision for income taxes (59.2%) 11.8% (25.4%) 9.1%
PROVISION FOR INCOME TAXES 0.0% 4.4% 0.2% 3.3%
----- ----- ----- -----
Net income (loss) (59.2%) 7.4% (25.6%) 5.8%
===== ===== ===== =====
</TABLE>
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THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996
Revenues
The Company's revenues are derived from two sources: product licenses and
services. Product revenues include revenues from sales of licenses for use of
the Company's software products. Service revenues consist of fees for
maintenance contracts, consulting services, and training courses related to the
Company's products.
Total revenues were $7.9 million for the quarter ended June 30, 1997 as
compared to $9.5 million for the same period in 1996, a decrease of 17.1%. The
decrease in total revenues was attributable to decreased sales of product
licenses, partially offset by an increase in services. For the six month periods
ended June 30, 1997 and 1996, total revenues remained constant at $17.9 million,
with decreased sales of product licenses offset by an equal increase in
services. International revenues accounted for 43.6% and 44.0% of total revenues
in the second quarter of 1997 and 1996, respectively, and 46.3% and 45.5% of
total revenues for the first six months of 1997 and 1996, respectively. Within
the international geographies, increases in revenues from the Europe/Middle
East/Africa regions substantially offset decreases in revenues from the
Asia/Pacific regions.
Product. Product revenues decreased to $3.3 million in the second quarter
of 1997 from $5.6 million in the second quarter of 1996, a decrease of 40.9%.
For the six month period ended June 30, 1997 product revenues decreased to $9.3
million from $10.4 million in the same period in 1996, a decrease of 10.6%. The
decrease in product revenues reflected lower bookings in the second quarter,
most notably in the United States and Asia/Pacific, which the Company believes
was primarily due to the continued effects of a strategic reorganization and
retraining of the Company's sales force and a longer sales cycle caused by the
Company's shift to selling complete solutions. While the Company does not have a
material amount of backlog at any given time, the backlog at June 30, 1997
decreased from the backlog at December 31, 1996.
Service. Service revenues increased to $4.5 million in the second quarter
of 1997 from $3.9 million in the second quarter of 1996, an increase of 17.8%.
For the six month period ended June 30, 1997 service revenues increased to $8.6
million from $7.6 million in the same period in 1996, an increase of 14.1%. The
increase in service revenues was primarily due to increased maintenance fees
derived from an increased customer base. The remaining increase in service
revenues was attributable to an increase in application consulting. The Company
has continued to expand its application consulting organization to meet the
growing demand from customers and partners for solution-level applications and
implementation support.
Cost of Revenues
Cost of revenues primarily consists of consulting labor, technical support
costs and the costs of material and labor involved in producing and distributing
the Company's software. These costs increased to $2.4 million in the second
quarter of 1997 from $1.8 million in the second quarter of 1996, an increase of
33.1%. For the six month period ended June 30, 1997 cost of revenues increased
to $4.7 million from $3.5 million in the same period in 1996, an increase of
37.1%. Cost of revenues increased due to the increase in service revenues and
consisted primarily of increases in consulting labor costs. Gross margin on
revenues decreased to 69.4% for the second quarter of 1997 from 80.9% for the
second quarter of 1996. For the first six months of 1997, gross margin on
revenues decreased to 73.5% from 80.7% in the same period in 1996. This decrease
in gross margin reflected a higher percentage of lower margin service revenues
as a percentage of total revenues, an increase in consulting personnel,
including outside contractors and an increase in technical support personnel.
The Company anticipates that the mix between product and service revenues will
return closer to 1996 levels as anticipated product revenue increases, and that
overall margins will increase.
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Operating Expenses
Sales and Marketing. Sales and marketing expenses consist primarily of
costs associated with personnel involved in the sales and marketing process,
sales commissions, sales facilities, travel and living, trade shows and
seminars, advertising and promotional materials. These expenses increased to
$5.0 million (64.0% of revenues) in the second quarter of 1997 from $4.3 million
(45.7% of revenues) in the second quarter of 1996, an increase of 16.0%. For the
six month period ended June 30, 1997, these expenses were $9.7 million (54.4% of
revenues) and $8.6 million (47.7% of revenue) in the same period in 1996. The
increase in absolute dollars was primarily due to the opening of new sales
offices in the United States and in Asia/Pacific as well as to continued
investment in the Company's global sales and marketing capabilities, including
the addition of senior level management positions to manage three newly
established strategic business units. This increase was also due, to a lesser
extent, to increased costs related to adopting a solutions-oriented approach in
the sales and marketing organization, including the cost of solution selling
training programs provided to the sales force. The increase as a percentage of
total revenues was primarily due to the lower product revenues reported for the
periods. While the Company plans to hire more direct sales personnel in the
coming quarters, the Company expects sales and marketing expenses to decrease as
a percentage of total revenues due to the reduction already taken of certain
sales and marketing administrative personnel, the consolidation of sales offices
and other measures taken as part of the second quarter restructuring plan.
Research and Development. Research and development expenses consist
primarily of costs of personnel, equipment, and facilities. These expenses
increased to $1.9 million (24.2% of revenues) in the second quarter of 1997 from
$1.5 million (15.4% of revenues) in the second quarter of 1996, an increase of
30.1%. For the six month period ended June 30, 1997, these expenses were $3.8
million (21.0% of revenues) and were $2.9 million (15.9% of revenue) in the same
period in 1996, an increase of 31.8%. The increase in absolute dollars was
primarily due to an increase through the second half of 1996 and the first half
of 1997 in engineering personnel devoted to enhancements, new features, and
quality assurance for the G2 product family, as well as to the development of
new products, which resulted in several major commercial releases in the second
quarter. The increase as a percentage of total revenues was primarily due to the
lower product revenues reported for the periods. The Company plans to control
hiring and overall research and development expenses relative to anticipated
future revenues over coming quarters and expects that they will decrease as a
percentage of total revenues.
General and Administrative. General and administrative expenses consist
primarily of personnel costs for finance, administration, operations, and
general management, as well as legal and accounting expenses. These expenses
increased to $1.3 million (16.4% of revenues) in the second quarter of 1997 from
$920,000 (9.7% of revenues) in the second quarter of 1996, an increase of 40.4%.
For the six month period ended June 30, 1997, these expenses increased to $2.3
million (12.8% of revenues) from $1.7 million (9.2% of revenue) in the same
period in 1996, an increase of 38.8%. The increase in absolute dollars was
primarily due to an increase in the number of personnel in the Company's
information systems departments to strengthen the Company's infrastructure, as
well as to amortization of the newly implemented financial information system
and costs related to being a public company, such as proxy statement preparation
and shareholders' meeting expenses. The increase as a percentage of total
revenues was due to the above factors as well as to the lower product revenues
reported for the periods. The Company expects that these expenses will decline
as a percentage of total revenues primarily due to the reduction already taken
in administrative personnel, the consolidation of facilities and other actions
taken as part of the second quarter restructuring plan.
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Restructuring. During the first quarter of 1997, the Company underwent a
major reorganization and adopted a solutions-oriented approach in the sales,
marketing and service organizations to better meet the buying requirements of
companies in its primary target markets. This approach required a strategic
reorganization and retraining of the sales force, and a major change in sales
account structure. The Company also established dedicated business units in
order to further develop and coordinate domain-specific expertise, products and
services for its customers. The transition to and emphasis on selling solutions
rather than tools extended the Company's sales cycle and resulted in lower
license bookings, especially in the United States. This impact extended into the
second quarter, during which the Company was unable to sustain profitable
operations at the existing resource levels. In response to these circumstances,
management decided on a course of action that was intended to lower operating
expenses by rightsizing staff and consolidating facilities to levels more
appropriate to the present sales capacity and business requirements. The
decision resulted in a planned 15% reduction in the Company's workforce, with a
bias toward administrative positions, though all functional areas were affected
to some degree. The decision also resulted in the planned closing and
consolidation of several sales offices, as well as office space consolidation in
the corporate headquarters.
As a direct result of management's plans, the Company recognized $850,000 for
estimated rent and lease termination costs for consolidating facilities and
equipment, including the write-off of certain leasehold improvements and excess
equipment. The Company also recognized $725,000 for severance and other employee
termination costs that related to the workforce reduction and $425,000 for the
write-off of certain assets that will provide no future benefit to the Company
as a result of the restructuring plan.
At June 30, 1997, the Company had taken certain actions consistent with the
restructuring plan, predominantly related to headcount reduction. As of June 30,
1997, approximately $400,000 of restructuring costs had been incurred and
charged against the restructuring liability. As a result of the restructuring
plan, the Company expects to reduce certain future costs including payroll and
payroll related costs, building rent and leased equipment by approximately $1
million per quarter. The Company anticipates realizing a significant amount of
these savings beginning in the third quarter, with the facilities impact
beginning in the following two quarters.
Other Income
Other income consists primarily of interest income offset by foreign exchange
transaction gains and losses and by Gensym's 50 percent share in the net loss of
its joint venture investment in PDS. Other income decreased to $134,000 in the
first six months of 1997 from $216,000 in the same period in 1996. The decrease
was primarily due to the Company's share of the net loss in PDS recorded in
1997, partially offset by an increase in interest income. The increase in
interest income was primarily due to increased balances in cash, cash
equivalents and short and long-term investments, primarily as a result of
proceeds from the Company's initial public offering in February 1996.
Income Taxes
The Company generated a significant tax loss carryforward during the six
months ended June 30, 1997. Under SFAS No. 109, the Company cannot recognize a
deferred tax asset for the future benefit of its tax loss carryforward unless it
concludes that it is "more likely than not" that such deferred tax asset would
be realized. Accordingly, the Company has established a valuation allowance
against its deferred tax asset to the extent that it believes it is "more likely
than not" these assets will not be realized. In determining the amount of
valuation allowance required, the Company considers numerous factors, including
historical profitability, estimated future taxable income and the volatility of
its historical earnings and of the industry in which it operates. The Company's
effective tax rate for the second quarter of 1997 was 0% as compared to 36.5%
for the second quarter of 1996.
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LIQUIDITY AND CAPITAL RESOURCES
The Company currently finances its operations (including capital
expenditures) primarily through cash flow from operations and its current cash
and short-term investments balances. In addition, the Company has $5.0 million
of equipment financed under long-term operating leases. The Company's operating
lease commitments consist primarily of operating leases for the Company's
facilities and computers. The Company used cash in operating activities of $3.3
million during the first six months of 1997. Cash used in operations in the
first six months of 1997 was primarily due to the net loss, an increase in
prepaid expenses and decreases in accrued expenses and deferred revenue, offset
by the restructuring charge and a decrease in accounts receivable.
At June 30, 1997, the Company had cash, cash equivalents, and short-term
investments of $15.8 million. The Company regularly invests excess funds in
short-term, highly rated money market funds, government securities, and
commercial paper. In addition, the Company had long-term investments of $1.0
million, primarily consisting of municipal bonds with original maturity dates of
greater than one year.
At June 30, 1997, the Company expected that cash requirements to settle its
restructuring obligations would be approximately $1.3 million. These cash
requirements pertain primarily to severance and lease termination costs and are
expected to be fulfilled within the next twelve months. The Company believes
that the settlement of its restructuring obligations will not materially impact
future liquidity.
In the second quarter, the Company renewed its bank line of credit on
substantially similar terms as previously arranged. At June 30, 1997, the
Company had the availability to borrow up to $1.0 million at an interest rate of
prime. This bank line of credit will expire on May 31, 1998 and requires the
Company to maintain certain financial covenants. The Company was in compliance
with all covenants contained in the bank line of credit at June 30, 1997 and
during the first six months of 1997. There were no borrowings under the bank
line of credit for the period ended June 30, 1997.
Investing activities provided $561,000 during the first six months of 1997
and utilized $1.8 million during the first six months of 1996. During the first
six months of 1997 the sale of short-term investments provided $1.7 million,
which was offset primarily by the purchase of property and equipment ($779,000)
and the purchase of long-term investments ($294,000). The principal uses in the
first six months of 1996 were to fund the purchase of $1.4 million of short-term
investments and $410,000 of property and equipment. The Company expects that its
requirements for computers, office facilities, and office equipment will
fluctuate as staffing requirements dictate and that such equipment and
facilities will be available when needed.
The Company believes that the currently available funds and cash generated
from operations will be sufficient to meet the Company's business requirements
at least through June 30, 1998.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
A number of uncertainties exist that could affect the Company's operating
results, including, without limitation, the following:
Emerging Market for Intelligent Systems. Substantially all of the Company's
revenues are derived from the licensing and support of software products that
enable organizations to implement intelligent systems for decision support and
control applications. Although many organizations have begun to deploy, or have
announced plans to deploy, intelligent systems, these systems are different from
the basic monitoring and control systems that are traditionally employed by
these organizations. There can be no assurance that these organizations will be
able to introduce intelligent systems successfully nor that such systems will
gain widespread acceptance. In addition, the timing of the implementation of
intelligent systems by organizations may be affected by economic factors,
government regulations, and other factors. Delays in the introduction of
intelligent systems or the failure of these systems to
13
<PAGE> 14
gain widespread market acceptance would materially and adversely affect the
Company's business, results of operations, or financial condition. In addition,
the Company believes that end-users in its market are increasingly seeking
complete solutions, rather than software tools with which to develop such
solutions. Meeting this demand has required the Company to modify its sales
approach and increase its capabilities to deliver complete solutions. The
Company is also increasingly reliant on value-added resellers and systems
integrators to deliver services to implement these solutions. The modified sales
approach may also lengthen the Company's average sales cycle. Failure by the
Company to respond appropriately to such a shift in market demand could have a
material adverse effect on the Company's business, results of operations, or
financial condition.
Variability of Quarterly Operating Results. The Company has experienced,
and may experience in the future, significant quarter-to-quarter fluctuations in
its operating results. The Company has, on occasion, recorded quarterly
losses, and there can be no assurance that revenue growth or profitable
operations can be attained on a quarterly or annual basis in the future. The
Company's sales cycle typically ranges from six to 12 months, and the cost of
acquiring the Company's software, building and deploying applications, and
training users represents a significant expenditure for customers. The Company's
relatively long sales cycle and high license fees, together with fixed
short-term expenses, can cause significant variations in operating results from
quarter to quarter, based on a relatively small variation in the timing of major
orders. Factors such as the timing of new product introductions and upgrades,
the timing of significant orders, the mix of products sold, and the mix of
domestic versus international revenues could contribute to this quarterly
variability. For example, the Company has experienced in the past, and may
experience in the future, delays in customer maintenance renewals due to
unforeseen delays in product releases. In addition, the Company's expense levels
are based in part on expectations of future revenue levels. A shortfall in
expected revenues could therefore result in a disproportionate decrease in the
Company's net income. The Company's financial performance has generally been
somewhat weaker in the first quarter than in the other fiscal quarters, due to
customer purchasing patterns.
Economic Factors. Because capital expenditures are often viewed as
discretionary by organizations, sales of the Company's products for capital
budget projects are subject to general economic conditions. Such capital
expenditures are also susceptible to industry-specific economic downturns.
Certain industries have experienced weakened demand in the past, which has
adversely affected the Company's revenues, gross margin, and operating results
during such periods. There can be no assurance that future recessionary
conditions in the markets for the Company's products will not adversely affect
the Company's business, results of operations, or financial condition.
Product Concentration. The Company's only current product offerings are G2,
an object-oriented development and deployment environment for building
intelligent systems, and software products which operate in conjunction with G2.
Accordingly, the Company's business and financial results are substantially
dependent upon the continued customer acceptance and deployment of G2 and
related products. The timing of major G2 releases may affect the timing of
purchases of the Company's products. The Company has introduced several G2-based
products for building applications and is developing others. The Company
believes that market acceptance of these products will be important to the
Company's future growth. There can be no assurance that such products will
achieve market acceptance or that new products will be successfully developed.
In addition, the Company relies on many of its marketing partners to develop
G2-based products for specialized markets. Accordingly, the Company's business
and financial results are also linked to the continued successful development by
its marketing partners and market acceptance of such G2-based products. Any
decline in the demand for G2 and related products, whether as a result of
competitive products, price competition, the lack of success of the Company's
marketing partners, technological change, the shift in customer demand toward
complete solutions, or other factors could have a material adverse effect on the
Company's business, results of operations, or financial condition.
New Products and Rapid Technological Change. The market for the Company's
products is relatively new and is characterized by rapid technological change,
evolving industry standards,
14
<PAGE> 15
changes in end-user requirements, and frequent new product introductions, and
enhancements. The Company's future success will depend in part upon its ability
to enhance its existing products, to introduce new products and features to meet
changing customer requirements and emerging industry standards, and to manage
transitions from one product release to the next. The Company has from time to
time experienced delays in introducing new products and product enhancements.
There can be no assurance that the Company will not experience difficulties that
could delay or prevent the successful development, introduction and marketing of
new products, and product enhancements. Also there can be no assurance that the
Company will successfully complete the development of new or enhanced products,
that the Company will successfully manage the transition to future versions of
G2, or that the Company's future products will achieve market acceptance. In
addition, the introduction of products embodying new technologies and the
emergence of new industry standards could render the Company's existing products
and products currently under development obsolete and unmarketable. From time to
time, the Company, or others, may announce new products, capabilities, or
technologies that have the potential to replace or shorten the life cycle of the
Company's existing product offerings. There can be no assurance that
announcements of currently planned or other new product offerings will not cause
customers to defer purchasing existing Company products. See "Emerging Market
for Intelligent Systems."
Reliance Upon Indirect Distribution Channels. The Company sells its
products in part through value-added resellers, systems integrators, and
distributors, none of which is under the control of the Company. Sales of the
Company's products by value-added resellers and systems integrators represented
26%, 28% and 38% of the Company's product revenues in 1995, 1996 and the first
six months of 1997, respectively. Sales of the Company's products by
distributors, primarily the Company's Japanese distributor, accounted for 14%,
14% and 9% of the Company's product revenues in 1995, 1996 and the first six
months of 1997, respectively. The loss of one or more major third-party
distributors or resellers of the Company's products, a significant decline in
their sales, or difficulty on the part of such third-party developers or
resellers in developing successful G2-based products and applications, could
have a material adverse effect on the Company's business, results of operations,
or financial condition. There can be no assurance that the Company will be able
to attract or retain additional qualified third-party resellers or that
third-party resellers will be able to effectively sell and implement the
Company's products. In addition, the Company relies on third-party resellers to
provide post-sales service and support to its customers, and any deficiencies in
such service and support could adversely affect the Company's business, results
of operations, or financial condition.
Risks Associated With International Operations. The Company's international
revenues represented 44%, 42% and 46% of total revenues in 1995, 1996, and the
first six months of 1997, respectively. Revenues are categorized by the Company
according to product shipment destination and therefore do not necessarily
reflect the ultimate country of installation. The international portion of the
Company's business is subject to a number of inherent risks, including
difficulties in building and managing international operations, difficulties in
localizing products and translating documentation into local languages,
fluctuations in the value of international currencies, fluctuating import/export
duties and quotas, and unexpected regulatory, economic, or political changes in
international markets. There can be no assurance that these factors will not
adversely affect the Company's business, results of operations, or financial
condition.
Potential for Undetected Errors. Complex software products such as those
offered by the Company may contain unintended errors or failures commonly
referred to as "bugs." There can be no assurance that, despite significant
testing by the Company and by current and potential customers, errors will not
be found in new products after commencement of commercial shipments. Although
the Company has not experienced material adverse effects resulting from any such
errors or defects to date, there can be no assurance that errors or defects will
not be discovered in the future, causing delays in product introduction and
shipments or requiring design modifications that could adversely affect the
Company's business, results of operations, or financial condition.
Competition. Although the Company believes that there are no other
commercially available products that offer the full range of high-level
capabilities embodied in the Company's products or
15
<PAGE> 16
compete across all of the markets that the Company addresses, a number of
companies offer point solution products that perform certain functions of the
Company's products. Moreover, new competitors could enter the intelligent
systems market, and existing competitors could expand the capabilities of their
products to equal or exceed those of the Company's products. In addition, there
are commercially available software development tools that software application
developers or potential customers could use to build software having
functionality similar to the Company's products.
The Company's software is integrated into industry-specific solutions by
value-added resellers. A number of software companies offer products that
compete in specific application areas addressed by these value-added resellers,
such as cement kiln control and refinery scheduling, and could be successful in
supplying alternatives to products based on the Company's software.
The Company's products can also be used to perform lower-level functions
such as monitoring, supervisory control, cell control, and other similar
functions that do not utilize all of G2's capabilities. For these functions, G2
competes with products offered by a number of other companies. The Company
believes that its products compete favorably in these functional areas where
breadth of applicability, flexibility, maintainability, scalability, and ease of
use are important considerations. However, certain competitors in this category
have greater financial and other resources than the Company and might introduce
new or improved products to compete with G2, possibly at lower prices.
The Company believes that continued investment in research and development
and sales and marketing will be required to maintain its competitive advantages.
There can be no assurance that competitors will not develop products or provide
services that are superior to the Company's products or services or achieve
greater market acceptance. Competitive pressures faced by the Company could
force the Company to reduce its prices, which could result in reduced
profitability. There can be no assurance that the Company will be able to
compete successfully against current and future sources of competition or that
competition will not have a material adverse effect on the Company's business,
results of operations, or financial condition.
Dependence Upon Proprietary Technology. The Company's success is heavily
dependent upon its proprietary technology. The Company relies upon a combination
of trade secret, contract, copyright, patent, and trademark law to protect its
proprietary rights in its products and technology. The Company enters into
confidentiality and/or license agreements with its employees, third-party
resellers, and end-users and limits access to and distribution of its software,
documentation, and other proprietary information. In addition, the Company has
placed technical inhibitors in its software that prevent such software from
running on unauthorized computers. However, effective patent, copyright, and
trade secret protection may not be available in every country in which the
Company's products are distributed. There can be no assurance that the steps
taken by the Company to protect its proprietary technology will be adequate to
prevent misappropriation of its technology by third parties, or that third
parties will not be able to independently develop similar technology. In
addition, there can be no assurance that third parties will not assert
infringement claims in the future or that such claims will not be successful.
Management of Growth. The Company's business has grown significantly over
the past several years. This growth has resulted in an increase in
responsibilities placed upon the Company's management and has placed added
pressures on the Company's operating and financial systems. For example, the
Company's expansion of its international operations introduced significant
legal, tax, and accounting complexities, as well as the challenges associated
with managing geographically dispersed operations. To manage its growth
effectively, the Company will be required to implement additional management and
financial systems and controls, and to expand, train, and manage its employee
base. There can be no assurance that the management and systems currently in
place will be adequate if the Company continues to grow, or that the Company
will be able to implement additional systems successfully and in a timely manner
as required. Any future strategic transactions such as acquisitions or equity
investments would place additional strains upon the Company's
16
<PAGE> 17
management resources. There can be no assurance that the Company will be
effective in managing its future growth or that any failure to manage growth
will not have a material adverse effect on the Company's business, results of
operations, or financial condition.
Dependence on Key Personnel. The Company's success depends in large part
upon certain key employees, the loss of any of whom could have a material
adverse effect on the Company. The Company's key employees are not bound by
employment agreements that require them to remain with the Company. The
Company's success will depend in significant part upon its ability to attract
and retain highly-skilled management, technical, and sales and marketing
personnel. Competition for such personnel in the software industry is intense,
and there can be no assurance that the Company will be successful in attracting
and retaining such personnel. The loss of certain key employees or the Company's
inability to attract and retain other qualified employees or to adequately
replace key personnel who depart the Company could have a material adverse
effect on the Company's business, results of operations, or financial condition.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable
17
<PAGE> 18
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 21, 1997 the Company held its Annual Meeting of the Stockholders. The
following matters were adopted by the vote specified below:
<TABLE>
<CAPTION>
Authority
Proposal Class Of Stock For Withheld
-------- -------------- --- --------
<C> <C> <C> <C> <C> <C>
1) Approval of election
of two Class I
Directors to the Board
of Directors for the
ensuing three years
John A. Shane Common Stock 5,395,327 237,069
Thomas E. Swithenbank Common Stock 5,395,627 236,769
Broker
Proposal Class Of Stock For Against Abstain Non-votes
-------- -------------- --- ------- ------- ---------
2) Adoption of the 1997 Common Stock 3,302,547 371,346 17,003 1,941,500
Stock Incentive Plan
3) Adoption of amendment Common Stock 5,051,426 287,286 24,528 269,156
to the 1995 Director
Stock Option Plan to
increase the annual
stock option grant
from 2,000 to 3,000
shares
4) Approval of appointment Common Stock 5,436,027 2,916 193,453 --
by the Board of
Directors of Arthur
Andersen LLP as
independent auditors
for the current year
</TABLE>
18
<PAGE> 19
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS OF FORM 8-K
(a) Exhibit Index
Exhibit 10.1 - Amendment to Business Loan Agreement dated May 31,
1997 between Gensym Corporation and State Street Bank and Trust
Company
Exhibit 10.2 - 1997 Stock Incentive Plan
Exhibit 10.3 - 1995 Director Stock Option Plan, as amended
Exhibit 11 - Computation of Net Income Per Share
Exhibit 27 - Financial Data Schedule
(b) A Current Report on Form 8-K dated April 8, 1997 was filed by
Gensym on April 17, 1997.
19
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GENSYM CORPORATION
(Registrant)
/s/ Lowell B. Hawkinson
-------------------------------------
Dated: August 12, 1997 Lowell B. Hawkinson
Chief Executive Officer
(Principal Executive Officer)
/s/ Richard M. Darer
-------------------------------------
Dated: August 12, 1997 Richard M. Darer
Vice President of Finance and
Administration, and Chief Financial
Officer
(Principal Financial and Accounting
Officer)
20
<PAGE> 1
Exhibit 10.1
AMENDMENT TO PROMISSORY NOTE
This Amendment (this "Amendment") is made as of May 31, 1997 by and among
Gensym Corporation, Gensym International Corporation, GENSYM B.V., GENSYM GMBH,
GENSYM F.S.C. (V.I.) LIMITED (collectively, the "Borrower") and State Street
Bank and Trust Company, a Massachusetts trust company (the "Bank").
WHEREAS, the Borrower entered into a certain promissory note dated June
20, 1991 for the benefit and payable to the order of the Bank in the original
principal amount of $1,000,000.00 (as amended, the "Note") subject to the
provisions of a Business Loan Agreement dated as of June 20, 1991 between the
Borrower (as defined therein) and the Bank (as amended, the "Agreement"); and
WHEREAS, the Borrower and the Bank desire to extend the Borrower's Line
of Credit;
NOW, THEREFORE, for valuable consideration paid, the receipt and
sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
1. The Note is hereby amended as follows:
(a) The first paragraph of the Note prior to the parenthetical
is hereby deleted and the following substituted therefor: "On May 31, 1998". All
references in the Note to "Maturity Date" shall be deemed to refer to May 31,
1998.
(b) The first paragraph of the Note is hereby amended by
deleting the following therefrom: "at a fluctuating interest rate per annum
equal to one (1.0%) percent above Bank's Prime Rate in effect from time to
time." and substituting the following therefor: "at a fluctuating interest rate
per annum equal to the Bank's Prime Rate in effect from time to time."
(c) All references to the Business Loan Agreement contained in
the Note shall refer to the Business Loan Agreement dated as of June 20, 1991
between the Borrower (as defined therein) and the Bank as amended, including by
an Amendment to Business Loan Agreement dated as of the date hereof between the
Borrower (as defined therein) and the Bank, as such Agreement may be further
amended, extended, modified, superseded or replaced from time to time.
2. All of the terms and provisions of the Note, as amended hereby,
are hereby ratified and confirmed and are extended and remain in full force and
effect. All covenant compliance
<PAGE> 2
certification hereafter delivered to the Bank shall reflect the amendments
contained herein.
3. This Amendment to the Note is intended to be an allonge and shall
have the same effect as if the provisions hereof amending the Note were
expressly set forth therein.
4. This Amendment may be signed in any number of counterparts with
the same effect as if the signatures hereto and thereto were upon the same
instrument.
IN WITNESS WHEREOF, the parties have set their hands by, effective as of
the day and year first above written, intending that this Amendment be signed as
a sealed instrument and construed in accordance with the laws (other than the
conflict of laws rules) of The Commonwealth of Massachusetts.
ATTEST AS TO ALL: Gensym Corporation
By:
- ---------------------------- -----------------------------------
Title:
By:
-----------------------------------
Title:
By:
-----------------------------------
Title:
Gensym International
Corporation Company
By:
-----------------------------------
Title:
By:
-----------------------------------
Title:
2
<PAGE> 3
GENSYM B.V.
By:
-----------------------------------
Title:
By:
-----------------------------------
Title:
GENSYM GMBH
By:
-----------------------------------
Title:
By:
-----------------------------------
Title:
GENSYM F.S.C (V.I.) LIMITED
By:
-----------------------------------
Title:
By:
-----------------------------------
Title:
ATTEST: STATE STREET BANK AND TRUST COMPANY
By:
- --------------------------- -----------------------------------
Title:
3
<PAGE> 1
EXHIBIT 10.2
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.
- 1 -
<PAGE> 2
(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
- 2 -
<PAGE> 3
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:
- 3 -
<PAGE> 4
(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.
- 4 -
<PAGE> 5
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
- 5 -
<PAGE> 6
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.
- 6 -
<PAGE> 7
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.
- 7 -
<PAGE> 8
(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.
- 8 -
<PAGE> 9
(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 of the
Company on May 21, 1997
- 9 -
<PAGE> 1
EXHIBIT 10.3
GENSYM CORPORATION
1995 DIRECTOR STOCK OPTION PLAN
l. 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> 2
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.
-2-
<PAGE> 3
(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
-3-
<PAGE> 4
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
-4-
<PAGE> 5
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
-5-
<PAGE> 6
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> 7
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> 8
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
Approved by the Stockholders of the
Company on May 21, 1997
-8-
<PAGE> 1
GENSYM CORPORATION
EXHIBIT 11 - STATEMENT REGARDING COMPUTATION OF NET INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
(in thousands except per share amounts) Three months ended Six months ended
June 30, June 30,
1997 1996 1997 1996
------- ------ ------- ------
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding during the period 6,302 6,050 6,262 5,680
Shares issuable from assumed exercise
of options, computed in accordance
with the treasury stock method -- 446 -- 437
------- ------ ------- ------
Weighted average common and common
equivalent shares 6,302 6,496 6,262 6,117
======= ====== ======= ======
Net income (loss) $(4,659) $ 703 $(4,593) $1,037
======= ====== ======= ======
Net income (loss) per share $ (0.74) $ 0.11 $ (0.73) $ 0.17
======= ====== ======= ======
</TABLE>
21
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 9,587
<SECURITIES> 7,238
<RECEIVABLES> 8,880
<ALLOWANCES> 265
<INVENTORY> 0
<CURRENT-ASSETS> 27,899
<PP&E> 9,391
<DEPRECIATION> 6,544
<TOTAL-ASSETS> 32,062
<CURRENT-LIABILITIES> 12,004
<BONDS> 0
0
0
<COMMON> 63
<OTHER-SE> 19,995
<TOTAL-LIABILITY-AND-EQUITY> 32,062
<SALES> 17,906
<TOTAL-REVENUES> 17,906
<CGS> 4,740
<TOTAL-COSTS> 4,740
<OTHER-EXPENSES> 17,853
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,553)
<INCOME-TAX> 40
<INCOME-CONTINUING> (4,593)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,593)
<EPS-PRIMARY> (.73)
<EPS-DILUTED> (.73)
</TABLE>
