<PAGE>
GENSYM CORPORATION
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 20, 1998
----------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Gensym
Corporation, a Delaware corporation (the "Company"), will be held on
Wednesday, May 20, 1998 at 9:00 a.m., at the offices of Hale and Dorr LLP, 60
State Street, Boston, Massachusetts (the "Meeting"), for the purpose of
considering and voting upon the following matters:
1. To elect two Class II Directors of the Company to serve for the
ensuing three years;
2. To approve an amendment to the Company's 1995 Employee Stock Purchase
Plan to increase the number of shares reserved for issuance thereunder from
200,000 shares to 500,000 shares;
3. To ratify the appointment by the Board of Directors of Arthur Andersen
LLP as independent auditors for the fiscal year ending December 31, 1998;
and
4. To transact such other business as may properly come before the
Meeting or any adjournment thereof.
The Board of Directors has no knowledge of any other business to be
transacted at the Meeting.
The Board of Directors has fixed the close of business on March 27, 1998 as
the record date for the determination of stockholders entitled to notice of
and to vote at the Meeting and at any adjournments thereof.
A copy of the Company's Annual Report to Stockholders for the year ended
December 31, 1997, which contains consolidated financial statements and other
information of interest to stockholders, accompanies this Notice and the
enclosed Proxy Statement.
By Order of the Board of Directors,
Lowell B. Hawkinson
Secretary
April 8, 1998
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE PROMPTLY COMPLETE,
DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE. NO
POSTAGE NEED BE AFFIXED IF THE PROXY IS MAILED IN THE UNITED STATES.
<PAGE>
GENSYM CORPORATION
125 CAMBRIDGEPARK DRIVE
CAMBRIDGE, MA 02140
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 20, 1998
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Gensym Corporation (the "Company") at the
Annual Meeting of Stockholders to be held on Wednesday, May 20, 1998 at 9:00
a.m. at the offices of Hale and Dorr LLP, 60 State Street, Boston,
Massachusetts and at any adjournments thereof (the "Meeting").
All proxies will be voted in accordance with the instructions of the
stockholder. If no choice is specified, the proxies will be voted in favor of
the matters set forth in the accompanying Notice of Meeting. Any proxy may be
revoked by a stockholder at any time before its exercise by delivery of a
written revocation to the Secretary of the Company. Attendance at the Meeting
will not itself constitute revocation of a Proxy unless the stockholder gives
affirmative notice at the Meeting that the stockholder intends to revoke the
Proxy and vote in person.
On March 27, 1998, the record date for determination of stockholders
entitled to vote at the Meeting, there were outstanding and entitled to vote
an aggregate of 6,426,445 shares of Common Stock of the Company, $.01 par
value per share (the "Common Stock"). Each share entitles the record holder to
one vote on each of the matters to be voted upon at the Meeting.
THE NOTICE OF MEETING, THIS PROXY STATEMENT, THE ENCLOSED PROXY AND THE
COMPANY'S ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR ENDED DECEMBER 31, 1997,
WHICH INCLUDES THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1997, ARE BEING MAILED TO STOCKHOLDERS ON OR ABOUT APRIL 8, 1998.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of January 31, 1998,
except as noted, with respect to the beneficial ownership of shares of Common
Stock by (i) each person known to the Company to own beneficially more than 5%
of the outstanding shares of Common Stock, (ii) the directors and director
nominees of the Company, (iii) the Chief Executive Officer and the Company's
four other most highly compensated executive officers who were serving as
executive officers on December 31, 1997 (the "Named Executive Officers"), and
(iv) the directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL
OWNERSHIP(1)
--------------------
NUMBER OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES CLASS(2)
------------------------------------ --------- ----------
<S> <C> <C>
Kopp Investment Advisors, Inc.(3)...................... 676,450 10.6%
6600 France Avenue South
Suite 672
Edina, MN 55435
Special Situations Technology Fund, L.P.(4)............ 437,200 6.8
Special Situations Cayman Fund, L.P.
Special Situations Technology Fund, L.P.
c/o AWM Investment Company, Inc.
153 E. 53 Street, 51st Floor
New York, NY 10022
Dimensional Fund Advisors, Inc.(5)..................... 326,900 5.1
1299 Ocean Avenue
Santa Monica, CA 90401
Edward Fredkin......................................... 664,884 10.4
Hyslop Road
Brookline, MA
Lowell B. Hawkinson(6)(7).............................. 440,000 6.9
Robert L. Moore(6)..................................... 334,000 5.2
John A. Shane(8)....................................... 269,379 4.2
Theodore G. Johnson(9) ................................ 207,675 3.2
Thomas E. Swithenbank(10).............................. 2,600 *
Mark H. Whitworth(11).................................. 11,000 *
James T. Pepe(12)...................................... 8,000 *
William H. Wood........................................ 3,000 *
All executive officers and directors as a group
(11 persons) (13)..................................... 1,302,374 20.1%
</TABLE>
- --------
*Less than 1%
(1) The number of shares beneficially owned by each director and executive
officer is determined under rules promulgated by the Securities and
Exchange Commission, and the information is not necessarily indicative of
beneficial ownership for any other purpose. Under such rules, beneficial
ownership includes any shares as to which the individual has sole or
shared voting power or investment power and also any shares which the
individual has the right to acquire within 60 days after January 31, 1998
through the exercise of any stock option or other right. The inclusion
herein of such shares, however, does not constitute an admission that the
named stockholder is a direct or indirect beneficial owner of such
shares. Unless otherwise indicated, each person or entity named in the
table has sole voting power and investment power (or shares such power
with his or her spouse) with respect to all shares of capital stock
listed as owned by such person or entity.
2
<PAGE>
(2) Number of shares deemed outstanding includes 6,410,897 shares outstanding
as of January 31, 1998, plus any shares subject to options held by the
person in question which were exercisable on or exercisable within 60
days after January 31, 1998.
(3) The information reported is based on a Schedule 13G/A, dated February 9,
1998, filed with the Securities and Exchange Commission by Kopp
Investment Advisors, Inc. ("KIA") and LeRoy C. Kopp, the sole stockholder
of KIA. KIA is a registered investment advisor, in which capacity it has
sole voting power over 195,000 shares and shared dispositive power over
676,450 shares. Mr. Kopp has sole voting power over 10,000 shares, sole
dispositive power over 10,000 shares and, through his control of KIA,
shared dispositive power over 676,450 shares.
(4) The information reported is based on a Schedule 13D, dated May 24, 1997,
filed with the Securities and Exchange Commission on March 26, 1998 by
Special Situations Fund III, L.P., a Delaware limited partnership ("SSF
III"), MGP Advisors Limited Partnership, a Delaware limited partnership
("MGP"), Special Situations Cayman Fund, L.P., a Cayman Islands limited
partnership (the "Cayman Fund"), AWM Investment Company, Inc., a Delaware
corporation ("AWM"), Special Situations Technology Fund, L.P., a Delaware
limited partnership ("SST"), SST Advisors L.L.C., Austin W. Marxe and
David Greenhouse. SSF III beneficially owns 291,200 shares, the Cayman
Fund beneficially owns 96,000 shares and SST beneficially owns 50,000
shares. Messrs. Marxe and Greenhouse are officers, directors and members
or principal shareholders of SST, MGP and AWM and have sole voting power
and sole dispositive power over 437,200 shares.
(5) The information reported is based on a Schedule 13G, dated February 6,
1998, filed with the Securities and Exchange Commission by Dimensional
Fund Advisors, Inc. ("Dimensional"). Dimensional is a registered
investment advisor, in which capacity it has sole voting power over
211,400 shares and sole dispositive power over 326,900 shares.
(6)The business address of the stockholder is c/o Gensym Corporation, 125
CambridgePark Drive, Cambridge, MA 02140.
(7) Includes 12,000 shares held by trusts for the benefit of Mr. Hawkinson's
children, as to which shares Mr. Hawkinson disclaims beneficial
ownership. Also includes 8,000 shares held by Mr. Hawkinson's spouse, as
to which shares Mr. Hawkinson disclaims beneficial ownership.
(8) Includes 257,685 shares held by The Palmer Organization III L.P., as to
which shares Mr. Shane disclaims beneficial ownership except to the
extent of his pecuniary interest therein. Mr. Shane is a General Partner
of Palmer Partners, L.P., the General Partner of The Palmer Organization
III L.P. Also includes 894 shares held by Palmer Service Corporation of
which Mr. Shane is the President and sole stockholder. Also includes
10,800 shares of Common Stock subject to outstanding stock options which
are exercisable within the 60-day period following January 31, 1998.
(9) Includes 10,800 shares of Common Stock subject to outstanding stock
options.
(10)Includes 600 shares of Common Stock subject to outstanding stock options.
(11)Consists of 11,000 shares of Common Stock subject to outstanding stock
options.
(12)Consists of 8,000 shares of Common Stock subject to outstanding stock
options.
(13)Includes 53,320 shares of Common Stock subject to outstanding stock
options.
VOTES REQUIRED
The holders of a majority of the shares of Common Stock issued and
outstanding and entitled to vote at the Meeting shall constitute a quorum for
the transaction of business at the Meeting. Shares of Common Stock present in
person or represented by proxy (including shares which abstain or do not vote
with respect to one or more of the matters presented for stockholder approval)
will be counted for purposes of determining whether a quorum exists at the
Meeting.
The affirmative vote of the holders of a plurality of the votes cast by the
stockholders entitled to vote at the Meeting is required for the election of
directors. The affirmative vote of the holders of a majority of the shares
3
<PAGE>
of Common Stock present or represented and voting on the matter is required
for the approval of the proposed amendment to the Company's 1995 Employee
Stock Purchase Plan and for the ratification of the appointment of the
Company's independent auditors.
Shares which abstain from voting as to a particular matter, and shares held
in "street name" by brokers or nominees who indicate on their proxies that
they do not have discretionary authority to vote such shares as to a
particular matter, will not be counted as votes in favor of such matter, and
will also not be counted as votes cast or shares voting on such matter.
Accordingly, abstentions and "broker non-votes" will have no effect on the
voting on a matter that requires the affirmative vote of a certain percentage
of the votes cast or shares voting on a matter.
PROPOSAL 1--ELECTION OF DIRECTORS
The Board of Directors is divided into three classes, with members of each
class holding office for a staggered three-year term. The terms of Messrs.
Hawkinson and Johnson (Class II Directors) will expire at this Annual Meeting
of Stockholders; the term of Dr. Moore (Class III Director) will expire at the
1999 Annual Meeting of Stockholders; and the terms of Messrs. Shane and
Swithenbank (Class I Directors) will expire at the 2000 Annual Meeting of
Stockholders. Upon the expiration of the term of a class of directors at an
annual meeting of stockholders, directors will be elected (or reelected) to
serve within such class for a succeeding three-year term.
The persons named in the enclosed proxy will vote to elect, as Class II
Directors, Messrs. Hawkinson and Johnson, the director nominees named below,
unless the proxy is marked otherwise. Messrs. Hawkinson and Johnson are
currently directors of the Company.
Each Class II Director will be elected to hold office until the Annual
Meeting of Stockholders held in 2001 and until his or her successor is elected
and qualified. The nominees have indicated their willingness to serve, if
elected; however, if any nominee should be unable to serve, the person acting
under the proxy may vote the proxy for a substitute nominee. The Board of
Directors has no reason to believe that either of the nominees will be unable
to serve if elected.
For each member of the Board of Directors and the director nominees for
election as Class II Directors, there follows information given by each
concerning his principal occupation and business experience for the past five
years, the names of other publicly held companies of which he serves as a
director, his age and length of service as a director of the Company.
NOMINEES FOR TERM EXPIRING IN 2001 (CLASS II DIRECTOR)
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION, OTHER
BUSINESS EXPERIENCE
DURING THE PAST FIVE YEARS AND DIRECTOR
NAME AGE OTHER DIRECTORSHIPS SINCE
---- --- ------------------------------ --------
<C> <C> <S> <C>
Lowell B. Hawkinson......... 55 Chairman of the Board, Chief 1986
Executive Officer, Director,
Treasurer and Secretary of the
Company since 1986. Mr.
Hawkinson is also a director
of Genrad Corporation.
Theodore G. Johnson......... 66 Independent consultant since 1986
1982. Mr. Johnson is also a
director of Candela
Corporation and a number of
privately held corporations.
DIRECTOR WHOSE TERM EXPIRES IN 1999 (CLASS III DIRECTOR)
<CAPTION>
PRINCIPAL OCCUPATION, OTHER
BUSINESS EXPERIENCE
DURING THE PAST FIVE YEARS AND DIRECTOR
NAME AGE OTHER DIRECTORSHIPS SINCE
---- --- ------------------------------ --------
<C> <C> <S> <C>
Robert L. Moore............. 55 President of the Company since 1986
1986.
</TABLE>
4
<PAGE>
DIRECTORS WHOSE TERMS EXPIRE IN 2000 (CLASS I DIRECTORS)
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION, OTHER BUSINESS
EXPERIENCE
DURING THE PAST FIVE YEARS AND OTHER DIRECTOR
NAME AGE DIRECTORSHIPS SINCE
---- --- ------------------------------------ --------
<C> <C> <S> <C>
John A. Shane........ 65 Since 1972, Mr. Shane has been president 1995
of Palmer Service Corporation, a
venture capital management company and,
since 1981, a general partner of Palmer
Partners L.P., the general partner of
The Palmer Organization III L.P. Mr.
Shane is also a director of Arch
Communications Group, Inc., Overland
Data, Inc., Summa Four, Inc., and
United Asset Management Corporation,
and a Trustee of the New England
Investment Company's Family of Mutual
Funds.
Thomas E. 53 Since 1990, President and Chief 1997
Swithenbank......... Executive Officer of Harte-Hankes Data
Technologies, a computer software and
service company specializing in
database marketing systems, a division
of Harte-Hanks Marketing, which is a
subsidiary of Harte Hanks
Communications, Inc. Mr. Swithenbank
is also a director of Pegasystems, Inc.
</TABLE>
For information relating to shares of Common Stock owned by each of the
directors and the director nominees, see "Security Ownership of Certain
Beneficial Owners and Management."
BOARD AND COMMITTEE MEETINGS
The Board of Directors met 14 times during 1997. All directors attended at
least 75% of the meetings of the Board of Directors and of the committees on
which they served.
The Board of Directors has a Compensation Committee, which makes
recommendations concerning salaries and incentive compensation for employees
of and consultants to the Company and administers and recommends stock option
grants pursuant to the Company's employee stock plans. The Compensation
Committee met six times during 1997. The members of the Compensation Committee
are Messrs. Johnson and Shane.
The Board of Directors has an Audit Committee, which reviews the results and
scope of the audit, and other services provided by the Company's independent
public accountants and reviews the Company's internal controls. The Audit
Committee held five meetings during 1997. The members of the Audit Committee
are Messrs. Shane and Swithenbank.
The Company does not have a Nominating Committee or a committee serving a
similar function. Nominations are made by and through the full Board of
Directors.
DIRECTOR COMPENSATION
Directors who are not employees of the Company receive $12,000 annually,
plus $1,000 for attendance at each meeting of the Board of Directors and $750
for attendance at each meeting of a committee on which the director serves,
plus expenses. Non-employee directors are eligible to receive stock options
under the Company's 1995 Director Stock Option Plan, and all directors are
eligible to receive stock options under the Company's 1994 Stock Option Plan
and 1997 Stock Incentive Plan.
Under the 1995 Director Stock Option Plan (the "1995 Director Plan"), each
non-employee director receives on June 30 each year a nonstatutory option to
purchase 3,000 shares of Common Stock of the Company at an exercise price
equal to the fair market value of the Company's Common Stock on the date of
grant. The option becomes exercisable, subject to the optionee's continued
service as a director of the Company or 90 days thereafter, in five equal
installments commencing on the date of grant and on each of the first four
anniversaries
5
<PAGE>
of the date of grant. On June 30, 1997, the Company granted to each of Messrs.
Johnson, Shane and Swithenbank a nonstatutory option to purchase 3,000 shares
of Common Stock at an option exercise price of $4.50 per share. As of January
31, 1998, options for the purchase of a total of 13,000 shares of Common Stock
had been granted under the 1995 Director Plan.
COMPENSATION TO EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
annual and long-term compensation earned for each of the last three years of
the Company's Chief Executive Officer and the Named Executive Officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
---------------
ANNUAL
COMPENSATION(1) AWARDS
--------------------- ---------------
SECURITIES ALL OTHER
UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS ($) OPTIONS/SARS(#) ($)(2)
--------------------------- ---- ---------- ---------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Lowell B. Hawkinson...... 1997 $220,000 -- -- $ 15,124
Chief Executive Officer 1996 200,000 -- -- 10,228
1995 197,538 -- -- 2,501
Robert L. Moore.......... 1997 200,000 -- -- 12,925
President 1996 200,000 -- -- 8,300
1995 191,308 -- -- 2,501
James T. Pepe............ 1997 160,000 -- -- 12,577
Vice President, Product 1996 160,000 -- -- 8,397
Development 1995 155,654 -- -- 4,679
William H. Wood.......... 1997 139,327 $10,000 40,000 114,060
Senior Vice President,
Communications Business
Unit and Corporate
Marketing(3)
Mark H. Whitworth........ 1997 140,000 -- 12,000 6,571
Vice President, Advanced 1996 120,000 -- -- 3,279
Systems Business Unit 1995 109,000 -- 17,500 1,704
</TABLE>
- --------
(1) In accordance with the rules of the Securities and Exchange Commission
(the "Commission"), Other Annual Compensation in the form of perquisites
and other personal benefits has been omitted in those instances where the
aggregate amount of such perquisites and other personal benefits
constituted less than the lesser of $50,000 or 10% of the total amount of
annual salary and bonus for the executive officer for the fiscal year
indicated.
(2) All Other Compensation includes the following: (a) the Company's
contributions for Mr. Hawkinson, Dr. Moore and Messrs. Pepe, Wood and
Whitworth under the Company's 401(k) Plan in the amounts of $4,278,
$4,246, $3,774, $0 and $3,289, respectively, for fiscal 1997; (b) payments
for health and dental benefits and long-term disability insurance made by
the Company for Mr. Hawkinson, Dr. Moore and Messrs. Pepe, Wood and
Whitworth in the amounts of $10,846, $8,679, $8,803, $9,060 and $3,282,
respectively, for fiscal 1997; and (c) $105,000 earned by Mr. Wood in his
capacity as a consultant to the Company prior to being employed by the
Company.
(3) Mr. Wood joined the Company on March 17, 1997. The bonus paid to Mr. Wood
in fiscal 1997 was in connection with his recruitment by the Company.
6
<PAGE>
Option Grant Table
The following table sets forth certain information regarding options granted
during the fiscal year ended December 31, 1997 by the Company to the Named
Executive Officers:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT
ASSUMED ANNUAL
NUMBER OF PERCENT OF TOTAL RATES OF STOCK
SECURITIES OPTIONS/SARS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM(4)
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION ---------------------
NAME GRANTED (#)(1) FISCAL YEAR(2) ($/SH)(3) DATE 5%($) 10%($)
- ---- -------------- ---------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Lowell B. Hawkinson..... -- -- -- -- -- --
Robert L. Moore......... -- -- -- -- -- --
James T. Pepe........... -- -- -- -- -- --
William H. Wood......... 30,000 5.2% $5.88 4/7/07 $ 110,692 $ 280,747
10,000 1.7% 4.88 9/10/07 30,690 77,775
Mark H. Whitworth....... 12,000 2.1% 6.50 5/21/07 49,053 124,312
</TABLE>
- --------
(1) Represents options granted pursuant to the Company's 1997 Stock Incentive
Plan. Options granted to Messrs. Wood and Whitworth become exercisable in
five equal annual installments commencing on the first anniversary of the
date of grant.
(2) Calculated based on an aggregate of 572,620 options granted under all of
the Company's stock plans during fiscal 1997.
(3) The exercise price is equal to the fair market value of the Company's
Common Stock on the date of grant.
(4) Potential realizable value is based on an assumption that the market price
of the stock will appreciate at the stated rate, compounded annually, from
the date of grant until the end of the 10-year term. These values are
calculated based on rules promulgated by the Commission and do not reflect
the Company's estimate or projection of future stock prices. Actual gains,
if any, on stock option exercises will be dependent upon the future
performance of the price of the Company's Common Stock.
Year-End Option Table
The following table summarizes certain information regarding stock option
exercises by each of the Named Executive Officers during 1997 and stock
options held as of December 31, 1997 by each of the Named Executive Officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
VALUE FISCAL YEAR-END AT FISCAL YEAR-END
SHARES ACQUIRED REALIZED (EXERCISABLE/UNEXERCISABLE) (EXERCISABLE/UNEXERCISABLE)
NAME ON EXERCISE (#) ($) (#) ($)
- ---- --------------- -------- --------------------------- ---------------------------
<S> <C> <C> <C> <C>
Lowell B. Hawkinson..... -- -- -- --
Robert L. Moore......... -- -- -- --
James T. Pepe........... 8,000 $40,880 8,000/16,000 --/--
William H. Wood......... -- -- 3,000/40,000 --/--
Mark H. Whitworth....... -- -- 11,000/23,000 --/--
</TABLE>
7
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee of the Company's Board of Directors is
responsible for establishing compensation policies with respect to the
Company's executive officers, including the Chief Executive Officer and the
Named Executive Officers, and setting the compensation for these individuals.
The Compensation Committee seeks to achieve three broad goals in connection
with the Company's executive compensation programs and decisions regarding
individual compensation. First, the Compensation Committee structures
executive compensation programs in a manner that the Committee believes will
enable the Company to attract and retain key executives. Second, the
Compensation Committee establishes compensation programs that are designed to
reward executives for the achievement by the Company of operating income goals
and the achievement by the executives of certain assigned objectives. By tying
compensation in part to particular goals, the Compensation Committee believes
that a performance-oriented environment is created for the Company's
executives. Finally, the Company's executive compensation programs are
intended to provide executives with an equity interest in the Company so as to
link a portion of the compensation of the Company's executives with the
performance of the Company's Common Stock.
The compensation programs for the Company's executives generally consist of
three elements based upon the foregoing objectives: base salary; annual cash
bonus; and a stock-based equity incentive in the form of participation in the
Company's stock option plans. In establishing base salaries for executives,
including the Chief Executive Officer, the Compensation Committee monitors
salaries at other companies, particularly those that are in the same industry
as the Company or related industries and/or located in the same general
geographic area as the Company, considers historic salary levels of the
individual and the nature of the individual's responsibilities and compares
the individual's base salary with those of other executives at the Company. In
addition, during 1997, as in 1996, the Company retained the services of the
consulting firm of William Mercer Inc. to review the executive officers'
competitive base salary levels and other compensation arrangements and to
support the work of the Compensation Committee.
The Compensation Committee links cash bonuses to annual profitability goals
and the achievement by the executives of certain assigned objectives. The
individual objectives set for executive officers of the Company are generally
both objective and subjective in nature and include such goals as bookings,
revenue, profit and departmental objectives. The Compensation Committee
believes that these arrangements tie the executive's performance closely to a
key measure of success of the Company or the executive's business unit. In
1997, Mr. Hawkinson did not receive a bonus. The Compensation Committee
believes that the substantial equity position in the Company held by Mr.
Hawkinson provides him with adequate incentives.
Stock option grants are designed to make a portion of the overall
compensation of the executive officers receiving such award vary depending
upon the long range performance of the Company. As a result of the applicable
vesting arrangements, such grants also serve as a means for the Company to
retain the services of these individuals over several years.
In 1997, the Company granted incentive stock options to its executive
officers as follows. On April 7, 1997, Mr. Wood was granted an option for the
purchase of 30,000 shares of common stock at an exercise price of $5.88 per
share. On May 21, 1997, Richard M. Darer, the Company's Senior Vice President,
Finance and Administration and Chief Financial Officer, Troy A. Heindel, the
Company's Vice President, Support Services and Chief Information Officer, and
Mr. Whitworth were granted an option for the purchase of 40,000, 8,000 and
12,000 shares of Common Stock, respectively, at an exercise price of $6.50 per
share. On September 10, 1997, Messrs. Darer and Wood were granted an option
for the purchase of 20,000 and 10,000 shares of Common Stock, respectively, at
an exercise price of $4.88 per share. On October 1, 1997, Stephen R. Quehl,
the Company's Senior Vice President, Worldwide Field Operations, was granted
an option for the purchase of 87,870 shares of Common Stock at an exercise
price of $5.68 per share. On October 1, 1997, the Company granted a non-
qualified stock option to Mr. Quehl for the purchase of 12,130 shares of
Common Stock at an exercise price of $5.68 per share.
8
<PAGE>
The compensation philosophy applied by the Compensation Committee in
establishing the compensation for the Company's Chief Executive Officer is the
same as for the other executive officers. The Compensation Committee set Mr.
Hawkinson's salary for 1997 at $220,000. Effective April 1, 1998 Mr.
Hawkinson's salary was adjusted to $235,000 based upon competitive information
provided by William Mercer Inc. The Compensation Committee believes that such
a base salary is appropriate in light of the factors described above.
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), generally disallows a tax deduction to public companies for
compensation over $1,000,000 paid to its chief executive officer and its four
other most highly compensated executive officers. Qualifying performance-based
compensation will not be subject to the deduction limit if certain
requirements are met. In this regard, the Company has limited the number of
shares subject to stock options which may be granted to Company employees in a
manner that complies with the performance-based requirements of Section
162(m). Based on the compensation awarded to the executive officers of the
Company, it does not appear that the Section 162(m) limitation will have a
significant impact on the Company in the near term. While the Committee does
not currently intend to qualify its incentive awards as a performance-based
plan, it will continue to monitor the impact of Section 162(m) on the Company.
John A. Shane
Theodore G. Johnson
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Company's Compensation Committee are Messrs.
Shane and Johnson. No executive officer of the Company has served as director
or member of the compensation committee (or other committee serving an
equivalent function) of any other entity, whose executive officers served as a
director of or member of the Compensation Committee of the Company.
CERTAIN TRANSACTIONS
Prior to joining the Company in March 1997, Mr. Wood was retained by the
Company as a consultant. During fiscal 1997, Mr. Wood earned $105,000 for his
consulting services to the Company.
On October 1, 1997, the Company entered into a Secured Promissory Note (the
"Promissory Note") with Stephen R. Quehl, the Company's Senior Vice President,
Worldwide Field Operations, pursuant to which Mr. Quehl received a loan from
the Company in the amount of $100,000 at an interest rate of 8.5%. The loan,
which is due and payable on October 1, 2000, is secured by the pledge of
shares of Common Stock of the Company. Under the terms of the Promissory Note,
the loan will be forgiven in full if Mr. Quehl remains continuously employed
with the Company during the three-year period ending October 1, 2000 (the
"Loan Period"). If Mr. Quehl leaves the Company's employ prior to that time, a
portion of the loan will be forgiven, pro rata, based on the number of months
Mr. Quehl has been employed during the Loan Period. The loan will also be
forgiven in the event the Company is acquired for less than $5.8735 per share
if, following the acquisition, Mr. Quehl is not retained by the Company at an
equivalent level.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely on its review of copies of reports filed by individuals
required to make filings ("Reporting Persons") pursuant to Section 16(a) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") or
written representations from certain Reporting Persons that no Form 5 filing
was required for such persons, the Company believes that during fiscal 1997
all filings required to be made by its Reporting Persons were timely made in
accordance with the requirements of the Exchange Act.
9
<PAGE>
COMPARATIVE STOCK PERFORMANCE
The graph below compares the cumulative total stockholder return on the
Common Stock of the Company for the period from February 16, 1996 through
December 31, 1997 with the cumulative total return on (i) the Nasdaq Composite
Index, and (ii) the Nasdaq Computer & Data Processing Services Index. The
comparison assumes the investment of $100 on February 16, 1996 in the
Company's Common Stock and in each of the indices and, in each case, assumes
reinvestment of all dividends. Prior to February 16, 1996, the Company's
Common Stock was not registered under the Exchange Act.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
2/16/96 12/31/96 12/31/97
------- -------- --------
<S> <C> <C> <C>
Gensym............................................. 100 79 30
Nasdaq Composite Index............................. 100 119 146
Nasdaq Computer & Data Processing Services......... 100 121 149
</TABLE>
10
<PAGE>
PROPOSAL 2--APPROVAL OF AMENDMENT TO 1995 EMPLOYEE STOCK PURCHASE PLAN
The Board of Directors believes that the continued growth and profitability
of the Company depends, in large part, upon the ability of the Company to
maintain a competitive position in attracting and retaining key personnel. As
of January 27, 1998, 37,921 shares were available for future purchase under
the Company's 1995 Employee Stock Purchase Plan (the "Purchase Plan").
Accordingly, on January 27, 1998, the Board of Directors adopted, subject to
shareholder approval, an amendment to the Purchase Plan that increased from
200,000 to 500,000 the number of shares of Common Stock available for issuance
under the Purchase Plan (subject to a proportionate adjustment for certain
changes in the Company's capitalization, such as a stock split).
THE BOARD OF DIRECTORS BELIEVES ADOPTION OF THE AMENDMENT TO THE PURCHASE
PLAN IS IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS AND
RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
Summary of the Purchase Plan
The following is a brief summary of the material terms of the Purchase Plan.
All employees of the Company, including directors of the Company who are
employees, and all employees of any participating subsidiaries, (i) whose
customary employment is more than 20 hours per week and for more than five
months in any calendar year, (ii) who have been employed by the Company or a
subsidiary for at least three months prior to enrolling in the Purchase Plan,
and (iii) who are employees on the first day of the designated payroll
deduction period (the "Offering Period"), are eligible to participate in the
Purchase Plan. Employees who would immediately after the grant own 5% or more
of the total combined voting power or value of the stock of the Company or any
subsidiary are not eligible to participate. As of March 31, 1998,
approximately 230 of the Company's employees would have been eligible to
participate in the Purchase Plan.
On the first day of an Offering Period (an "Offering Date"), the Company
will grant to each eligible employee who has elected to participate in the
Purchase Plan an option to purchase such number of whole shares of Common
Stock of the Company reserved for the purposes of the Purchase Plan as does
not exceed the number of shares determined by dividing (i) the quotient of
$25,000 divided by two (or such other number of offerings as the Board of
Directors may determine will be conducted during that calendar year) by (ii)
the closing price of the Common Stock as reported 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 Offering Date
of such Plan Period. The employee may authorize an amount (a whole percentage
from 1% to 10% of such employee's earnings) to be deducted by the Company from
his or her pay during the Offering Period. On the last day of the Offering
Period, the employee is deemed to have exercised the option, at the option
exercise price, to the extent of accumulated payroll deductions. Under the
terms of the Purchase Plan, the option price is an amount equal to 85% of the
fair market value per share of Common Stock on either the Offering Date or the
last day of the Offering Period, whichever is lower. The Compensation
Committee may, in its discretion, choose an Offering Period of twelve months
or less for each of the offerings and choose a different Offering Period for
each offering.
If an employee is not a participant on the last day of the Offering Period,
such employee is not entitled to exercise any option, and the amount of such
employee's accumulated payroll deductions will be refunded. An employee's
rights under the Purchase Plan terminate upon voluntary withdrawal from the
Purchase Plan at any time, or when the employment of such employee ceases for
any reason.
Participation in the Purchase Plan is voluntary, and the Company cannot now
determine the number of shares to be purchased in the future by any particular
person or group. In fiscal 1997, Mr. Whitworth purchased 2,874 shares under
the Purchase Plan; no other executive officer of the Company purchased shares
under the Purchase Plan; Mr. Hawkinson and Dr. Moore are not eligible to
participate in the Purchase Plan due to their equity ownership in the Company;
directors who are not employees of the Company are not eligible to participate
in the Purchase Plan; and all employees of the Company, excluding executive
officers of the Company, purchased 125,036 shares under the Purchase Plan.
11
<PAGE>
Federal Income Tax Consequences
The following is a summary of the United States federal income tax
consequences that generally will arise with respect to purchases under the
Purchase Plan and with respect to the sale of Common Stock acquired under the
Purchase Plan.
Tax Consequences to Participants. In general, a participant will not
recognize taxable income upon enrolling in the Purchase Plan or upon
purchasing shares of Common Stock at the end of an Offering. Instead, if a
participant sells Common Stock acquired under the Purchase Plan at a sale
price that exceeds the price at which the participant purchased the Common
Stock, then the participant will recognize taxable income in an amount equal
to the excess of the sale price of the Common Stock over the price at which
the participant purchased the Common Stock. A portion of that taxable income
will be ordinary income, and a portion may be capital gain.
If the participant sells the Common Stock more than one year after acquiring
it and more than two years after the date on which the offering commenced (the
"Grant Date"), then the participant will be taxed as follows. If the sale
price of the Common Stock is higher than the price at which the participant
purchased the Common Stock, then the participant will recognize ordinary
compensation income in an amount equal to the lesser of (i) fifteen percent of
the fair market value of the Common Stock on the Grant Date, and (ii) the
excess of the sale price of the Common Stock over the price at which the
participant purchased the Common Stock.
Any further income will be long-term capital gain. If the sale price of the
Common Stock is less than the price at which the participant purchased the
Common Stock, then the participant will recognize long-term capital loss in an
amount equal to the excess of the price at which the participant purchased the
Common Stock over the sale price of the Common Stock.
If the participant sells the Common Stock within one year after acquiring it
or within two years after the Grant Date (a "Disqualifying Disposition"), then
the participant will recognize ordinary compensation income in an amount equal
to the excess of the fair market value of the Common Stock on the date that it
was purchased over the price at which the participant purchased the Common
Stock. The participant will also recognize capital gain in an amount equal to
the excess of the sale price of the Common Stock over the fair market value of
the Common Stock on the date that it was purchased, or capital loss in an
amount equal to the excess of the fair market value of the Common Stock on the
date that it was purchased over the sale price of the Common Stock. This
capital gain or loss will be long-term capital gain or loss if the participant
has held the Common Stock for more than one year prior to the date of the sale
and will be a short-term capital gain or loss if the participant has held the
Common Stock for a shorter period.
Tax Consequences to the Company. The offering of Common Stock under the
Purchase Plan will have no tax consequences to the Company. Moreover, in
general, neither the purchase nor the sale of Common Stock acquired under the
Purchase Plan will have any tax consequences to the Company except that the
Company will be entitled to a business-expense deduction with respect to any
ordinary compensation income recognized by a participant upon making a
Disqualifying Disposition. Any such deduction will be subject to the
limitations of Section 162(m) of the Code.
PROPOSAL 3--RATIFICATION OF THE APPOINTMENT OF AUDITORS
The Board of Directors has selected Arthur Andersen LLP as auditors of the
Company for the year ending December 31, 1998, subject to ratification by
stockholders at the Meeting. If the stockholders do not ratify the selection
of Arthur Andersen LLP, the Board of Directors will reconsider the matter. A
representative of Arthur Andersen LLP, which served as auditors for the year
ended December 31, 1997, is expected to he present at the Meeting to respond
to appropriate questions, and to make a statement if he or she so desires.
12
<PAGE>
STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Any proposal that a stockholder intends to present at the 1999 Annual
Meeting of Stockholders must be submitted to the Secretary of the Company at
its offices, 125 CambridgePark Drive, Cambridge, MA 02140, no later than
December 9, 1998 in order to be considered for inclusion in the Proxy
Statement relating to that meeting.
OTHER MATTERS
The Board of Directors knows of no other business which will be presented
for consideration at the Meeting other than that described above. However, if
any other business should come before the Meeting, it is the intention of the
persons named in the enclosed Proxy to vote, or otherwise act, in accordance
with their best judgment on such matters.
The Company will bear the costs of soliciting proxies. In addition to
solicitations by mail, the Company's directors, officers and regular employees
may, without additional remuneration, solicit proxies by telephone, telegraph,
facsimile and personal interviews, and the Company reserves the right to
retain outside agencies for the purpose of soliciting proxies. The Company
will also request brokerage houses, custodians, nominees and fiduciaries to
forward copies of the proxy material to those persons for whom they hold
shares and request instructions for voting the Proxies. The Company will
reimburse such brokerage houses and other persons for their reasonable
expenses in connection with this distribution.
By order of the Board of Directors,
Lowell B. Hawkinson
Secretary
April 8, 1998
THE BOARD OF DIRECTORS HOPES THAT STOCKHOLDERS WILL ATTEND THE MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND, YOU ARE URGED TO COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE. PROMPT RESPONSE WILL
GREATLY FACILITATE ARRANGEMENTS FOR THE MEETING AND YOUR COOPERATION IS
APPRECIATED. STOCKHOLDERS WHO ATTEND THE MEETING MAY VOTE THEIR STOCK
PERSONALLY EVEN THOUGH THEY HAVE SENT IN THEIR PROXIES.
13
<PAGE>
GENSYM CORPORATION
1995 EMPLOYEE STOCK PURCHASE PLAN
---------------------------------
The purpose of this Plan is to provide eligible employees of Gensym
Corporation (the "Company") and certain of its subsidiaries with opportunities
to purchase shares of the Company's common stock, $.01 par value per share (the
"Common Stock"). 200,000 shares of Common Stock in the aggregate have been
approved for this purpose.
1. Administration. The Plan will be administered by the Company's Board
--------------
of Directors (the "Board") or by a Committee appointed by the Board (the
"Committee"). The Board or the Committee has authority to make rules and
regulations for the administration of the Plan and its interpretation and
decisions with regard thereto shall be final and conclusive.
2. Eligibility. Participation in the Plan will neither be permitted nor
-----------
denied contrary to the requirements of Section 423 of the Internal Revenue Code
of 1986, as amended (the "Code"), and regulations promulgated thereunder. All
employees of the Company, including Directors who are employees, and all
employees of any subsidiary of the Company (as defined in Section 424(f) of the
Code) designated by the Board or the Committee from time to time (a "Designated
Subsidiary"), are eligible to participate in any one or more of the offerings of
Options (as defined in Section 9) to purchase Common Stock under the Plan
provided that:
(a) they are regularly employed by the Company or a Designated
Subsidiary for more than 20 hours a week and for more than five months in a
calendar year; and
(b) they have been employed by the Company or a Designated Subsidiary
for at least three months (or such number of days as may be determined by
the Board of Directors or Committee) prior to enrolling in the Plan; and
(c) they are employees of the Company or a Designated Subsidiary on
the first day of the applicable Plan Period (as defined below).
No employee may be granted an Option hereunder if such employee,
immediately after the Option is granted, owns 5% or more of the total combined
voting power or value of the stock of the Company or any subsidiary. For
purposes of the preceding sentence, the attribution rules of Section 424(d) of
the Code shall apply in determining the stock ownership of an employee, and all
stock which the employee has a contractual right to purchase shall be treated as
stock owned by the employee.
<PAGE>
3. Offerings. The Company will make one or more offerings (each, an
---------
"Offering" and collectively, "Offerings") to employees to purchase stock under
this Plan. Offerings will begin on such dates as may be determined by the Board
of Directors or the Committee (the "Offering Commencement Dates"). Each
Offering Commencement Date will begin an approximately six month period (a "Plan
Period") during which payroll deductions will be made and held for the purchase
of Common Stock at the end of the Plan Period. The Board or the Committee may,
at its discretion, choose different Plan Periods of twelve (12) months or less
for Offerings.
4. Participation. An employee eligible on the Offering Commencement Date
-------------
of any Offering may participate in such Offering by completing and forwarding a
payroll deduction authorization form to the employee's appropriate payroll
office at least seven days prior to the applicable Offering Commencement Date.
The form will authorize a regular payroll deduction from the Compensation
received by the employee during the Plan Period. Unless an employee files a new
form or withdraws from the Plan, his deductions and purchases will continue at
the same rate for future Offerings under the Plan as long as the Plan remains in
effect. The term "Compensation" means the amount of money reportable on the
employee's Federal Income Tax Withholding Statement, excluding, to the extent
determined by the Board or the Committee, overtime, shift premium, incentive or
bonus awards, allowances and reimbursements for expenses such as relocation
allowances for travel expenses, income or gains on the exercise of Company stock
options or stock appreciation rights, and similar items, whether or not shown on
the employee's Federal Income Tax Withholding Statement, and including, in the
case of salespersons, sales commissions to the extent determined by the Board or
the Committee.
5. Deductions. The Company will maintain payroll deduction accounts for
----------
all participating employees. With respect to any Offering made under this Plan,
an employee may authorize a payroll deduction in any whole number percentage
from 1% to 10% of the Compensation he or she receives during the Plan Period or
such shorter period during which deductions from payroll are made, subject to
such lesser maximum rate as may be determined by the Board of Directors or
Committee prior to the applicable Offering Commencement Date.
No employee may be granted an Option (as defined in Section 9) which
permits his rights to purchase Common Stock under this Plan and any other stock
purchase plan of the Company and its subsidiaries to accrue at a rate which
exceeds $25,000 of the fair market value of such Common Stock (determined at the
Offering Commencement Date of the Plan Period) for each calendar year in which
the Option is outstanding at any time.
6. Deduction Changes. An employee may decrease or discontinue such
-----------------
employee's payroll deduction once during any Plan Period, by filing a new
payroll deduction authorization form. However, an employee may not increase his
payroll deduction during a Plan Period. If an employee elects to discontinue
such
<PAGE>
employee's payroll deductions during a Plan Period, but does not elect to
withdraw such employee's funds pursuant to Section 8 hereof, funds deducted
prior to such employee's election to discontinue will be applied to the purchase
of Common Stock on the Exercise Date (as defined below).
7. Interest. Interest will not be paid on any employee payroll deduction
--------
accounts, except to the extent that the Board or its Committee, in its sole
discretion, elects to credit such accounts with interest at such per annum rate
as it may from time to time determine.
8. Withdrawal of Funds. An employee may at any time prior to the close
-------------------
of business on the last business day in a Plan Period and for any reason
permanently withdraw all of the balance accumulated in the employee's payroll
deduction account and thereby withdraw from participation in an Offering.
Partial withdrawals are not permitted. The employee may not begin participation
again during the remainder of the Plan Period. The employee may participate in
any subsequent Offering in accordance with terms and conditions established by
the Board or the Committee, except that employees who are also directors or
officers of the Company within the meaning of Section 16 of the Securities
Exchange Act of 1934 (the "Exchange Act") and the rules promulgated thereunder
may not participate again for a period of at least six months as provided in
Rule 16b-3(d)(2)(i) or any successor provision.
9. Purchase of Shares. On the Offering Commencement Date of each Plan
------------------
Period, the Company will grant to each eligible employee who is then a
participant in the Plan an option (an "Option") to purchase on the last business
day of such Plan Period (the "Exercise Date"), at the Option Price hereinafter
provided for, such number of whole shares of Common Stock of the Company
reserved for the purposes of the Plan as does not exceed the number of shares
determined by dividing 15% of such employee's annualized Compensation for the
immediately prior six-month period by the price determined in accordance with
the formula set forth in the following paragraph but using the closing price on
the Offering Commencement Date of such Plan Period.
The purchase price (the "Option Price") for each share purchased will be
85% of the closing price of the Common Stock as reported 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 (i) the first
business day of such Plan Period or (ii) on the Exercise Date, whichever closing
price shall be less. If no such price is reported on such date, the price of the
Common Stock for purposes of clauses (a) and (b) above shall be the reported
price for the nearest preceding day.
Each employee who continues to be a participant in the Plan on the Exercise
Date shall be deemed to have exercised his Option at the Option Price on such
date and shall be deemed to have purchased from the Company the number of full
shares of Common Stock reserved for the purpose of the Plan that such employee's
<PAGE>
accumulated payroll deductions on such date will pay for pursuant to the formula
set forth above (but not in excess of the maximum number determined in the
manner set forth above).
Any balance remaining in an employee's payroll deduction account at the end
of a Plan Period will be automatically refunded to the employee, except that any
balance which is less than the purchase price of one share of Common Stock will
be carried forward into the employee's payroll deduction account for the
following Offering, unless the employee elects not to participate in the
following Offering under the Plan, in which case the balance in the employee's
account shall be refunded.
10. Issuance of Certificates. Certificates representing shares of Common
------------------------
Stock purchased under the Plan may be issued only in the name of the employee,
or in the name of the employee and another person of legal age as joint tenants
with rights of survivorship.
11. Rights on Retirement, Death, or Termination of Employment. In the
---------------------------------------------------------
event of a participating employee's termination of employment prior to the last
business day of a Plan Period, no payroll deduction shall be taken from any pay
due and owing to an employee and the balance in the employee's payroll deduction
account shall be paid to the employee or, in the event of the employee's death,
(a) to a beneficiary previously designated in a revocable notice signed by the
employee (with any spousal consent required under state law) or (b) in the
absence of such a designated beneficiary, to the executor or administrator of
the employee's estate or (c) if no such executor or administrator has been
appointed to the knowledge of the Company, to such other person(s) as the
Company may, in its discretion, designate. If, prior to the last business day of
the Plan Period, the Designated Subsidiary by which an employee is employed
shall cease to be a subsidiary of the Company, or if the employee is transferred
to a subsidiary of the Company that is not a Designated Subsidiary, the employee
shall be deemed to have terminated employment for the purposes of this Plan.
12. Optionees Not Stockholders. Neither the granting of an Option to an
--------------------------
employee nor the deductions from such employee's pay shall constitute such
employee a stockholder of the shares of Common Stock covered by an Option under
this Plan until such shares have been purchased by and issued to such employee.
13. Rights Not Transferable. Rights under this Plan are not transferable
-----------------------
by a participating employee other than by will or the laws of descent and
distribution, and are exercisable during the employee's lifetime only by the
employee.
14. Application of Funds. All funds received or held by the Company under
--------------------
this Plan may be combined with other corporate funds and may be used for any
corporate purpose.
<PAGE>
15. Adjustment in Case of Changes Affecting Common Stock. In the event of
----------------------------------------------------
a subdivision of outstanding shares of Common Stock, or the payment of a
dividend in Common Stock, the number of shares approved for this Plan, and the
share limitation set forth in Section 9, shall be increased proportionately, and
such other adjustment shall be made as may be deemed equitable by the Board or
the Committee. In the event of any other change affecting the Common Stock,
such adjustment shall be made as may be deemed equitable by the Board or the
Committee to give proper effect to such event.
16. Merger. If the Company shall at any time merge or consolidate with
------
another corporation and the holders of the capital stock of the Company
immediately prior to such merger or consolidation continue to hold at least 80%
by voting power of the capital stock of the surviving corporation ("Continuity
of Control"), the holder of each Option then outstanding will thereafter be
entitled to receive at the next Exercise Date upon the exercise of such Option
for each share as to which such Option shall be exercised the securities or
property which a holder of one share of the Common Stock was entitled to upon
and at the time of such merger, and the Board or the Committee shall take such
steps in connection with such merger as the Board or the Committee shall deem
necessary to assure that the provisions of Section 15 shall thereafter be
applicable, as nearly as reasonably may be, in relation to the said securities
or property as to which such holder of such Option might thereafter be entitled
to receive thereunder.
In the event of a merger or consolidation of the Company with or into
another corporation which does not involve Continuity of Control, or of a sale
of all or substantially all of the assets of the Company while unexercised
Options remain outstanding under the Plan, (a) subject to the provisions of
clauses (b) and (c), after the effective date of such transaction, each holder
of an outstanding Option shall be entitled, upon exercise of such Option, to
receive in lieu of shares of Common Stock, shares of such stock or other
securities as the holders of shares of Common Stock received pursuant to the
terms of such transaction; or (b) all outstanding Options may be cancelled by
the Board or the Committee as of a date prior to the effective date of any such
transaction and all payroll deductions shall be paid out to the participating
employees; or (c) all outstanding Options may be cancelled by the Board or the
Committee as of the effective date of any such transaction, provided that notice
of such cancellation shall be given to each holder of an Option, and each holder
of an Option shall have the right to exercise such Option in full based on
payroll deductions then credited to his account as of a date determined by the
Board or the Committee, which date shall not be less than ten (10) days
preceding the effective date of such transaction.
17. Amendment of the Plan. The Board may at any time, and from time to
---------------------
time, amend this Plan in any respect, except that (a) if the approval of any
such amendment by the stockholders of the Company is required by Section 423 of
the Code or by Rule 16b-3 under the Exchange Act, such amendment shall not be
effected without such approval, and (b) in no event may any amendment be made
<PAGE>
which would cause the Plan to fail to comply with Section 16 of the Exchange Act
and the rules promulgated thereunder, as in effect from time to time, or Section
423 of the Code.
18. Insufficient Shares. In the event that the total number of shares of
-------------------
Common Stock specified in elections to be purchased under any Offering plus the
number of shares purchased under previous Offerings under this Plan exceeds the
maximum number of shares issuable under this Plan, the Board or the Committee
will allot, in such manner as it may determine, the shares then available.
19. Termination of the Plan. This Plan may be terminated at any time by
-----------------------
the Board. Upon termination of this Plan all amounts in the payroll deduction
accounts of participating employees shall be promptly refunded.
20. Governmental Regulations. The Company's obligation to sell and
------------------------
deliver Common Stock under this Plan is subject to listing on a national stock
exchange or quotation on Nasdaq and the approval of all governmental authorities
required in connection with the authorization, issuance or sale of such stock.
The Plan shall be governed by Delaware law except to the extent that such
law is preempted by federal law.
The Plan is intended to comply with the provisions of Rule 16b-3
promulgated under the Securities Exchange Act of 1934. Any provision
inconsistent with such Rule shall to that extent be inoperative and shall not
affect the validity of the Plan.
21. Issuance of Shares. Shares may be issued upon exercise of an Option
------------------
from authorized but unissued Common Stock, from shares held in the treasury of
the Company, or from any other proper source.
22. Notification upon Sale of Shares. Each employee agrees, by entering
--------------------------------
the Plan, to promptly give the Company notice of any disposition of shares
purchased under the Plan where such disposition occurs within two years after
the date of grant of the Option pursuant to which such shares were purchased.
23. Effective Date and Approval of Stockholders. The Plan shall take
-------------------------------------------
effect upon the closing of the Company's initial public offering of Common Stock
pursuant to an effective registration statement under Securities Act of 1933, as
amended, subject to approval by the stockholders of the Company as required by
Rule 16b-3 under the Exchange Act and by Section 423 of the Code, which approval
must occur within twelve months of the adoption of the Plan by the Board.
Adopted by the Board of Directors on
November 2, 1995
<PAGE>
Approved by the stockholders on January 16,
1996
<PAGE>
GENSYM CORPORATION
AMENDMENT NO. 1 TO
1995 EMPLOYEE STOCK PURCHASE PLAN
The first paragraph of Section 9 of the Company's 1995 Employee Stock
Purchase Plan is amended and restated in its entirety to read as follows:
9. Purchase of Shares. On the Offering Commencement Date of each Plan
------------------
Period, the Company will grant to each eligible employee who was then a
participant in the Plan an option (an "Option") to purchase on the last
business day of such Plan Period (the "Exercise Date"), at the Option Price
hereinafter provided for, such number of whole shares of Common Stock of
the Company reserved for the purposes of the Plan as does not exceed the
number of shares determined by dividing (i) the quotient of $25,000 divided
by two (or such other number of Offerings as the Board of Directors may
determine will be conducted during that calendar year) by (ii) the closing
price of the Common Stock as reported 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 Offering
Commencement Date of such Plan Period.
Adopted by the Board of Directors on October 29, 1997
<PAGE>
GENSYM CORPORATION
AMENDMENT NO. 2 TO
1995 EMPLOYEE STOCK PURCHASE PLAN
Subject to stockholder approval, the first paragraph of the Company's 1995
Employee Stock Purchase Plan is amended and restated in its entirety to read as
follows:
"The purpose of this Plan is to provide eligible employees of Gensym
Corporation (the "Company") and certain of its subsidiaries with
opportunities to purchase shares of the Company's common stock, $.01
par value per share (the "Common Stock"). 500,000 shares of Common
Stock in the aggregate have been approved for this purpose."
Adopted by the Board of Directors on January 27, 1998
Approved by the Stockholders of the Company on ___________________.
<PAGE>
GENSYM CORPORATION
Mark box at right if an address change or comment has been
noted on the reverse side of this card
------
Mark box at right if you plan to attend the Annual Meeting
------
RECORD DATE SHARES:
Please be sure to sign and date this Proxy. Date:
------
- ----------------------------- ---------------------------
Stockholder sign here Co-Owner sign here
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE CLASS
II DIRECTOR NOMINEES AND FOR PROPOSALS 2 AND 3.
1. To elect two Class II Directors to the Board of Directors
for the ensuing three years. For all
For Withheld Except
Nominees: Lowell B. Hawkinson --- --- ---
Theodore G. Johnson --- --- ---
To withhold authority to vote for any nominee listed above, mark the "For all
Except" box and write the name(s) of the nominee(s) from whom you wish to
withhold authority to vote in the space provided below.
- -------------------------------------------
For All
2. To approve an amendment to the For Withheld Except
Company's 1995 Employee Stock Pur-
chase Plan to increase the number of --- --- ---
shares reserved for issuance thereunder
from 200,000 shares to 500,000 shares
For All
3. To ratify and approve the appointment For Withheld Except
by the Board of Directors of Arthur
Andersen LLP as the Company's in- --- --- ----
dependent auditors for the current
year.
In their discretion, the Proxies are authorized to vote upon such other business
as may properly come before the Meeting or any adjournment thereof.
<PAGE>
GENSYM CORPORATION
ANNUAL MEETING OF STOCKHOLDERS
MAY 20, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, revoking all prior proxies, hereby appoints Lowell B. Hawkinson
and Robert L. Moore, and each of them, with full power of substitution, as
Proxies to represent and vote as designated hereon all shares of stock of Gensym
Corporation (the "Company") which the undersigned would be entitled to vote if
personally present at the Annual Meeting of Stockholders of the Company to be
held on Wednesday, May 20, 1998 at 9:00 a.m., Boston time, at the offices of
Hale and Dorr LLP, 26th Floor, 60 State Street, Boston, Massachusetts, and at
any adjournment thereof, with respect to the matters set forth on the reverse
side hereof.
PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
Please sign exactly as name(s) appear(s) hereon. If the stock is registered
in the name of two or more persons, each should sign. When signing as an
executor, administrator, trustee, guardian or attorney, please give full title
as such. If a corporation, please sign in full corporate name by an authorized
officer. If a partnership, please sign in full partnership name by an
authorized person.
HAS YOUR ADDRESS CHANGED?
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DO YOU HAVE ANY COMMENTS?
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