<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted
[X] Definitive Proxy Statement by Rule 14a-6(e)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
Gensym Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
Dear Fellow Shareholder:
We are pleased to enclose our 1998 annual report and proxy statement
relating to our Annual Meeting of Shareholders to be held on Friday, May 21,
1999 at 10 a.m. local time at the offices of Hale and Dorr LLP in Boston,
Massachusetts.
We look forward to greeting personally as many of our shareholders as are
able to attend. Of course, we recognize that this may not be practical for the
majority of our shareholders, and so we have enclosed a proxy card which you
may use to ensure the representation of your shares at this meeting.
At the meeting, in addition to ratifying the appointment of our auditors,
shareholders are being asked to approve the election of three Directors for a
three-year term. They are two candidates who will be new to the Board, Patrick
Courtin and Robert A. Degan, as well as a recently appointed independent
outside director, Barry R. Gorsun. All three bring to Gensym operating
experience in businesses closely related to your Company's most promising
market opportunities. These are highly-qualified candidates dedicated to
helping your Company succeed and committed to carrying out their fiduciary
duty to maximize shareholder value while representing the interests of all our
shareholders. This is our paramount mission.
We strongly recommend you support these three strong director nominees.
At the Annual Meeting, I and other members of Gensym's senior management
team will present an overview of our strategic plan, including the
opportunities we see and how we intend to achieve them. In addition, you will
have an opportunity to speak directly with us and ask us questions relevant to
your investment in Gensym.
Please take a moment to review our proxy statement, which has additional
information on our Board and our Director nominees. To ensure the
representation of your shares at the annual meeting, please also promptly
sign, date and return the enclosed form of proxy in the postage-paid envelope
provided.
Please feel free to call me directly if you would like to discuss any aspect
of your Company, its business, and the upcoming annual meeting. I can be
reached at (617) 588-9276.
Thank you for your continuing support.
Lowell B. Hawkinson
Chairman and CEO
<PAGE>
[GENSYM LOGO APPEARS HERE]
----------------
Notice of Annual Meeting of Stockholders
to be Held May 21, 1999
----------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Gensym
Corporation, a Delaware corporation (the "Company"), will be held on Friday,
May 21, 1999 at 10:00 a.m., at the offices of Hale and Dorr LLP, 60 State
Street, Boston, Massachusetts 02109 (the "Meeting"), for the purpose of
considering and voting upon the following matters:
1. To elect three Class III Directors of the Company to serve for the
ensuing three years;
2. To ratify the appointment by the Board of Directors of Arthur Andersen
LLP as independent auditors for the fiscal year ending December 31, 1999;
and
3. 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 April 9, 1999 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, 1998, 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 21, 1999
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 21, 1999
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Gensym Corporation (the "Company") for
use at the Annual Meeting of Stockholders to be held on Friday, May 21, 1999
at 10:00 a.m. at the offices of Hale and Dorr LLP, 60 State Street, Boston,
Massachusetts 02109 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 April 9, 1999, the record date for determination of stockholders entitled
to vote at the Meeting, there were outstanding and entitled to vote an
aggregate of 6,055,945 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, 1998,
which includes the Company's Annual Report on Form 10-K for the year ended
December 31, 1998, are being mailed to stockholders on or about April 23,
1999.
<PAGE>
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of January 31, 1999,
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, the Company's four
other most highly compensated executive officers who were serving as executive
officers on December 31, 1998 and a former executive officer for whom
disclosure would have been required but for the fact that the individual was
not serving as an executive officer at the end of the last fiscal year (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>
Dimensional Fund Advisors
Inc.(3).................. 343,400 5.7%
1299 Ocean Avenue
11th Floor
Santa Monica, CA 90401
Kopp Investment Advisors,
Inc.(4).................. 303,700 5.0%
6600 France Avenue South
Suite 672
Edina, MN 55435
Special Situations Fund
III, L.P.(5)............... 380,600 6.3%
Special Situations Cayman
Fund, L.P.(5)............ 380,600 6.3%
MGP Advisors Limited
Partnership(5)........... 137,500 2.3%
AWM Investment Company,
Inc.(5).................. 137,500 2.3%
Austin W. Marxe(5)........ 518,100 8.6%
David M. Greenhouse(5).... 518,100 8.6%
c/o AWM Investment
Company, Inc.
153 E. 53 Street, 51st
Floor
New York, NY 10022
Morgan Stanley Dean Witter
& Co.(6)................. 375,000 6.2%
1585 Broadway
New York, NY 10036
Morgan Stanley Dean Witter
Advisors, Inc.(6)........ 375,000 6.2%
Two World Trade Center
New York, NY 10048
Edward Fredkin............ 664,884 11.0%
Hyslop Road
Brookline, MA
Lowell B. Hawkinson(7)(8). 440,000 7.3%
Robert L. Moore(7)........ 332,000 5.5%
John A. Shane(9).......... 28,098 *
Theodore G. Johnson(10)... 186,875 3.1%
Thomas E. Swithenbank(11). 5,800 *
Mark H. Whitworth(12)..... 29,618 *
James T. Pepe(13)......... 20,360 *
William H. Wood(14)....... 5,280 *
Barry R. Gorsun........... -- *
Patrick Courtin........... -- --
Robert A. Degan........... -- --
Stephen Quehl............. -- --
All executive officers and
directors as a group (11
persons)(15)............. 1,058,607 17.3%
</TABLE>
2
<PAGE>
- --------
* 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, 1999
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) Number of shares deemed outstanding includes 6,055,945 shares outstanding
as of January 31, 1999 plus any shares subject to options held by the
person in question which are currently exercisable or exercisable within
60 days after January 31, 1999.
(3) The information reported is based on a Schedule 13G, dated February 11,
1999, filed with the Securities and Exchange Commission on February 11,
1999 by Dimensional Fund Advisors Inc., a Delaware corporation
("Dimensional"). Dimensional, an investment company registered under the
Investment Advisors Act of 1940, furnishes investment advice to four
investment companies registered under the Investment Company Act of 1940,
and serves as investment manager to certain other investment vehicles,
including commingled group trusts. (These investment companies and
investment vehicles are the "Portfolios"). In its role as investment
advisor and investment manager, Dimensional possesses both voting and
investment power over the securities of the Company that are owned by the
Portfolios, as to which shares Dimensional disclaims beneficial ownership.
(4) Kopp Investment Advisors, Inc. ("KIA") is a registered investment advisor,
in which capacity it has sole voting power over 190,000 shares and shared
dispositive power over 113,700 shares. LeRoy C. Kopp, the sole stockholder
of KIA, has sole voting power over 10,000 shares and sole dispositive
power over 10,000 shares. KIA and Mr. Kopp disclaim beneficial ownership
as to all such shares.
(5) The information is based on a Schedule 13G/A, dated February 11, 1999,
filed with the Securities and Exchange Commission on February 11, 1999,
and a Schedule 13D, dated March 1, 1999, filed with the Securities and
Exchange Commission on March 1, 1999, collectively by Special Situations
Fund III, L.P., a Delaware limited partnership ("SSF III"), MGP Advisers
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"), SST Advisors L.L.C., Austin W. Marxe and David M. Greenhouse. AWM
is the general partner of MGP. AWM is the general partner of MGP. SSF III
and MGP beneficially own 380,600 shares, and the Cayman Fund and AWM
beneficially own 137,500 shares. Messrs. Marxe and Greenhouse have sole
voting power and sole dispositive power over the 380,600 shares
beneficially owned by SSF III and MGP and the 137,500 shares beneficially
owned by the Cayman Fund and AWM and officers, directors and members or
are principal shareholders of MGP and AWM and have sole voting power and
sole dispositive power over an aggregate of 518,100 shares. AWM is the
general partner of MGP and the general partner of and investment adviser
to the Cayman Fund.
(6) The information reported is based on a Schedule 13G, dated February 5,
1999, filed with the Securities and Exchange Commission on February 5,
1999 jointly by Morgan Stanley Dean Witter & Co. and Morgan Stanley Dean
Witter Advisors Inc. (collectively, "Morgan Stanley"). Morgan Stanley has
sole voting power over 375,000 shares and shared dispositive power over
375,000 shares. These shares are held in accounts managed on a
discretionary basis by Morgan Stanley Advisors Inc., a wholly owned
subsidiary of Morgan Stanley Dean Witter & Co. These accounts are known to
have the right to receive or the power to direct the receipt of dividends
from, or the proceeds from, the sale of such securities. No such account
holds more than 5% of the class.
3
<PAGE>
(7) The business address of the stockholder is c/o Gensym Corporation, 125
CambridgePark Drive, Cambridge, MA 02140.
(8) 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 shares held by Mr. Hawkinson's spouse, as to
which shares Mr. Hawkinson disclaims beneficial ownership.
(9) Mr. Shane is a General Partner of Palmer Partners, L.P. Includes 3,405
shares held by Palmer Service Corporation, of which Mr. Shane is the
President and sole stockholder. Mr. Shane disclaims beneficial ownership
except to the extent of his pecuniary interest therein. Also includes
15,300 shares of Common Stock subject to outstanding stock options which
are exercisable within the 60-day period following January 31, 1999.
(10) Includes 15,000 shares of Common Stock subject to outstanding stock
options.
(11) Includes 1,800 shares of Common Stock subject to outstanding stock
options.
(12) Includes 14,720 shares of Common Stock subject to outstanding stock
options.
(13) Includes 15,360 shares of Common Stock subject to outstanding stock
options.
(14) Includes 5,280 shares of Common Stock subject to outstanding stock
options.
(15) Includes 55,800 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 of
Common Stock present or represented and voting on the matter is required for
the ratification of the appointment of the Company's independent auditors.
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 Dr. Moore
and Mr. Gorsun (Class III Directors) will expire at this Annual Meeting of
Stockholders; the terms of Messrs. Shane and Swithenbank (Class I Directors)
will expire at the 2000 Annual Meeting of Stockholders; and (iii) the terms of
Messrs. Hawkinson and Johnson (Class II Directors) will expire at the 2001
Annual Meeting of Stockholders. Dr. Moore will not be standing for re-election
as a Class III Director at this 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 re-elected) to serve within such
class for a succeeding three-year term.
The persons named in the enclosed proxy will vote to elect, as Class III
Directors, Messrs. Courtin, Degan and Gorsun, the director nominees named
below, unless the proxy is marked otherwise. Mr. Gorsun is currently
4
<PAGE>
a director of the Company. Messrs. Courtin and Degan are new nominees for
Class III directorships. If all three director nominees are elected at this
Annual Meeting of Stockholders, the number of Class III Directors will be
increased from two to three, and the size of the Board of Directors will be
increased from six to seven.
Each Class III Director will be elected to hold office until the Annual
Meeting of Stockholders held in 2002 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 any 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 III 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 Terms Expiring in 2002 (Class III Directors)
<TABLE>
<CAPTION>
Principal Occupation, Other Business Experience Director
Name Age During The Past Five Years and Other Directorships Since
---- --- -------------------------------------------------- --------
<C> <C> <S> <C>
Patrick Courtin............. 56 Since March 1996, Mr. Courtin has --
been president and chief executive
officer of M3i Systems, Inc., a
real time software technology
company. From March 1994 to August
1995, Mr. Courtin served as
chairman and chief executive
officer of Comstream Inc. and
senior vice president of Spar
Aerospace.
Robert A. Degan............. 60 Since November 1998, Mr. Degan has --
been General Manager of Cisco
Systems, Inc.'s Enhanced Services
& Migration Unit. From 1984 to
November 1998, Mr. Degan served as
a director of Summa Four, Inc. and
from January 1997 to November
1998, Mr. Degan was the president
and chief executive officer of
Summa Four, Inc. From August 1996
to December 1996, Mr. Degan served
as an executive vice president of
Sync Research Inc. From 1991 to
1996, Mr. Degan was the president,
chief executive officer and a
director of Tylink Corporation, a
data communications company. Mr.
Degan is also a director of
Lancast, Inc. and Versatile
Information Products.
Barry R. Gorsun............. 56 Director of the Company since 1998
December 1998. Mr. Gorsun joined
Summa Four, Inc. in April 1983 as
vice president of operations and
served as chief operating officer
from January 1987 until his
appointment as president and chief
executive officer in July 1988. He
was named chairman in July 1993
and served as chairman until Summa
Four's acquisition by Cisco
Systems, Inc. in November 1998.
Prior to joining Summa Four, Mr.
Gorsun was vice president of
Analogic Corporation.
</TABLE>
5
<PAGE>
Directors Whose Terms Expire in 2000 (Class I Directors)
<TABLE>
<CAPTION>
Principal Occupation, Other Business Experience Director
Name Age During The Past Five Years and Other Directorships Since
---- --- -------------------------------------------------- --------
<C> <C> <S> <C>
John A. Shane............... 66 Since 1972, Mr. Shane has been 1995
president of Palmer Service
Corporation, a venture capital
management company. Mr. Shane is
also a director of Arch
Communications Group, Inc.,
Eastern Bank Corporation,
Overland Data, Inc. and United
Asset Management Corporation, and
a Trustee of New England
Investment Company's Family of
Mutual Funds.
Thomas E. Swithenbank....... 54 From 1990 until 1998, Mr. 1997
Swithenbank served as president
and chief executive officer of
Harte-Hanks 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 a director of
Pegasystems, Inc. and was an
executive vice president from
1998 to 1999. Since April 1999,
Mr. Swithenbank has been an
executive vice president of
Techmar Communications, Inc.
Directors Whose Terms Expire in 2001 (Class II Director)
<CAPTION>
Principal Occupation, Other Business Experience Director
Name Age During The Past Five Years and Other Directorships Since
---- --- -------------------------------------------------- --------
<C> <C> <S> <C>
Lowell B. Hawkinson......... 56 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......... 67 Independent venture investor since 1986
1982. Mr. Johnson is also a
director of Candela Corporation
and a number of privately held
corporations.
</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 thirteen times during 1998. 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 five times during 1998. The members of the Compensation
Committee are Messrs. Johnson, Shane and Gorsun.
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 four meetings during 1998. The members of the Audit Committee
are Messrs. Shane and Swithenbank.
6
<PAGE>
The Board of Directors formed a Corporate Governance Committee in January
1999 which is responsible for making recommendations as to the number of
members of the Board of Directors and composition of the Board and its
committees and periodic evaluations of performance. Specific duties include
(i) the nomination of new Board members after consultation with the Chief
Executive Officer and (ii) an annual written evaluation of the Board of
Directors and its committees. The Corporate Governance Committee will consider
nominees recommended to the committee by stockholders. In order for a nominee
recommended to the committee by a stockholder to be considered as a candidate
to serve on the Board of Directors, such recommendation must be in writing and
received by the Secretary of the Company at the Company's offices, 125
CambridgePark Drive, Cambridge, MA 02140, no later than December 9. The
members of the Corporate Governance Committee are Messrs. Gorsun and
Swithenbank.
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 of the date of grant. On June 30, 1998, the Company granted to
each of Messrs. Johnson, Shane and Swithenbank a nonqualified option to
purchase 3,000 shares of Common Stock at an option exercise price of $4.438
per share. As of January 31, 1999, options for the purchase of a total of
18,000 shares of Common Stock had been granted under the 1995 Director Plan.
7
<PAGE>
Compensation to Executive Officers
The following table sets forth certain information with respect to the
annual and long-term compensation earned for each of the last three years of
the Company's Chief Executive Officer and the Named Executive Officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
---------------
Annual Compensation(1) Awards
--------------------------- ---------------
Securities All Other
Underlying Compensation
Name and Principal Position Year Salary ($) Bonus ($) Options/SARs(#) ($)(2)
--------------------------- ---- ----------- ---------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Lowell B. Hawkinson....... 1998 $231,250 -- -- 21,450
Chief Executive Officer 1997 $220,000 -- -- 15,124
1996 $200,000 -- -- 10,228
Robert L. Moore........... 1998 $207,500 -- -- 18,101
President 1997 $200,000 -- -- 12,925
1996 $200,000 -- -- 8,300
James T. Pepe............. 1998 $163,340 -- 19,200 19,244
Vice President, Product 1997 $160,000 -- -- 12,577
Development 1996 $160,000 -- -- 8,397
William H. Wood (3)....... 1998 $183,125 $30,000 3,000 111,135
Senior Vice President, 1997 $139,327 $10,000 40,000 114,060
Communications Business
Unit and Corporate
Marketing
Mark H. Whitworth......... 1998 $147,500 -- 27,200 12,718
Vice President, Advanced 1997 $140,000 -- 12,000 6,571
Systems Business Unit 1996 $120,000 -- -- 3,279
Stephen Quehl (4)......... 1998 $175,000 $52,500 -- 19,274
Executive Vice
President, 1997 -- -- 80,000 --
Worldwide Field
Operations
</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,
Whitworth and Quehl under the Company's 401(k) Plan in the amounts of
$4,519, $4,110, $3,917, $0 and $3,667, respectively, for fiscal 1998; (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,
Whitworth and Quehl in the amounts of $11,449, $9,038, $9,443, $11,134,
$3,868 and $9,274, respectively, for fiscal 1998; and (c) $105,000 earned
by Mr. Wood in his capacity as a consultant to the Company prior to being
employed by the Company.
(3) Mr. Wood joined the Company on March 17, 1997. The bonus paid to Mr. Wood
in fiscal 1997 was in connection with his recruitment by the Company.
(4) Mr. Quehl resigned his position effective October 13, 1998.
8
<PAGE>
Option Grant Table
The following table sets forth certain information regarding options granted
during the fiscal year ended December 31, 1998 by the Company to the Named
Executive Officers:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------------------------------------
Potential Realizable
Value at
Assumed Annual
Number of Percent of Total Rates of Stock
Securities Options/SARs Price Appreciation
Underlying Granted to Exercise or for Option Term(4)
Options/SARs Employees In Base Price Expiration --------------------
Name Granted (#)(1) Fiscal Year(2) ($/Sh)(3) Date 5%($) 10%($)
- ---- -------------- ---------------- ----------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Lowell B. Hawkinson..... -- -- -- -- -- --
Robert L. Moore......... -- -- -- -- -- --
James T. Pepe........... 19,200 (5) 2.0 $4.27 06/01/04 $ 51,559 $ 130,661
William H. Wood......... 2,400 (6) (6) 4.27 04/07/07 6,445 16,333
24,000 (6) (6) 4.27 01/27/08 64,449 163,327
Mark H. Whitworth....... 2,400 (7) (7) 4.27 06/24/03 6,445 16,333
1,200 (7) (7) 4.27 12/09/03 3,222 8,166
4,000 (7) (7) 4.27 01/19/05 10,741 27,221
10,000 (7) (7) 4.27 11/02/05 26,854 68,053
9,600 (7) (7) 4.27 05/21/07 25,780 65,331
Stephen Quehl (8)....... -- -- -- -- -- --
</TABLE>
- --------
(1) Represents options granted pursuant to the Company's stock incentive
plans. Options granted to Messrs. Pepe, Wood and Whitworth were granted
pursuant to the stock option repricing program in replacement of existing
options. The newly granted options are exercisable in five equal
installments commencing on the first anniversary of the original dates of
grant of the replaced options.
(2) Calculated based on an aggregate of 835,698 options granted to all
employees and directors under all of the Company's stock plans during
fiscal 1998, including 537,268 options granted in exchange for 704,290
options canceled as part of the option repricing program.
(3) The exercise price is equal to 110% of the fair market value of the
Company's Common Stock on November 20, 1998, the date of repricing.
(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 of the original option 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.
(5) Includes the replacement of options representing the right to purchase an
aggregate of 26,400 shares of Common Stock of the Company. Further,
includes an option representing the right to purchase 3,000 shares of
Common Stock of the Company was granted on January 27, 1998.
(6) Includes the replacement of options representing the right to purchase
33,000 shares of Common Stock of the Company. The aggregate number of
options granted to Mr. Wood equals 3.3% of the total options granted to
employees in 1998.
(7) Includes the replacement of options representing the right to purchase an
aggregate of 34,000 shares of Common Stock of the Company. The aggregate
number of options granted to Mr. Whitworth equals 3.0% of the total
options granted to employees in 1998.
(8) Mr. Quehl resigned his position effective October 13, 1998.
9
<PAGE>
Year-End Option Table
The following table summarizes certain information regarding stock option
exercises by each of the Named Executive Officers during 1998 and stock
options held as of December 31, 1998 by each of the Named Executive Officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Value of
Number of Shares Unexercised
Underlying In-the-Money
Unexercised Options
Options at Fiscal at Fiscal
Number of Shares Year-End Year-End
Acquired on Value (Exercisable/ (Exercisable/
Exercise Realized Unexercisable) Unexercisable)
Name (#) ($) (#) ($)(1)
- ---- ---------------- -------- ----------------- --------------
<S> <C> <C> <C> <C>
Lowell B. Hawkinson. -- -- -- --
Robert L. Moore..... -- -- -- --
James T. Pepe....... -- -- 12,800/6,400 --
William H. Wood..... -- -- 10,400/16,000 --
Mark H. Whitworth... -- -- 13,920/13,280 --
Stephen Quehl(2).... -- -- -- --
</TABLE>
- --------
(1) Value of unexercised in-the-money options represents the difference
between the closing price of the Company's Common Stock on December 31,
1998 ($3.125) and the exercise price of the option, multiplied by the
number of shares subject to the option.
(2) Mr. Quehl resigned his position with the Company effective October 13,
1998. His unexercised options were canceled upon his resignation.
Report of the Compensation Committee on Executive Compensation
The Compensation Committee of the Company's Board of Directors is
responsible for establishing compensation policies with respect to the
Company's executive officers, including the Chief Executive Officer, the
President and the 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 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
10
<PAGE>
addition, during 1998, as in 1997 and 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
1998 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 1998, the Company granted incentive stock options to its executive
officers as follows: On January 27, 1998, Mr. Wood was granted an option for
the purchase of 3,000 shares of common stock at an exercise price of $5.63 per
share. On January 27, 1998, Richard M. Darer was granted an option for the
purchase of 3,500 shares of Common Stock at an exercise price of $5.63 per
share. On November 20, 1998, the Company effected a stock option repricing
program. See "Report on Repricing Options."
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 1998 at $235,000. Effective April 1, 1999 Mr.
Hawkinson's salary was adjusted to $215,000, representing a $20,000 reduction
from the previous year. 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.
Compensation Committee Interlocks and Insider Participation
The current members of the Company's Compensation Committee are Messrs.
Shane, Johnson and Gorsun. 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 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
11
<PAGE>
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,
was secured by the pledge of shares of Common Stock of the Company. Under the
terms of the Promissory Note, the loan was to be forgiven in full if Mr. Quehl
remained continuously employed with the Company during the three-year period
ending October 1, 2000 (the "Loan Period"). If Mr. Quehl left the Company's
employ prior to that time, a portion of the loan was to be forgiven, pro rata,
based on the number of months Mr. Quehl had been employed during the Loan
Period. The loan was also to be forgiven in the event the Company was acquired
for less than $5.8735 per share if, following the acquisition, Mr. Quehl was
not retained by the Company at an equivalent level. On October 13, 1998, Mr.
Quehl voluntarily terminated his employment relationship with the Company. On
October 13, 1998, Mr. Quehl paid the $69,969.21 balance of the Promissory Note
in full.
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 1998
all filings required to be made by its Reporting Persons were timely made in
accordance with the requirements of the Exchange Act, except for a Form 4
filed on behalf of Mr. Swithenbank on September 1, 1998 for the purchase of
2,000 shares of Common Stock of the Company on July 31, 1998.
STOCK OPTION REPRICING
The following table sets forth certain information concerning all options
granted to the Company's executive officers, which were repriced during the
fiscal year ended December 31, 1998. The information includes (i) the name and
position of each executive officer who participated in the repricing program,
(ii) the date of such repricing, (iii) the number of securities underlying
repriced options, (iv) the per share market price of the underlying security
at the time of the repricing, (v) the original exercise price of the repriced
option at the time of the repricing, (vi) the per share exercise price of the
option repriced and (vii) the original option term remaining at the date of
repricing.
OPTION REPRICING TABLE
<TABLE>
<CAPTION>
Number Length of
of Shares Market Exercise Original
Subject to Price per Price per Option Term
Options Share at Share at New Remaining
Date of Repriced Time of Time of Exercise at Date of
Name Repricing (3) Repricing Repricing Price Repricing (1)
---- --------- ---------- --------- --------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Troy A. Heindel (2)..... 11/20/98 1,152 $3.88 $6.00 $4.27 55
11/20/98 672 $3.88 $7.50 $4.27 60
11/20/98 3,376 $3.88 $7.50 $4.27 73
11/20/98 4,000 $3.88 $7.50 $4.27 84
11/20/98 6,400 $3.88 $6.50 $4.27 102
James T. Pepe........... 11/20/98 19,200 $3.88 $7.50 $4.27 71
Mark H. Whitworth....... 11/20/98 2,400 $3.88 $7.50 $4.27 55
11/20/98 1,200 $3.88 $7.50 $4.27 60
11/20/98 4,000 $3.88 $7.50 $4.27 73
11/20/98 10,000 $3.88 $7.50 $4.27 84
11/20/98 9,600 $3.88 $6.50 $4.27 102
William H. Wood......... 11/20/98 2,400 $3.88 $5.63 $4.27 109
11/20/98 24,000 $3.88 $5.88 $4.27 103
</TABLE>
12
<PAGE>
- --------
(1) The original option term was not amended at the time of the repricing.
Data is presented in terms of months.
(2) All unexercised options issued pursuant to the stock option repricing
program were forfeited upon termination of employment.
(3) The repriced options represent the right to purchase 80% of the number of
shares of Common Stock that the old options represented.
REPORT ON REPRICING OPTIONS
On October 22, 1998, the Compensation Committee of the Board of Directors
approved a repricing of stock options granted to employees pursuant to the
Company's stock option plans. All employees who held stock options granted
under one of the Company's stock option plans with exercise prices greater
than $3.88 per share, the closing price of the Company's Common Stock on
November 20, 1998, were offered the opportunity to exchange all of these stock
options for new options representing the right to purchase 80% of the shares
of Common Stock represented by the exchanged options. Executive officers who
chose to have their options repriced were repriced at an exercise price of
$4.27 per share, or 110% of the closing stock price on November 20, 1998.
Because of the decline in the market value of the Company's Common Stock,
certain outstanding options on November 20, 1998 were exercisable at prices
that exceeded the market value of the Common Stock. In view of this decline
and in keeping with the Company's philosophy of utilizing equity incentives to
motivate and retain qualified employees, the Compensation Committee felt that
it was important to regain the incentive intended to be provided by options to
purchase shares of the Company's Common Stock.
Pursuant to the terms of the repricing, 157 option holders, holding options
to purchase an aggregate of 704,290 shares of the Company's Common Stock,
which had an exercise price of greater than $3.88 per share (the "Existing
Options"), were offered the opportunity to exchange their existing options for
537,268 new options having an exercise price of $3.88 per share, the closing
price of the Company's Common Stock on November 20, 1998, the date of the
repricing (the "New Options").
The New Options modify only the exercise price of the Existing Options and
the number of shares of Common Stock represented by the Existing Options to
which each relates and, like the Existing Options, are governed by the
respective option plan under which they were originally granted. Therefore,
except for the different exercise price and number of shares of Common Stock
represented by the Existing Options, the terms of the option agreements,
including the vesting schedule, relating to the New Options are the same as
the terms of the option agreements for the Existing Options that are replaced.
COMPENSATION COMMITTEE
John A. Shane
Theodore G. Johnson
Barry R. Gorsun
13
<PAGE>
Comparative Stock Performance
The comparative stock performance 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, 1998 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, if any. Prior to
February 16, 1996, the Company's Common Stock was not registered under the
Exchange Act.
[GENSYM GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
2/16/96 12/31/96 12/31/97 12/31/98
------- -------- -------- --------
<S> <C> <C> <C> <C>
Gensym....................................... $100 $ 79 $ 30 $ 21
Nasdaq Composite Index....................... $100 $119 $146 $205
Nasdaq Computer & Data Processing Services... $100 $120 $147 $262
</TABLE>
PROPOSAL 2 -- 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, 1999, 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, 1998, is expected to be present at the Meeting to respond
to appropriate questions, and to make a statement if he or she so desires.
STOCKHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Stockholder proposals submitted pursuant to Rule 14a-8 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and intended to be
presented in the proxy material for the 2000 Annual Meeting
14
<PAGE>
of Stockholders must be received by the Company at its offices, 125
CambridgePark Drive, Cambridge, MA 02140, no later than December 9, 1999 in
order to be considered for inclusion in the Proxy Statement relating to that
meeting. The Company suggests that proponents submit their proposals by
certified mail, return receipt requested, addressed to the Secretary of the
Company.
The Company's Amended and Restated By-Laws (the "By-Laws") also establish
advance notice procedures with respect to a stockholder nomination of
candidates for election as Directors (a "Director Nomination") and for the
conduct of other business to be brought before an annual meeting by a
stockholder ("Other Business") not submitted pursuant to Rule 14a-8. A notice
regarding a Director Nomination or a proposal for Other Business must be
received by the Company not less than 60 days nor more than 90 days prior to
the applicable stockholder meeting, provided, however, that in the event that
less than 70 days' notice or prior disclosure of the date of the meeting is
given or made to the Company's stockholders, the notice must be received by
the Company not later than the tenth day following the date on which such
notice of the date of the meeting was mailed or such public disclosure was
made, whichever occurs first. Any such notice must contain certain specified
information concerning the persons to be nominated and/or the Other Business
and the stockholder submitting the Director Nomination or proposal for Other
Business not made in compliance with such advance notice requirements. The
Company has not yet publicly announced the date of the 2000 Annual Meeting.
The advance notice provisions of the Company's By-Laws supersede the notice
requirements contained in recent amendments to Rule 14a-4 under the Exchange
Act. Director Nominations or stockholder proposals for Other Business should
be mailed to Secretary, Gensym Corporation, 125 CambridgePark Drive,
Cambridge, Massachusetts 02140.
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.
SOLICITATION OF PROXIES
The Company will bear the costs of soliciting proxies. In addition to
solicitations by mail, the Company's directors, officers and regular employees
may, without additional remuneration, solicit proxies by telephone, telegraph,
facsimile and personal interviews. The Company will also request brokerage
houses, custodians, nominees and fiduciaries to forward copies of the proxy
material to those persons for whom they hold shares and request instructions
for voting the Proxies. The Company will reimburse such brokerage houses and
other persons for their reasonable expenses in connection with this
distribution. In addition, to assist in the solicitation of proxies, the
Company has engaged Kissel-Blake, Inc., New York, New York, for a fee of
$4,000 plus reasonable out-of-pocket expenses.
By order of the Board of Directors,
Lowell B. Hawkinson
Secretary
April 21, 1999
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.
15
