<PAGE>
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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 by Rule 14a-
6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-12
Gensym Corporation
----------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
----------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No Fee Required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: ____
(2) Aggregate number of securities to which transaction applies: _______
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined): _____
(4) Proposed maximum aggregate value of transaction: ___________________
(5) Total fee paid: ____________________________________________________
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: $ __________________________________________
(2) Form, Schedule or Registration Statement No.: ______________________
(3) Filing Party: _______________________________________________________
(4) Date Filed: ________________________________________________________
<PAGE>
GENSYM CORPORATION
125 CambridgePark Drive
Cambridge, MA 02140
----------------
Notice of Annual Meeting of Stockholders
to be Held May 17, 2000
----------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Gensym
Corporation, a Delaware corporation (the "Company"), will be held on
Wednesday, May 17, 2000 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 two Class I Directors of the Company to serve for the ensuing
three years;
2. To approve the amendment to the Company's 1995 Employee Stock Purchase
Plan increasing from 500,000 to 700,000 the number of shares of Common
Stock reserved for issuance under the plan;
3. To approve the Company's 2000 Stock Incentive Plan covering 800,000
shares of Common Stock, as described in the Proxy Statement;
4. To ratify the appointment by the Board of Directors of Arthur Andersen
LLP as independent auditors for the fiscal year ending December 31, 2000;
and
5. To transact such other business as may properly come before the
Meeting or any adjournment thereof.
The Board of Directors has no knowledge of any other business to be
transacted at the Meeting.
The Board of Directors has fixed the close of business on April 14, 2000 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, 1999, 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,
John K. P. Stone, III
Secretary
April 24, 2000
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 17, 2000
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 Wednesday, May 17,
2000 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 14, 2000, the record date for determination of stockholders
entitled to vote at the Meeting, there were outstanding and entitled to vote
an aggregate of 6,334,222 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, 1999
are being mailed to stockholders on or about April 24, 2000.
A copy of the Company's Annual Report on Form 10-K, as filed with the
Securities and Exchange Commission, except for exhibits, will be furnished
without charge to any stockholder upon written request of the Secretary,
Gensym Corporation, 125 CambridgePark Drive, Cambridge, Massachusetts 02140.
<PAGE>
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of January 31, 2000,
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 former Chief
Executive Officer, and the Company's four other most highly compensated
executive officers who were serving as executive officers on December 31, 1999
(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).............. 388,000 6.3%
1299 Ocean Avenue
11th Floor
Santa Monica, CA 90401
Special Situations Fund III, L.P.(4)........... 516,000 8.5%
MGP Advisors Limited Partnership(4)............ 516,000 8.5%
Special Situations Cayman Fund, L.P.(4)........ 184,400 3.0%
AWM Investment Company, Inc.(4)................ 184,400 3.0%
Austin W. Marxe(4)............................. 700,400 11.6%
David M. Greenhouse(4)......................... 700,400 11.6%
c/o AWM Investment Company, Inc.
153 E. 53 Street, 51st Floor
New York, NY 10022
Edward Fredkin(5).............................. 389,600 6.24%
Hyslop Road
Brookline, MA
Johan H. Magnusson(6).......................... 343,950 5.58%
c/o Rocket Software, Inc.
2 Apple Hill Drive
Natick, MA 01760
Lowell B. Hawkinson(7)......................... 440,000 7.05%
Robert L. Moore................................ 332,000 5.32%
Patrick Courtin(8)(9).......................... 13,000 *
John A. Shane(10).............................. 43,098 *
Theodore G. Johnson............................ 203,675 3.26%
Thomas E. Swithenbank(11)...................... 15,800 *
Mark H. Whitworth(8)(12)....................... 39,016 *
William H. Wood(8)(13)......................... 25,066 *
Barry R. Gorsun(9)............................. 13,000 *
Robert A. Degan(9)............................. 13,000 *
Carl Davies(8)(14)............................. 24,460 *
All executive officers and directors as a group
(11 persons)(15).............................. 1,162,115 18.61%
</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, 2000 through the exercise of any stock option or other
right. The inclusion herein of such shares, however, does not constitute
an admission
2
<PAGE>
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 6,243,265 shares
outstanding as of January 31, 2000 plus any shares subject to options
held by the person in question which are currently exercisable or
exercisable within 60 days after January 31, 2000.
(3) The information reported is based on a Schedule 13G, dated February 3,
2000, filed with the Securities and Exchange Commission on February 3,
2000 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) The information is based on a Schedule 13D/A, dated December 10, 1999,
filed with the Securities and Exchange Commission on December 10, 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"), Austin W. Marxe and David
M. Greenhouse. AWM is the general partner of MGP. SSF III and MGP
beneficially own 516,000 shares, and the Cayman Fund and AWM
beneficially own 184,400 shares. Messrs. Marxe and Greenhouse have sole
voting power and sole dispositive power over the 516,000 shares
beneficially owned by SSF III and MGP and the 184,400 shares
beneficially owned by the Cayman Fund and AWM, are 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 700,400
shares. AWM is the general partner of MGP and the general partner of and
investment adviser to the Cayman Fund.
(5) The information is as of February 15, 2000 and is based upon information
provided to the Company on April 19, 2000 by a representative of Mr.
Fredkin.
(6) The information reported is based on a Schedule 13G, dated January 24,
2000, filed with the Securities and Exchange Commission on January 24,
2000 by Johan H. Magnusson.
(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 shares held by Mr. Hawkinson's spouse, as to
which shares Mr. Hawkinson disclaims beneficial ownership.
(8) The business address of the stockholder is c/o Gensym Corporation, 125
CambridgePark Drive, Cambridge, MA 02140.
(9) Represents shares of Common Stock subject to outstanding stock options.
(10) 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 30,300 shares of Common Stock subject to
outstanding stock options.
(11) Includes 11,800 shares of Common Stock subject to outstanding stock
options.
(12) Includes 16,720 shares of Common Stock subject to outstanding stock
options.
(13) Includes 5,280 shares of Common Stock subject to outstanding stock
options.
(14) Includes 19,460 shares of Common Stock subject to outstanding stock
options.
(15) Includes 83,560 shares of Common Stock subject to outstanding stock
options.
3
<PAGE>
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 approval of the amendment to the Company's 1995 Employee Stock Purchase
Plan, the approval of the Company's 2000 Stock Incentive Plan and 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.
Shane and Swithenbank (Class I Directors) will expire at this Annual Meeting
of Stockholders; the terms of Messrs. Hawkinson and Johnson (Class II
Directors) will expire at the 2001 Annual Meeting of Stockholders; and the
terms of Messrs. Courtin, Degan and Gorsun (Class III Directors) will expire
at the 2002 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 I
Directors, Messrs. Shane and Swithenbank, the director nominees named below,
unless the proxy is marked otherwise. Messrs. Shane and Swithenbank are
currently directors of the Company.
Each Class I Director will be elected to hold office until the Annual
Meeting of Stockholders held in 2003 and until his successor is elected and
qualified. The nominees have indicated their willingness to serve, if elected;
however, if any nominee should be unable to serve, the person acting under the
proxy may vote the proxy for a substitute nominee. The Board of Directors has
no reason to believe that either of the nominees will be unable to serve if
elected.
For each member of the Board of Directors and the director nominees for
election as Class I Directors, there follows information given by each
concerning his principal occupation and business experience for the past five
years, the names of other publicly held companies of which he serves as a
director, his age and length of service as a director of the Company.
4
<PAGE>
Nominees for Terms Expiring in 2003 (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............... 67 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 the New England
Investment Company's Family of
Mutual Funds.
Thomas E. Swithenbank....... 55 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 served as an executive
vice president of Pegasystems,
Inc., a developer of
communications software products,
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 Directors)
<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......... 57 Mr. Hawkinson served as Chairman of 1986
the Board, Chief Executive
Officer, Treasurer and Secretary
of the Company from September 1986
to October 1999. Since November
1999, Mr. Hawkinson has served as
an independent consultant. Mr.
Hawkinson is also a director of
Genrad, Inc.
Theodore G. Johnson......... 68 Mr. Johnson has been an independent 1986
venture investor since 1982. Mr.
Johnson is also a director of
Candela Corporation and a number
of privately held corporations.
</TABLE>
5
<PAGE>
Directors Whose Terms Expire 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 November 1, 1999, Mr. Courtin 1999
has served as Chairman, President
and Chief Executive Officer of the
Company. From February 1996 to May
1999, Mr. Courtin served as
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., a
provider of wireless
communications products, and
senior vice president of Spar
Aerospace.
Robert A. Degan............. 61 Mr. Degan has been a private 1999
investor since January 2000. From
November 1998 to December 1999,
Mr. Degan served as General
Manager of the Enhanced Services &
Migration Unit (formerly, Summa
Four, Inc.) of Cisco Systems, Inc.
From July 1998 to November 1998,
Mr. Degan was chairman, 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
FlexiInternational Software, Inc.,
Lancast, Inc. and Overland Data,
Inc.
Barry R. Gorsun............. 57 Mr. Gorsun joined Summa Four, Inc. 1998
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 July 1998. Prior
to joining Summa Four, Mr. Gorsun
was vice president of Analogic
Corporation.
</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 15 times during 1999. 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 stock option grants pursuant
to the Company's employee stock plans. The Compensation Committee met 6 times
during 1999. The members of the Compensation Committee are Messrs. Degan,
Shane and Gorsun.
6
<PAGE>
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 3 meetings during 1999. The members of the Audit Committee are
Messrs. Degan, Shane and Swithenbank.
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 for the next fiscal year, 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 26. The members of the Corporate Governance Committee are
Messrs. Gorsun, Courtin, Johnson and Shane.
Director Compensation
Directors who are not employees of the Company receive $12,000 annually,
plus $1,000 for physical attendance at each meeting of the Board of Directors
and $500 for participation in a Board meeting telephonically. Non-employee
directors also receive a $1,500 quarterly retainer for each committee on which
the director serves. Non-employee directors are eligible to receive stock
options under the Company's 1995 Director Stock Option Plan, and all directors
are eligible to receive stock options under the Company's 1994 Stock Option
Plan and 1997 Stock Incentive Plan. If approved, all directors will be
eligible to receive stock options under the Company's 2000 Stock Incentive
Plan.
Upon their initial election as a director, each non-employee director is
granted a nonstatutory option for the purchase of 3,000 shares of the
Company's Common Stock. On June 30 of each year, each non-employee director
receives a nonstatutory option for the purchase of 10,000 shares of the
Company's Common Stock. In addition to the foregoing option grants, on October
29, 1999, Mr. Shane was granted an option for the purchase of 1,500 shares of
the Company's Common Stock in recognition of his services in leading the CEO
Search Committee. All options granted to directors are granted at an exercise
price equal to the fair market value of the Company's Common Stock on the date
of the grant and are immediately exercisable.
7
<PAGE>
Compensation of Executive Officers
The following table sets forth certain information with respect to the
annual and long-term compensation earned for each of the last three years of
the Company's Chief Executive Officer, former Chief Executive Officer and the
other Named Executive Officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
------------
Annual Compensation(1) Awards
--------------------------- ------------
Securities All Other
Name and Principal Underlying Compensation
Position Year Salary ($) Bonus ($) Options(#) ($)(2)
------------------ ---- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Patrick Courtin (3)....... 1999 $ 45,000 -- 463,000 $ 3,393
President and Chief
Executive Officer
Lowell B. Hawkinson (4)... 1999 234,051 $ 18,490 -- 14,861
Former Chief Executive 1998 231,250 -- -- 21,450
Officer 1997 220,000 -- -- 15,124
Robert L. Moore (5)....... 1999 194,167 -- -- 13,702
Senior Vice President 1998 207,500 -- -- 18,101
1997 200,000 -- -- 12,925
William H. Wood........... 1999 184,167 53,460 6,000 12,143
Senior Vice President, 1998 183,125 30,000 3,000 111,135
Communications Business 1997 139,327 10,000 40,000 114,060
Unit and Corporate
Marketing
Mark H. Whitworth......... 1999 150,000 149,023 6,000 8,771
Vice President, Advanced 1998 147,500 -- 27,200 12,718
Systems Business Unit 1997 140,000 -- 12,000 6,571
Carl Davies .............. 1999 132,312 21,893 10,000 9,537
Vice President and 1998 134,698 22,600 -- 21,394
Managing 1997 132,718 30,611 -- 21,079
Director, EMA
</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. Courtin, Mr. Hawkinson, Dr. Moore and Messrs. Wood,
Whitworth and Davies under the Company's 401(k) Plan in the amounts of $0,
$3,619, $3,646, $0, $4,155 and $0, respectively, for fiscal 1999; (b)
payments for health and dental benefits, life insurance, and long and
short term disability insurance made by the Company for Mr. Courtin, Mr.
Hawkinson, Dr. Moore and Messrs. Wood, Whitworth and Davies in the amounts
of $3,393, $11,242, $10,056, $12,143, $4,616 and $0, respectively, for
fiscal 1999; and (c) payments of $9,537 made by the Company to Mr. Davies
for an automobile lease.
(3) Mr. Courtin joined the Company in November 1999.
(4) Mr. Hawkinson resigned as Chief Executive Officer in October 1999.
(5) Mr. Moore resigned as Senior Vice President on March 31, 2000.
8
<PAGE>
Option Grant Table
The following table sets forth certain information regarding options granted
during the fiscal year ended December 31, 1999 by the Company to the Named
Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
-------------------------------------------------------------------------------
Potential Realizable
Value at
Assumed Annual
Number of Rates of Stock
Securities Percent of Total Price Appreciation
Underlying Options Granted to Exercise or for Option Term(4)
Options Employees In Base Price Expiration ---------------------
Name Granted (#)(1) Fiscal Year(2) ($/Sh)(3) Date 5%($) 10%($)
- ---- -------------- ------------------- ----------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Patrick Courtin......... 13,000 2.0% $3.938 05/21/09 $ 32,196 $ 81,590
88,889 13.5% 3.375 11/01/09 188,669 478,123
361,111 55% 3.250 10/31/09 738,077 1,870,433
Lowell B. Hawkinson..... -- -- -- -- -- --
Robert L. Moore......... -- -- -- -- -- --
William H. Wood......... 6,000 0.9% 3.875 05/27/09 14,622 37,055
Mark H. Whitworth....... 6,000 0.9% 3.875 05/27/09 14,622 37,055
Carl Davies............. 10,000 1.5% 3.875 05/27/09 24,370 61,758
</TABLE>
- --------
(1) Represents options granted pursuant to the Company's stock incentive
plans. The newly granted options are exercisable in three equal
installments commencing on the first anniversary of the date of grant of
the option.
(2) Calculated based on an aggregate of 656,320 options granted to all
employees and directors under all of the Company's stock plans during
fiscal 1999.
(3) The exercise price is equal to the fair market value of the Company's
Common Stock on the date of the 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 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.
9
<PAGE>
Year-End Option Table
The following table summarizes certain information regarding stock option
exercises by each of the Named Executive Officers during 1999 and stock
options held as of December 31, 1999 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
Number Underlying In-the-Money
of Unexercised Options
Shares Options at at Fiscal
Acquired Fiscal Year-End Year-End
on Value (Exercisable/ (Exercisable/
Exercise Realized Unexercisable) Unexercisable)
Name (#) ($) (#) ($)(1)
---- -------- -------- ---------------- --------------
<S> <C> <C> <C> <C>
Patrick Courtin.............. -- -- 13,000/0 23,530/0
0/88,889 0/210,667
0/361,111 0/902,778
Lowell B. Hawkinson.......... -- -- -- --
Robert L. Moore.............. -- -- -- --
William H. Wood.............. -- -- 4,000/6,000 3,480/5,220
14,400/12,000 21,312/17,760
0/6,000 0/11,220
Mark H. Whitworth............ -- -- 18,640/8,560 27,587/12,669
0/6,000 0/11,200
10,360/9,000 19,373/16,830
Carl Davies.................. -- -- 0/10,000 0/18,700
</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,
1999 ($5.75) and the exercise price of the option, multiplied by the
number of shares subject to the option.
Employment Contracts and Termination of Employment Arrangements
In October 1999, the Company entered into an employment agreement with
Patrick Courtin. Under the terms of that agreement, Mr. Courtin receives an
annual base salary of $270,000 and is eligible to receive an annual
performance bonus of up to 50% of his annual base salary. The agreement
provides that Mr. Courtin's employment may be terminated by either party upon
thirty days notice, except that Mr. Courtin may be terminated by the Company
immediately for cause (as defined in the agreement). If Mr. Courtin's
employment is terminated by the Company for cause, or if Mr. Courtin resigns
without cause or good reason (as defined in the agreement), he is entitled to
receive salary and benefits through his last day of employment. In the event
that Mr. Courtin's employment is terminated by the Company without cause, or
if he resigns for good reason, Mr. Courtin is entitled to receive his base
salary and benefits for a period of up to eighteen months following
termination. Pursuant to the agreement, the Company granted Mr. Courtin
options to purchase up to 450,000 shares of Common Stock, which vest in three
equal installments commencing November 1, 2000.
In June 1999, the Company entered into a Severance and Settlement Agreement
and Release with Lowell Hawkinson. Mr. Hawkinson resigned as Chief Executive
Officer of the Company in October 1999. Under the terms of the agreement, Mr.
Hawkinson is entitled to receive his base salary and benefits for a period of
24 months following the termination of his employment. In the event of Mr.
Hawkinson's death during that period, payments will continue to be made to his
estate. If Mr. Hawkinson obtains new employment during the severance
10
<PAGE>
period, the amount of severance pay will be reduced by the amount of cash
compensation earned or received during the severance period for such new
employment.
In October 1999, the Company entered into an Amended Severance Benefits
Agreement with Robert Moore. Dr. Moore resigned from the Company on March 31,
2000. Pursuant to the agreement, Dr. Moore is entitled to receive his base
salary and certain other benefits for a period of twelve months, and up to an
additional six months if he has not obtained new employment within twelve
months after his separation from the Company.
In September 1999, the Company entered into a Severance Benefits Agreement
with each of Messrs. Wood, Whitworth and Davies. In the event that any of the
foregoing officers are terminated without cause (as defined in the
agreements), the agreements provide that such officer is entitled to receive
his base salary and certain other benefits from the Company for a period of
six months following termination.
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 President and Chief Executive
Officer, and the other 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
addition, during 1999, as in 1998 and 1997, 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.
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.
11
<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 1999 at $215,000. Mr. Hawkinson resigned as Chief
Executive Officer in October 1999 and was replaced by Mr. Courtin. The
Compensation Committee set Mr. Courtin's annualized salary for 1999 at
$270,000. The Compensation Committee believes that Mr. Hawkinson's and Mr.
Courtin's base salaries were 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 certain 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, other than stock option
issuances, as a performance-based plan, it will continue to monitor the impact
of Section 162(m) on the Company.
Compensation Committee
Robert A. Degan
John A. Shane
Barry R. Gorsun
Compensation Committee Interlocks and Insider Participation
The current members of the Company's Compensation Committee are Messrs.
Degan, Shane 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.
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 1999
all filings required to be made by its Reporting Persons were timely made in
accordance with the requirements of the Exchange Act, except for Forms 3 filed
on behalf of Mr. Degan and Mr. Courtin on June 22, 1999, Form 3 filed on
behalf of Mr. Davies on February 2, 1999, and Forms 5 filed on behalf of Mr.
Courtin and Mr. Davies on March 10, 2000.
12
<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, 1999 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.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
2/16/96 12/31/96 12/31/97 12/31/98 12/31/99
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Gensym......................... $100 $ 79 $ 30 $ 21 $ 38.02
Nasdaq Composite Index......... $100 $119 $146 $205 $575.61
Nasdaq Computer & Data
Processing Services........... $100 $120 $147 $262 $374.86
</TABLE>
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 December 31, 1999, 45,383 shares were available for future purchase under
the Company's 1995 Employee Stock Purchase Plan (the "Purchase Plan").
Accordingly, on April 6, 2000, the Board of Directors adopted, subject to
stockholder approval, an amendment to the Purchase Plan that increased from
500,000 to 700,000 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 IN FAVOR of 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
participating subsidiary
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<PAGE>
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
may not be granted an option under the Purchase Plan. As of March 31, 2000,
approximately 214 of the Company's employees were eligible to participate in
the Purchase Plan.
On April 14, 2000, the last reported sale price of the Company's Common
Stock on the Nasdaq National Market was $5.12 per share.
On the first day of an Offering Period (an "Offering Date"), the Company
grants 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 compensation 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's employment is terminated before 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 1999, Mr. Whitworth and Mr. Davies purchased 7,398
shares and 1,587 shares, respectively, under the Purchase Plan. No other
executive officer of the Company purchased shares under the Purchase Plan. All
employees of the Company, excluding executive officers of the Company,
purchased an aggregate of 154,156 shares under the Purchase Plan. Directors
who are not employees of the Company are not eligible to participate in the
Purchase Plan.
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 made 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.
14
<PAGE>
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 -- APPROVAL OF 2000 STOCK INCENTIVE PLAN
On April 6, 2000, the Board of Directors of the Company adopted, subject to
stockholder approval, the 2000 Stock Incentive Plan (the "2000 Plan"). Up to
800,000 shares of Common Stock (subject to adjustment in the event of stock
splits and other similar events) may be issued pursuant to awards granted
under the 2000 Plan. The Board of Directors believes that the future success
of the Company depends, in large part, upon the ability of the Company to
maintain a competitive position in attracting, retaining and motivating key
personnel.
The board of directors believes adoption of the 2000 Plan is in the best
interests of the Company and its stockholders and recommends a vote IN FAVOR
of this proposal.
Summary of the 2000 Plan
The following is a brief summary of the material terms of the 2000 Plan.
Description of Awards
The 2000 Plan provides for the grant of incentive stock options intended to
qualify under Section 422 of the Code, nonstatutory stock options, restricted
stock awards and other stock-based awards, including the grant of shares based
upon certain conditions, the grant of securities convertible into Common Stock
and the grant of stock appreciation rights (collectively "Awards").
15
<PAGE>
Incentive Stock Options and Nonstatutory Stock Options. Optionees receive
the right to purchase a specified number of shares of Common Stock at a
specified option price and subject to such other terms and conditions as are
specified in connection with the option grant. All stock options granted under
the plan must be granted at an exercise price equal to or greater than the
fair market value of the Company's Common Stock on the date of the grant.
Under present law, incentive stock options and options intended to qualify as
performance-based compensation under Section 162(m) of the Code may not be
granted at an exercise price less than the fair market value of the Common
Stock on the date of grant (or less than 110% of the fair market value in the
case of incentive stock options granted to optionees holding more than 10% of
the voting power of the Company). The 2000 Plan permits the Board to determine
the manner of payment of the exercise price of options, including through
payment by cash, check or in connection with a "cashless exercise" through a
broker, by surrender to the Company of shares of Common Stock, by delivery to
the Company of a promissory note, or by any other lawful means. No option
issued under the 2000 Plan may be repriced, replaced or regranted through
cancellation, or by lowering the option exercise price of a previously granted
Award, without the prior approval of the stockholders of the Company.
Restricted Stock Awards. Restricted stock Awards entitle recipients to
acquire shares of Common Stock, subject to the right of the Company to
repurchase all or part of such shares from the recipient in the event that the
conditions specified in the applicable Award are not satisfied prior to the
end of the applicable restriction period established for such Award.
Other Stock-Based Awards. Under the 2000 Plan, the Board has the right to
grant other Awards based upon the Common Stock having such terms and
conditions as the Board may determine, including the grant of shares based
upon certain conditions, the grant of securities convertible into Common Stock
and the grant of stock appreciation rights.
Eligibility to Receive Awards
Officers, employees, directors, consultants and advisors of the Company and
its subsidiaries are eligible to be granted Awards under the 2000 Plan. Under
present law, however, incentive stock options may only be granted to
employees. The maximum number of shares with respect to which an Award may be
granted to any participant under the 2000 Plan may not exceed 150,000 shares
per calendar year.
As of March 31, 2000, approximately 220 persons would have been eligible to
receive Awards under the 2000 Plan, including the Company's six executive
officers and six non-employee directors. The granting of Awards under the 2000
Plan is discretionary, and the Company cannot now determine the number or type
of Awards to be granted in the future to any particular person or group.
On April 14, 2000, the last reported sale price of the Company's Common
Stock on the Nasdaq National Market was $5.12 per share.
Administration
The 2000 Plan is administered by the Board of Directors. The Board has the
authority to adopt, amend and repeal the administrative rules, guidelines and
practices relating to the 2000 Plan and to interpret the provisions of the
2000 Plan. Pursuant to the terms of the 2000 Plan, the Board of Directors may
delegate authority under the 2000 Plan to one or more committees of the Board.
The Board has authorized the Compensation Committee to administer certain
aspects of the 2000 Plan, including the granting of options to executive
officers. Subject to any applicable limitations contained in the 2000 Plan,
the Board of Directors, the Compensation Committee, or any other committee or
executive officer to whom the Board delegates authority, as the case may be,
selects the recipients of Awards and determines (i) the number of shares of
Common Stock covered by options and the dates upon which such options become
exercisable, (ii) the exercise price of options, (iii) the duration of
options, and (iv) the number of shares of Common Stock subject to any
restricted stock or other stock-based Awards and the terms and conditions of
such Awards, including conditions for repurchase, issue price and repurchase
price.
16
<PAGE>
The Board of Directors is required to make appropriate adjustments in
connection with the 2000 Plan and any outstanding Awards to reflect stock
dividends, stock splits and certain other events. In the event of a merger,
liquidation or other Acquisition Event (as defined in the 2000 Plan), the
Board of Directors is required to provide for outstanding options or other
stock-based Awards to be assumed or substituted for by the surviving or
acquiring corporation, to accelerate the Awards to make them fully exercisable
prior to consummation of the Acquisition Event or to provide for a cash out of
the value of any outstanding options. If any Award expires or is terminated,
surrendered, canceled or forfeited, the unused shares of Common Stock covered
by such Award will again be available for grant under the 2000 Plan.
Amendment or Termination
No Award may be made under the 2000 Plan after April 5, 2010, but Awards
previously granted may extend beyond that date. The Board of Directors may at
any time amend, suspend or terminate the 2000 Plan, except that no Award
designated as subject to Section 162(m) of the Code by the Board of Directors
after the date of such amendment shall become exercisable, realizable or
vested (to the extent such amendment was required to grant such Award) unless
and until such amendment shall have been approved by the Company's
stockholders.
Federal Income Tax Consequences
The following is a summary of the United States federal income tax
consequences that generally will arise with respect to Awards granted under
the 2000 Plan and with respect to the sale of Common Stock acquired under the
2000 Plan.
Incentive Stock Options. In general, a participant will not recognize
taxable income upon the grant or exercise of an incentive stock option.
Instead, a participant will recognize taxable income with respect to an
incentive stock option only upon the sale of Common Stock acquired through the
exercise of the option ("ISO Stock"). The exercise of an incentive stock
option, however, may subject the participant to the alternative minimum tax.
Generally, the tax consequences of selling ISO Stock will vary with the
length of time that the participant has owned the ISO Stock at the time it is
sold. If the participant sells ISO Stock after having owned it for at least
two years from the date the option was granted (the "Grant Date") and one year
from the date the option was exercised (the "Exercise Date"), then the
participant will recognize long-term capital gain in an amount equal to the
excess of the sale price of the ISO Stock over the exercise price.
If the participant sells ISO Stock for more than the exercise price prior to
having owned it for at least two years from the Grant Date and one year from
the Exercise Date (a "Disqualifying Disposition"), then all or a portion of
the gain recognized by the participant will be ordinary compensation income
and the remaining gain, if any, will be a capital gain. This capital gain will
be a long-term capital gain if the participant has held the ISO Stock for more
than one year prior to the date of sale.
If a participant sells ISO Stock for less than the exercise price, then the
participant will recognize capital loss in an amount equal to the excess of
the exercise price over the sale price of the ISO Stock. This capital loss
will be a long-term capital loss if the participant has held the ISO Stock for
more than one year prior to the date of sale.
Nonstatutory Stock Options. As in the case of an incentive stock option, a
participant will not recognize taxable income upon the grant of a nonstatutory
stock option. Unlike the case of an incentive stock option, however, a
participant who exercises a nonstatutory stock option generally will recognize
ordinary compensation income in an amount equal to the excess of the fair
market value of the Common Stock acquired through the exercise of the option
("NSO Stock") on the Exercise Date over the exercise price.
With respect to any NSO Stock, a participant will have a tax basis equal to
the exercise price plus any income recognized upon the exercise of the option.
Upon selling NSO Stock, a participant generally will
17
<PAGE>
recognize capital gain or loss in an amount equal to the difference between
the sale price of the NSO Stock and the participant's tax basis in the NSO
Stock. This capital gain or loss will be a long-term gain or loss if the
participant has held the NSO Stock for more than one year prior to the date of
the sale.
Restricted Stock Awards. A participant will not recognize taxable income
upon the grant of a restricted stock Award, unless the participant makes an
election under Section 83(b) of the Code (a "Section 83(b) Election"). If the
participant makes a Section 83(b) Election within 30 days of the date of the
grant, then the participant will recognize ordinary compensation income, for
the year in which the Award is granted, in an amount equal to the difference
between the fair market value of the Common Stock at the time the Award is
granted and the purchase price paid for the Common Stock. If a Section 83(b)
Election is not made, then the participant will recognize ordinary
compensation income, at the time that the forfeiture provisions or
restrictions on transfer lapse, in an amount equal to the difference between
the fair market value of the Common Stock at the time of such lapse and the
original purchase price paid for the Common Stock. The participant will have a
basis in the Common Stock acquired equal to the sum of the price paid and the
amount of ordinary compensation income recognized.
Upon the disposition of the Common Stock acquired pursuant to a restricted
stock Award, the participant will recognize a capital gain or loss in an
amount equal to the difference between the sale price of the Common Stock and
the participant's basis in the Common Stock. This capital gain or loss will be
a long-term capital gain or loss if the shares are held for more than one
year.
Other Stock-Based Awards. The tax consequences associated with any other
stock-based Award granted under the 2000 Plan will vary depending on the
specific terms of such Award. Among the relevant factors are whether or not
the Award has a readily ascertainable fair market value, whether or not the
Award is subject to forfeiture provisions or restrictions on transfer, the
nature of the property to be received by the participant under the Award and
the participant's holding period and tax basis for the Award or underlying
Common Stock.
Tax Consequences to the Company
The grant of an Award under the 2000 Plan will have no tax consequences to
the Company. Moreover, in general, neither the exercise of an incentive stock
option nor the sale of any Common Stock acquired under the 2000 Plan will have
any tax consequences to the Company. The Company generally will be entitled to
a business-expense deduction, however, with respect to any ordinary
compensation income recognized by a participant under the 2000 Plan, including
in connection with a restricted stock award or as a result of the exercise of
a nonstatutory stock option or a Disqualifying Disposition. Any such deduction
will be subject to the limitations of Section 162(m) of the Code.
PROPOSAL 4 -- RATIFICATION OF THE APPOINTMENT OF AUDITORS
The Board of Directors has selected Arthur Andersen LLP as auditors of the
Company for the year ending December 31, 2000, 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, 1999, 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 2001 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 of Stockholders
must be received by the Company at its offices, 125 CambridgePark Drive,
Cambridge, MA 02140, no later than December 26, 2000 in order to be considered
for inclusion in the Proxy Statement relating
18
<PAGE>
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 2001 Annual Meeting.
The advance notice provisions of the Company's By-Laws supersede the notice
requirements contained in recent amendments to Rule 14a-4. 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, regular employees
and CIC Corporation, a professional proxy solicitation firm, may solicit
proxies by telephone, telegraph, facsimile and personal interviews. No
additional compensation will be paid to directors, officers or regular
employees, but the Company will pay CIC Corporation a fee of approximately
$5,000 for its solicitation services. 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,
John K. P. Stone, III
Secretary
April 24, 2000
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.
19
<PAGE>
Appendix A
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.
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.
<PAGE>
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 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
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<PAGE>
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
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
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<PAGE>
(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.
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
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<PAGE>
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
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.
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<PAGE>
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
Approved by the stockholders on January 16, 1996
-6-
<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
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<PAGE>
GENSYM CORPORATION
AMENDMENT NO. 2 TO
1995 EMPLOYEE STOCK PURCHASE PLAN
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 May 20, 1998.
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<PAGE>
Appendix B
GENSYM CORORATION
-----------------
2000 STOCK INCENTIVE PLAN
-------------------------
1. Purpose
-------
The purpose of this 2000 Stock Incentive Plan (the "Plan") of Gensym
Corporation, a Delaware corporation (the "Company"), is to advance the interests
of the Company's stockholders by enhancing the Company's ability to attract,
retain and motivate persons who make (or are expected to make) important
contributions to the Company by providing such persons with equity ownership
opportunities and performance-based incentives and thereby better aligning the
interests of such persons with those of the Company's stockholders. Except
where the context otherwise requires, the term "Company" shall include any of
the Company's present or future subsidiary corporations as defined in Section
424(f) of the Internal Revenue Code of 1986, as amended, and any regulations
promulgated thereunder (the "Code") and any other business venture (including,
without limitation, joint venture or limited liability company) in which the
Company has a significant interest, as determined by the Board of Directors of
the Company (the "Board").
2. Eligibility
-----------
All of the Company's employees, officers, directors, consultants and
advisors (and any individuals who have accepted an offer for employment) are
eligible to be granted options, restricted stock awards, or other stock-based
awards (each, an "Award") under the Plan. Each person who has been granted an
Award under the Plan shall be deemed a "Participant".
3. Administration, Delegation
--------------------------
(a) Administration by Board of Directors. The Plan will be administered
by the Board. The Board shall have authority to grant Awards and to adopt, amend
and repeal such administrative rules, guidelines and practices relating to the
Plan as it shall deem advisable. The Board may correct any defect, supply any
omission or reconcile any inconsistency in the Plan or any Award in the manner
and to the extent it shall deem expedient to carry the Plan into effect and it
shall be the sole and final judge of such expediency. All decisions by the Board
shall be made in the Board's sole discretion and shall be final and binding on
all persons having or claiming any interest in the Plan or in any Award. No
director or person acting pursuant to the authority delegated by the Board shall
be liable for any action or determination relating to or under the Plan made in
good faith.
(b) Appointment of Committees. To the extent permitted by applicable law, the
Board may delegate any or all of its powers under the Plan to one or more
committees or subcommittees of the Board (a "Committee"). All references in the
Plan to the "Board" shall mean the Board or a Committee of the Board to the
extent that the Board's powers or authority under the Plan have been delegated
to such Committee.
<PAGE>
4. Stock Available for Awards
--------------------------
(a) Number of Shares. Subject to adjustment under Section 8, Awards may be
made under the Plan for up to 800,000 shares of common stock, $.01 par value per
share, of the Company (the "Common Stock"). If any Award expires or is
terminated, surrendered or canceled without having been fully exercised or is
forfeited in whole or in part or results in any Common Stock not being issued,
the unused Common Stock covered by such Award shall again be available for the
grant of Awards under the Plan, subject, however, in the case of Incentive Stock
Options (as hereinafter defined), to any limitation required under the Code.
Shares issued under the Plan may consist in whole or in part of authorized but
unissued shares or treasury shares.
(b) Per-Participant Limit. Subject to adjustment under Section 8, for Awards
granted after the Common Stock is registered under the Securities Exchange Act
of 1934 (the "Exchange Act"), the maximum number of shares of Common Stock with
respect to which Awards may be granted to any Participant under the Plan shall
be 150,000 per calendar year. The per-Participant limit described in this
Section 4(b) shall be construed and applied consistently with Section 162(m) of
the Code ("Section 162(m)").
5. Stock Options
-------------
(a) General. The Board may grant options to purchase Common Stock (each, an
"Option") and determine the number of shares of Common Stock to be covered by
each Option, the exercise price of each Option and the conditions and
limitations applicable to the exercise of each Option, including conditions
relating to applicable federal or state securities laws, as it considers
necessary or advisable. An Option which is not intended to be an Incentive Stock
Option (as hereinafter defined) shall be designated a "Nonstatutory Stock
Option". Notwithstanding anything contained herein to the contrary, without the
prior approval of the Company's shareholders, no option issued hereunder shall
be repriced, replaced or regranted through cancellation, or by lowering the
option exercise price of a previously granted award.
(b) Incentive Stock Options. An Option that the Board intends to be an
"incentive stock option" as defined in Section 422 of the Code (an "Incentive
Stock Option") shall only be granted to employees of the Company and shall be
subject to and shall be construed consistently with the requirements of Section
422 of the Code. The Company shall have no liability to a Participant, or any
other party, if an Option (or any part thereof) which is intended to be an
Incentive Stock Option is not an Incentive Stock Option.
(c) Exercise Price. The Board shall establish the exercise price at the time
each Option is granted at not less than 100% of the fair market value of the
shares of Common Stock, as determined by the Board, at such time, and shall
specify that exercise price in the applicable option agreement.
(d) Duration of Options. Each Option shall be exercisable at such times and
subject to such terms and conditions as the Board may specify in the applicable
option agreement, provided, however, that no Option will be granted for a term
in excess of 10 years.
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<PAGE>
(e) Exercise of Option. Options may be exercised by delivery to the Company
of a written notice of exercise signed by the proper person or by any other form
of notice (including electronic notice) approved by the Board together with
payment in full as specified in Section 5(f) for the number of shares for which
the Option is exercised.
(f) Payment Upon Exercise. Common Stock purchased upon the exercise of an
Option granted under the Plan shall be paid for as follows:
(1) in cash or by check, payable to the order of the Company;
(2) except as the Board may, in its sole discretion, otherwise provide
in an option agreement, by (i) delivery of an irrevocable and unconditional
undertaking by a creditworthy broker to deliver promptly to the Company
sufficient funds to pay the exercise price or (ii) delivery by the Participant
to the Company of a copy of irrevocable and unconditional instructions to a
creditworthy broker to deliver promptly to the Company cash or a check
sufficient to pay the exercise price;
(3) when the Common Stock is registered under the Exchange Act, by
delivery of shares of Common Stock owned by the Participant valued at their fair
market value as determined by (or in a manner approved by) the Board in good
faith ("Fair Market Value"), provided (i) such method of payment is then
permitted under applicable law and (ii) such Common Stock was owned by the
Participant at least six months prior to such delivery;
(4) to the extent permitted by the Board, in its sole discretion by
(i) delivery of a promissory note of the Participant to the Company on terms
determined by the Board, or (ii) payment of such other lawful consideration as
the Board may determine; or
(5) by any combination of the above permitted forms of payment.
(g) Substitute Options. In connection with a merger or consolidation of
an entity with the Company or the acquisition by the Company of property or
stock of an entity, the Board may grant Options in substitution for any options
or other stock or stock-based awards granted by such entity or an affiliate
thereof. Substitute Options may be granted on such terms as the Board deems
appropriate in the circumstances, notwithstanding any limitations on Options
contained in the other sections of this Section 5.
6. Restricted Stock
----------------
(a) Grants. The Board may grant Awards entitling recipients to acquire
shares of Common Stock, subject to the right of the Company to repurchase all or
part of such shares at their issue price or other stated or formula price (or to
require forfeiture of such shares if issued at no cost) from the recipient in
the event that conditions specified by the Board in the applicable Award are not
satisfied prior to the end of the applicable restriction period or periods
established by the Board for such Award (each, a "Restricted Stock Award").
(b) Terms and Conditions. The Board shall determine the terms and
conditions of any such Restricted Stock Award, including the conditions for
repurchase (or forfeiture) and the
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<PAGE>
issue price, if any. Any stock certificates issued in respect of a Restricted
Stock Award shall be registered in the name of the Participant and, unless
otherwise determined by the Board, deposited by the Participant, together with a
stock power endorsed in blank, with the Company (or its designee). At the
expiration of the applicable restriction periods, the Company (or such designee)
shall deliver the certificates no longer subject to such restrictions to the
Participant or if the Participant has died, to the beneficiary designated, in a
manner determined by the Board, by a Participant to receive amounts due or
exercise rights of the Participant in the event of the Participant's death (the
"Designated Beneficiary"). In the absence of an effective designation by a
Participant, Designated Beneficiary shall mean the Participant's estate.
7. Other Stock-Based Awards
------------------------
The Board shall have the right to grant other Awards based upon the Common
Stock having such terms and conditions as the Board may determine, including the
grant of shares based upon certain conditions, the grant of securities
convertible into Common Stock and the grant of stock appreciation rights.
8. Adjustments for Changes in Common Stock and Certain Other Events
----------------------------------------------------------------
(a) Changes in Capitalization. In the event of any stock split, reverse
stock split, stock dividend, recapitalization, combination of shares,
reclassification of shares, spin-off or other similar change in capitalization
or event, or any distribution to holders of Common Stock other than a normal
cash dividend, (i) the number and class of securities available under this Plan,
(ii) the per-Participant limit set forth in Section 4(b), (iii) the number and
class of securities and exercise price per share subject to each outstanding
Option, (iv) the repurchase price per share subject to each outstanding
Restricted Stock Award, and (v) the terms of each other outstanding Award shall
be appropriately adjusted by the Company (or substituted Awards may be made, if
applicable) to the extent the Board shall determine, in good faith, that such an
adjustment (or substitution) is necessary and appropriate. If this Section 8(a)
applies and Section 8(c) also applies to any event, Section 8(c) shall be
applicable to such event, and this Section 8(a) shall not be applicable.
(b) Liquidation or Dissolution. In the event of a proposed liquidation or
dissolution of the Company, the Board shall upon written notice to the
Participants provide that all then unexercised Options will (i) become
exercisable in full as of a specified time at least 10 business days prior to
the effective date of such liquidation or dissolution and (ii) terminate
effective upon such liquidation or dissolution, except to the extent exercised
before such effective date. The Board may specify the effect of a liquidation or
dissolution on any Restricted Stock Award or other Award granted under the Plan
at the time of the grant of such Award.
(c) Acquisition Events
------------------
(1) Definition. An "Acquisition Event" shall mean: (a) any merger or
consolidation of the Company with or into another entity as a result of which
the Common Stock is converted into or exchanged for the right to receive cash,
securities or other property or (b) any
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<PAGE>
exchange of shares of the Company for cash, securities or other property
pursuant to a statutory share exchange transaction.
(2) Consequences of an Acquisition Event on Options. Upon the occurrence
of an Acquisition Event, or the execution by the Company of any agreement with
respect to an Acquisition Event, the Board shall provide that all outstanding
Options shall be assumed, or equivalent options shall be substituted, by the
acquiring or succeeding corporation (or an affiliate thereof). For purposes
hereof, an Option shall be considered to be assumed if, following consummation
of the Acquisition Event, the Option confers the right to purchase, for each
share of Common Stock subject to the Option immediately prior to the
consummation of the Acquisition Event, the consideration (whether cash,
securities or other property) received as a result of the Acquisition Event by
holders of Common Stock for each share of Common Stock held immediately prior to
the consummation of the Acquisition Event (and if holders were offered a choice
of consideration, the type of consideration chosen by the holders of a majority
of the outstanding shares of Common Stock); provided, however, that if the
consideration received as a result of the Acquisition Event is not solely common
stock of the acquiring or succeeding corporation (or an affiliate thereof), the
Company may, with the consent of the acquiring or succeeding corporation,
provide for the consideration to be received upon the exercise of Options to
consist solely of common stock of the acquiring or succeeding corporation (or an
affiliate thereof) equivalent in fair market value to the per share
consideration received by holders of outstanding shares of Common Stock as a
result of the Acquisition Event.
Notwithstanding the foregoing, if the acquiring or succeeding corporation
(or an affiliate thereof) does not agree to assume, or substitute for, such
Options, then the Board shall, upon written notice to the Participants, provide
that all then unexercised Options will become exercisable in full as of a
specified time prior to the Acquisition Event and will terminate immediately
prior to the consummation of such Acquisition Event, except to the extent
exercised by the Participants before the consummation of such Acquisition Event;
provided, however, that in the event of an Acquisition Event under the terms of
which holders of Common Stock will receive upon consummation thereof a cash
payment for each share of Common Stock surrendered pursuant to such Acquisition
Event (the "Acquisition Price"), then the Board may instead provide that all
outstanding Options shall terminate upon consummation of such Acquisition Event
and that each Participant shall receive, in exchange therefor, a cash payment
equal to the amount (if any) by which (A) the Acquisition Price multiplied by
the number of shares of Common Stock subject to such outstanding Options
(whether or not then exercisable), exceeds (B) the aggregate exercise price of
such Options.
(3) Consequences of an Acquisition Event on Restricted Stock Awards. Upon
the occurrence of an Acquisition Event, the repurchase and other rights of the
Company under each outstanding Restricted Stock Award shall inure to the benefit
of the Company's successor and shall apply to the cash, securities or other
property which the Common Stock was converted into or exchanged for pursuant to
such Acquisition Event in the same manner and to the same extent as they applied
to the Common Stock subject to such Restricted Stock Award.
-5-
<PAGE>
(4) Consequences of an Acquisition Event on Other Awards. The Board shall
specify the effect of an Acquisition Event on any other Award granted under the
Plan at the time of the grant of such Award.
9. General Provisions Applicable to Awards
---------------------------------------
(a) Transferability of Awards. Except as the Board may otherwise determine
or provide in an Award, Awards shall not be sold, assigned, transferred, pledged
or otherwise encumbered by the person to whom they are granted, either
voluntarily or by operation of law, except by will or the laws of descent and
distribution, and, during the life of the Participant, shall be exercisable only
by the Participant. References to a Participant, to the extent relevant in the
context, shall include references to authorized transferees.
(b) Documentation. Each Award shall be evidenced by a written instrument
in such form as the Board shall determine. Each Award may contain terms and
conditions in addition to those set forth in the Plan.
(c) Board Discretion. Except as otherwise provided by the Plan, each Award
may be made alone or in addition or in relation to any other Award. The terms of
each Award need not be identical, and the Board need not treat Participants
uniformly.
(d) Termination of Status. The Board shall determine the effect on an
Award of the disability, death, retirement, authorized leave of absence or other
change in the employment or other status of a Participant and the extent to
which, and the period during which, the Participant, the Participant's legal
representative, conservator, guardian or Designated Beneficiary may exercise
rights under the Award.
(e) Withholding. Each Participant shall pay to the Company, or make
provision satisfactory to the Board for payment of, any taxes required by law to
be withheld in connection with Awards to such Participant no later than the date
of the event creating the tax liability. Except as the Board may otherwise
provide in an Award, when the Common Stock is registered under the Exchange Act,
Participants may, to the extent then permitted under applicable law, satisfy
such tax obligations in whole or in part by delivery of shares of Common Stock,
including shares retained from the Award creating the tax obligation, valued at
their Fair Market Value. The Company may, to the extent permitted by law, deduct
any such tax obligations from any payment of any kind otherwise due to a
Participant.
(f) Amendment of Award. Subject to the provisions of the last sentence of
Section 5(a) hereof, the Board may amend, modify or terminate any outstanding
Award, including but not limited to, substituting therefor another Award of the
same or a different type, changing the date of exercise or realization, and
converting an Incentive Stock Option to a Nonstatutory Stock Option, provided
that the Participant's consent to such action shall be required unless the Board
determines that the action, taking into account any related action, would not
materially and adversely affect the Participant.
(g) Conditions on Delivery of Stock. The Company will not be obligated to
deliver any shares of Common Stock pursuant to the Plan or to remove
restrictions from shares
-6-
<PAGE>
previously delivered under the Plan until (i) all conditions of the Award
have been met or removed to the satisfaction of the Company, (ii) in the opinion
of the Company's counsel, all other legal matters in connection with the
issuance and delivery of such shares have been satisfied, including any
applicable securities laws and any applicable stock exchange or stock market
rules and regulations, and (iii) the Participant has executed and delivered to
the Company such representations or agreements as the Company may consider
appropriate to satisfy the requirements of any applicable laws, rules or
regulations.
(h) Acceleration. The Board may at any time provide that any Options shall
become immediately exercisable in full or in part, that any Restricted Stock
Awards shall be free of restrictions in full or in part or that any other Awards
may become exercisable in full or in part or free of some or all restrictions or
conditions, or otherwise realizable in full or in part, as the case may be.
10. Miscellaneous
-------------
(a) No Right To Employment or Other Status. No person shall have any claim
or right to be granted an Award, and the grant of an Award shall not be
construed as giving a Participant the right to continued employment or any other
relationship with the Company. The Company expressly reserves the right at any
time to dismiss or otherwise terminate its relationship with a Participant free
from any liability or claim under the Plan, except as expressly provided in the
applicable Award.
(b) No Rights As Stockholder. Subject to the provisions of the applicable
Award, no Participant or Designated Beneficiary shall have any rights as a
stockholder with respect to any shares of Common Stock to be distributed with
respect to an Award until becoming the record holder of such shares.
Notwithstanding the foregoing, in the event the Company effects a split of the
Common Stock by means of a stock dividend and the exercise price of and the
number of shares subject to such Option are adjusted as of the date of the
distribution of the dividend (rather than as of the record date for such
dividend), then an optionee who exercises an Option between the record date and
the distribution date for such stock dividend shall be entitled to receive, on
the distribution date, the stock dividend with respect to the shares of Common
Stock acquired upon such Option exercise, notwithstanding the fact that such
shares were not outstanding as of the close of business on the record date for
such stock dividend.
(c) Effective Date and Term of Plan. The Plan shall become effective on the
date on which it is adopted by the Board, but no Award granted to a Participant
that is intended to comply with Section 162(m) shall become exercisable, vested
or realizable, as applicable to such Award, unless and until the Plan has been
approved by the Company's stockholders to the extent stockholder approval is
required by Section 162(m) in the manner required under Section 162(m)
(including the vote required under Section 162(m)). No Awards shall be granted
under the Plan after the completion of ten years from the earlier of (i) the
date on which the Plan was adopted by the Board or (ii) the date the Plan was
approved by the Company's stockholders, but Awards previously granted may extend
beyond that date.
-7-
<PAGE>
(d) Amendment of Plan. The Board may amend, suspend or terminate the Plan or
any portion thereof at any time, provided that to the extent required by Section
162(m), no Award granted to a Participant that is intended to comply with
Section 162(m) after the date of such amendment shall become exercisable,
realizable or vested, as applicable to such Award, unless and until such
amendment shall have been approved by the Company's stockholders as required by
Section 162(m) (including the vote required under Section 162(m)).
(e) Governing Law. The provisions of the Plan and all Awards made hereunder
shall be governed by and interpreted in accordance with the laws of the State of
Delaware, without regard to any applicable conflicts of law.
-8-
<PAGE>
[_] PLEASE MARK VOTES
AS IN THIS EXAMPLE
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GENSYM CORPORATION
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IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE
CLASS I DIRECTOR NOMINEES AND FOR PROPOSALS 2, 3 AND 4
Mark box at right if an address change or comment has been noted on the reverse
side of this card. [_]
Mark box at right if you plan to attend the Annual Meeting. [_]
CONTROL NUMBER:
RECORD DATE SHARE:
Please be sure to sign and date this proxy Date: __________________
Stockholder sign here Co-owner sign here
DETACH CARD
1. To elect two Class I Directors to the Board of Directors for the ensuing
three years
For All With- For all
Nominees hold Except
[_] [_] [_]
Nominees: (01) John A. Shane
(02) Thomas E. Swithenbank
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.
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2. To approve the amendment to the Company's 1995 Employee Stock Purchase Plan
increasing from 500,000 to 700,000 the number of shares of Common Stock
reserved for issuance under the Plan.
For Against Abstain
[_] [_] [_]
3. To approve the Company's 2000 Stock Incentive Plan covering 800,000 shares of
Common Stock as described in the Proxy Statement.
For Against Abstain
[_] [_] [_]
4. To ratify and approve the appointment by the Board of Directors of Arthur
Andersen LLP as the Company's independent auditors for the current year.
For Against Abstain
[_] [_] [_]
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS
AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF.
DETACH CARD
<PAGE>
GENSYM CORPORATION
ANNUAL MEETING OF STOCKHOLDERS
MAY 17, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, revoking all prior proxies, hereby appoints Patrick Courtin and
Jeffrey Weber, 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 17, 2000 at 10:00 a.m., Boston time, at the offices of
Hale and Dorr LLP, 26/th/ Floor, 60 State Street, Boston, Massachusetts, and at
any adjournment thereof, with respect to the matters set forth on the reverse
side hereof.
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PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE
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Please sign exactly as your 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.
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HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
______________________________________ ______________________________________
______________________________________ ______________________________________
______________________________________ ______________________________________
