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                                                                  EXHIBIT 10.3

                               GENSYM CORPORATION

                         1995 DIRECTOR STOCK OPTION PLAN


     l.   PURPOSE

     The purpose of this 1995 Director Stock Option Plan (the "Plan") of Gensym
Corporation (the "Company") is to encourage ownership in the Company by outside
directors of the Company whose continued services are considered essential to
the Company's future progress and to provide them with a further incentive to
remain as directors of the Company.

     2.   ADMINISTRATION

     The Compensation Committee of the Board of Directors shall supervise and
administer the Plan. Grants of stock options under the Plan and the amount and
nature of the awards to be granted shall be automatic and non-discretionary in
accordance with Section 5. However, all questions of interpretation of the Plan
or of any options issued under it shall be determined by the Compensation
Committee of the Board of Directors and such determination shall be final and
binding upon all persons having an interest in the Plan.

     3.   PARTICIPATION IN THE PLAN

     Directors of the Company who are not employees of the Company or any
subsidiary of the Company shall be eligible to participate in the Plan.

     4.   STOCK SUBJECT TO THE PLAN

          (a)   The maximum number of shares which may be issued under the Plan
shall be 100,000 shares of the Company's Common Stock, par value $.0l per share
("Common Stock"), subject to adjustment as provided in Section 9 of the Plan.

          (b)   If any outstanding option under the Plan for any reason expires
or is terminated without having been exercised in full, the shares allocable to
the unexercised portion of such option shall again become available for grant
pursuant to the Plan.

          (c)   All options granted under the Plan shall be non-statutory 
options not intended to meet the requirements of Section 422 of the Internal
Revenue Code of 1986, as amended to date and as it may be amended from time to
time (the "Code").

     5.   TERMS, CONDITIONS AND FORM OF OPTIONS




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     Each option granted under the Plan shall be evidenced by a written
agreement in such form as the Board of Directors shall from time to time
approve, which agreements shall comply with and be subject to the following
terms and conditions:

          (a)   OPTION GRANT DATES. Options shall be granted on (i) the 
effective date of the Company's registration statement on Form S-1 relating to
the Company's initial public offering of Common Stock to all eligible directors
who are directors as of such date, and (ii) to all eligible directors on June 30
of each year commencing June 30, 1997.

          (b)   SHARES SUBJECT TO OPTION. Each option granted under the Plan 
shall be exercisable for 2,000 shares of Common Stock.

          (c)   OPTION EXERCISE PRICE. The option exercise price per share for 
the options granted upon the effective date of the Company's registration
statement on Form S-1 relating to the Company's initial public offering shall
equal the initial public offering price of the Common Stock. The option exercise
price per share for subsequent options granted under the Plan shall equal (i)
the last reported sale price per share of the Company's Common Stock on the
Nasdaq National Market (or such other national securities exchange or trading
system on which the Company's Common Stock may then be listed or quoted) on the
date of grant (or if no such price is reported on such date such price as
reported on the nearest preceding day) or (ii) if the Common Stock is not traded
on the Nasdaq National Market or an exchange, the fair market value per share on
the date of grant as determined by the Board of Directors.

          (d)   OPTIONS NON-TRANSFERABLE. Each option granted under the Plan by
its terms shall not be transferable by the optionee otherwise than by will, or
by the laws of descent and distribution or pursuant to a qualified domestic
relations order (as defined in Section 414(p) of the Code) and shall be
exercised during the lifetime of the optionee only by him. No option or interest
therein may be transferred, assigned, pledged or hypothecated by the optionee
during his or her lifetime, whether by operation of law or otherwise, or be made
subject to execution, attachment or similar process.

          (e)   EXERCISE PERIOD. Each option may be exercised on a cumulative
basis as to one-fifth of the shares subject to the option on each of the date of
grant and the first, second, third and fourth anniversaries of the date of grant
of such option, PROVIDED THAT (i) this option shall be exercisable only to the
extent exercisable on the date that the optionee ceased to serve as a director
of the Company, and (ii) subject to the provisions of Section 5(f), no option
may be exercised more than 90 days after the optionee ceases to serve as a
director of the Company. No option shall be exercisable after the expiration of
ten years from the date of grant.


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          (f)   EXERCISE PERIOD UPON DISABILITY OR DEATH. Notwithstanding the
provisions of Section 5(e), any option granted under the Plan may be exercised,
to the extent then exercisable, by an optionee who becomes disabled (within the
meaning of Section 22(e)(3) of the Code or any successor provision thereto)
while acting as a director of the Company, or may be exercised, to the extent
then exercisable, upon the death of such optionee while a director of the
Company by the person to whom it is transferred by will, by the laws of descent
and distribution, pursuant to a qualified domestic relations order or by written
notice filed pursuant to Section 5(h), in each case within the period of one
year after the date the optionee ceases to be such a director by reason of such
disability or death; provided that, no option shall be exercisable after the
expiration of ten years from the date of grant.

          (g)   EXERCISE PROCEDURE. Options may be exercised only by written
notice to the Company at its principal office accompanied by payment in cash of
the full consideration for the shares as to which they are exercised.

          (h)   EXERCISE BY REPRESENTATIVE FOLLOWING DEATH OF DIRECTOR. A
director, by written notice to the Company, may designate one or more persons
(and from time to time change such designation) including his legal
representative, who, by reason of the director's death, shall acquire the right
to exercise all or a portion of the option. If the person or persons so
designated wish to exercise any portion of the option, they must do so within
the term of the option as provided herein. Any exercise by a representative
shall be subject to the provisions of the Plan.

     6.   ASSIGNMENTS

      The rights and benefits under the Plan may not be assigned except as
provided in Section 5.

     7.   TIME FOR GRANTING OPTIONS

     All options for shares subject to the Plan shall be granted, if at all, not
later than five years after the approval of the Plan by the Company's
stockholders.

     8.   LIMITATION OF RIGHTS

          (a)   NO RIGHT TO CONTINUE AS A DIRECTOR. Neither the Plan, nor the
granting of an option nor any other action taken pursuant to the Plan, shall
constitute or be evidence of any agreement or understanding, express or implied,
that the Company will retain a director for any period of time.

          (b)   NO STOCKHOLDER RIGHTS FOR OPTIONS. An optionee shall have no
rights as a stockholder with respect to the shares covered by his option until
the date of the issuance to him of a stock certificate therefor, and no
adjustment will be made

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for dividends or other rights (except as provided in Section 9) for which the
record date is prior to the date such certificate is issued.

     9.   CHANGES IN COMMON STOCK

          (a)   If the outstanding shares of Common Stock are increased, 
decreased or exchanged for a different number or kind of shares or other
securities, or if additional shares or new or different shares or other
securities are distributed with respect to such shares of Common Stock or other
securities, through merger, consolidation, sale of all or substantially all of
the assets of the Company, reorganization, recapitalization, reclassification,
stock dividend, stock split, reverse stock split or other distribution with
respect to such shares of Common Stock, or other securities, an appropriate and
proportionate adjustment will be made in (i) the maximum number and kind of
shares reserved for issuance under the Plan, (ii) the number and kind of shares
or other securities subject to then outstanding options under the Plan and (iii)
the price for each share subject to any then outstanding options under the Plan,
without changing the aggregate purchase price as to which such options remain
exercisable, provided that no adjustment shall be made pursuant to this Section
9 if such adjustment would cause the Plan to fail to comply with Rule 16b-3
under the Securities Exchange Act of 1934 (the "Exchange Act"), or any successor
rule ("Rule 16b-3"). No fractional shares will be issued under the Plan on
account of any such adjustments.

          (b)   In the event that the Company is merged or consolidated into or
with another corporation (in which consolidation or merger the stockholders of
the Company receive distributions of cash or securities of another issuer as a
result thereof), or in the event that all or substantially all of the assets of
the Company are acquired by any other person or entity, or in the event of a
reorganization or liquidation of the Company, the Board of Directors of the
Company, or the board of directors of any corporation assuming the obligations
of the Company, shall, as to outstanding options, either (i) provide that such
options shall be assumed, or equivalent options shall be substituted, by the
acquiring or successor corporation (or an affiliate thereof), or (ii) upon
written notice to the optionees, provide that all unexercised options will
terminate immediately prior to the consummation of such merger, consolidation,
acquisition, reorganization or liquidations unless exercised by the optionee
within a specified number of days following the date of such notice.

     10.  AMENDMENT OF THE PLAN

          (a)   The provisions of Sections 3, 5(a), (b) and (c) of the Plan 
shall not be amended more than once every six months, other than to comport with
changes in the Code, the Employee Retirement Income Security Act of 1974, or the
rules thereunder. Subject to the foregoing, the Board of Directors may at any
time, and from time to time, modify or amend the Plan in any respect, except
that if at any

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time the approval of the stockholders of the Company is required as to such
modification or amendment under Rule 16b-3, the Board of Directors may not
effect such modification or amendment without such approval.

          (b)   The termination or any modification or amendment of the Plan 
shall not, without the consent of the optionee, affect his or her rights under
an option previously granted to him or her. With the consent of the optionees
affected, the Board of Directors may amend outstanding option agreements in a
manner not inconsistent with the Plan. The Board of Directors shall have the
right to amend or modify the terms and provisions of the Plan and of any
outstanding option to the extent necessary to ensure the qualification of the
Plan under Rule 16b-3.

     11.  WITHHOLDING

     The Company shall have the right to deduct from payments of any kind
otherwise due to the optionee any federal, state or local taxes of any kind
required by law to be withheld with respect to any shares issued upon exercise
of options under the Plan. Subject to the prior approval of the Company, which
may be withheld by the Company in its sole discretion, the optionee may elect to
satisfy such obligations, in whole or in part, (i) by causing the Company to
withhold shares of Common Stock otherwise issuable pursuant to the exercise of
an option or (ii) by delivering to the Company shares of Common Stock already
owned by the optionee. The shares so delivered or withheld shall have a fair
market value equal to such withholding obligation. The fair market value of the
shares used to satisfy such withholding obligation shall be determined by the
Company as of the date that the amount of tax to be withheld is to be
determined. An optionee who has made an election pursuant to this Section 11 may
only satisfy his or her withholding obligation with shares of Common Stock which
are not subject to any repurchase, forfeiture, unfulfilled vesting or other
similar requirements. Notwithstanding the foregoing, no election to use shares
for the payment of withholding taxes shall be effective unless made in
compliance with any applicable requirements of Rule 16b-3.

     l2.  NOTICE

     Any written notice to the Company required by any of the provisions of the
Plan shall be addressed to the Treasurer of the Company and shall become
effective when it is received.

     13.  EFFECTIVE DATE AND DURATION OF THE PLAN

          (a)   The Plan shall become effective upon the closing of the 
Company's initial public offering, but no option granted under the Plan shall
become exercisable unless and until the Plan shall have been approved by the
Company's stockholders. If such stockholder approval is not obtained within
twelve months after the date of

         
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the Board's adoption of the Plan, all options granted under the Plan shall
terminate and no further options shall be granted under the Plan. Amendments to
the Plan not requiring stockholder approval shall become effective when adopted
by the Board of Directors; amendments requiring stockholder approval (as
provided in Section 10(a)) shall become effective when adopted by the Board of
Directors, but no option issued after the date of such amendment shall become
exercisable (to the extent that such amendment to the Plan was required to
enable the Company to grant such option to a particular optionee) unless and
until such amendment shall have been approved by the Company's stockholders. If
such stockholder approval is not obtained within twelve months of the Board's
adoption of such amendment, any options granted on or after the date of such
amendment shall terminate to the extent that such amendment to the Plan was
required to enable the Company to grant such option to a particular optionee.
Subject to this limitation, options may be granted under the Plan at any time
after the effective date and before the date fixed for termination of the Plan.

          (b)   Unless earlier terminated pursuant to Section 9, the Plan shall
terminate upon the earlier of (i) November 2, 2000 or (ii) the date on which all
shares available for issuance under the Plan shall have been issued pursuant to
the exercise of options granted under the Plan. If the date of termination is
determined under (i) above, then options outstanding on such date shall continue
to have force and effect in accordance with the provisions of the instruments
evidencing such options.

     14.  GENERAL RESTRICTIONS

          (a)   The Company may require any person to whom an option is granted,
as a condition of exercising such option, to give written assurances in
substance and form satisfactory to the Company to the effect that such person is
acquiring the Common Stock subject to the option for his or her own account for
investment and not with any present intention of selling or otherwise
distributing the same, and to such other effects as the Company deems necessary
or appropriate in order to comply with federal and applicable state securities
laws.

          (b)   Each option shall be subject to the requirement that if, at any
time, counsel to the Company shall determine that the listing, registration or
qualification of the shares subject to such option upon any securities exchange
or under any state or federal law, or the consent or approval of any
governmental or regulatory body, or that the disclosure of non-public
information or the satisfaction of any other condition is necessary as a
condition of, or in connection with, the issuance or purchase of shares
thereunder, such option may not be exercised, in whole or in part, unless such
listing, registration, qualification, consent or approval, or satisfaction of
such condition shall have been deemed to require the Company to apply for or to
obtain such listing, registration or qualification, or to satisfy such
condition.


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     l5.  GOVERNING LAW

     The Plan and all determinations made and actions taken pursuant hereto
shall be governed by the laws of the State of Delaware.



                                       Adopted by the Board of Directors on
                                       November 22, 1995

                                       Approved by the
                                       Stockholders on January 16, 1996.



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             AMENDMENT NO. 1 TO THE 1995 DIRECTOR STOCK OPTION PLAN

                              OF GENSYM CORPORATION


     Section 5(b) of the 1995 Director Stock Option Plan (the "Plan") of Gensym
Corporation is hereby amended and restated in its entirety, subject to
stockholder approval, to provide as follows:

          "(b)   SHARES SUBJECT TO OPTION. Each option granted under the Plan
shall be exercisable for 3,000 shares of Common Stock."



                                       Adopted by the Board of Directors on
                                       December 10, 1996

                                       Approved by the Stockholders of the
                                       Company on May 21, 1997


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