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
[X] Definitive Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Pegasystems Inc.
------------------------------------------------------------------------
(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):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
-------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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<PAGE>
Dear Stockholder:
We cordially invite you to attend our 1998 Annual Meeting of
Stockholders on Wednesday, May 6, 1998 at Fleet National Bank, 75 State Street,
Conference Room F, 8th Floor, Boston, Massachusetts. Please join us for a
pre-meeting continental breakfast at 10:00 a.m. The Meeting will commence at
10:30 a.m.
The following Notice of Annual Meeting of Stockholders and Proxy
Statement describes the items to be considered by the stockholders and contains
certain information about the Company and its officers and directors.
Please sign and return the enclosed proxy card as soon as possible in
the envelope provided so that your shares can be voted at the Meeting in
accordance with your instructions. Even if you plan to attend the Meeting, we
urge you to sign and promptly return the proxy card. You can revoke it at any
time before it is exercised at the Meeting, or vote your shares personally if
you attend the Meeting.
We look forward to seeing you on May 6, 1998.
Sincerely,
Alan Trefler
April 29, 1998 President
<PAGE>
PEGASYSTEMS INC.
101 Main Street
Cambridge, MA 02142
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held on May 6, 1998
To The Stockholders of Pegasystems Inc:
Notice is hereby given that the Annual Meeting of Stockholders of
Pegasystems Inc. (the "Company") will be held at Fleet National Bank, 75 State
Street, Conference Room F, 8th Floor, Boston, Massachusetts, on Wednesday, May
6, 1998 at 10:30 a.m., local time, for the following purposes:
1. To re-elect two members of the Board of Directors to hold
office until the 2001 Annual Meeting of Stockholders and until
their successors are duly elected and qualified.
2. To ratify the Board of Directors' selection of Arthur Andersen
LLP as the independent public accountants for the Company for
the year ending December 31, 1998.
3. To approve the amended and restated 1994 Long-Term Incentive
Plan.
4. To transact such other business as may properly come before
the Meeting or any adjournment(s) thereof.
Only stockholders of record at the close of business on the record
date, March 20, 1998, will receive notice of the Meeting and be entitled to vote
at the Meeting or any adjournment(s) thereof. The transfer books will not be
closed.
You are cordially invited to attend the Meeting in person if possible.
Whether you plan to attend the Meeting or not, please fill out, sign and date
the enclosed proxy and return it in the envelope enclosed for this purpose. The
proxy is revocable by the person giving it at any time prior to the exercise
thereof by written notice received by the Company, by delivery of a duly
executed proxy bearing a later date, or by attending the Meeting and voting in
person.
By Order of the Board of Directors
Alan Trefler
April 29, 1998 Clerk
<PAGE>
PEGASYSTEMS INC.
101 Main Street
Cambridge, MA 02142
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
To Be Held On May 6, 1998
This Proxy Statement is furnished to the holders of the Common Stock,
$.01 par value (the "Common Stock"), of Pegasystems Inc. (the "Company") in
connection with the solicitation by and on behalf of the Board of Directors of
the Company of proxies for use at the Annual Meeting of Stockholders of the
Company to be held at Fleet National Bank, 75 State Street, Conference Room F,
8th Floor, Boston, Massachusetts, on Wednesday, May 6, 1998 at 10:30 a.m., local
time, and at any adjournment(s) thereof. Each properly signed proxy will be
voted in accordance with the instructions contained therein, and, if no choice
is specified, the proxy will be voted in favor of the proposals set forth in the
Notice of Annual Meeting.
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before its use by delivering to the Company a
written notice of revocation or a duly executed proxy bearing a later date, or
by attending the Meeting and voting in person.
This Proxy Statement, the enclosed proxy and Annual Report to
Stockholders for the year ended December 31, 1997, are being mailed to the
stockholders on or about April 29, 1998. The Annual Report does not constitute
any part of this Proxy Statement.
The entire cost of this solicitation will be paid by the Company. In
addition, the Company may reimburse brokerage firms and other persons
representing beneficial owners of shares for their expenses in forwarding
solicitation material to such beneficial owners.
Only stockholders of record of the Company's 28,545,100 shares of
Common Stock outstanding as of the close of business on the record date, March
20, 1998, will be entitled to vote. Each share of Common Stock is entitled to
one vote at the Meeting or any adjournment(s) thereof. The presence, in person
or by proxy, of the holders of a majority of the outstanding shares of Common
Stock entitled to vote is necessary to constitute a quorum at the Meeting.
Shares voted to abstain or to withhold as to a particular matter as to which a
nominee (such as a broker holding shares in street name for a beneficial owner)
has no voting authority in respect of such matter will be deemed represented for
quorum purposes. Under the Company's By-Laws, such shares will not be deemed to
be voting on such matter, and therefore will not be the equivalent of negative
votes as to such matter. Votes will be tabulated by the Company's transfer agent
subject to supervision of persons designated by the Board of Directors as
inspectors.
The affirmative vote of the holders of a plurality of the shares
represented at the Meeting, at which a quorum is present, is required for the
election of Directors. Approval of other matters before the Meeting will require
the affirmative vote at the Meeting, at which a quorum is present, of the
holders of a majority of votes cast with respect to such matters.
<PAGE>
PRINCIPAL AND MANAGEMENT STOCKHOLDERS
The following table sets forth certain information as of February 17,
1998, with respect to the beneficial ownership of Common Stock of the Company by
(i) each person known by the Company to be the beneficial owner of more than 5%
of the outstanding Common Stock of the Company, (ii) each Director of the
Company, (iii) the CEO and the five other most highly compensated executive
officers and (iv) all executive officers and Directors of the Company as a
group. To the knowledge of the Company, based on information provided by such
owners, all persons listed below have sole voting and investment power with
respect to their shares of Common Stock except to the extent authority is shared
by spouses under applicable law.
<TABLE>
<CAPTION>
Name of Number of Shares Percentage of Shares
Beneficial Owner Beneficially Owned (1) Beneficially Owned
- ---------------- ---------------------- ---------------------
<S> <C> <C>
Alan Trefler (2) 21,447,100 75.1%
Joseph J. Friscia (3) 187,000 *
Eugene A. Bonte (3) 23,000 *
Michael R. Pyle (3) 112,700 *
Ira Vishner 227,200 *
Kenneth W. Olson 245,000 *
Edward A. Maybury (3) 10,400 *
Edward B. Roberts 11,000 *
Leonard A. Schlesinger (3) 6,000 *
Thomas E. Swithenbank (3) 6,000 *
All executive officers and Directors
as a group (10 persons) (4 ) 22,275,400 77.1%
- -----------------
</TABLE>
* Represents beneficial ownership of less than 1% of the outstanding Common
Stock.
(1) The number of shares of Common Stock deemed outstanding includes (i)
28,545,100 shares of Common Stock outstanding as of February 17, 1998 and
(ii) 361,100 shares issuable pursuant to outstanding options held by the
respective person or group which are exercisable within 60 days of February
17, 1998, as set forth below.
(2) Includes 185,000 shares held in trust with respect to which Mr. Trefler has
voting and dispositive power. Mr. Trefler disclaims beneficial interest.
(3) Consists solely of shares of Common Stock subject to stock options
exercisable within 60 days of February 17, 1998.
(4) Includes 361,100 shares of Common Stock subject to stock options
exercisable within 60 days of February 17, 1998.
2
<PAGE>
ELECTION OF DIRECTORS
(Item 1 of Notice)
There are currently six members of the Board of Directors, divided into
three classes with terms expiring respectively at the 1998, 1999 and 2000 annual
meetings of stockholders. The Board has nominated Edward A. Maybury and Leonard
A. Schlesinger, whose terms are expiring, for re-election. Messrs. Maybury and
Schlesinger have consented to serve, if elected at the Meeting, for three-year
terms expiring at the time of the 2001 annual meeting of stockholders and when
their respective successors are elected and qualified. The shares represented by
the enclosed proxy will be voted to elect Messrs. Maybury and Schlesinger unless
such authority is withheld by marking the proxy to that effect. Messrs. Maybury
and Schlesinger have agreed to serve, but in the event either shall unexpectedly
become unavailable for election, the proxy, unless authority has been withheld
as to such nominee, may be voted for election of a substitute. Proxies may not
be voted for more than two persons.
THE BOARD OF DIRECTORS RECOMMENDS ELECTION OF THE NOMINEES AS DIRECTORS.
The following information is furnished with respect to the nominees for
election as Directors and each other Director.
NOMINEES FOR ELECTION FOR TERMS OF THREE YEARS EXPIRING IN 2001
Edward A. Maybury, 58, has been a Director of the Company since its
organization in 1983. Since July 1991, he has served as a Director, and from
July 1991 through May 1993 was the President and Chief Executive Officer, of
Creative Systems, Inc., a software and services company. Prior thereto, Mr.
Maybury was the Chief Executive Officer of Data Architect Systems, Inc., a
software and services company.
Leonard A. Schlesinger, 45, has been a Director of the Company since
June 1996. He has been a Professor of Business Administration at the Harvard
Business School since 1988, where he is chairman of the Service Management
Group, an interdisciplinary faculty group that focuses on customer service.
Professor Schlesinger is also a Director of The Limited, Inc., a specialty
retailer, Borders Group, Inc., a book, music and video retailer, and GC
Companies, Inc., a movie exhibition and investments company.
DIRECTORS WHOSE TERMS EXPIRE IN 1999
Edward B. Roberts, 62, has been a Director of the Company since June
1996. Since 1961, he has been the David Sarnoff Professor of Management of
Technology at the Massachusetts Institute of Technology. He was co-founder and
chairman, from 1963 until June 1995, of Pugh-Roberts Associates, Inc., an
international management consulting firm specializing in strategic planning and
technology management. In addition, Dr. Roberts co-founded and is a Director of
Medical Information Technology, Inc., a provider of hospital information
systems. Dr. Roberts is also a Director of Advanced Magnetics, Inc., a medical
imaging company, and Selfcare, Inc., a manufacturer of home medical diagnostic
products, and is a general partner of Zero Stage Capital, a venture capital
firm.
Ira Vishner, 44, a founder of the Company, has served as Vice
President, Corporate Services, Treasurer and Chief Financial Officer of the
Company since 1983 and has been a Director since 1994. Prior to 1983, he worked
in the executive offices of TMI Systems Corporation where he was responsible for
corporate planning, financial analysis and product marketing. Mr. Vishner holds
an S.B. in Mathematics from the Massachusetts Institute of Technology.
3
<PAGE>
DIRECTORS WHOSE TERMS EXPIRE IN 2000
Thomas E. Swithenbank, 53, has been a Director of the Company since
June 1996. Since 1990, he has been President and Chief Executive Officer of
Harte-Hanks Data Technologies, a computer software and servicing company
specializing in database marketing systems. Prior thereto, Mr. Swithenbank was
President of International Data Corporation, a world-wide computer marketing
consulting firm. Mr. Swithenbank has an A.B. from Harvard University and an
M.B.A. from the Harvard Business School.
Alan Trefler, 41, a founder of the Company, has served as President and
Clerk and has been a Director since the Company's organization in 1983. Prior
thereto, he managed an electronic funds transfer product for TMI Systems
Corporation, a software and services company. Mr. Trefler holds a degree in
economics and computer science from Dartmouth College.
BOARD OF DIRECTORS AND COMMITTEE MEETINGS
The Company's Board of Directors has established an Audit Committee and
a Compensation Committee. The Audit Committee is responsible for nominating the
Company's independent public accountants for approval by the Board of Directors,
reviewing the scope, results and costs of the audit with the Company's
independent public accountants and reviewing the financial statements of the
Company. Messrs. Maybury and Roberts are currently the members of the Audit
Committee. The Audit Committee met one time during 1997. The Compensation
Committee is responsible for recommending compensation and benefits for the
executive officers of the Company to the Board of Directors and for
administering the Company's stock plans. Messrs. Maybury and Schlesinger are
currently the members of the Compensation Committee. The Compensation Committee
met one time during 1997.
During 1997, the Board of Directors of the Company held six meetings.
Each incumbent Director attended at least 75% of the aggregate number of
meetings of the Board and the meetings of the committees of the Board on which
he served.
DIRECTOR COMPENSATION
Each non-employee Director of the Company receives $1,000 for every
Board or committee meeting attended. The Company also reimburses non-employee
Directors for expenses incurred in attending Board meetings. In addition,
non-employee Directors of the Company are eligible to receive stock options
under the 1996 Non-Employee Director Stock Option Plan. No other compensation is
paid to Directors for attending Board or committee meetings. Messrs. Maybury,
Roberts, Schlesinger and Swithenbank are currently the non-employee Directors of
the Company.
4
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by
or paid for services rendered to the Company in all capacities during the years
ended December 31, 1997, 1996 and 1995 by (i) the Company's Chief Executive
Officer and (ii) the five most highly compensated other executive officers
(collectively, the "Named Executive Officers"):
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation (1)
------------------------------------- All Other
Name and Principal Positions Year Salary ($) Bonus ($) Compensation ($)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alan Trefler 1997 $200,000 - -
President 1996 188,333 (2) $ 38,759 (3) $ 15,000 (4)
1995 171,250 23,545 (5) -
Joseph J. Friscia 1997 143,333 47,250 (6) 10,786 (4)
Vice President of Sales and Marketing 1996 125,000 94,730 (7) -
1995 124,583 24,154 (8) -
Eugene A. Bonte 1997 129,167 21,000 (6) -
Vice President of Market Strategy and Delivery 1996 86,897 31,149 (7) -
1995 - - -
Michael R. Pyle 1997 120,000 15,750 (6) 8,587 (4)
Vice President of Applications Development 1996 111,250 41,285 (9) -
1995 102,083 23,044 (5) -
Ira Vishner 1997 120,000 10,500 (6) 19,441 (4)
Vice President, Corporate Services, Treasurer, 1996 110,667 30,169 (9) -
Chief Financial Officer 1995 100,500 16,892 (5) 8,483 (4)
Kenneth W. Olson 1997 112,000 10,500 (6) 20,123 (4)
Vice President of Technical Development 1996 105,583 27,365 (9) -
1995 98,083 13,118 (5) 30,000 (4)
- -----------------
</TABLE>
(1) In accordance with the rules of the Securities and Exchange Commission,
other compensation in the form of perquisites and other personal benefits
has been omitted because the aggregate amount of such perquisites and other
personal benefits constituted less than the lesser of $50,000 or 10% of the
total of annual salary and bonuses for each of the Named Executive Officers
for 1997, 1996 and 1995.
(2) Includes $8,333 earned between August and December 1996 and paid in
February 1997.
(3) Represents bonus earned between July 1995 and June 1996 and paid in
February 1997.
(4) Represents payments in lieu of paid days off.
(5) Represents bonus earned between July 1994 and June 1995 and paid in 1995.
(6) Represents bonus earned between July 1996 and December 1997 and paid in
1998.
(7) Represents bonus earned in 1996 and paid in February 1997.
(8) Represents bonus earned in 1995 and paid in February 1996. Does not include
a bonus of $66,650 earned in 1994 and paid in February 1995.
(9) Represents bonus earned between July 1995 and June 1996 and paid in 1996.
5
<PAGE>
Option Grants
The following table provides certain information concerning grants of
options to purchase the Company's Common Stock made during the fiscal year
ending December 31, 1997, to each of the Named Executive Officers:
Option Grants in Fiscal 1997
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------------------------------- Potential Realizable Value
Number of Percent of at Assumed Annual Rates
Shares Total Options of Stock Price Appreciation
Underlying Granted to Exercise or for Option Term (2)
Options Employees In Base Price Expiration --------------------------------
Name Granted (#) (1) Fiscal Year ($/Share) Date 5% ($) 10% ($)
- ---------------------- ----------------- ---------------- --------------- ------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Alan Trefler - - - - - -
Joseph J. Friscia 25,000 2.4% $20.56 3/31/07 $323,249 $819,162
Eugene A. Bonte 25,000 2.4 20.56 3/31/07 323,249 819,162
Michael R. Pyle 25,000 2.4 20.56 3/31/07 323,249 819,162
Ira Vishner 25,000 2.4 20.56 3/31/07 323,249 819,162
Kenneth W. Olson 25,000 2.4 20.56 3/31/07 323,249 819,162
- -----------------
</TABLE>
(1) These options vest in 5 equal annual installments, commencing on March 31,
1998.
(2) As required by the rules of the Securities and Exchange Commission,
potential values stated are based on the prescribed assumption that the
Company's common stock will appreciate in value from the date of grant to
the end of the option term at rates (compounded annually) of 5% and 10%,
respectively, and therefore are not intended to forecast possible future
appreciation, if any, in the price of the Company's common stock.
6
<PAGE>
Aggregated Option Exercises and Year-End Option Table
The following table sets forth certain information concerning options
exercised during 1997 and the number and value of unexercised stock options held
by each of the Named Executive Officers as of December 31, 1997.
Aggregated Option Exercises in Last Fiscal Year
and Year-End Option Values
<TABLE>
<CAPTION>
Number of Shares Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Year-End At Year-End ($)
----------------------------------- -------------------------------
Shares Value
Acquired on Realized
Name Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Alan Trefler - - - - - -
Joseph J. Friscia 70,000 $2,085,881 182,000 133,000 $3,615,121 $2,145,236
Eugene A. Bonte 18,000 252,000 - 97,000 - 877,680
Michael R. Pyle 65,100 1,953,732 107,700 111,400 2,139,277 1,716,189
Ira Vishner - - - 25,000 - -
Kenneth W. Olson - - - 25,000 - -
</TABLE>
CERTAIN TRANSACTIONS
Since December 31, 1996 there have been no transactions involving more
than $60,000, nor are any proposed, between the Company and any executive
officer, Director, 5% beneficial owner of the Company's Common Stock or
equivalents, or any immediate family member of any of the foregoing, in which
any such persons or entities had or will have a direct or indirect material
interest.
The Company has adopted a policy whereby all future transactions
between the Company and its officers, Directors, principal stockholders and
their affiliates will be on terms no less favorable to the Company than could be
obtained from unrelated third parties and will be approved by a majority of the
disinterested members of the Company's Board of Directors. No such transactions
are currently being considered.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
General
The Compensation Committee of the Board of Directors (the "Committee")
is composed entirely of Directors who are not employees of or consultants to the
Company. The Committee, which as of April 29, 1998 consisted of Edward A.
Maybury and Leonard A. Schlesinger, is responsible for recommending compensation
and benefits for the executive officers of the Company to the Board of Directors
and for administering the Company's stock plans. The Committee determines the
compensation for the President. The Committee and the President together
determine the compensation for the other executive officers of the Company.
7
<PAGE>
Compensation Philosophy
The objectives of the Committee are to provide an executive
compensation program that aligns executive compensation with the achievement of
specific company goals. The Committee believes that executive compensation
should also reflect the value that an individual adds to the Company and that
executive compensation should enable the Company to attract and retain key
employees in an increasingly competitive industry environment.
Compensation Components
There are two compensation components for executive officers: cash
compensation in the form of salary and merit pay, and non-cash compensation in
the form of stock options.
Salary. Cash compensation in the form of salary is intended to reflect
an executive's knowledge, skills, and level of responsibility as well as the
economic and business conditions affecting the Company. The salary of each
executive was determined by the Committee in part by analyzing the Culpepper
Surveys on Software Industry Executive and Administrative Pay, an
annually-published compensation survey, and other published surveys (the
"Surveys"), and in addition, as a result of the Committee making an assessment
of an executive's individual personal performance with respect to his attainment
of specific predetermined company goals.
Merit Pay. Merit pay reflects the financial valuation of each
executive's individual contribution to the Company over the review period. An
executive's ability to achieve closure on critical projects, to attain required
results, and to contribute positively to Company tone in the process are
critical to ensuring the strong financial performance of the Company as a whole,
and thus helps define the executive's financial value. Awards of merit payments
are made at the discretion of the Board of Directors, based upon their opinions
of executives' respective contributions to the Company. There is no pre-set
amount allocated and available in a "merit pay pool" for executive officers.
Stock Options. The Committee uses stock options as a long-term,
non-cash incentive and as a means of aligning the long-term interests of
executives and stockholders. Stock options are awarded based upon the market
price of the Common Stock on the date of grant and are linked to future
performance of the Company's stock because they do not become valuable to the
holder unless the price of the Company's stock increases above the price on the
date of grant. The number of stock options granted to an executive as a form of
non-cash compensation is determined by taking into consideration factors such as
number of stock options previously granted to an executive, the executive's
remaining options exercisable and the value of those stock options, as compared
to the anticipated value that an executive will add to the Company in the
future. Stock options are not necessarily granted to executives on an annual
basis. Stock options were granted to executive officers during 1997.
Compensation of the President and All Other Executive Officers
The Committee, in its consideration of the salary, merit pay and stock
option components of compensation for 1997 for the President and all other
executive officers, made reference to the Surveys, which it believes represent
compensation data from companies that are similar in nature to the Company. The
salary, merit pay and stock option components of compensation that was
determined for the President and all other executive officers was comparable
with companies found in the Surveys.
Mr. Trefler's annual salary compensation of $200,000 reflects an
increase effective August 1996. During 1997, there was no change in Mr.
Trefler's annual salary compensation.
Bonuses for the period covering July 1996 through December 1997 for the
executive officers were determined but not yet paid as of December 31, 1997 and
can be found in the Executive Compensation Table contained herein.
8
<PAGE>
The Surveys and the Pegasystems Inc. Performance Graph
The companies included in the Surveys differ from the companies
included in the Goldman Sachs Technology Software Index, which is included in
the Performance Graph following this report, in that the Goldman Sachs
Technology Software Index includes only a select number of public companies
which sell software, while the Surveys include public as well as private
companies which sell software and integrated turnkey systems, and is therefore
broader in scope. The Committee made reference to the Surveys in establishing
executive compensation because the Surveys include companies that are in the
software industry, as is the Company, and contain a broader range of companies
that are likely to compete for the services of the Company's executive officers.
For these reasons the Committee believes that Goldman Sachs Technology Software
Index is an appropriate basis for comparing stock performance and the Surveys
are an appropriate basis for determining compensation.
Deductibility of Executive Compensation
Section 162(m) of the Internal Revenue Code, enacted in 1993, generally
disallows a tax deduction to public companies for compensation over $1 million
paid to its chief executive and its four other most highly compensated
executives. Performance-based compensation is excluded from the compensation
taken into account for purposes of the limit if certain requirements are met.
The Company currently intends to structure its stock options granted to
executives in a manner that complies with the performance-based requirements of
the statute. The Committee believes that, given the general range of salaries
and bonuses for executive officers of the Company, the $1 million threshold of
Section 162(m) will not be reached by any executive officer of the Company in
the foreseeable future. Accordingly, the Committee has not considered what its
policy regarding compensation not qualifying for federal tax deduction might be
at such time, if ever, as that threshold is within range of any executive
officer.
Meetings of the Compensation Committee
The Committee met on February 19, 1997 to determine the merit pay
component of compensation for executive officers for 1997.
Compensation Committee
Edward A. Maybury
Leonard A. Schlesinger
Compensation Committee Interlocks and Insider Participation
Prior to May 1996, decisions concerning compensation of executive
officers were made by the Board of Directors which included Mr. Trefler, the
President of the Company, and Mr. Vishner, a Vice President and the Chief
Financial Officer of the Company. In May 1996, the Company established the
Compensation Committee. No executive officer of the Company has served as a
Director or member of the compensation committee (or other committee serving an
equivalent function) of any other entity, whose executive officers served on the
Company's Board of Directors or Compensation Committee.
9
<PAGE>
COMPARISON OF CUMULATIVE TOTAL STOCKHOLDER RETURN
The following performance graph represents a comparison of the
cumulative total return (assuming the reinvestment of dividends) for a $100
investment on July 18, 1996 (the date the Common Stock was first registered
under Section 12 of the Securities Exchange Act of 1934) in each of the Common
Stock of Pegasystems Inc., the Nasdaq Stock Market Index (a broad market index)
and the Goldman Sachs Technology Software Index ("GSTITM + Software") (a
published industry index). The Company paid no dividends during the period
shown. The graph lines merely connect measurement dates and do not reflect
fluctuations between those dates.
[GRAPH OMITTED]
Line representation of graph
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
7/18/96 12/31/96 12/31/97
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Pegasystems Inc. $100 $251 $168
- --------------------------------------------------------------------------------
Nasdaq Stock Market Index - US companies $100 $116 $143
- --------------------------------------------------------------------------------
GSTI Software $100 $116 $145
- --------------------------------------------------------------------------------
</TABLE>
The Report of the Compensation Committee on Executive Compensation and the
Comparison of Cumulative Total Stockholder Return information above shall not be
deemed "soliciting material" or incorporated by reference into any of the
Company's filings with the Securities and Exchange Commission by implication or
by any reference in any such filing to this Proxy Statement.
+ GSTI is a registered trademark of Goldman, Sachs & Co.
10
<PAGE>
RATIFICATION OF THE SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
(Item 2 of Notice)
The Board of Directors has selected Arthur Andersen LLP, independent
public accountants, to audit the financial statements of the Company for the
fiscal year ending December 31, 1998. The Board proposes that the stockholders
ratify this selection. Arthur Andersen LLP audited the Company's financial
statements for the fiscal year ended December 31, 1997. The Company expects that
representatives of Arthur Andersen LLP will be present at the Meeting, with the
opportunity to make a statement if they so desire, and will be available to
respond to appropriate questions.
Ernst & Young LLP ("E&Y") served as the Company's independent auditors
from 1984 through October 30, 1997 when E&Y elected to resign. The Board of
Directors of the Company had recommended the termination of E&Y as the
independent auditors of the Company prior to E&Y's resignation on October 30,
1997. The Company engaged Arthur Andersen LLP as its independent public
accountants on December 10, 1997.
The reports of E&Y on the Company's financial statements for 1995 and
1996 did not contain an adverse opinion or disclaimer of opinion and were not
qualified or modified as to uncertainty, audit scope, or accounting principles.
To the Company's knowledge, during 1995 and 1996, there was no disagreement
between the Company and E&Y on any matter of accounting principles or practices,
financial statement disclosure, or audit scope or procedures, which
disagreement, if not resolved to the satisfaction of E&Y, would have caused it
to make a reference to the subject matter of the disagreement in connection with
its report.
During the interim period subsequent to December 31, 1996 and prior to
E&Y's resignation on October 30, 1997, there was no disagreement of the type
described in the immediately preceding paragraph between the Company and E&Y,
except for a disagreement which arose in late October 1997 concerning the
Company's financial statements for the quarter ended June 30, 1997. The
disagreement involved the appropriate accounting treatment for a series of
transactions (the "FDR Transactions") entered into by the Company with First
Data Resources Inc. ("FDR") in June 1997. Contrary to the expectations of the
Company based on its discussions with E&Y at the time the FDR Transactions were
being negotiated, E&Y advised the Company that $5 million of software license
revenue recognized by the Company in the quarter ended June 30, 1997 from one of
the FDR Transactions should not have been recognized in that quarter.
Accordingly, E&Y advised the Company to restate its financial statements for the
three and six month periods ended June 30, 1997, which the Company did on
November 19, 1997.
The Board of Directors of the Company discussed the subject matter of
the disagreement referenced above with E&Y and has authorized E&Y to respond
fully to the inquiries of Arthur Andersen LLP concerning the subject matter of
such disagreements.
The Company is unaware of the occurrence of any of the kinds of events
described in subparagraphs (A)-(D) of Item 304(a)(1)(v) of Regulation S-K as
promulgated by the Securities and Exchange Commission, except for the
disagreement referenced above and except that E&Y advised the Company that it
disagreed with the accounting approaches preliminarily proposed by the Company
for recognizing revenue from the FDR Transactions in the quarter ended September
30, 1997 (the "reportable event"). The Board of Directors of the Company
discussed with E&Y the reportable event and has authorized E&Y to respond fully
to the inquiries of Arthur Andersen LLP concerning the reportable event.
11
<PAGE>
In the event that ratification of the appointment of Arthur Andersen
LLP as the independent public accountants for the Company is not obtained at the
upcoming Annual Meeting of Stockholders, the Board of Directors will reconsider
its selection.
The affirmative vote of a majority of the shares present or represented
and entitled to vote and voting at the Meeting is required to ratify the
selection of the independent public accountants.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE TO APPROVE THE RATIFICATION OF
THE SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS AND PROXIES SOLICITED BY THE
BOARD WILL BE VOTED IN FAVOR THEREOF UNLESS A STOCKHOLDER HAS INDICATED
OTHERWISE ON THE PROXY.
APPROVAL OF AMENDED AND RESTATED 1994 LONG-TERM INCENTIVE PLAN
(Item 3 of Notice)
The Board of Directors has adopted, subject to stockholder approval, an
amendment to the Company's 1994 Long-Term Incentive Plan and directed that such
Plan, as amended and restated to reflect such amendment (the "Plan"), be
submitted to the stockholders for their approval. The following summary of the
Plan does not purport to be complete and is qualified in its entirety by
reference to the full text of the Plan, which is attached as Appendix A to this
Proxy Statement.
Background
The Plan was adopted by the Board of Directors on November 23, 1994 and
approved by the stockholders on April 21, 1995, prior to the Company's initial
public offering. The Plan provides for the issuance of shares of Common Stock
pursuant to the grant of incentive stock options ("ISOs") to employees and
nonqualified stock options ("NSOs"), stock appreciation rights ("SARs"),
restricted stock or long-term performance awards to employees, consultants,
directors and officers of the Company. Long-term performance awards may be made
in cash or in stock, must be awarded in connection with a performance period of
at least two years, and are based on performance objectives determined by the
Compensation Committee. At April 29, 1998, the Company had 455 employees
eligible to participate in the Plan and options to purchase 4,253,850 shares
were outstanding and 514,350 shares issued upon the exercise of options were
outstanding. As of April 29, 1998, no restricted stock, SARs or long-term
performance awards had been granted under the Plan. The amendment to the Plan
approved by the Board of Directors increased the number of shares reserved for
issuance under the Plan from 5,000,000 to 7,500,000.
Administration
The Plan is administered by the Compensation Committee. Subject to the
provisions of the Plan, the Compensation Committee has the authority to select
the optionees or SAR, long-term performance award or restricted stock recipients
and determine the terms of the options, SARs, long-term performance awards or
restricted stock granted, including: (i) the number of shares or SARs; (ii) the
option exercise terms; (iii) the amount of the awards; (iv) the exercise or
purchase price (which in the case of an incentive stock option cannot be less
than the market price of the Common Stock as of the date of grant); (v) the type
and duration of transfer or other restrictions; and (vi) the time and form of
payment for restricted stock and upon exercise of options.
12
<PAGE>
Shares Available for Issuance
The stock subject to options and awards is authorized but unissued
shares of the Company's common stock or shares of treasury common stock. Any
shares subject to an option which for any reason expires or is terminated
unexercised as to such shares and any restricted stock which is reacquired by
the Company as a result of the exercise of a repurchase option may again be the
subject of an option or award under the Plan.
Transferability of Options
Generally, an option is not transferable by the optionholder except by
will or by the laws of descent and distribution.
Exercise and Termination of Options
No option may be exercised following termination for cause or
voluntary termination, or more than three months following involuntary
termination without cause. Upon termination due to death, an option is
exercisable for a maximum of one year after such termination, and upon
termination due to disability or upon early or normal retirement, an option is
exercisable for a maximum of two years after such termination.
1997 Option Grants
The following table sets forth the number of outstanding options
granted during 1997 under the Plan to the specified individuals and groups.
<TABLE>
<CAPTION>
Name Number of Options
- -------------------------------------------------------------------------------------
<S> <C>
Alan Trefler --
Joseph J. Friscia 25,000
Eugene A. Bonte 25,000
Michael R. Pyle 25,000
Ira Vishner 25,000
Kenneth W. Olson 25,000
All current executive officers as a group (6 persons) 125,000
All employees who were not executive officers as a group 901,000
</TABLE>
Federal Income Tax Consequences
ISOs -- A participant who receives an ISO will recognize no taxable
income for regular federal income tax purposes upon either the grant or the
exercise of such ISO. However, when a participant exercises an ISO, the
difference between the fair market value of the shares purchased and the option
price of those shares will be includible in determining the participant's
alternative minimum taxable income.
If the shares are retained by the participant for at least one year
from the date of exercise and two years from the date of grant of the option,
gain will be taxable to the participant, upon sale of the shares acquired upon
exercise of the ISO, as a long-term capital gain. In general, the adjusted basis
for the shares acquired upon exercise will be the option price paid with respect
to such exercise. The
13
<PAGE>
Company will not be entitled to a tax deduction arising from the exercise of an
ISO, if the employee qualifies for such long-term capital gain treatment.
If the shares are sold within a period of one year from the date of
exercise or two years from the date of grant of the ISO, the participant will be
required to recognize ordinary income equal to the difference between the option
price and the lesser of the fair market value of the shares on the date of
exercise or the amount realized on the sale or exchange of the shares. In this
situation, the Company will be entitled to a tax deduction of an equal amount.
NSOs -- A participant will not recognize taxable income for federal
income tax purposes at the time an NSO is granted. However, the participant will
recognize compensation taxable as ordinary income at the time of exercise for
all shares which are not subject to a substantial risk of forfeiture. The amount
of such compensation will be the difference between the option price and the
fair market value of the shares on the date of exercise of the option. The
Company will be entitled to a deduction for federal income tax purposes at the
same time and in the same amount as the participant is deemed to have recognized
compensation income with respect to shares received upon exercise of the NSO.
The participant's basis in the shares will be adjusted by adding the amount so
recognized as compensation to the purchase price paid by the participant for the
shares.
The participant will recognize gain or loss when he disposes of shares
obtained upon exercise of an NSO in an amount equal to the difference between
the selling price and the participant's tax basis in such shares. Such gain or
loss will be treated as long-term or short-term capital gain or loss, depending
upon the holding period.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE TO APPROVE THE COMPANY'S
AMENDED AND RESTATED 1994 LONG-TERM INCENTIVE PLAN AND PROXIES SOLICITED BY THE
BOARD WILL BE VOTED IN FAVOR THEREOF UNLESS A STOCKHOLDER HAS INDICATED
OTHERWISE ON THE PROXY.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "1934 Act")
requires the Company's Directors and executive officers, and persons who own
more than ten percent of the Company's Common Stock, to file reports with the
Securities and Exchange Commission (the "SEC") disclosing their ownership of
stock in the Company and changes in such ownership. Copies of such reports are
also required to be furnished to the Company.
To the Company's knowledge, based solely on review of the copies of the
above-mentioned reports furnished to the Company and written representations
that no other reports were required, during 1997 all such filing requirements
were complied with in a timely fashion.
STOCKHOLDER PROPOSALS FOR 1999 MEETING
Proposals of stockholders intended to be presented at the 1999 Annual Meeting of
Stockholders must be presented on or before December 30, 1998 for inclusion in
the proxy materials relating to that meeting. Any such proposals should be sent
to the Company at its principal offices addressed to the Clerk. Other
requirements for inclusion are set forth in Rule 14a-8 under the 1934 Act.
14
<PAGE>
OTHER MATTERS
The Company does not know of any other matters which will be brought
before the Meeting. If other business is properly presented for consideration at
the Meeting, it is intended that the shares represented by the enclosed proxy
will be voted by the persons voting the proxies in accordance with their
judgment on such matters.
In order that your shares may be represented if you do not plan to
attend the Meeting, and in order to assure the required quorum, please fill out,
sign, date and return your proxy promptly.
A prompt response will greatly facilitate arrangements for the Meeting,
and your cooperation will be appreciated.
By Order of the Board of Directors
Alan Trefler
April 29, 1998 Clerk
15
<PAGE>
4840-PS-98
(SKU to be printed on the back of the proxy statement)
16
<PAGE>
PEGASYSTEMS INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
1998 Annual Meeting of Stockholders
The undersigned stockholder of Pegasystems Inc., a Massachusetts corporation
("Pegasystems"), hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement dated April 29, 1998, and hereby appoints Ira
Vishner, Robert V. Jahrling, III and James W. Hackett, Jr., or any one or more
of them, proxies and attorneys-in-fact with full power of substitution to each
for and in the name of the undersigned, with all powers the undersigned would
possess if personally present to vote the Common Stock of the undersigned in
Pegasystems at the Annual Meeting of its stockholders to be held May 6, 1998 at
Fleet National Bank, 75 State Street, Conference Room F, 8th Floor, Boston,
Massachusetts at 10:00 a.m., local time, or any adjournment or postponement
thereof. Any of such attorneys or substitutes shall have and may exercise all of
the powers of said attorneys-in-fact hereunder.
<TABLE>
<S> <C> <C>
1. ELECTION OF FOR all nominees listed below AGAINST all nominees listed below [ ]
DIRECTORS: (except marked to the contrary below) [ ]
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU INSTRUCT THE PROXIES TO
VOTE FOR ALL OF THE NOMINEES LISTED BELOW.
NOMINEES: Edward A. Maybury and Leonard A. Schlesinger
(INSTRUCTION: TO VOTE AGAINST ANY INDIVIDUAL NOMINEE,
WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.)
- --------------------------------------------------------------------------------
(continued and to be signed on reverse side)
- --------------------------------------------------------------------------------
2. To ratify the selection of Arthur Andersen LLP as independent public
accountants of Pegasystems for the fiscal year ending December 31, 1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To approve the amended and restated 1994 Long-Term Incentive Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournment or
postponement thereof.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU INSTRUCT THE PROXIES TO VOTE FOR
PROPOSAL NO. 2 AND 3.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSAL
NOS. 1, 2 AND 3 AND AS SAID PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY
COME BEFORE THE MEETING.
PLEASE SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED ENVELOPE.
Please sign exactly as name appears below. When shares are held in more than one
name, including joint tenants, each party should sign. When signing as attorney,
executor, administrator, trustee or guardian, please give full title as such.
Dated ______________________, 1998
[ ] Mark here for address __________________________________
change and note below: Signature
__________________________________
Signature, if held jointly
Pegasystems Inc. Appendix A
1994 Long-Term Incentive Plan
As Amended and Restated on April 22, 1998
SECTION 1. Purpose; Definitions.
The name of this Plan is the Pegasystems Inc. 1994 Long-Term Incentive
Plan (the "Plan"). The purpose of the Plan is to provide incentives: (a) to
employees of Pegasystems Inc. (the "Corporation") by providing them with
opportunities to purchase stock in the Corporation pursuant to options granted
hereunder which qualify as Incentive Stock Options under Section 422 of the
Internal Revenue Code of 1986; (b) to directors (whether or not employees),
employees and consultants of the Corporation by providing them with
opportunities to purchase stock in the Corporation pursuant to options granted
hereunder which do not qualify as Incentive Stock Options under Section 422 of
the Internal Revenue Code of 1986, and otherwise to participate in shareholder
value which has been created.
For the purposes of the Plan, the following terms shall be defined as
set forth below:
a. "Award" means any Option, Stock Appreciation Right, Restricted
Stock or Long-Term Award granted under this Plan.
b. "Board" means the Board of Directors of the Corporation.
c. "Cause" means a felony conviction of a Participant or the failure
of a Participant to contest prosecution for a felony, or a
Participant's willful misconduct or dishonesty, any of which is
directly and materially harmful to the business or reputation of
the Corporation.
d. "Code" means the Internal Revenue Code of 1986, as amended from
time to time, and any successor thereto.
e. "Committee" means a Compensation Committee of the Board, if such
Committee has been appointed by the Board and has been authorized
to administer the Plan Such Committee will consist of two or more
members of the Board. In the event the Corporation registers any
class of any equity security pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"),
each member of the Committee shall be a "Disinterested Person" as
defined below. All references herein to the Committee shall mean
the Board if there is no Committee so appointed. From time to
time the Board may increase the size of the Committee and appoint
additional members thereof, remove members (with or without
cause), and appoint new members in substitution thereof, fill
vacancies however caused, or remove all members of the Committee
and thereafter directly administer the Plan.
f. "Corporation" means Pegasystems Inc., a corporation organized
under the laws of the Commonwealth of Massachusetts, or any
successor organization.
g. "Disability" means permanent and total disability as determined
under the Corporation's long-term disability program.
<PAGE>
h. "Disinterested Person" shall have the meaning set forth in Rule
16b-3(c)(2)(i) as promulgated by the Securities and Exchange
Commission under the Exchange Act, or any successor definition
adopted by the Securities and Exchange Commission.
i. "Early Retirement" means that a Participant has attained the
consent of the Committee to retire prior to having attained age
60 or qualifies for early retirement pursuant to the early
retirement provisions as set forth in a pension plan of the
Corporation in which the Optionee is a participant.
j. "Fair Market Value" means, as of any given date, the mean of the
highest and lowest quoted selling prices of the Stock on the
exchange on which the Corporation's shares are listed for trading
(consolidated trading) or, if no such sale occurs on the exchange
on such date, the fair market value of the Stock as determined by
the Committee in good faith based on the best available facts and
circumstances at the time.
k. "Incentive Stock Option" means any Stock Option intended to be
and designated as an "Incentive Stock Option" within the meaning
of Section 422 of the Code.
l. "Insider" means a Participant who is subject to the requirements
of the Rules (as defined below).
m. "Long-Term Performance Award" or "Long-Term Award" means an award
made pursuant to Section 8 below that is payable in cash and/or
Stock (including Restricted Stock) in accordance with the terms
of the grant, based on Corporation, business unit and/or
individual performance over a period of at least two years.
n. "Non-Qualified Stock Option" means any Stock Option that is not
an Incentive Stock Option.
o. "Normal Retirement" means retirement of a Participant from active
employment with the Corporation and any subsidiary or affiliate
after either having attained age 60 or pursuant to the normal
retirement provisions of an applicable pension plan of the
Corporation.
p. "Option" means any Incentive Stock Option or Non-Qualified Stock
Option to purchase shares of Stock (including Restricted Stock,
if the Committee so determines) granted pursuant to Section 5
below.
q. "Optionee" means a Participant who is the recipient of any
Incentive Stock Option or Non-Qualified Stock Option under this
Plan.
r. "Participant" means anyone to whom an Award is granted pursuant
to the Plan.
s. "Plan" means the Pegasystems Inc. 1994 Long-Term Incentive Plan,
as hereinafter amended from time to time.
t. "Restricted Stock" means an award of shares of Stock that is
subject to restrictions pursuant to Section 7 below.
u. "Retirement" means Normal or Early Retirement.
2
<PAGE>
v. "Rules" means Section 16 of the Securities Exchange Act of 1934,
as amended (the "Exchange Act") and the regulations promulgated
thereunder.
w. "Securities Broker" means the registered securities broker
acceptable to the Corporation who agrees to effect the cashless
exercise of an Option pursuant to Section 5(m) hereof.
x. "Stock" means the Common Stock, $.01 par value per share, of the
Corporation.
y. "Stock Appreciation Right" means the right, pursuant to an award
granted under Section 6 below, to surrender to the Corporation
all (or a portion) of a Stock Option in exchange for an amount
equal to the difference between (i) the Fair Market Value (or
such lesser ceiling as may be specified in the option grant), as
of the date such Stock Option (or such portion thereof) is
surrendered, of the shares of Stock covered by such Stock Option
(or such portion thereof), and (ii) the aggregate exercise price
of such Stock Option (or such portion thereof).
SECTION 2. Administration
The Plan shall be administered by the Committee.
The Committee shall have the authority to grant to eligible
Participants, pursuant to the terms of the Plan: (i) Stock Options, (ii) Stock
Appreciation Rights, (iii) Restricted Stock and/or (iv) Long-Term Performance
Awards.
In particular, the Committee shall have the authority:
(i) to select the Participants to whom Stock Options, Stock
Appreciation Rights, Restricted Stock and Long-Term Performance
Awards may from time to time be granted hereunder.
(ii) to determine whether and to what extent Incentive Stock Options,
Non-Qualified Stock Options, Stock Appreciation Rights,
Restricted Stock and Long-Term Performance Awards, or any
combination thereof, are to be granted hereunder;
(iii) to determine the number of shares to be covered by each such
award granted hereunder;
(iv) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of any award granted hereunder including, but
not limited to, the share price and any restriction or
limitation, or any vesting acceleration or forfeiture waiver
regarding any Stock Option or other award and/or the shares of
Stock relating thereto, based on such factors as the Committee
shall determine, in its sole discretion;
(v) to determine whether and under what circumstances a Stock Option
may be settled in cash or stock, including Restricted Stock under
Section 5(k);
(vi) to determine whether and under what circumstances a Stock Option
may be exercised without a payment of cash under Section 5(1);
and
(vii) to determine whether, to what extent and under what
circumstances Stock and other amounts payable with respect to an
award under this Plan shall be deferred either automatically or
at the election of the Participant.
3
<PAGE>
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable; to interpret the terms and provisions of the
Plan and any award issued under the Plan (and any agreements relating thereto);
and to otherwise supervise the administration of the Plan.
All decisions made by the Committee pursuant to the provisions of the
Plan shall be final and binding on all persons, including the Corporation and
Plan Participants.
SECTION 3. Stock Subject to the Plan
(a) Stock Subject to Plan. The stock to be subject or related to
awards under the Plan shall be shares of the Corporation's Stock
and may be either authorized and unissued or held in the treasury
of the Corporation. The maximum number of shares of Stock
authorized with respect to the grant of awards under the Plan,
subject to adjustment in accordance with paragraph 3(c) below,
shall be up to 7,500,000 shares of Stock; any or all of such
7,500,000 shares of Stock may be granted for awards of Incentive
Stock Options. In addition, shares equal to 2% of Stock
outstanding shares at the start of each Fiscal Year shall each
year be reserved exclusively for the granting of replacement
Options under Section 5(e) below to all Participants. Such
additional authorization of Stock for the granting of replacement
Options shall not, at any time, cause the maximum shareholder
dilution caused by the Plan to exceed the 7,500,000 shares of
Stock authorized for grant under the Plan. Notwithstanding the
foregoing, no individual shall receive, over the term of the
Plan, more than an aggregate of 30% of the shares authorized for
grant under the Plan, including shares subject to replacement
Options awarded under the Plan.
(b) Unused, Forfeited and Reacquired Shares. The shares related to
the unexercised or undistributed portion of any terminated,
expired or forfeited Award for which no material benefit was
received by a Participant (i.e. dividends) shall be made
available for distribution in connection with future awards under
the Plan to the extent permitted to receive exemptive relief
pursuant to the Rules. Any shares made available for distribution
in connection with future awards under this Plan pursuant to this
paragraph (b) shall be in addition to the shares available
pursuant to paragraph (a) of this Section 3.
(c) Other Adjustments. In the event of any merger, reorganization,
consolidation, recapitalization, Stock dividend, or other change
in corporate structure affecting the Stock, such substitution or
adjustment shall be made in the aggregate number of shares
reserved for issuance under the Plan, in the number and option
price of shares subject to outstanding Options granted under the
Plan and in the number and price of shares subject to other
Awards made under the Plan, as may be determined to be
appropriate by the Committee in its sole discretion, provided
that the number of shares subject to any award shall always be a
whole number. Such adjusted option price shall also be used to
determine the amount payable by the Corporation upon the exercise
of any Stock Appreciation Right associated with any Stock Option.
SECTION 4. Eligibility
Directors (whether or not employees of the Corporation), consultants
and employees of the Corporation who are responsible for or who contribute to
the management, growth and/or profitability
4
<PAGE>
of the Corporation and/or any Subsidiary (as defined below) or affiliate of the
Corporation are eligible to be granted Awards under the Plan.
SECTION 5. Stock Options
Stock Options may be granted alone, in addition to or in tandem with
other awards granted under the Plan. Any Stock Option granted under the Plan
shall be in such form as the Committee may from time to time approve.
Stock Options granted under the Plan may be of two types: (i) Incentive
Stock Options and (ii) Non-Qualified Stock Options.
With the exception of Optionees who are either (i) consultants or (ii)
directors who are not also employees of the corporation, who shall not be
eligible to receive Incentive Stock Options, the Committee shall have the
authority to grant any Optionee Incentive Stock Options, Non-Qualified Stock
Options, or both types of Stock Options (in each case with or without Stock
Appreciation Rights). To the extent that any Stock Option does not qualify as an
Incentive Stock Option, it shall constitute a separate Non-Qualified Stock
Option.
Anything in the Plan to the contrary notwithstanding, no term of this
Plan relating to Incentive Stock Options shall be interpreted, amended or
altered, nor shall any discretion or authority granted under the Plan be so
exercised, so as to disqualify the Plan under Section 422 of the Code, or,
without the consent of the Optionee(s) affected, to disqualify any Incentive
Stock Option under such Section 422.
Options granted under the Plan shall be subject to the following terms
and conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem
appropriate:
(a) Option Price. The option price per share of Stock purchasable
under a Stock Option shall be determined by the Committee at the
time of grant, but for Non-Qualified Stock Options shall not be
less than 50% of the Fair Market Value of the Stock at the time
of grant, and for Incentive Stock Options shall be not less than
100% of the Fair Market Value of the Stock at the time of grant.
However, any Incentive Stock Option granted to any Optionee who,
at the time the Option is granted, owns more than 10% of the
voting power of all classes of stock of the Corporation or of a
Parent or Subsidiary corporation, shall have an exercise price no
less than 110% of Fair Market Value per share on date of the
grant. The term "Parent" and "Subsidiary" as used herein shall
mean "parent corporation" and "subsidiary corporation" as those
terms are defined in Section 424 of the Code.
(b) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Incentive Stock Option or Non-Qualified Stock
Option shall be exercisable more than ten years after the date
the Option is granted. However, any Option granted to any
Optionee who at the time the Option is granted owns more than 10%
of the voting power of all classes of Stock of the Corporation or
of a Parent or Subsidiary corporation may not have a term of more
than five years. No Option may be exercised by any person after
expiration of the term of the Option.
(c) Exercisability. Stock Options shall be exercisable at such time
or times and subject to such terms and conditions as shall be
determined by the Committee at or after grant, provided,
5
<PAGE>
however, that, except as provided in Section 5(g), unless
otherwise determined by the Committee at or after grant, no Stock
Option shall be exercisable during the six months following the
date of the granting of the Option. If the Committee provides, in
its discretion, that any Stock Option is exercisable only in
installments, the Committee may waive such installment exercise
provisions at any time at or after grant in whole or in part,
based on such factors as the Committee shall determine, in its
sole discretion.
(d) Method of Exercise. Subject to whatever installment exercise
provisions apply under Section 5(c), Stock Options may be
exercised in whole or in part at any time and from time to time
during the Option period, by giving written notice of exercise to
the Corporation specifying the number of shares to be purchased.
Such notice shall be accompanied by payment in full of the
purchase price, either by certified or bank check, or such other
instrument as the Committee may accept. As determined by the
Committee, in its sole discretion, at or after grant, payment in
full or in part may also be made in the form of unrestricted
Stock already owned by the Optionee or, in the case of the
exercise of a Non-Qualified Stock Option or Restricted Stock
subject to an award hereunder (based, in each case, on the Fair
Market Value of the Stock on the date the Option is exercised, as
determined by the Committee), provided, however, that, in the
case of an Incentive Stock Option, the right to make a payment in
the form of already owned shares may be authorized only at the
time the Option is granted.
The Committee, in its sole discretion, may at the time of grant
or such later time as it determines, permit payment of the Option
exercise price of a Non-Qualified Stock Option to be made in
whole or in part in the form of Restricted Stock. If such payment
is permitted, then such Restricted Stock (and any replacement
shares relating thereto) shall remain (or be) restricted in
accordance with the original terms of the Restricted Stock award
in question, and any additional Stock received upon the exercise,
shall be subject to the same forfeiture restrictions, unless
otherwise determined by the Committee, in its sole discretion, at
or after grant.
If payment of the Option exercise price of a Non-Qualified Option
is made in whole or in part in the form of unrestricted stock
already owned by the Participant, the Corporation may require
that the stock be owned by the Participant for a period of six
months or longer so that such payment would not result in a
pyramid exercise.
No shares of Stock shall be issued until full payment therefor
has been made. An Optionee shall generally have the rights to
dividends or other rights of a shareholder with respect to shares
subject to the Option when the Optionee has given written notice
of exercise, has paid in full for such shares, and, if requested,
has given the representation described in Section 11(a).
(e) Replacement Options. If an Option granted pursuant to the Plan
may be exercised by an Optionee by means of a stock-for-stock
swap method of exercise as provided in 5(d) above, then the
Committee may, in its sole discretion, at the time of the
original Option grant or at such subsequent time during the term
of such Option as the Committee, in its sole discretion, shall
deem appropriate, authorize the Participant to automatically
receive a replacement Option pursuant to this part of the Plan.
This replacement Option shall cover a number of shares determined
by the Committee, but in no event more than the number of shares
equal to the difference between the number of shares covered by
the original Option exercised and the net shares received by the
Participant from such exercise. The exercise price of the
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replacement Option shall equal the then current Fair Market
Value, and with a term not to exceed ten years.
The Committee shall have the right, in its sole discretion and at
any time, to discontinue the automatic grant of replacement
Options if it determines the continuance of such grants to no
longer be in the best interest of the Corporation.
(f) Non-transferability of Options. No Stock Option shall be
transferable by the Optionee otherwise than by will or by the
laws of descent and distribution, and all Stock Options shall be
exercisable, during the Optionee's lifetime, only by the
Optionee.
(g) Termination by Reason of Death. Subject to Section 5(j), if an
Optionee's employment by the Corporation and any Subsidiary or
affiliate terminates by reason of death, any Stock Option held by
such Optionee may thereafter be exercised, to the extent then
exercisable or on such accelerated basis as the Committee may
determine at or after grant, by the legal representative of the
estate or by the legatee of the Optionee under the will of the
Optionee, for a period of one year (or such shorter period as the
Committee may specify at grant) from the date of such death or
until the expiration of the stated term of such Stock Option,
whichever period is the shorter.
(h) Termination by Reason of Disability. Subject to Section 5(k), if
an Optionee's employment by the Corporation and any Subsidiary or
affiliate terminates by reason of Disability, any Stock Option
held by such Optionee may thereafter be exercised by the
Optionee, to the extent it was exercisable at the time of
termination, or on such accelerated basis as the Committee may
determine at or after grant, for a period of two years (or such
shorter period as the Committee may specify at grant) from the
date of such termination of employment or until the expiration of
the stated term of such Stock Option, whichever period is the
shorter; provided, however, that if the Optionee dies within such
two-year period (or such shorter period as the Committee shall
specify at grant), any unexercised Stock Option held by such
Optionee shall, at the sole discretion of the Committee,
thereafter be exercisable to the extent to which it was
exercisable at the time of death for a period of twelve months
from the date of such death or until the expiration of the stated
term of such Stock Option, whichever period is the shorter. In
the event of termination of employment by reason of Disability,
if an Incentive Stock Option is exercised after the expiration of
the exercise periods that apply for purposes of Section 422 of
the Code, such Stock Option will thereafter be treated as a
Non-Qualified Stock Option.
(i) Termination by Reason of Retirement. Subject to Section 5(j), if
an Optionee's employment by the Corporation terminates by reason
of Normal or Early Retirement, any Stock Option held by such
Optionee may thereafter be exercised by the Optionee, to the
extent it was exercisable at the time of such Retirement or on
such accelerated basis as the Committee may determine at or after
grant, for a period of two years (or such shorter period as
Committee may specify at grant) from the date of such termination
of employment or the expiration of the stated term of such Stock
Option, whichever period is the shorter; provided, however, that,
if the Optionee dies within such two-year period, any unexercised
Stock Option held by such Optionee shall, at the sole discretion
of the Committee, thereafter be exercisable, to the extent to
which it was exercisable at the time of death, for a period of
twelve months from the date of such death or until the expiration
of the stated term of such Stock Option, whichever period is the
shorter. In the event of termination of employment by reason of
Retirement, if an Incentive Stock Option is exercised after the
expiration of the exercise periods that apply
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for purposes of Section 422 of the Code, such Stock Option will
thereafter be treated as a Non-Qualified Stock Option.
(j) Other Termination. Unless otherwise determined by the Committee
at or after grant, if an Optionee's employment by the Corporation
terminates for any reason other than death, Disability or Normal
or Early Retirement, the Stock Option shall thereupon terminate,
except that such Stock Option may be exercised for the lesser of
three months or the balance of such Stock Option's term if the
Optionee is involuntarily terminated by the Corporation without
Cause.
(k) Incentive Stock Option Limitations. To the extent required for
"Incentive Stock Option" status under Section 422 of the Code,
the aggregate Fair Market Value (determined as of the time of
grant) of the Stock with respect to which Incentive Stock Options
granted after 1986 are exercisable for the first time by the
Optionee during any calendar year under the Plan and/or any other
Option plan of the Corporation (within the meaning of Section 424
of the Code) after 1986 shall not exceed $100,000.
To the extent (if any) permitted under Section 422 of the Code,
if (i) a Participant's employment with the Corporation is
terminated by reason of death, Disability or Retirement and (ii)
the portion of any Incentive Stock Option that is otherwise
exercisable during the post-termination period specified under
Section 5(g), (h) or (i), applied without regard to this Section
5(k), is greater than the portion of such Option that is
exercisable as an "Incentive Stock Option" during such
post-termination period under Section 422, such post-termination
period shall automatically be extended (but not beyond the
original Option term) to the extent necessary to permit the
Optionee to exercise such Incentive Stock Option.
(l) Cash-out of Option; Settlement of Spread Value in Restricted
Stock. On receipt of written notice to exercise, the Committee
may, in its sole discretion, elect to cash out all or part of the
portion of the Option(s) to be exercised by paying the Optionee
an amount, in cash or stock, equal to the excess of the Fair
Market Value of the Stock over the option price (the "Spread
Value") on the effective date of such cash-out.
In addition, if the Option agreement so provides at grant or is
amended (with the Optionee's consent) after grant and prior to
exercise to so provide, the Committee may require that all or
part of the shares to be issued with respect to the Spread Value
of an exercised Option take the form of Restricted Stock, which
shall be valued on the date of exercise on the basis of the Fair
Market Value of such Restricted Stock determined without regard
to the forfeiture restrictions involved.
(m) Cashless Exercise. To the extent permitted under the applicable
laws and regulations under Section 16 of the Securities Exchange
Act of 1934, as amended, and the Rules promulgated thereunder,
and with the consent of the Committee, the Corporation agrees to
cooperate in a "cashless exercise" of an Option. The cashless
exercise shall be effected by the Participant delivering to the
Securities Broker instructions to sell a sufficient number of
shares of Common Stock to cover the costs and expenses associated
therewith.
SECTION 6. Stock Appreciation Rights
(a) Grant and Exercise. Stock Appreciation Rights may be granted in
conjunction with all or part of any Stock Option granted under
the Plan. In the case of a Non-Qualified Stock Option,
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such rights may be granted either at or after the time of the
grant of such Stock Option. In the case of an Incentive Stock
Option, such rights may be granted only at the time of the grant
of such Stock Option.
A Stock Appreciation Right or applicable portion thereof granted
with respect to a given Stock Option shall terminate and no
longer be exercisable upon the termination or exercise of the
related Stock Option, except that, unless otherwise determined by
the Committee, in its sole discretion, at the time of grant, a
Stock Appreciation Right granted with respect to less than the
full number of shares covered by a related Stock Option shall not
be reduced until the number of shares covered by an exercise or
termination of the related Stock Option exceeds the number of
shares not covered by the Stock Appreciation Right.
A Stock Appreciation Right may be exercised by an Optionee, in
accordance with Section 6(b), by surrendering the applicable
portion of the related Stock Option. Upon such exercise and
surrender, the Optionee shall be entitled to receive an amount
determined in the manner prescribed in Section 6(b). Stock
Options which have been so surrendered, in whole or in part,
shall no longer be exercisable to the extent the related Stock
Appreciation Rights have been exercised.
(b) Terms and Conditions. Stock Appreciation Rights shall be subject
to such terms and conditions, not inconsistent with the
provisions of the Plan, as shall be determined from time to time
by the Committee, including the following:
(i) Stock Appreciation Rights shall be exercisable only at such
time or times and to the extent that the Stock Options to
which they relate, if any, shall be exercisable in
accordance with the provisions of Section 5 and this Section
6 of the Plan; provided, however, that any Stock
Appreciation Right granted subsequent to the grant of the
related Stock Option shall not be exercisable during the
first six months of its term, except that this special
limitation shall not apply in the event of death or
Disability of the Optionee prior to the expiration of the
six-month period.
(ii) Upon the exercise of a Stock Appreciation Right, an Optionee
shall be entitled to receive up to, but not more than, an
amount in cash and/or shares of Stock equal in value to the
excess of the Fair Market Value of one share of Stock over
the Option price per share or such lesser amount as
specified in the grant agreement, multiplied by the number
of shares in respect of which the Stock Appreciation Right
shall have been exercised, with the Committee having the
right to determine the form of payment.
(iii) Stock Appreciation Rights shall be transferable only when
and to the extent that the underlying Stock Option would be
transferable under Section 5(f) of the Plan.
(iv) Upon the exercise of a Stock Appreciation Right, the Stock
Option or part thereof to which such Stock Appreciation
Right is related shall be deemed to have been exercised for
the purpose of the limitation set forth in Section 3 of the
Plan on the number of shares of Stock to be issued under the
Plan, but only to the extent of the number of shares issued
under the Stock Appreciation Right at the time of exercise
based on the value of the Stock Appreciation Right at such
time.
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(v) A Stock Appreciation Right granted in connection with an
Incentive Stock Option may be exercised only if and when the
market price of the Stock subject to the Incentive Stock
Option exceeds the exercise price of such Stock Option.
SECTION 7. Restricted Stock
(a) Administration. Shares of Restricted Stock may be issued either
alone or in addition to other awards granted under the Plan. The
Committee shall determine the Participants to whom, and the time
or times at which, grants of Restricted Stock will be made, the
number of shares to be awarded, the price (if any) to be paid by
the recipient of Restricted Stock (subject to Section 7(b)), the
time or times within which such awards may be subject to
forfeiture, and all other conditions of the awards.
The Committee may condition the grant of Restricted Stock upon
the attainment of specified performance goals or such other
factors as the Committee may determine, in its sole discretion.
The provisions of Restricted Stock awards need not be the same
with respect to each recipient.
(b) Awards and Certificates. The prospective recipient of a
Restricted Stock award shall not have any rights with respect to
such award, unless and until such recipient has executed an
agreement evidencing the award and has delivered a fully executed
copy thereof to the Corporation, and has otherwise complied with
the applicable terms and conditions of such award.
(i) The purchase price for shares of Restricted Stock shall not
be less than what prevailing law may require.
(ii) Awards of Restricted Stock must be accepted within a period
of 60 days (or such shorter period as the Committee may
specify at grant) after the award date, by executing a
Restricted Stock Award Agreement and paying whatever price
(if any) is required under Section 7(b)(i).
(iii) Each Participant receiving a Restricted Stock award shall
be issued a stock certificate in respect of such shares of
Restricted Stock. Such certificate shall be registered in
the name of such Participant, and shall bear an appropriate
legend referring to the terms, conditions, and restrictions
applicable to such award, substantially in the following
form:
"The transferability of this certificate and the shares of
stock represented hereby are subject to the terms and
conditions (including forfeiture) of the Pegasystems Inc.
1994 Long-Term Incentive Plan and an Agreement entered into
between the registered owner and Pegasystems Inc. Copies of
such Plan and or Agreement are on file in the offices of
Pegasystems Inc. 101 Main Street, Cambridge, MA 02142-1590
Attention: Vice President, Corporate Services."
(iv) The Committee shall require that the stock certificates
evidencing such shares be held in custody by the Corporation
until the restrictions thereon shall have lapsed, and that,
as a condition of any Restricted Stock award, the
Participant shall have delivered a stock power, endorsed in
blank, relating to the Stock covered by such award.
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(c) Restrictions and Conditions. The shares of Restricted Stock
awarded pursuant to this Section 7 shall be subject to the
following restrictions and conditions:
(i) Subject to the provisions of this Plan and the award
agreement, during a period set by the Committee commencing
with the date of such award (the "Restriction Period"), the
Participant shall not be permitted to sell, transfer,
pledge, assign or otherwise encumber shares of Restricted
Stock awarded under the Plan. Within these limits, the
Committee, in its sole discretion, may provide for the lapse
of such restrictions in installments and may accelerate or
waive such restrictions in whole or in part, based on
service, performance and/or such other factors or criteria
as the Committee may determine, in its sole discretion.
(ii) Except as provided in this paragraph (ii) and Section
7(c)(i), the Participant shall have, with respect to the
shares of Restricted Stock, all of the rights of a
shareholder of the Corporation, including the right to vote
the shares, and the right to receive any cash dividends. The
Committee, in its sole discretion, as determined at the time
of award, may permit or require the payment of cash
dividends to be deferred and, if the Committee so
determines, reinvested in additional Restricted Stock to the
extent shares are available under Section 3.
(iii) Subject to the applicable provisions of the award agreement
and this Section 7, upon termination of a Participant's
employment with the Corporation for any reason during the
Restriction Period, all shares still subject to restriction
shall be forfeited by the Participant.
(iv) In the event of hardship or other special circumstances of a
Participant whose employment with the Corporation is
involuntarily terminated (other than for Cause), the
Committee may, in its sole discretion, waive in whole or in
part any or all remaining restrictions with respect to such
Participant's shares of Restricted Stock, based on such
factors as the Committee may deem appropriate.
(v) If and when the Restriction Period expires without a prior
forfeiture of the Restricted Stock subject to such
Restriction Period, the certificates for such shares shall
be delivered to the Participant promptly.
SECTION 8. Long Term Performance Awards
(a) Awards and Administration. Long Term Performance Awards may be
awarded either alone or in addition to other awards granted under
the Plan. The Committee shall determine the nature, length and
starting date of the performance period (the "Performance
Period") for each Long Term Performance Award, which shall be at
least two years, and shall determine the performance objectives
to be used in valuing Long Term Performance Awards and
determining the extent to which such Long Term Performance Awards
have been earned. Performance objectives may vary from
Participant to Participant and between groups of Participants and
shall be based upon such Corporation, business unit and/or
individual performance factors and criteria as the Committee may
deem appropriate, including, but not limited to, earnings per
share or return on equity. Performance Periods may overlap and
Participants may participate simultaneously with respect to Long
Term Performance Awards
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that are subject to different Performance Periods and/or
different performance factors and criteria.
At the beginning of each Performance Period, the Committee shall
determine for each Long Term Performance Award subject to such
Performance Period the range of dollar values or number of shares
of Stock to be awarded to the Participant at the end of the
Performance Period if and to the extent that the relevant
measure(s) of performance for such Long Term Performance Award is
(are) met. Such dollar values or number of shares of Stock may be
fixed or may vary in accordance with such performance and/or
other criteria as may be specified by the Committee, in its sole
discretion.
(b) Adjustment of Awards. In the event of special or unusual events
or circumstances affecting the application of one or more
performance objectives to a Long Term Performance Award, the
Committee may revise the performance objectives and/or underlying
factors and criteria applicable to the Long Term Performance
Awards affected, to the extent deemed appropriate by the
Committee, in its sole discretion, to avoid unintended windfalls
or hardship.
(c) Termination of Employment. Unless otherwise provided in the
applicable award agreement(s), if a Participant terminates
employment with the Corporation during a Performance Period
because of death, Disability or Retirement, such Participant
shall be entitled to a payment with respect to each outstanding
Long Term Performance Award at the end of the applicable
Performance Period:
(i) based, to the extent relevant under the terms of the award,
upon the Participant's performance for the portion of such
Performance Period ending on the date of termination and the
performance of the applicable business unit(s) for the
entire Performance Period, and
(ii) prorated where deemed appropriate by the Committee, for the
portion of the Performance Period during which the
Participant was employed by the Corporation, all as
determined by the Committee, in its sole discretion.
However, the Committee may provide for an earlier payment in
settlement of such award in such amount and under such terms
and conditions as the Committee deems appropriate.
If a Participant terminates employment with the Corporation
during a Performance Period for any other reason, then such
Participant shall not be entitled to any payment with
respect to the Long Term Performance Awards subject to such
Performance Period, unless the Committee shall otherwise
determine, in its sole discretion.
(d) Form of Payment. The earned portion of a Long Term Performance
Award may be paid currently or on a deferred basis with such
interest or earnings equivalent as may be determined by the
Committee, in its sole discretion. Payment shall be made in the
form of cash or whole shares of Stock, including Restricted
Stock, either in a lump sum payment or in annual installments
commencing as soon as practicable after the end of the relevant
Performance Period, all as the Committee shall determine at or
after grant. If and to the extent a Long Term Performance Award
is payable in Stock and the full amount of such value is not paid
in Stock, then the shares of Stock representing the portion of
the value of the Long Term Performance Award not paid in Stock
shall again become available for award under the Plan.
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SECTION 9. Amendments and Termination
The Board may amend, alter, or discontinue the Plan at any time and
from time to time, but no amendment, alteration, or discontinuation shall be
made which would impair the rights of an Optionee or Participant with respect to
a Stock Option, Stock Appreciation Right, Restricted Stock or Long Term
Performance Award which has been granted under the Plan, without the Optionee's
or Participant's consent, or which, without the approval of the Corporation's
stockholders obtained within 12 months before or after the Board adopts a
resolution authorizing any of the following amendments, would:
(a) except as expressly provided in this Plan, increase the total
number of shares reserved for the purpose of the Plan;
(b) decrease the Option price of any Stock Option to less than 50% of
the Fair Market Value on the date of grant;
(c) change the employees or class of employees eligible to
participate in the Plan; or
(d) extend the maximum Option period under Section 5(b) of the Plan.
The Committee may amend the terms of any Stock Option or other award
theretofore granted, prospectively or retroactively, but, subject to Section 3
above, no such amendment shall impair the rights of any holder without the
holder's consent. The Committee may also substitute new Stock Options for
previously granted Stock Options, including previously granted Stock Options
having higher Option prices.
Subject to the above provisions, the Committee shall have broad
authority to amend the Plan to take into account changes in applicable tax laws
and accounting rules, as well as other developments.
SECTION 10. Unfunded Status of Plan
The Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. With respect to any payments not yet made to a
Participant or Optionee by the Corporation, nothing contained herein shall give
any such Participant or Optionee any rights that are greater than those of a
general creditor of the Corporation. In its sole discretion, the Board may
authorize the creation of trusts or other arrangements to meet the obligations
created under the Plan to deliver Stock or payments in lieu of or with respect
to awards hereunder, provided, however, that, unless the Board otherwise
determines with the consent of the affected Participant, the existence of such
trusts or other arrangements is consistent with the "unfunded" status of the
Plan.
SECTION 11. General Provisions
(a) The Committee may require each person purchasing shares pursuant
to a Stock Option under the Plan to represent to and agree with
the Corporation in writing that the Optionee or Participant is
acquiring the shares without a view to distribution thereof. The
certificates for such shares may include any legend which the
Committee deems appropriate to reflect any restrictions on
transfer.
All certificates for shares of Stock or other securities
delivered under the Plan shall be subject to such stock-transfer
orders and other restrictions as the Committee may deem advisable
under the rules, regulations, and other requirements of the
Exchange Act, any stock exchange
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upon which the Stock is then listed, and any applicable federal
or state securities law, and the Committee may cause a legend or
legends to be put on any such certificates to make appropriate
reference to such restrictions.
(b) Nothing contained in this Plan shall prevent the Board of
Directors from adopting other or additional compensation
arrangements, subject to stockholder approval if such approval is
required; and such arrangements may be either generally
applicable or applicable only in specific cases.
(c) The adoption of the Plan shall not confer upon any employee of
the Corporation any right to continued employment with the
Corporation, as the case may be, nor shall it interfere in any
way with the right of the Corporation to terminate the employment
of any of its employees at any time.
(d) No later than the date as of which an amount first becomes
includible in the gross income of the Participant for Federal
income tax purposes with respect to any award under the Plan, the
Participant shall pay to the Corporation, or make arrangements
satisfactory to the Committee regarding the payment of, any
Federal, state, or local taxes of any kind required by law to be
withheld with respect to such amount. Unless otherwise determined
by the Committee, the minimum required withholding obligations
may be settled with Stock, including Stock that is part of the
award that gives rise to the withholding requirement. The
obligations of the Corporation under the Plan shall be
conditional on such payment or arrangements and the Corporation
shall, to the extent permitted by law, have the right to deduct
any such taxes from any payment of any kind otherwise due to the
Participant.
(e) At the time of grant, the Committee may provide in connection
with any grant made under this Plan that the shares of Stock
received as a result of such grant shall be subject to a right of
first refusal, pursuant to which the Participant shall be
required to offer to the Corporation any shares that the
Participant wishes to sell, with the price being the then Fair
Market Value of the Stock, subject to such other terms and
conditions as the Committee may specify at the time of grant.
(f) Shares may be subject to a repurchase right by the Corporation
which the Corporation shall have the right to exercise from time
to time as may be set forth in a grant agreement for an award
granted under this Plan.
(g) The reinvestment of dividends in additional Restricted Stock (or
in other types of Plan awards) at the time of any dividend
payment shall only be permissible if sufficient shares of Stock
are available under Section 3 for such reinvestment (taking into
account then outstanding Stock Options and other Plan awards).
(h) The Committee shall establish such procedures as it deems
appropriate for a Participant to designate a beneficiary to whom
any amounts payable in the event of the Participant's death are
to be paid.
(i) The Plan and all awards made and actions taken thereunder shall
be governed by and construed in accordance with the laws of the
Commonwealth of Massachusetts.
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SECTION 12. Effective Date of Plan
The Plan shall be effective on the date it is approved by a vote of the
holders of a majority of the total outstanding Stock.
SECTION 13. Term of Plan
No Stock Option, Stock Appreciation Right, Restricted Stock or Long
Term Performance Award shall be granted pursuant to the Plan on or after the
tenth anniversary of the date of stockholder approval, but awards granted prior
to such tenth anniversary may extend beyond that date.
15
