<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-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):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
[LOGO]
Dear Stockholder:
We cordially invite you to attend our 2000 Annual Meeting of Stockholders on
Thursday, June 29, 2000 at One Main Street, Cambridge, 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
describe the items to be considered by the stockholders and contain 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 June 29, 2000.
Sincerely,
/s/ Alan Trefler
Alan Trefler
Chairman and Chief Executive Officer
June 16, 2000
<PAGE>
PEGASYSTEMS INC.
101 Main Street
Cambridge, MA 02142
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held on June 29, 2000
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 One Main Street, Cambridge,
Massachusetts, on Thursday, June 29, 2000 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 2003 Annual Meeting of Stockholders and until their successors are
duly elected and qualified and to elect William W. Wyman as a member of
the Board of Directors to hold office until the 2003 Annual Meeting of
Stockholders and until his successor is duly elected and qualified.
2. To consider and act upon a proposal to approve an amendment to the
Pegasystems Inc. Amended and Restated 1994 Long-Term Incentive Plan.
3. To consider and act upon a proposal to approve an amendment to the
Pegasystems Inc. 1996 Non-Employee Director Stock Option Plan.
4. To ratify the Board of Directors' selection of Deloitte & Touche LLP as
the independent public accountants for the Company for the year ending
December 31, 2000.
5. 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,
May 19, 2000, 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
/s/ James P. O'Halloran
James P. O'Halloran
Clerk
June 16, 2000
<PAGE>
PEGASYSTEMS INC.
101 Main Street
Cambridge, MA 02142
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
To Be Held On June 29, 2000
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 One Main Street, Cambridge, Massachusetts, on Thursday,
June 29, 2000 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, 1999, are being mailed to the stockholders on or
about June 16, 2000. 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 29,196,315 shares of Common
Stock outstanding as of the close of business on the record date, May 19, 2000,
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.
1
<PAGE>
PRINCIPAL AND MANAGEMENT STOCKHOLDERS
The following table sets forth certain information as of February 15, 2000,
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 and nominee
for Director of the Company, (iii) the CEO and the four 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)........................ 21,237,100 73.2%
Wellington Management Company, LLP (3).. 5.4%
Joseph J. Friscia (4)................... 419,750 1.4%
Stephen F. Kaplan(4).................... 30,000 *
Edward A. Maybury (4)................... 37,800 *
William W. Wyman........................ 0 --
William H. Keough....................... 0 --
Kenneth Olson(5)........................ 270,375 *
James P. O'Halloran (4)................. 100,000 *
Michael R. Pyle (6)..................... 232,912 *
Edward B. Roberts (7)................... 36,000 *
Ronald Rock(4).......................... 26,250 *
Leonard A. Schlesinger (4).............. 31,000 *
All executive officers and Directors as
a group (14 persons) (8).............. 22,504,062 75.1%
</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) 29,013,667 shares of Common Stock outstanding as of February 15, 2000
and (ii) shares issuable pursuant to outstanding options held by the
respective person or group which are exercisable within 60 days of
February 15, 2000, as set forth below.
(2) Includes 375,000 shares held in trust with respect to which Mr. Trefler has
voting and dispositive power. Mr. Trefler disclaims beneficial interest.
(3) Based solely on information contained in Form 13(F) filed for the quarter
ended March 31, 2000.
(4) Consists solely of shares of Common Stock subject to stock options
exercisable within 60 days of February 15, 2000.
(5) Includes 30,375 shares of Common Stock subject to stock options exercisable
within 60 days of February 15, 2000.
(6) Includes 207,912 shares of Common Stock subject to stock options exercisable
within 60 days of February 15, 2000.
(7) Includes 31,000 shares of Common Stock subject to stock options exercisable
within 60 days of February 15, 2000.
(8) Includes 965,962 shares of Common Stock subject to stock options exercisable
within 60 days of February 5, 2000.
2
<PAGE>
ELECTION OF DIRECTORS
(Item 1 of Notice)
There are currently five members of the Board of Directors, divided into
three classes with terms expiring respectively at the 2000, 2001 and 2002 annual
meetings of stockholders. Mr. Leonard Schlesinger has resigned from the Board
effective May 31, 2000. The Board has elected William H. Keough to fill the
vacancy created by Mr. Schlesinger's resignation. The Board has nominated
Stephen F. Kaplan and Alan Trefler, whose terms are expiring, for re-election
and has nominated William W. Wyman for election to the class of directors whose
term expires in 2003. Messrs. Kaplan and Trefler have consented to serve, if
elected at the Meeting, for a three-year term expiring at the time of the 2003
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. Kaplan, Trefler, and Wyman unless such authority is withheld by
marking the proxy to that effect. Each of Messrs. Kaplan, Trefler, and Wyman has
agreed to serve, but in the event any of them 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 three 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 2003
STEPHEN F. KAPLAN, 44, has served as a Director of the Company since
August 9, 1999. He currently is a Managing Director of The Audax Group, a
private equity and venture capital firm. From 1988 to 2000, Mr. Kaplan was
affiliated with Texas Pacific Group, a private equity firm and he served as
President, Chief Operating Officer and Chief Financial Officer of Favorite
Brands International Holding Corp., a confectionery company controlled by Texas
Pacific Group. From 1996 to 1997, Mr. Kaplan was Executive Vice President and
Chief Financial Officer of the Coleman Company, an international manufacturer of
camping, outdoor recreation and hardware equipment. From 1993 to 1996,
Mr. Kaplan was a financial and strategy consultant to venture capital and
buy-out firms. During 1994, Mr. Kaplan served as Chief Financial Officer of
Marcam Corporation, a software developer. Prior to that, Mr. Kaplan served as
Executive Vice President and Chief Financial Officer of AM International,
President of Harris Graphics and Partner of Boston Consulting Group. Mr. Kaplan
holds an MS in Management, a BS in Electrical Engineering and Computer Science
and a BS in Management Science from the Massachusetts Institute of Technology.
ALAN TREFLER, 44, a founder of the Company, served as President until
October 1999 and Clerk until June 1999 and has been Chief Executive Officer and
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.
WILLIAM W. WYMAN, 62, currently serves as an individual business advisor to
a number of corporate chief executives in financial services, information
services and software companies. From 1984 to 1995, Mr. Wyman was Managing
Partner of his own consulting firm Oliver, Wyman & Company. From 1965 to 1984,
Mr. Wyman worked for a variety of financial, natural resources and manufacturing
companies on projects concerning strategy, profit improvement and management
organization structure as a Management Consultant at Booz, Allen & Hamilton. In
1978 he became President of the Management Consulting Group at Booz, Allen &
Hamilton and in 1982, he took responsibility for all work performed by Booz,
Allen & Hamilton for financial institutions worldwide. Mr. Wyman currently
serves as a Director of SS&C Technologies, a software company, Predictive
Systems, Inc., a network consulting
3
<PAGE>
firm, and U.S. Timberlands LP, a forest products company. He also serves as a
Trustee for several not-for-profit institutions. He serves on the Board of
Advisors of The Sprout Group, a venture capital fund associated with Donaldson,
Lufkin and Jenrette and Legend Capital, a leveraged buyout fund associated with
Castle Harlan Investments.
DIRECTORS WHOSE TERMS EXPIRES IN 2001
EDWARD A. MAYBURY, 60, 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.
WILLIAM H. KEOUGH, 63, served as the Senior Vice President, Chief Financial
Officer and Treasurer of The Pioneer Group, Inc., a financial services business
from 1986 to November 1998. From 1968 to 1986, Mr. Keough was Senior Vice
President of Finance and Treasurer of Charles River Laboratories, Inc., the
world's largest supplier of laboratory models for biomedical research. From 1966
to 1968, he was the Corporate Controller of the Beebe Rubber Company. From 1959
to 1966 Mr. Keough served as a Manager, Cost Accounting and Business Planning
for the General Electric Company. Mr. Keough serves on the Board of Directors of
numerous not-for-profit organizations and, in 1987, founded the Boston Mutual
Funds CFO Group. He currently serves on the Board of Directors of Thermo Ecotek
Corporation.
DIRECTORS WHOSE TERMS EXPIRES IN 2002
EDWARD B. ROBERTS, 64, has been a Director of the Company since June 1996.
Since the early 1960s, he has been the David Sarnoff Professor of Management of
Technology at the Massachusetts Institute of Technology, where he founded and
chairs the MIT Entrepreneurship Center. Dr. Roberts co-founded and is a Director
of Medical Information Technology, Inc., a leading provider of healthcare
information systems. He is also a Director of Advanced Magnetics, Inc., a
specialty pharmaceutical company, Selfcare, Inc., a manufacturer of home medical
diagnostic products, NETsilicon, Inc., a semiconductor producer that links
equipment to the Internet, and several early-stage high-technology firms.
Dr. Roberts co-founded and served for 20 years as a general partner of the Zero
Stage and First Stage Capital group of venture capital funds.
JAMES P. O'HALLORAN, 68, joined the Company in April 1999. In June 1999 he
was elected Senior Vice President, Chief Financial Officer, Treasurer, Clerk and
a Director. From 1991 to 1999 he served as President of G & J Associates, Ltd.,
a financial consulting firm. From 1956 to 1990, he was with the international
accounting firm of Arthur Andersen LLP serving as an audit partner from 1967 to
his retirement in 1990.
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, Kaplan and Roberts are currently the members of the
Audit Committee. The Audit Committee met five (5) times during 1999. 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. Mr. Maybury is currently a member of
the Compensation Committee. The Compensation Committee met twice (2) during
1999.
4
<PAGE>
During 1999, the Board of Directors of the Company held ten (10) 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 $1,000 for every Board or
committee meeting attended. The Company also reimburses non-employee Directors
for expenses incurred in attending Board meetings. In addition, non-employee
Directors of the Company are eligible to receive stock options under the
Company's 1996 Non-Employee Director Stock Option Plan and all Directors are
eligible to receive stock options and stock grants under the Company's 1994
Long-Term Incentive Plan. Commencing in 2000, each non-employee Director will be
granted on an annual basis a fully vested option to purchase 10,000 shares of
Common Stock at a price equal to the fair market value of the common stock on
the date of grant under the 1996 Non-Employee Director Stock Option Plan. As
consideration for past services as a Director of the Company, on November 23,
1999, each of Messrs. Roberts, Maybury and Schlesinger was granted an option to
purchase 10,000 shares of Common Stock under the 1994 Long-Term Incentive Plan.
Such options were immediately vested. No other compensation is paid to Directors
for attending Board or committee meetings. Messrs. Maybury, Roberts, Keough and
Kaplan are currently the non-employee Directors of the Company.
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by or
paid for services rendered to the Company in all capacities during the years
ended December 31, 1999, 1998 and 1997 by (i) the Company's Chief Executive
Officer and (ii) the four most highly compensated other executive officers
(collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION (1) LONG TERM COMPENSATION
--------------------------------- -----------------------------------------
AWARDS SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITIONS YEAR SALARY ($) BONUS ($) UNDERLYING OPTIONS (#) COMPENSATION ($)
---------------------------- -------- ---------- --------- ---------------------- ----------------
<S> <C> <C> <C> <C> <C>
Alan Trefler................... 1999 $200,000 -- -- --
Chairman and Chief Executive 1998 200,000 -- -- --
Officer 1997 200,000 -- -- --
Joseph J. Friscia.............. 1999 $200,000 $ 60,000(2) 100,000 $ 86,869(3)
Executive Vice President of 1998 180,000 70,000(4) 190,000 30,786
Sales and Service 1997 143,333 47,250(5) 25,000 --
Kenneth Olson.................. 1999 $198,385 $ 40,000(2) 30,000 $ 53,385(6)
Vice President of Technical 1998 125,000 10,500(4) 75,000 20,123
Development 1997 112,000 -- -- --
Michael R. Pyle................ 1999 $185,734 $ 60,000(2) 35,000 $ 30,934(6)
Vice President of Applications 1998 140,000 15,000(4) 100,000 8,587
Development 1997 120,000 15,750(5) -- --
Ronald Rock(7)................. 1999 $176,000 $ 21,000(8) 60,000 $ 62,379(9)
Senior Vice President of 1998 82,495 11,278(4) 50,000 --
Electronic Commerce Solutions 1997 -- -- -- --
</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
5
<PAGE>
amount of such perquisites and other personal benefits constituted less than
the lesser of $50,000 or 10% of the total of annual salary and bonuses for
each of the Named Executive Officers for 1999, 1998 and 1997.
(2) Represents bonuses earned in 1999 and paid in 2000.
(3) Represents payments in lieu of paid days off, commissions, draws and
referral payments.
(4) Represents bonuses earned in 1998 and paid in 1998.
(5) Represents bonuses earned between July 1996 and December 1997 and paid in
1998.
(6) Represents payments in lieu of paid days off.
(7) Mr. Rock's employment with the Company began in 1998. Mr. Rock resigned from
the Company in March 2000.
(8) Represents bonuses earned in 1999 and paid in 1999.
(9) Represents payments in lieu of paid days off and draws.
OPTION GRANTS
The following table provides certain information concerning grants of
options to purchase the Company's Common Stock made during the fiscal year
ending December 31, 1999, to each of the Named Executive Officers.
OPTION GRANTS IN FISCAL 1999
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
---------------------------- ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK PRICE
SHARES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM (1)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION -------------------
NAME GRANTED (#) FISCAL YEAR ($/SHARE) DATE 5% ($) 10% ($)
---- ----------- -------------- ------------ ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Alan Trefler............. -- -- -- -- -- --
Joseph J. Friscia........ 100,000(2) 3.6% $4.2200 04/29/09 $265,394 $672,559
Kenneth Olson............ 30,000(2) 1.1% $4.2200 04/29/09 $ 79,618 $201,768
Michael R. Pyle.......... 35,000(2) 1.2% $4.2200 04/29/09 $ 92,887 $235,396
Ronald Rock.............. 60,000(2) 2.1% $4.2200 04/29/09 $159,236 $403,536
</TABLE>
------------------------
(1) As required by the rules of the Securities and Exchange Commission,
potential values stated are based on the prescribed assumption that the
Company's Common Stock will appreciate in value from the date of grant to
the end of the option term at rates (compounded annually) of 5% and 10%,
respectively, and therefore are not intended to forecast possible future
appreciation, if any, in the price of the Company's common stock.
(2) These options vest in equal quarterly installments over the four year period
commencing on the date of grant.
6
<PAGE>
AGGREGATED OPTION EXERCISES AND YEAR-END OPTION TABLE
The following table sets forth certain information concerning the number and
value of unexercised stock options held by each of the Named Executive Officers
as of December 31, 1999. None of the Named Executive Officers exercised any
options during 1999.
YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT YEAR-END AT YEAR-END ($)
----------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
Alan Trefler..................... 0 0 0 0
Joseph J. Friscia................ 389,500 215,500 $3,297,632 $783,125
Kenneth Olson.................... 20,250 84,750 $ 84,113 $389,288
Michael R. Pyle.................. 194,975 109,125 $1,953,136 $490,044
Ronald Rock...................... 17,500 92,500 $ 87,725 $509,075
</TABLE>
CERTAIN TRANSACTIONS
Since December 31, 1997 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 transactions between the
Company and its officers, Directors, principal stockholders and their affiliates
must be on terms no less favorable to the Company than could be obtained from
unrelated third parties and must 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 May 31, 2000 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.
COMPENSATION PHILOSOPHY
The objective of the Committee is 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.
7
<PAGE>
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 published
compensation surveys (the "Surveys") such as the annual Culpepper Survey on
Software Industry Executive and Administrative Pay, and the surveys by The
Survey Group, and Executive Alliance, and in addition, as a result of the
Committee making an assessment of an executive's individual personal performance
with respect to his or her attainment of specific 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 Committee, based upon its opinion of an executive's
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 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 certain executive
officers during 1999.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER AND ALL OTHER EXECUTIVE OFFICERS
The Committee, in its consideration of the salary, merit pay and stock
option components of compensation for 1999 for the Chief Executive Officer 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 Chief Executive Officer and all other executive officers
was comparable with companies found in the Surveys.
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 the Goldman Sachs Technology Software
Index may be 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
8
<PAGE>
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.
Compensation Committee
Edward A. Maybury
Leonard A. Schlesinger
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
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 ("GSTI-TM- +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.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
7/18/96 12/31/96 12/31/97 12/31/98 12/31/99
<S> <C> <C> <C> <C> <C>
Pegasystems Inc. $100 $251 $168 $35 $94
Nasdaq Stock Market Index - US companies $100 $116 $143 $200 $362
GSTI Software $100 $116 $145 $227 $465
</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.
APPROVAL OF AMENDED AND RESTATED 1994 LONG-TERM INCENTIVE PLAN
(Item 2 of Notice)
The Board of Directors has adopted, subject to stockholder approval, an
amendment to the Company's Amended and Restated 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.
+ GSTI is a registered trademark of Goldman, Sachs & Co.
10
<PAGE>
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. An amendment and restatement of the Plan, increasing the number
of shares reserved for issuance under the Plan from 5,000,000 to 7,500,000 was
adopted by the Board on April 27, 1998 and approved by the stockholders on
May 6, 1998. An amendment and restatement of the Plan, increasing the number of
shares reserved for issuance under the Plan from 7,500,000 to 9, 500,000 was
adopted by the Board on January 18, 1999, and approved by the stockholders on
June 21, 1999. 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 May 23, 2000, the Company had 524 employees eligible
to participate in the Plan and options to purchase 7,746,346 shares were
outstanding and 2,014,633 shares issued upon the exercise of options were
outstanding. As of May 23, 2000, 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 authorized for
issuance under the Plan from 9,500,000 to 11,500,000.
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 of
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.
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 option holder 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.
11
<PAGE>
1999 OPTION GRANTS
The following table sets forth the number of outstanding options granted
during 1999 under the Plan to the specified individuals and groups.
<TABLE>
<CAPTION>
NAME NUMBER OF OPTIONS
---- -----------------
<S> <C>
Alan Trefler................................................ --
Joseph J. Friscia........................................... 100,000
Kenneth Olson............................................... 30,000
Michael R. Pyle............................................. 35,000
Ronald Rock................................................. 60,000
All current executive officers as a group (8 persons)....... 815,000
All employees who were not executive officers as a group.... 1,929,280
</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 includable 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 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 HAD INDICATED OTHERWISE ON
THE PROXY.
12
<PAGE>
APPROVAL OF AMENDED AND RESTATED 1996
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
(Item 3 of Notice)
The Board of Directors has adopted, subject to stockholder approval, an
amendment to the Company's 1996 Non-Employee Director Stock Option Plan and
directed that such Plan, as amended and restated (the "Director Plan"), be
submitted to the stockholders for their approval. The following summary of the
Director Plan does not purport to be complete and is qualified in its entirety
by reference to the full text of the Director Plan, which is attached hereto as
APPENDIX B to this Proxy Statement.
BACKGROUND
The Director Plan was originally adopted by the Board of Directors on
May 13, 1996 and approved by the stockholders on June 26, 1996. An amendment and
restatement of the Director Plan was adopted by the Board of Directors on
November 23, 1999. As amended and restated, the Director Plan provides for the
grant to each new non-employee Director of the Company on the date he or she
first becomes a Director of an option to purchase 30,000 shares of Common Stock
at a price per share equal to the fair market value thereof on the date of
grant, such option to vest in equal annual installments over three years and
provides for the grant to each non-employee Director at the time of the regular
meeting of Directors following the annual stockholders meeting (commencing in
2000) of a fully-vested option to purchase 10,000 shares of Common Stock at a
price per share equal to the fair market value thereof on the date of grant.
Prior to the amendment and restatement, the Director Plan provided for the grant
to each new non-employee Director of the Company on the date he or she first
became a Director of the Company of an option to purchase 30,000 shares of
Common Stock at a price per share equal to the fair market value thereof on the
date of grant, such options to vest in equal annual installments over five
years.
There are 250,000 shares reserved for issuance under the Director Plan. At
May 23, 2000, the Company had four non-employee Directors eligible to
participate in the Director Plan, and options granted under the Director Plan to
purchase 134,000 shares were outstanding and 4,000 shares issued upon the
exercise of options granted under the Director Plan were outstanding. The
Director Plan is administered by the Company's Compensation Committee.
SHARES AVAILABLE FOR ISSUANCE
The stock subject to options under the Directors Plan 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 may again be the subject of an option
or award under the Director Plan.
TRANSFERABILITY
Generally, an option under the Director Plan is not transferable by the
option holder except by will or by the laws of descent and distribution.
EXERCISE AND TERMINATION
Options granted under the Director Plan are exercisable, only the extent
vested, within 90 days after the optionee ceases to serve as a Director (except
that if a Director dies or becomes disabled while he or she is serving as a
director of the Company, the option is exercisable until the earlier of the
scheduled expiration date of the option or one year from the date of death or
disability).
1999 GRANTS
No executive officers or employees of the Company are eligible to receive
options under the Director Plan. During 1999, the current Directors of the
Company who are not executive officers received options to purchase 60,000
shares of Common Stock under the Director Plan.
13
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
All options granted under the Director Plan are nonqualified stock options.
As a result, a participant will not recognize taxable income for federal income
tax purpose at the time of grant. However, the participant will recognize
compensation taxable as ordinary income at the time of exercise. 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 time and in the same amount received upon exercise of the
option. The participant's basis in the shares will be adjusted by adding the
amount so recognized as compensation to the purchase price by the participant
for the shares.
The participant will recognize gain or loss when he or she disposes of
shares obtained upon exercise of the option 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 1996 NON-EMPLOYEE DIRECTOR STOCK OTPION PLAN, AND PROXIES SOLICITED
BY THE BOARD WILL BE VOTED IN FAVOR THEREOF UNLESS A STOCKHOLER HAS INDICATED
OTHERWISE IN THE PROXY.
RATIFICATION OF THE SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
(Item 4 of Notice)
The Board of Directors has selected Deloitte & Touche LLP, independent
public accountants, to audit the financial statements of the Company for the
fiscal year ending December 31, 2000. The Board proposes that the stockholders
ratify this selection. Arthur Andersen LLP audited the Company's financial
statements for the fiscal years ended December 31, 1997, 1998 and 1999, but
declined to stand for re-election. The Company expects that representatives of
Deloitte & Touche 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.
In the event that ratification of the appointment of Deloitte & Touche 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.
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 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.
Except for late filings for Messrs. Roberts, Maybury and Schlesinger for
options which were granted on November 23, 1999, 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 1999, and all other such filing requirements were complied with in a
timely fashion.
14
<PAGE>
STOCKHOLDER PROPOSALS FOR 2001 MEETING
Proposals of stockholders intended to be presented at the 2001 Annual
Meeting of Stockholders must be presented on or before February 2, 2001 for
inclusion in the proxy materials relating to that meeting and on or before
April 16, 2001 for matters to be considered timely such that, pursuant to
Rule 14a-4 under the 1934 Act, the Company may not exercise its discretionary
authority to vote on such matters at 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.
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
/s/ James P. O'Halloran
James P. O'Halloran
June 16, 2000 Clerk
15
<PAGE>
Appendix A
PEGASYSTEMS INC.
1994 LONG-TERM INCENTIVE PLAN
AS AMENDED AND RESTATED ON MAY 9, 2000
A-1
<PAGE>
PEGASYSTEMS INC.
1994 LONG-TERM INCENTIVE PLAN
<TABLE>
<CAPTION>
SECTION CONTENTS PAGE
------- ------------------------------------------------------------ --------
<C> <S> <C>
1. Purpose; Definitions A-3
2. Administration A-5
3. Stock Subject to Plan A-5
4. Eligibility A-6
5. Stock Options A-6
6. Stock Appreciation Rights A-10
7. Restricted Stock A-11
8. Long-Term Performance Awards A-13
9. Amendments and Termination A-14
10. Unfunded Status of Plan A-15
11. General Provisions A-15
12. Effective Date of Plan A-16
13. Term of Plan A-16
</TABLE>
A-2
<PAGE>
PEGASYSTEMS INC.
1994 LONG-TERM INCENTIVE PLAN
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. 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.
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. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
k. "FAIR MARKET VALUE" if the Stock is publicly traded, shall be determined
as of the last business day for which the prices or quotes discussed in
this sentence are available prior to the date of grant and shall mean
(i) the average (on that date) of the high and low prices of the stock on
A-3
<PAGE>
PEGASYSTEMS INC.
1994 LONG-TERM INCENTIVE PLAN
the principal national securities exchange on which the stock is traded,
if the stock is then traded on a national securities exchange; (ii) the
last reported sale price (on that date) of the stock on the Nasdaq
National Market, if the stock is not then traded on a national securities
exchange; or (iii) the closing bid price (or average of bid prices) last
quoted (on that date) by an established quotation service for
over-the-counter securities, if the stock is not then reported on the
Nasdaq National Market or on a national securities exchange. If, on the
date of grant, the stock is not publicly traded, "Fair Market Value"
shall be the fair market value on such date as determined by the Board in
good faith.
l. "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.
m. "INSIDER" means a Participant who is subject to the requirements of the
Rules (as defined below).
n. "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.
o. "NON-QUALIFIED STOCK OPTION" means any Stock Option that is not an
Incentive Stock Option.
p. "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.
q. "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.
r. "OPTIONEE" means a Participant who is the recipient of any Incentive
Stock Option or Non-Qualified Stock Option under this Plan.
s. "PARTICIPANT" means anyone to whom an Award is granted pursuant to the
Plan.
t. "PLAN" means the Pegasystems Inc. 1994 Long-Term Incentive Plan, as
hereinafter amended from time to time.
u. "RESTRICTED STOCK" means an award of shares of Stock that is subject to
restrictions pursuant to Section 7 below.
v. "RETIREMENT" means Normal or Early Retirement.
w. "RULES" means Section 16 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and the regulations promulgated thereunder.
x. "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.
y. "STOCK" means the Common Stock, $.01 par value per share, of the
Corporation.
z. "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
A-4
<PAGE>
PEGASYSTEMS INC.
1994 LONG-TERM INCENTIVE PLAN
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.
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 11,500,000 shares of
Stock; any or all of such 11,500,000 shares of Stock may be granted for
awards of Incentive Stock Options.
A-5
<PAGE>
PEGASYSTEMS INC.
1994 LONG-TERM INCENTIVE PLAN
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 11,500,000 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 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.
A-6
<PAGE>
PEGASYSTEMS INC.
1994 LONG-TERM INCENTIVE PLAN
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, 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
A-7
<PAGE>
PEGASYSTEMS INC.
1994 LONG-TERM INCENTIVE PLAN
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 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 service to 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.
A-8
<PAGE>
PEGASYSTEMS INC.
1994 LONG-TERM INCENTIVE PLAN
(h) TERMINATION BY REASON OF DISABILITY. Subject to Section 5(k), if an
Optionee's service to 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 service 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 service 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 the 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 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 service to 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. Leave of absence with the written approval of
the President or the Chief Executive Officer of the Corporation in his or
her sole discretion, in the case of a leave of absence by any employee
who is not an executive officer of the Corporation, and with the written
approval of the Committee, in the case of a leave of absence by any
executive officer of the Corporation, shall not be considered a
termination of service, provided that such written approval contractually
obligates the Corporation to continue the service of the Optionee after
the approved period of absence. The service of any Optionee on an
approved leave of absence shall be deemed terminated upon the Optionee's
failure to (or the Optionee's indicating that he or she will not) resume
service to with the Corporation immediately following the end of the
approved leave of absence or if the Optionee's employment is otherwise
terminated during the approved period of absence. Nothing in the Plan
shall be deemed to give any Optionee
A-9
<PAGE>
PEGASYSTEMS INC.
1994 LONG-TERM INCENTIVE PLAN
the right to be retained in employment or other service by the
Corporation for any period of time.
(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, 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
A-10
<PAGE>
PEGASYSTEMS INC.
1994 LONG-TERM INCENTIVE PLAN
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.
(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.
A-11
<PAGE>
PEGASYSTEMS INC.
1994 LONG-TERM INCENTIVE PLAN
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.
(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
A-12
<PAGE>
PEGASYSTEMS INC.
1994 LONG-TERM INCENTIVE PLAN
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 service to 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 service to 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 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.
A-13
<PAGE>
PEGASYSTEMS INC.
1994 LONG-TERM INCENTIVE PLAN
(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.
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.
A-14
<PAGE>
PEGASYSTEMS INC.
1994 LONG-TERM INCENTIVE 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 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
A-15
<PAGE>
PEGASYSTEMS INC.
1994 LONG-TERM INCENTIVE PLAN
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.
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.
A-16
<PAGE>
APPENDIX B
PEGASYSTEMS INC.
1996 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
(AS AMENDED AND RESTATED ON NOVEMBER 23, 1999)
1. PURPOSE. This 1996 Non-Employee Director Stock Option Plan (as amended
and restated, the "Plan") is intended to promote the interests of
Pegasystems Inc., a Massachusetts corporation (the "Company"), by providing an
inducement to obtain and retain the services of qualified persons who are not
employees or officers of the Company to serve as members of its Board of
Directors (the "Board").
2. AVAILABLE SHARES. The total number of shares of Common Stock, $.01 par
value per share, of the Company (the "Common Stock") for which options may be
granted under the Plan shall not exceed 250,000 shares, subject to adjustment in
accordance with paragraph 10 of the Plan. Shares subject to the Plan are
authorized but unissued shares or shares that were once issued and subsequently
reacquired by the Company. If any options granted under the Plan are surrendered
before exercise or lapse without exercise, in whole or in part, the shares
reserved therefor shall continue to be available under the Plan.
3. ADMINISTRATION. The Plan shall be administered by the Board or by a
committee appointed by the Board (the "Committee"). In the event the Board fails
to appoint or refrains from appointing a Committee, the Board shall have all
power and authority to administer the Plan. In such event, the word "Committee"
wherever used herein shall be deemed to mean the Board. The Committee shall,
subject to the provisions of the Plan, have the power to construe the Plan, to
determine all questions hereunder, and to adopt and amend such rules and
regulations for the administration of the Plan as it may deem desirable. No
member of the Board or the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any option granted
under it.
4. GRANTING OF OPTIONS.
(a) GRANTS UPON INITIAL ELECTION. During the term of the Plan and
subject to the availability of shares under the Plan, each person who is
first elected as a member of the Board (the "Optionee") after November 23,
1999 and during the term of this Plan, and who is not on the date of such
election a current or former employee or officer of the Company, shall be
granted an option to purchase 30,000 shares of Common Stock on the date of
such grant, such option to vest pursuant to Section 7 below.
(b) ANNUAL GRANTS. During the term of the Plan and subject to the
availability of shares under the Plan, at each annual meeting of the Board
following the annual meeting of the stockholders of the Company (commencing
in 2000), each person who is then serving on the Board and who is not on
such date a current or former employee or officer of the Company, shall be
granted, contingent on stockholder approval of the Plan, an option to
purchase 10,000 shares of Common Stock on the date of such grant, which
option shall be fully vested and exercisable on the date of such grant.
Except for the specific options referred to above, no other options shall be
granted under the Plan.
5. OPTION PRICE. The purchase price of the stock covered by an option
granted pursuant to this Plan shall be 100% of the fair market value of such
shares on the day the option is granted. The option price will be subject to
adjustment in accordance with the provisions of Section 10 below. For purposes
of this Plan, if, at the time an option is granted under the Plan, the Company's
Common Stock is publicly traded, "fair market value" shall be determined as of
the last business day for which the prices or quotes discussed in this sentence
are available prior to the date such option is granted and shall mean (i) the
average (on that date) of the high and low prices of the Common Stock on the
B-1
<PAGE>
principal national securities exchange on which the Common Stock is traded, if
the Common Stock is then traded on a national securities exchange; (ii) the last
reported sale price (on that date) of the Common Stock on the Nasdaq National
Market, if the Common Stock is not then traded on a national securities
exchange; or (iii) the closing bid price (or average of bid prices) last quoted
(on that date) by an established quotation service for over-the-counter
securities, if the Common Stock is not reported on the Nasdaq National Market or
on a national securities exchange. If, at the time an option is granted under
this Plan, the Company's stock is not publicly traded, "fair market value" shall
be the fair market value on the date the option is granted as determined by the
Board in good faith.
6. PERIOD OF OPTION. Unless sooner terminated in accordance with the
provisions of Section 8 below, an option granted hereunder shall expire on the
date which is ten (10) years after the date of grant of the option.
7. VESTING OF SHARES AND NON-TRANSFERABILITY OF OPTIONS.
(a) VESTING. Options granted under this Plan shall not be exercisable
until they become vested. Options granted under section 4(a) this Plan shall
vest in the Optionee and thus become exercisable by the Optionee in three
equal annual installments commencing on the first anniversary of the date of
grant; options granted under section 4(b) of this Plan shall vest and be
exercisable by the Optionee on the date of grant.
(b) LEGEND ON CERTIFICATES.The certificates representing such shares
shall carry such appropriate legend and such written instructions shall be
given to the Company's transfer agent as may be deemed necessary or
advisable by counsel to the Company in order to comply with the requirements
of the Securities Act of 1933, as amended (the "Securities Act") or any
state securities laws.
(c) NON-TRANSFERABILITY. Any option granted pursuant to this Plan shall
not be assignable or transferable other than by will or the laws of descent
and distribution or pursuant to a qualified domestic relations order and
shall be exercisable during the Optionee's lifetime only by him or her.
8. Termination of Option Rights.
(a) In the event an Optionee ceases to be a member of the Board for any
reason other than death or permanent disability, any then unexercised
portion of options granted to such Optionee shall, to the extent not then
vested, immediately terminate and become void; any portion of an option
which is then vested but has not been exercised at the time the Optionee so
ceases to be a member of the Board may be exercised, to the extent it is
then vested, by the Optionee until the earlier of the scheduled expiration
date of the option and 90 days after the date the Optionee ceased to be a
member of the Board.
(b) In the event that an Optionee ceases to be a member of the Board by
reason of his or her death or permanent disability, any option granted to
such Optionee shall be immediately and automatically accelerated and become
fully vested and all unexercised options shall be exercisable by the
Optionee (or by the optionee's personal representative, heir or legatee, in
the event of death) until the earlier of the scheduled expiration date of
the option or one year after the death or disability of the Optionee.
(c) Notwithstanding the provisions in this Section 8, the Committee may,
in its sole discretion, establish different terms and conditions pertaining
to the effect of a participant's ceasing to be a member of the Board.
9. EXERCISE OF OPTION. An option granted hereunder shall, to the extent
then exercisable, be exercisable in whole or in part by giving written notice to
the Company at its principal office address, stating the number of shares with
respect to which the option is being exercised, accompanied by payment in full
for such shares. Payment may be (a) in United States dollars in cash or by
check, (b) in
B-2
<PAGE>
whole or in part in shares of Common Stock of the Company already owned by the
person or persons exercising the option or shares subject to the option being
exercised (subject to such restrictions and guidelines as the Board may adopt
from time to time), valued at fair market value determined in accordance with
the provisions of Section 5 or (c) consistent with applicable law, through the
delivery of an assignment to the Company of a sufficient amount of the proceeds
from the sale of the Common Stock acquired upon exercise of the option and an
authorization to the broker or selling agent to pay that amount to the Company,
which sale shall be at the participant's direction at the time of exercise.
There shall be no such exercise at any one time as to fewer than one hundred
(100) shares or all of the remaining shares then purchasable by the person or
persons exercising the option, if fewer than one hundred (100) shares. The
Company's transfer agent shall, on behalf of the Company, prepare a certificate
or certificates representing such shares acquired pursuant to exercise of the
option, shall register the optionee as the owner of such shares on the books of
the Company and shall cause the fully executed certificates(s) representing such
shares to be delivered to the optionee as soon as practicable after payment of
the option price in full. The holder of an option shall not have any rights of a
stockholder with respect to the shares covered by the option except to the
extent that one or more certificates for such shares shall be delivered to him
or her upon the due exercise of the option.
10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION AND OTHER MATTERS. Upon the
occurrence of any of the following events, an Optionee's rights with respect to
options granted to him or her hereunder shall be adjusted as hereinafter
provided:
(a) STOCK DIVIDENDS. In the event the Company shall issue any of its
shares as a stock dividend upon or with respect to the shares of stock of
the class which shall at the time be subject to option hereunder, each
Optionee upon exercising an option shall be entitled to receive (for the
purchase price paid upon such exercise) the shares as to which he is
exercising his option and, in addition thereto (at no additional cost), such
number of shares of the class or classes in which such stock dividend or
dividends were declared or paid, and such amount of cash in lieu of
fractional shares, as he would have received if he had been the holder of
the shares as to which he is exercising his option at all times between the
date of grant of such option and the date of its exercise.
(b) MERGER; CONSOLIDATION; LIQUIDATION; SALE OF ASSETS. In the event the
Company is merged into or consolidated with another corporation under
circumstances where the Company is not the surviving corporation or if the
Company is liquidated or sells or otherwise disposes of all or substantially
all of its assets to another corporation while unexercised options remain
outstanding under this Plan, (i) subject to the provisions of clauses (iii),
(iv) and (v) below, after the effective date of such merger, consolidation
or sale, as the case may be, each holder of an outstanding option shall be
entitled, upon exercise of such option, to receive in lieu of shares of
Common Stock, shares of such stock or other securities as the holders of
shares of Common Stock received pursuant to the terms of the merger,
consolidation or sale; or (ii) the Board may waive any discretionary
limitations imposed with respect to the exercise of the option so that all
options from and after a date prior to the effective date of such merger,
consolidation, liquidation or sale, as the case may be, specified by the
Board, shall be exercisable in full; or (iii) all outstanding options may be
cancelled by the Board as of the effective date of any such merger,
consolidation, liquidation or sale, provided that notice of such
cancellation shall be given to each holder of an option, and each such
holder thereof shall have the right to exercise such option in full (without
regard to any discretionary limitations imposed with respect to the option)
during a 30-day period preceding the effective date of such merger,
consolidation, liquidation or sale; or (iv) all outstanding options may be
cancelled by the Board as of the date of any such merger, consolidation,
liquidation or sale, provided that notice of such cancellation shall be
given to each holder of an option and each such holder thereof shall have
the right to exercise such option but only to the extent exercisable in
accordance with any discretionary limitations imposed with respect to the
option prior to the effective date of such merger, consolidation,
liquidation or sale; or (v) the Board may provide for
B-3
<PAGE>
the cancellation of all outstanding options and for the payment to the
holders thereof of some part or all of the amount by which the value thereof
exceeds the payment, if any, which the holder would have been required to
make to exercise such option.
(c) ISSUANCE OF SECURITIES. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or
price of shares subject to options. No adjustments shall be made for
dividends paid in cash or in property other than securities of the Company.
(d) NO FRACTIONAL SHARES. No fractional shares shall actually be issued
under the Plan. Any fractional shares which, but for this subparagraph (d),
would have been issued to an Optionee pursuant to an option, shall be deemed
to have been issued and immediately sold to the Company for their fair
market value, and the Optionee shall receive from the Company cash in lieu
of such fractional shares.
(e) ADJUSTMENTS. Upon the happening of any of the foregoing events, the
class and aggregate number of shares set forth in Section 2 above that are
subject to options which previously have been or subsequently may be granted
under the Plan shall also be appropriately adjusted to reflect such events.
The Board shall determine the specific adjustments to be made under this
Section 10 and its determination shall be conclusive.
11. RESTRICTIONS ON ISSUANCE OF SHARES. Notwithstanding the provisions of
Sections 4 and 9 above, the Company shall have no obligation to deliver any
certificate or certificates upon exercise of an option until one of the
following conditions shall be satisfied:
(i) The shares with respect to which the option has been exercised are at
the time of the issue of such shares effectively registered under
applicable federal and state securities laws as now in force or hereafter
amended; or
(ii) Counsel for the Company shall have given an opinion that such shares
are exempt from registration under federal and state securities laws as
now in force or hereafter amended; and the Company has complied with all
applicable laws and regulations with respect thereto, including without
limitation all regulations required by any stock exchange upon which the
Company's outstanding Common Stock is then listed.
12. REPRESENTATION OF OPTIONEE. If requested by the Company, the Optionee
shall deliver to the Company written representations and warranties upon
exercise of the option that are necessary to show compliance with federal and
state securities laws, including representations and warranties to the effect
that a purchase of shares under the option is made for investment and not with a
view to their distribution (as that term is used in the Securities Act).
13. OPTION AGREEMENT. Each option granted under the provisions of this
Plan shall be evidenced by an option agreement, which agreement shall be duly
executed and delivered on behalf of the Company and by the Optionee to whom such
option is granted. The option agreement shall contain such terms, provisions and
conditions not inconsistent with this Plan as may be determined by the officer
executing it.
14. TERM AND AMENDMENT OF PLAN. This Plan (as amended and restated) was
adopted by the Board effective as of November 23, 1999, subject to approval by
the stockholders of the Company. Options may no longer be granted under the Plan
after November 23, 2009, and the Plan shall terminate when all options granted
or to be granted hereunder are no longer outstanding. Subject to the provisions
of Section 4 above, options may be granted under the Plan prior to the date of
stockholder approval of the Plan. If the approval of stockholders is not
obtained by November 23, 2000, any grants of options under the Plan made prior
to that date will be rescinded. The Board may at
B-4
<PAGE>
any time terminate the Plan or make such modification or amendment thereof as it
deems advisable; PROVIDED, HOWEVER, that the Board may not, without approval by
the stockholders, (a) increase the maximum number of shares for which options
may be granted under the Plan (except by adjustment pursuant to Section 10),
(b) materially modify the requirements as to eligibility to participate in the
Plan, (c) materially increase benefits accruing to option holders under the Plan
or (d) amend the Plan in any manner which would cause Rule 16b-3 to become
inapplicable to the Plan. Termination or any modification or amendment of the
Plan shall not, without consent of a participant, affect his or her rights under
an option previously granted to him or her.
15. COMPLIANCE WITH REGULATIONS. It is the Company's intent that this Plan
comply in all respects with Rule 16b-3 under the Securities Exchange Act of 1934
(or any successor or amended version thereof) and any applicable Securities and
Exchange Commission interpretations thereof. If any provision of the Plan is
deemed not to be in compliance with Rule 16b-3, the provision shall be null and
void.
16. GOVERNING LAW. The validity and construction of this Plan and the
instruments evidencing options shall be governed by the laws of The Commonwealth
of Massachusetts, without giving effect to the principles of conflicts of law
thereof.
B-5
<PAGE>
DETACH HERE
PROXY
PEGASYSTEMS INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
2000 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 June 13, 2000 and
hereby appoints Alan Trefler, June Morris and Robert Jahrling, 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 June 29, 2000 at One Main Street, Cambridge, Massachusetts at 10:30
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.
--------------- ---------------
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
--------------- ---------------
<PAGE>
DETACH HERE
------- PLEASE MARK
X VOTES AS IN
------- THIS EXAMPLE
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, 3 AND 4 AND SAID PROXIES DEEM ADVISABLE ON SUCH OTHER
MATTERS AS MAY COME BEFORE THE MEETING.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU INSTRUCT THE PROXIES TO VOTE FOR
THE NOMINEES LISTED BELOW AND FOR PROPOSAL NOS. 2, 3, AND 4.
1. Election of Directors.
NOMINEES: (01) Alan Trefler, (02) William W. Wyman,
(03) Steven F. Kaplan
FOR WITHHELD
------ ------
------ ------
------
------ __________________________________________
(INSTRUCTION. To withhold authority to vote for any
individual nominee, write that nominee's name in the
space provided above.)
2. To approve an amendment to the FOR AGAINST ABSTAIN
Amended and Restated 1994 Long- ------- ------- -------
Term Incentive Plan to increase
the number of shares of Common ------- ------- -------
Stock authorized for issuance
under the plan from 9,500,000
shares to 11,500,000 shares
3. To approve an amendment to the FOR AGAINST ABSTAIN
Pegasystems, Inc. 1996 Non- ------- ------- -------
Employee Director Stock Option
Plan. ------- ------- -------
4. To ratify the selection of FOR AGAINST ABSTAIN
Deloitte & Touch LLP as ------- ------- -------
independent public accountants
of Pegasystems for the fiscal ------- ------- -------
year ending December 31, 2000
5. 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.
------
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT
------
PLEASE SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING
THE ENCLOSED ENVELOPE
Please sign exactly as name appears at left. 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.
Signature: ______________________________ Date: ______________
Signature: ______________________________ Date: ______________
