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☐ | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | |||||
☒ | Definitive Proxy Statement | |||||
☐ | Definitive Additional Materials | |||||
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2022.
Meeting by following the procedures described in the accompanying proxy statement.
Alan Trefler | ||
Chairman and Chief Executive Officer | ||
May |
One Rogers
SHAREHOLDERS
21, 2022
Shareholders:
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Stockholders
Matthew J. Cushing | ||
Vice President, Chief Commercial Officer, General Counsel, and Secretary | ||
Cambridge, Massachusetts | ||
May |
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One Rogers
The proxy summary and financial highlights information contained in this proxy statement describes the results achieved by Pegasystems Inc. for its stockholders in 2019 and recent fiscal years. As it is a summary, it does not contain all the information you should consider. Therefore, you should read this proxy statement in its entirety before voting. Additionally, for more information on financial and operational matters, please review our Annual Report on Form10-K for the fiscal year ended December 31, 2019, including our “Financial Statements and Supplementary Data”, “Risk Factors”, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, which further qualifies the information provided here.
2020
Shareholders
22, 2022
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Compensation Discussion and Analysis Highlights
shareholders.
Element | Objective | Fixed/Variable | ||||||||||||
Base Salary | Attract and retain highly qualified leaders with market-competitive compensation structure. | Fixed | ||||||||||||
Bonus | Link pay with our performance. Reward achievement of our financial and strategic goals. | Variable | ||||||||||||
Additional Cash Incentives | ||||||||||||||
Link pay with individual, business unit and/or corporate performance. Reward achievement of specific goals. | Variable | |||||||||||||
Equity Awards (Stock Options and Restricted Stock Units) | Link pay with our long-term performance. Reward stock price appreciation, promote long-term retention and permit executives to accumulate equity ownership in the Company. | Variable | ||||||||||||
Other Perquisites | Retain talent by providing financial protection and security. | Fixed |
2019
Condition and Results of Operations”.
Our target clients are Global 3000 organizationsworld’s leading brands and government agencies that requireto hyper-personalize customer experiences, streamline customer service, and automate mission-critical business processes and workflows. With Pega, our clients can leverage our intelligent technology and scalable architecture to accelerate their digital transformation. Our client success teams, world-class partners, and clients themselves leverage our Pega Express™ methodology to design and deploy mission-critical applications quickly and collaboratively.
Performance Metrics
We utilize severaluse performance metrics in analyzingto analyze and assessingassess our overall performance, makingmake operating decisions, and forecastingforecast and planningplan for future periods.
Annual Contract Valuecontract value (“ACV”)(1)
The change in | Increased 20% since December 31, 2020
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Client Cloud: the sum of (1) the annualmeasurement date. The contract's total value of eachis divided by its duration in years to calculate ACV for term license contract in effect on such date, which is equal to its total license value divided by the total number of years and (2) maintenancePega Cloud contracts. Maintenance revenue reported for the quarter then ended on such date,is multiplied by four. We do not provide hosting servicesfour to calculate ACV for Client Cloud arrangements.
Pega Cloud: the sum of the annual value of each cloud contract in effect on such date, whichmaintenance. ACV is equala performance measure that we believe provides useful information to its total value divided by the total number of years.
As foreignour management and investors, particularly during our subscription transition. Foreign currency exchange rates are an important factor in understanding periodrate changes were a 1% headwind to period comparisons, we believe the presentation of ACV growth rates on a constant currency basis enhances the understanding of our results and evaluation of our performance in comparison to prior periods.
| Increased 25% since December 31, 2020 1 year or less 1-2 years 2-3 years Greater than 3 years Change in Backlog Since December 31, 2018 1 year or less 1-2 years 2-3 years Greater than 3 years onfrom existing non-cancellable contracts: December 31, 2019 (Dollars in thousands) Perpetual license Term license Maintenance Cloud Consulting Total $ 2,305 $ 97,826 $ 206,882 $ 165,571 $ 20,798 $ 493,382 58 % 2,179 12,014 30,291 128,109 1,439 174,032 21 % — 3,132 17,844 84,788 132 105,896 13 % — 3,861 13,277 43,702 1,993 62,833 8 % $ 4,484 $ 116,833 $ 268,294 $ 422,170 $ 24,362 $ 836,143 100 % $ (14,185 ) $ 32,453 $ 60,380 $ 123,353 $ 3,169 $ 205,170 (76 )% 38 % 29 % 41 % 15 % 33 % December 31, 2018 (Dollars in thousands) Perpetual license Term license Maintenance Cloud Consulting Total $ 14,665 $ 72,378 $ 192,274 $ 103,354 $ 17,235 $ 399,906 63 % 2,343 10,355 10,436 80,214 2,810 106,158 17 % 1,661 1,414 3,644 61,906 940 69,565 11 % — 233 1,560 53,343 208 55,344 9 % $ 18,669 $ 84,380 $ 207,914 $ 298,817 $ 21,193 $ 630,973 100 %
Stock performance graph and cumulative total stockholdershareholder return(1) (2)
Comparison of 5 Year Cumulative Total Return
December 31, 2019 | ||||||||||||||||||||||||
2014 | 2015 | 2016 | 2017 | 2018 | 2019 | |||||||||||||||||||
Pegasystems Inc. | $ | 100.00 | $ | 133.06 | $ | 174.92 | $ | 229.64 | $ | 233.45 | $ | 389.43 | ||||||||||||
NASDAQ Composite | $ | 100.00 | $ | 106.96 | $ | 116.45 | $ | 150.96 | $ | 146.67 | $ | 200.49 | ||||||||||||
S&P NA Tech Software | $ | 100.00 | $ | 112.49 | $ | 119.47 | $ | 170.61 | $ | 192.18 | $ | 258.65 |
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One Rogers
SHAREHOLDERS
21, 2022
9, 2022.
One Rogers
1 Main Street
Cambridge, MA 02142-1209
02142-1531
Attention: Secretary
21, 2022.
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1.To elect to our Board of Directors the seven nominees named in this proxy statement, each for a one-year term.
•FOR the election to our Board of Directors of each of the eightseven nominees named in this proxy statement, each to hold office for a term of one year (Proposal 1);
•FOR the approval, by anon-binding advisory vote, of the compensation of our named executive officers, also referred to as Say on Pay, as described in the “Compensation“Compensation Discussion and Analysis”Analysis” section and elsewhere in this proxy statement (Proposal 2);
FOR the approval of the Plan (Proposal 3);
AGAINST the stockholder proposal regarding simple majority voting (Proposal 4); and
•FOR the ratification of the selection by the Audit Committee of our Board of Directors of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31, 20202022 (Proposal 5)3).
I prefer to read my proxy materials on paper. How do I get paper copies?
3.
(Proposal (Proposal 1), and the advisory vote on executive compensation (Proposal 2), the approval of the Plan (Proposal 3), andthe stockholder proposal regarding simple majority voting (Proposal 4)are“non-discretionary” “non-discretionary” items. If you do not instruct your broker how to vote with respect to these items, your broker is not permitted to vote with respect to these proposals, and those votes will be counted as “brokernon-votes.” “Brokernon-votes” are shares that are held in “street name” by a bank or brokerage firm that indicates on its proxy that it does not have or did not exercise discretionary authority to vote on a particular matter.
If your shares are held in “street name,” you must bring an account statement or letter from your bank or brokerage firm showing that you are the beneficial owner of the shares as of the Record Date in order to be admitted to the Annual Meeting on June 23, 2020. To be able to vote your shares held in “street name” in person at the Annual Meeting, you will need to obtain a proxy card from the holder of record.
•signing another proxy with a later date;
•giving our Secretary a written notice before or at the Annual Meeting that you want to revoke your proxy;
•voting over the Internet or telephone by following the instructions provided in the Availability Notice and on the proxy card by 1:00 a.m., Eastern Daylight Time, on June 23, 2020;21, 2022; or
•voting in person at the Annual Meeting.
How will I learn if the Annual Meeting is changed
Given that the Annual Meeting is not until the end of June, we currently intend to hold anin-person meeting. However, we will reassess that as the date of the Annual Meeting approaches. If we change to a virtual meeting, we will issue a press release advising of this change. In the event we do change to a virtual meeting, stockholders participating in the virtual meeting are considered to be attending the meeting “in person”.
proxy, you should contact your bank or brokerage firm and follow its procedures for changing your voting instructions.
Proposal 2: Advisory Vote on Executive Compensation.Our Board of Directors is seeking a
Proposal 5:3: Ratification of the Independent Registered Public Accounting Firm
the Independent Registered Public Accounting Firm), because these proposals will be approved if the votes cast at the Annual Meeting in favor of the proposal exceed the votes cast at the Annual Meeting opposing the proposal. Abstentions and brokernon-votes, however, will have the effect of negative votes with respect to Proposal 1 (Election of Directors) and Proposal 4 (Stockholder Proposal Regarding Simple Majority Voting), because, as described above, each of these proposals requirethis proposal requires the affirmative vote of the holders of shares representing a majority of the votes entitled to be cast at the Annual Meeting by all issued and outstanding shares of common stock on the Record Date.
December 30, 2022.
first made. Assuming that the 20212023 Annual Meeting is held between May 24, 202123, 2023 and July 23, 2021,22, 2023, you would need to give us appropriate notice at the address noted below no earlier than December 2, 2020November 30, 2022 and no later than January 1, 2021.December 30, 2022. Notwithstanding the foregoing, the postponement or adjournment of any annual meeting for which notice has been provided to stockholdersshareholders shall not commence a new time period for giving the stockholders’shareholders’ notice. If a stockholdershareholder does not provide timely notice of a nomination or other matter to be presented at the 20212023 Annual Meeting, under Massachusetts law, it may not be brought before our stockholdersshareholders at a meeting.
One Rogers
1 Main Street
Cambridge, MA 02142-1209
Attention: Vice President, Chief Commercial Officer, General Counsel, and Secretary
One Rogers
1 Main Street
Cambridge, MA 02142-1209
Attention: Vice President, Chief Commercial Officer, General Counsel, and Secretary
Telephone: (617)374-9600
•the stockholdersshareholders we know to beneficially own more than 5% of our outstanding common stock;
•each director named in this proxy statement;
•each executive officer named in the Summary Compensation Table included in this proxy statement; and
•all our executive officers and directors as a group.
NUMBER OF SHARES OWNED | SHARES ACQUIRABLE WITHIN 60 DAYS (1) | TOTAL SHARES BENEFICIALLY OWNED (2) | PERCENTAGE OF SHARES BENEFICIALLY OWNED(3) | |||||||||||||
5% Stockholders | ||||||||||||||||
Alan Trefler(4) | 39,869,068 | 34,387 | 39,903,455 | 50.11 | % | |||||||||||
Directors | ||||||||||||||||
Alan Trefler | † | † | † | † | ||||||||||||
Peter Gyenes | 33,447 | 4,963 | 38,410 | * | ||||||||||||
Ronald Hovsepian | 2,719 | 4,963 | 7,682 | * | ||||||||||||
Richard Jones(5) | 697,313 | 4,963 | 702,276 | * | ||||||||||||
Christopher Lafond | 1,734 | 4,963 | 6,697 | * | ||||||||||||
Dianne Ledingham | 9,100 | 4,963 | 14,063 | * | ||||||||||||
James O’Halloran(6) | 124,588 | 4,963 | 129,551 | * | ||||||||||||
Sharon Rowlands | 15,159 | 4,963 | 20,122 | * | ||||||||||||
Larry Weber | 3,590 | 4,963 | 8,553 | * | ||||||||||||
Named Executive Officers | ||||||||||||||||
Alan Trefler | † | † | † | † | ||||||||||||
Douglas Kra | 36,227 | 127,621 | 163,848 | * | ||||||||||||
Michael Pyle | 4,222 | 95,536 | 99,758 | * | ||||||||||||
Kenneth Stillwell | 4,471 | 25,387 | 29,858 | * | ||||||||||||
Leon Trefler | 8,730 | 175,459 | 184,189 | * | ||||||||||||
All executive officers and directors as a group(7) | 40,810,368 | 511,604 | 41,321,972 | 51.89 | % |
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NUMBER OF SHARES OWNED | SHARES ACQUIRABLE WITHIN 60 DAYS(1) | TOTAL SHARES BENEFICIALLY OWNED(2) | PERCENTAGE OF SHARES BENEFICIALLY OWNED(3) | ||||||||||||||||||||||||||
5% Shareholders | |||||||||||||||||||||||||||||
Alan Trefler (4) | 39,829,097 | 151,576 | 39,980,673 | 49.0 | % | ||||||||||||||||||||||||
Bares Capital Management, Inc. | 4,903,185 | (5) | — | 4,903,185 | (5) | 6.0 | % | ||||||||||||||||||||||
Luxor Capital Group, LP | 4,507,157 | (6) | 1,000,000 | 5,507,157 | (6) | 6.7 | % | ||||||||||||||||||||||
Directors | |||||||||||||||||||||||||||||
Alan Trefler | † | † | † | † | |||||||||||||||||||||||||
Peter Gyenes | 5,890 | 10,350 | 16,240 | * | |||||||||||||||||||||||||
Richard Jones (7) | 608,350 | 10,350 | 618,700 | * | |||||||||||||||||||||||||
Christopher Lafond | 3,371 | 10,350 | 13,721 | * | |||||||||||||||||||||||||
Dianne Ledingham | 10,737 | 10,350 | 21,087 | * | |||||||||||||||||||||||||
Sharon Rowlands | 17,796 | 10,350 | 28,146 | * | |||||||||||||||||||||||||
Larry Weber | 4,477 | 10,350 | 14,827 | * | |||||||||||||||||||||||||
Named Executive Officers | |||||||||||||||||||||||||||||
Alan Trefler | † | † | † | † | |||||||||||||||||||||||||
Kenneth Stillwell | 6,873 | 42,031 | 48,904 | * | |||||||||||||||||||||||||
Rifat Kerim Akgonul | 47,228 | 65,611 | 112,839 | * | |||||||||||||||||||||||||
John Gerard Higgins | 795 | 8,453 | 9,248 | * | |||||||||||||||||||||||||
Michael Pyle | 7,405 | 81,930 | 89,335 | * | |||||||||||||||||||||||||
Hayden Stafford (8) | 8,109 | 35,646 | 43,755 | * | |||||||||||||||||||||||||
Leon Trefler | 20,020 | 177,340 | 197,360 | * | |||||||||||||||||||||||||
All executive officers and directors as a group (9) | 40,572,119 | 644,561 | 41,216,680 | 50.5 | % |
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Director Diversity
Pegasystems aims Matrix
Board Diversity Matrix (As of April 1, 2022) | ||||||||
Total Number of Directors: 7 | ||||||||
Female | Male | |||||||
Part I: Gender Identity | ||||||||
Directors | 2 | 5 | ||||||
Part II: Demographic Background | ||||||||
White | 2 | 5 |
Board of Directors Qualifications and Experience
Ronald Hovsepian,58, has been a Director of Pegasystems since January 2019. Mr. Hovsepian is currently an Executive Partner at Flagship Pioneering, a private equity and venture capital firm that focuses on healthcare. He was the Chief Executive Officer of Synchronoss Technologies, a telecommunications software and services company, in 2017. From December 2012 to January 2017, Mr. Hovsepian was also Chief Executive Officer of Intralinks. From 2006 to 2011, he served as Chief Executive Officer of Novell. Mr. Hovsepian currently sits on the boards of Skillsoft Corporation, a learning and performance support company; Ansys Corporation, a simulation software company; and ECi Solutions, a technology and software company. From 1998 to 2015, Mr. Hovsepian was
economics and management science. He also holds an M.B.A. degree from the Wharton School of the University of Pennsylvania. We believe Mr. Jones’ qualifications to serve on our Board of Directors include his two decades of executive management, his financial expertise and business acumen, and his experience gained while serving as Pegasystems’ President and Chief Operating Officer.
Association, anot-for-profit industry association of media companies and technology providers. From 2010 to 2016, she served on the board of ReachLocal, Inc. From 2010 to 2014, Ms. Rowlands served on the board of Constant Contact, Inc. From 2008 to 2011, she served on the board of Automatic Data Processing, Inc. Ms. Rowlands holds a B.A. in History from the University of Newcastle, Newcastle-Upon-Tyne and a Postgraduate Certificate in Education from Goldsmiths, University of London. We believe Ms. Rowland’s qualifications to serve on our Board of Directors include her extensive leadership experience, including positions as Chief Executive Officer and as a director for several public and private companies.
Directors Not Standing forRe-election
James O’Halloran, 87, has been a Director of Pegasystems since 1999. In November 2004, he was elected a member of our Audit and Nominating and Corporate Governance Committees, and in January 2017, he was elected Chair of our Audit Committee. In April 2005, he was elected a member of our Compensation Committee on which he served until January 2017. From June 1999 to August 2001, Mr. O’Halloran was the Senior Vice President, Chief Financial Officer, Treasurer, and Secretary of Pegasystems. 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 until his retirement in 1990. From August 2002 to February 2004, Mr. O’Halloran served as President and Chief Operating Officer of FabTech Industries of Brevard, Inc., a certified supplier of precision components for the aerospace, defense, medical, fuel cell, and high-tech industries. From 2004 to 2016, Mr. O’Halloran served on the board of directors of Omtool Ltd., a software company. Mr. O’Halloran holds degrees in business administration and accounting from Boston College. We believe Mr. O’Halloran’s qualifications to serve on our Board of Directors include his extensive experience with public and financial accounting matters for global organizations, including his past service as Pegasystems’ Chief Financial Officer and as an audit partner for more than two decades with Arthur Andersen LLP.
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Under these guidelines, our Chief Executive Officer is to own shares equal to three times such person’s annual base salary, directors are to own shares equal to three times such director’s annual cash retainer, and other officers are to own shares equal to one times such person’s annual base salary. Unvested and unearned awards do not count towards satisfaction of the minimum share ownership level. Each director and officer has until 5 years from the later of April 22, 2019 and commencement of services to achieve compliance. Until minimum share ownership is achieved, the applicable director or officer must retain 50 percent of all net shares that vest until minimum share ownership is achieved. In addition, if at the end of the 5-year period a director or officer has not achieved the minimum share ownership level, the director or officer may not sell any shares until the minimum share ownership level is achieved. Currently, each of our directors and officers has satisfied the applicable minimum share ownership level, except for those who are within their first 5 years of service. In addition to the share retention requirements under our stock ownership guidelines, shares acquired under our Employee Stock Purchase Plan (“ESPP”) in offering periods commencing after January 1, 2021 may not be sold, pledged or otherwise transferred prior to one year from their acquisition.
One Rogers
1 Main Street
Cambridge, MA 02142-1209
Attention: Vice President, Chief Commercial Officer, General Counsel, and Secretary
Telephone: (617)374-9600
Weber, and James O’Halloran)Larry Weber) is an “independent director” as defined under Nasdaq Rule 5605(a)(2). There were no other transactions, relationships, or arrangements not disclosed in this proxy statement that were relevant to the independence of the persons serving as members of our Board of Directors in 2019.
Board Leadership Structure and Risk Oversight
2021.
Stockholders
Attention: Secretary. The Nominating and Corporate Governance Committee will consider a recommendation only if appropriate biographical information and background material is provided on a timely basis. The process followed by the Nominating and Corporate Governance Committee to identify and evaluate candidates includes requests to our directors and others for recommendations, meetings from time to time to evaluate biographical information and background material relating to potential candidates and interviews of selected candidates by members of the Nominating and Corporate Governance Committee and the Board. Assuming that appropriate biographical and background material is provided for candidates recommended by stockholders,shareholders, the Nominating and Corporate Governance Committee will evaluate those candidates, by following substantially the same process, and applying the same criteria, as for new candidates submitted by our directors.
Stockholders
Communications from Stockholders and Other Interested Parties to the Board
StockholdersShareholders and other interested parties who wish to send communications on any topic to the Board of Directors should address such communications to:
c/o Pegasystems Inc.
One Rogers
1 Main Street
Cambridge, MA 02142-1209
Attention: Vice President, Chief Commercial Officer, General Counsel, and Secretary
Shareholders.
Audit | Compensation | Nominating and Corporate Governance | ||||||||||||||||||||||
Alan Trefler | ||||||||||||||||||||||||
Peter Gyenes | X | X | ||||||||||||||||||||||
Richard Jones | X | X | ||||||||||||||||||||||
| X(C) | X | ||||||||||||||||||||||
Dianne Ledingham | X | X | ||||||||||||||||||||||
Sharon Rowlands | X(C) | X | ||||||||||||||||||||||
Larry Weber | X | |||||||||||||||||||||||
| X | X | ||||||||||||||||||||||
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registered public accounting firm, and the performance of our internal audit function and independent registered public accounting firm. In 2019, the Audit Committee addedfirm, and risk assessment and risk management to its Charter.management. The Audit Committee has the authority to engage any independent legal, accounting, or other advisors that it deems necessary or appropriate to carry out its responsibilities. The Audit Committee was responsible for selecting and appointing Deloitte & Touche LLP, our independent registered public accounting firm. The Board of Directors has determined that Messrs. O’Halloran andMr. Lafond, both of whom arean independent directors, qualifydirector, qualifies as an “audit committee financial expert” within the meaning of Item 407(d)(5)(ii) under RegulationS-K. The Audit Committee oversees our corporate accounting and financial reporting process and risk management. Among other matters it is responsible for determining the engagement of the independent accounting firm; overseeing the process for monitoring auditor independence; overseeing the implementation of new accounting standards; and reviewingnon-GAAP financial measures and related disclosures. The responsibilities of our Audit Committee and its activities during 20192021 are further described in the “Report“Report of the Audit Committee”Committee” contained below. Our Audit Committee held four meetings during 2019.
2021.
2021.
In 2019, Pegasystems formed an
Environmental | Social | Governance | ||||||
We are committed to reducing the environmental impact of our operations on air, land, and water | We strive to be a responsible corporate citizen and active contributor in communities where our employees, partners, and clients work | We believe that corporate governance is important to ensure that Pegasystems is managed for the long-term benefit of all our stakeholders |
Innovative: We are visionaries, challenging ourselves and the status quo to better transform our clients’ organizations for their customers. | Engaging: We actively listen and continuously learn. We are collaborative thought leaders focused on bringing ONE PEGA to our clients. | |||||||
Inclusive: We are capable of achieving more together. We encourage diverse thinking and collaboration for better outcomes for all. | Genuine: Integrity and authenticity are central to our work. The trust of our clients and the communities around us make us who we are. | |||||||
Passionate: We love what we do for our clients. And it shows! | Adaptable: Business and technology are constantly changing. So in everything we do, we Build for Change®. |
selected ISO 27001/27002 as our corporate trust anchor, and, to manage cyber risk, we have adopted the ISO 31000 risk management framework. The full list of our certifications and attestations may be found on the Pegasystems trust center (
https://www.pega.com/trust) which is included as an inactive reference and the content of which is not incorporated by reference into this proxy statement.Except as described below, during 2019
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. Leon Trefler, the brother of our Chairman and Chief Executive Officer, Alan Trefler, serves as our Senior Vice President, Global Customer Success.
Chief of Clients and Markets.
Until August 2019,non-employee
In August 2019, the Company decreased its annual cash retainer to $50,000 and increased the value of the Annual Equity Grant to $200,000 based on an analysis of our peer companies and to better align with benchmarks. In addition, the Annual Equity Grant is now provided in the form of fifty percent common stock and fifty percent stock options, which are both fully vested when granted. The changes tonon-employee director compensation were made after analysis of the Company’s then-current Board compensation program and those of the Company’s peer group data and are designed to target total compensation at the 50th percentile of the selected comparators.
Non-Employee Director Compensation
Fees Earned or Paid in Cash | Stock Awards (1) | Total | ||||||||||
Peter Gyenes | $ | 70,000 | (2) | $ | 200,000 | $ | 270,000 | |||||
Ronald Hovsepian | $ | 77,000 | (3) | $ | 261,300 | (9) | $ | 338,300 | ||||
Richard Jones | $ | 63,000 | (4) | $ | 200,000 | $ | 263,000 | |||||
Christopher Lafond | $ | 75,000 | (5) | $ | 222,260 | (10) | $ | 297,260 | ||||
Dianne Ledingham | $ | 63,000 | (4) | $ | 200,000 | $ | 263,000 | |||||
James O’Halloran | $ | 87,000 | (6) | $ | 200,000 | $ | 287,000 | |||||
Sharon Rowlands | $ | 74,000 | (7) | $ | 200,000 | $ | 274,000 | |||||
Larry Weber | $ | 68,000 | (8) | $ | 200,000 | $ | 268,000 |
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Fees Earned or Paid in Cash | Stock Awards (1) | Total | ||||||||||||||||||
Peter Gyenes | $ | 65,000 | (2) | $ | 200,000 | $ | 265,000 | |||||||||||||
Richard Jones | $ | 60,000 | (3) | $ | 200,000 | $ | 260,000 | |||||||||||||
Christopher Lafond | $ | 77,000 | (4) | $ | 200,000 | $ | 277,000 | |||||||||||||
Dianne Ledingham | $ | 60,000 | (3) | $ | 200,000 | $ | 260,000 | |||||||||||||
Sharon Rowlands | $ | 70,000 | (5) | $ | 200,000 | $ | 270,000 | |||||||||||||
Larry Weber | $ | 82,500 | (6) | $ | 200,000 | $ | 282,500 |
(1) These amounts reflect the dollar amount of the aggregate grant date fair value of awards granted in 2021, in accordance with Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) Topic 718.
(the “Dodd-Frank Act”).
•Alan Trefler, our Chairman of the Board of Directors and Chief Executive Officer (principal executive officer);
•Kenneth Stillwell, our Chief AdministrativeOperating Officer and Chief Financial Officer and Senior Vice President (principal financial officer);
Douglas Kra,•Kerim Akgonul, our Senior Vice President, Global Customer Success;
•Michael Pyle, our Senior ViceChief Technology Strategist
•Leon Trefler, our Senior Vice President, Global Customer Success.
•base salary;
•annual bonus tied to the achievement of corporate goals under our Corporate Incentive Compensation Plan (“CICP”);
•additional individual incentive compensationcash incentives tied to the achievement of individual, business unit, and/or corporate goals by our executive officers, the attainment of which supports our achievement of our corporate goals;
•equity awards comprised of both stock options and RSUs that vest over time; and
•other perquisites.
16, 2022:
Efstathios Kouninis
Douglas Kra, age 57, joined Pegasystems in November 2004 as Vice President of Global Services. In January 2010, Mr. Kra was promoted to Senior Vice President of Global Services. In July 2014, the Company
Michael Pyle, age 65,67, joined Pegasystems in 1985 and has served as Senior Vice President of Engineering since August 2000. As of April 1, 2021, Mr. Pyle was appointed to serve as Pegasystems’ Chief Technology Strategist. Mr. Pyle’s professional background encompasses more than forty years of software development and managerial experience throughout Europe and the U.S.United States. Mr. Pyle completed his B.C.S. specializing in computer science and systems programming at the Civil Service College in London.
Leon Trefler
Oversight of Compensation Programs
compensation, including salary, bonus, additional incentives, equity awards, our 401(k) plan matching contribution, Company-paid parking, and Company-paid health, dental, and other insurance premiums. The Compensation Committee also considered more detailed information regarding the equity components of executive compensation, including the total value of outstanding“in-the-money” “in-the-money” vested stock options and unvested stock options and RSUs and the retention value of such awards.
awards.
shareholder.
The list of companies below was used as our compensation benchmarking peer group for reviewing and evaluating our 20192021 compensation program for our executive officers where there was data for comparable positions:
Zendesk | ||||||||
PTC | ||||||||
Splunk | Verint Systems | |||||||
Fair Isaac Corporation | ||||||||
Our senior management uses this benchmarking data to review and recommend compensation levels for executive compensation and the Compensation Committee evaluates this data to determine whether the recommended levels of compensation are reasonable and consistent with the goal of providing Total Cash Compensation that is targeted within the 50th to 75th percentile of the Total Cash Compensation paid to the executive officers of the benchmark companies or industry surveys. In 2019, the target Total Cash Compensation of our named executive officers generally fell within that range, with the exception of our Chief Executive Officer who is compensated below the 50th percentile due to his status as a significant stockholder.
Objective | Fixed/Variable | |||||||||||||
Base Salary | Attract and retain highly qualified leaders with market-competitive compensation structure. | Fixed | ||||||||||||
Bonus – CICP | ||||||||||||||
| Link pay with our performance. Reward achievement of our financial and strategic goals. | Variable | ||||||||||||
Additional Cash Incentives | ||||||||||||||
| Link pay with individual, business unit and/or corporate performance. Reward achievement of specific goals. | Variable | ||||||||||||
Equity Awards (Stock Options and RSUs) | Link pay with our long-term performance. Reward stock price appreciation, promote long-term retention and permit executives to accumulate equity ownership. | Variable | ||||||||||||
Other Perquisites | Retain talent by providing financial protection and security. | Fixed |
50% of his target Total Cash Compensation. Base salaries are set for our named executive officers at a regularly scheduled meeting of our Compensation Committee in the first quarter of the year. The Compensation Committee also approves the bonus payments based on the prior year’s results and the target bonus levels for the current year.
Cash Incentives
Equity Awards
Other Perquisites
at approximately the 50th percentile.percentile of the market range. In 2020,2022, the Compensation Committee also provided Mr. Trefler with a periodic equity grant valued at $5,000,000,$6,500,000, comprised of 100% stock options, in consideration of the above factors. Mr. Trefler’s equity awards are comprised of 50% stock options and 50% RSUs andBoth grants vest on a five-year schedule.
Compensation for Other Named Executive Officers
2019 | 2018 | % Increase | ||||||||||
Douglas Kra | $ | 360,000 | $ | 350,000 | 2.9 | % | ||||||
Michael Pyle | $ | 377,000 | $ | 370,000 | 1.9 | % | ||||||
Kenneth Stillwell | $ | 445,000 | $ | 440,000 | 1.1 | % | ||||||
Leon Trefler | $ | 360,000 | $ | 350,000 | 2.9 | % |
2021 | 2020 | % Increase | |||||||||||||||
Kenneth Stillwell | $ | 478,400 | (1) | $ | 460,000 | 4.0 | % | ||||||||||
Rifat Kerim Akgonul | $ | 427,450 | (1) | $ | 420,000 | 1.8 | % | ||||||||||
Michael Pyle | $ | 400,000 | $ | 400,000 | — | % | |||||||||||
Hayden Stafford | $ | 430,000 | $ | 430,000 | — | % | |||||||||||
Leon Trefler | $ | 365,000 | $ | 365,000 | — | % |
2021.
on or about March 15, 2022 under the 2021 Executive Incentive Plan.
2022 Executive Incentive Plan.
In addition, in 2019, Leon Trefler and Mr. Kra each had a target sales commission of $257,759$516,000 and $190,588,$310,000, respectively, in additional incentive compensation related to the valueSCV of bookings achieved by us.cloud, license, and maintenance sales. For 2019,2021, Mr. Stafford’s and Leon Trefler’s and Mr. Kra’s actual additional incentive compensation in the form of sales commissions related to this goal was $261,411were $402,000 and $165,160,$235,000, respectively.
objectives. In 2020, Leon Trefler’s and Mr. Kra’s targets are $50,000 in additional incentive payments. The executive officers will be eligible for these additional incentive payments based upon the level of achievement of their respective objectives. Our Chief Executive Officer will review each executive officer’s respective performance towards achieving these individual, business unit and/or corporate goals. In 2020, Leon Trefler and Mr. Kra will also have target sales commissions of $310,000 and $228,000, respectively.
$375,000.
2021 | 2020 | % Increase | |||||||||||||||
Kenneth Stillwell | $ | 3,000,000 | $ | 2,500,000 | 20.0 | % | |||||||||||
Rifat Kerim Akgonul | $ | 1,200,000 | $ | 1,200,000 | 0.0 | % | |||||||||||
Michael Pyle | $ | 600,000 | $ | 600,000 | 0.0 | % | |||||||||||
Hayden Stafford* | $ | 500,000 | $ | 6,500,000 | (92.3) | % | |||||||||||
Leon Trefler | $ | 1,000,000 | $ | 1,200,000 | (16.7) | % |
12/31/2019 | 12/31/2018 | % Increase | ||||||||||
Douglas Kra | $ | 850,000.00 | $ | 850,000.00 | 0.0 | % | ||||||
Michael Pyle | $ | 600,000.00 | $ | 300,000.00 | 100.0 | % | ||||||
Kenneth Stillwell | $ | 1,100,000.00 | $ | 1,000,000.00 | 10.0 | % | ||||||
Leon Trefler | $ | 1,000,000.00 | $ | 850,000.00 | 17.6 | % |
Severance, Retention,July 1, 2020 and ChangeAugust 1, 2020. As disclosed in Control Benefits
the Company’s Form 8-K filed February 16, 2022, Mr. Stafford resigned as an executive officer of the Company effective March 4, 2022. Mr. Stafford was a named executive officer for fiscal year 2021, but is no longer an executive officer or employee of the Company.
Mr. Stafford was party to a similar agreement with Pegasystems. However, because Mr. Stafford resigned, Mr. Stafford was not entitled to any severance payment. Mr. Stafford resigned effective March 4, 2022, and, at the time of his departure, the Company paid him $96,750 representing the cash payment he would have received on or about March 15, 2022 under the 2021 Executive Incentive Plan.
Impact2021. Mr. Stafford was party to a similar agreement with Pegasystems. However, because Mr. Stafford resigned, Mr. Stafford was not entitled to any severance payment. Mr. Stafford resigned effective March 4, 2022, and, at the time of Regulatory Requirements
Our stock option and RSU grant policies are impacted by FASB ASC 718, formerly FAS 123(R), which we adoptedhis departure, the Company paid him $96,750 representing the cash payment he would have received on January 1, 2006. As a result ofor about March 15, 2022 under the adoption of this accounting policy, we have generally reduced the number of stock options granted to employees, as has been the case with many companies of similar size in our industry.
2021 Executive Incentive Plan.
Based upon this assessment, we have concluded that our Compensation Programs are balanced and do not, by design, motivate excessive risk taking by management and other employees.
•In general, compensation consists of a balanced mix of fixed and variable compensation. The fixed component, base salary, provides a stable income stream to employees, including management and executives, while variable compensation, consisting of annual bonuses, and commissions for sales and certain services employees, provides compensation opportunities tied to our company performance and strategic initiatives;
•Annual incentive payments, or bonuses, provide the potential for variable pay based upon the achievement of our annual financial and strategic business objectives. These objectives are set at the company level and are not based upon the results for any one individual, team, or division. Our Board of Directors reviews and approves the corporate funding percentage. Moreover, the Compensation Committee determines and approves executive officer compensation and has the discretion to modify individual payout amounts to reflect an individual’s performance;
•The incentive plans for our sales force align variable compensation with both short- and long-term goals. Commissions are payable on contract signing; however, our incentive plans permit us to recover the value of payments on sales commissions for clientnon-payment. Corporate controls require a risk-based approach for review and approveapproval of customer contracts by Finance, Legal, and Sales management prior to execution. Our senior management also reviews and approves material nonstandard contract terms; and
•Equity awards, which are granted to most employees, may consist of bothRSUs and/or stock options, and RSUs, and align employee equity compensation with our long-term success. Additionally, senior level employees receive equity compensation in both RSUs and stock options to further align their interests with those of our stakeholders, including our stockholders.shareholders. Equity awards typically vest over five years and increase in value if our stock price increases over time. To further mitigate against risk, our equity incentive plan allows for the cancellation and forfeiture, as well as the clawback, of equity awards, and shares obtained pursuant to equity awards, for employee misconduct.
PAY RATIO •The median of the annual total compensation of all employees (excluding the Chief Executive Officer) (the “median employee”) was Pay Ratio2019,2021, our last completed fiscal year:$128,252;$124,978; and
•The annual total compensation of our Chief Executive Officer, as reported in the Summary Compensation Table included elsewhere in this proxy statement, was $5,933,824.
During 2019, there have been no changes to our
change in the circumstances of the employee identified as the median employee, we included employees in 2018. Therefore,all countries.
a foreign currency.
(in thousands, except per share amounts) | (a) Number of Shares of Common Stock to be Issued Upon Exercise of Outstanding Stock Options and Vesting of RSUs(4) (5) | (b) Weighted-average Exercise price per Share of Outstanding Stock Options (6) | (c) Number of Shares of Common Stock Remaining Available for Future Issuance (excluding those in column (a)) (7) | |||||||||
Equity compensation plans approved by | 9,986 | $ | 44.76 | 6,484 | ||||||||
Equity compensation plans not approved by stockholders(2) (3) | 15 | $ | 13.81 | — |
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(in thousands, except per share amounts) | (a) Number of Shares of Common Stock to be Issued Upon Exercise of Outstanding Stock Options and Vesting of RSUs(3) (4) | (b) Weighted-average Exercise price per Share of Outstanding Stock Options(5) | (c) Number of Shares of Common Stock Remaining Available for Future Issuance (excluding those in column (a))(6) | ||||||||||||||
Equity compensation plans approved by shareholders(1) | 9,234 | $ | 74.94 | 10,417 | |||||||||||||
Equity compensation plans not approved by shareholders(2) | 9 | $ | — | — |
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(2) In connection with our acquisition of In the Chat Communications Inc. on May 10, 2019 and in reliance on the Regulation D exemption from registration requirements under the Securities Act, we granted an employee the right to obtain up to 14 thousand shares of our common stock, which will be issued in five equal tranches contingent upon continued employment. No general solicitation or advertising to market the securities occurred.
Year | Salary | Bonus(1) | Stock Awards (2) | Option Awards (3) | Non-Equity Incentive Plan Compensation (4) | All Other Compensation (5) | Total | |||||||||||||||||||||||||
Alan Trefler | 2019 | $ | 485,000 | $ | — | $ | 2,500,006 | (6) | $ | 2,500,018 | (6) | $ | 436,500 | $ | 12,300 | $ | 5,933,824 | |||||||||||||||
2018 | $ | 485,000 | $ | — | $ | — | $ | — | $ | 485,000 | $ | 11,250 | $ | 981,250 | ||||||||||||||||||
2017 | $ | 470,000 | $ | — | $ | — | $ | — | $ | 399,500 | $ | 10,800 | $ | 880,300 | ||||||||||||||||||
Kenneth Stillwell | 2019 | $ | 445,000 | $ | — | $ | 720,229 | (6)(7) | $ | 550,004 | (6) | $ | 130,163 | (8) | $ | 12,300 | $ | 1,857,696 | ||||||||||||||
2018 | $ | 440,000 | $ | — | $ | 655,388 | (7)(9) | $ | 500,446 | (9) | $ | 132,000 | (8) | $ | 11,250 | $ | 1,739,084 | |||||||||||||||
2017 | $ | 415,000 | $ | — | $ | 271,549 | (7)(10) | $ | 125,046 | (10) | $ | 105,825 | (8) | $ | 10,800 | $ | 928,220 | |||||||||||||||
Douglas Kra | 2019 | $ | 360,000 | $ | 188,685 | $ | 425,038 | (6) | $ | 425,012 | (6) | $ | 162,000 | $ | 12,300 | $ | 1,573,035 | |||||||||||||||
2018 | $ | 350,000 | $ | 167,430 | $ | 425,050 | (9) | $ | 425,388 | (9) | $ | 175,000 | $ | 11,250 | $ | 1,554,118 | ||||||||||||||||
2017 | $ | 350,000 | $ | 194,491 | $ | 325,028 | (10) | $ | 325,104 | (10) | $ | 140,000 | $ | 10,800 | $ | 1,345,423 | ||||||||||||||||
Michael Pyle | 2019 | $ | 377,000 | $ | — | $ | 433,201 | (6)(7) | $ | 300,015 | (6) | $ | 101,790 | (8) | $ | 12,300 | $ | 1,224,306 | ||||||||||||||
2018 | $ | 370,000 | $ | — | $ | 430,694 | (7)(9) | $ | — | $ | 111,000 | (8) | $ | 11,250 | $ | 922,944 | ||||||||||||||||
2017 | $ | 363,000 | $ | — | $ | 328,206 | (7)(10) | $ | — | $ | 92,565 | (8) | $ | 10,800 | $ | 794,571 | ||||||||||||||||
Leon Trefler | 2019 | $ | 360,000 | $ | 304,661 | $ | 605,968 | (6)(7) | $ | 500,007 | (6) | $ | 81,000 | (8) | $ | 12,300 | $ | 1,863,936 | ||||||||||||||
2018 | $ | 350,000 | $ | 288,713 | $ | 528,061 | (7)(9) | $ | 325,104 | (9) | $ | 87,500 | (8) | $ | 11,250 | $ | 1,590,628 | |||||||||||||||
2017 | $ | 350,000 | $ | 158,901 | $ | 407,424 | (7)(10) | $ | 300,050 | (10) | $ | 16,800 | (8) | $ | 10,800 | $ | 1,243,975 |
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(1) These amounts reflect the dollar amount |
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the aggregate grant date fair value of RSU awards granted in the years ended December 31, 2021, 2020, and 2019 in accordance with FASB ASC Topic 718. The calculation of the fair value of RSU awards is set forth in "15. Stock-Based Compensation" in Item 8 of our Annual Report filed on Form 10-K for the year ended December 31, 2021 filed with the SEC on February 16, 2022.
Estimated Future Payouts Under(1) | All Other Stock Awards: Number of Shares of Stock or Units (3) | All Other Option Awards: Number of Securities Underlying Options(3) | Exercise or Base Price of Option Awards | Grant Date Fair Value of Stock and Option Awards(4) | ||||||||||||||||||||||||||||||||||||||||
Non-Equity Incentive Plan Awards | Equity Incentive Plan Awards | |||||||||||||||||||||||||||||||||||||||||||
Grant Date | Threshold | Target | Maximum (2) | Threshold | Target | Maximum | ||||||||||||||||||||||||||||||||||||||
Alan Trefler | $ | 339,500 | $ | 485,000 | $ | — | ||||||||||||||||||||||||||||||||||||||
3/6/2019 | $ | 2,500,006 | 39,026 | $ | 2,500,006 | |||||||||||||||||||||||||||||||||||||||
3/6/2019 | $ | 2,500,018 | 132,909 | $ | 64.35 | $ | 2,500,018 | |||||||||||||||||||||||||||||||||||||
Kenneth Stillwell | $ | 101,238 | (5) | $ | 144,625 | (5) | $ | — | ||||||||||||||||||||||||||||||||||||
3/6/2019 | $ | 170,210 | 2,650 | (5) | $ | 170,210 | ||||||||||||||||||||||||||||||||||||||
3/6/2019 | $ | 550,019 | 8,586 | $ | 550,019 | |||||||||||||||||||||||||||||||||||||||
3/6/2019 | $ | 550,004 | 29,240 | $ | 64.35 | $ | 550,004 | |||||||||||||||||||||||||||||||||||||
Douglas Kra | $ | 126,000 | $ | 180,000 | $ | — | ||||||||||||||||||||||||||||||||||||||
3/6/2019 | $ | 425,038 | 6,635 | $ | 425,038 | |||||||||||||||||||||||||||||||||||||||
3/6/2019 | $ | 425,012 | 22,595 | $ | 64.35 | $ | 425,012 | |||||||||||||||||||||||||||||||||||||
Michael Pyle | $ | 79,170 | (5) | $ | 113,100 | (5) | $ | — | ||||||||||||||||||||||||||||||||||||
3/6/2019 | $ | 133,149 | 2,073 | (5) | $ | 133,149 | ||||||||||||||||||||||||||||||||||||||
3/6/2019 | $ | 300,052 | 4,681 | $ | 300,052 | |||||||||||||||||||||||||||||||||||||||
3/6/2019 | $ | 300,015 | 16,770 | $ | 64.35 | $ | 300,015 | |||||||||||||||||||||||||||||||||||||
Leon Trefler | $ | 63,000 | (5) | $ | 90,000 | (5) | $ | — | ||||||||||||||||||||||||||||||||||||
3/6/2019 | $ | 105,915 | 1,649 | (5) | $ | 105,915 | ||||||||||||||||||||||||||||||||||||||
3/6/2019 | $ | 500,052 | 7,806 | $ | 500,052 | |||||||||||||||||||||||||||||||||||||||
3/6/2019 | $ | 500,007 | 26,582 | $ | 64.35 | $ | 500,007 |
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Estimated Future Payouts Under | All Other Stock Awards: Number of Shares of Stock or Units(2) | All Other Option Awards: Number of Securities Underlying Options(2) | Exercise or Base Price of Option Awards | Grant Date Fair Value of Stock and Option Awards(3) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Non-Equity Incentive Plan Awards(1) | Equity Incentive Plan Awards | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Grant Date | Threshold | Target | Maximum | Threshold | Target | Maximum | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Alan Trefler | $ | 173,250 | (4) | $ | 247,500 | (4) | $ | — | (5) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3/2/2021 | $ | 291,288 | 2,235 | (4) | $ | 291,288 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3/2/2021 | $ | 3,250,127 | 24,976 | $ | 3,250,127 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3/2/2021 | $ | 3,250,033 | 85,428 | $ | 130.45 | $ | 3,250,033 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Kenneth Stillwell | $ | 117,208 | (4) | $ | 167,440 | (4) | $ | — | (5) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3/2/2021 | $ | 189,500 | 1,454 | (4) | $ | 189,500 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3/2/2021 | $ | 1,500,009 | 11,527 | $ | 1,500,009 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3/2/2021 | $ | 1,500,003 | 39,428 | $ | 130.45 | $ | 1,500,003 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Rifat Kerim Akgonul | $ | 89,765 | (4) | $ | 128,235 | (4) | $ | — | (5) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3/2/2021 | $ | 146,621 | 1,125 | (4) | $ | 146,621 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3/2/2021 | $ | 600,029 | 4,611 | $ | 600,029 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3/2/2021 | $ | 600,032 | 15,772 | 130.45 | $ | 600,032 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Michael Pyle | $ | 84,000 | (4) | $ | 120,000 | (4) | $ | — | (5) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3/2/2021 | $ | 141,278 | 1,084 | (4) | $ | 141,278 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3/2/2021 | $ | 300,004 | 2,304 | $ | 300,004 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3/2/2021 | $ | 300,007 | 8,499 | $ | 130.45 | $ | 300,007 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Hayden Stafford(6) | $ | 75,250 | (4) | $ | 107,500 | (4) | $ | — | (5) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3/2/2021 | $ | 126,550 | 971 | (4) | 126,550 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3/2/2021 | $ | 250,110 | 1,922 | 250,110 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3/2/2021 | $ | 250,026 | 6,572 | 130.45 | 250,026 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Leon Trefler | $ | 127,750 | $ | 182,500 | $ | — | (5) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3/2/2021 | $ | 500,090 | 3,843 | $ | 500,090 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3/2/2021 | $ | 500,014 | 13,143 | $ | 130.45 | $ | 500,014 |
Option Awards | Stock Awards | |||||||||||||||||||||||
Number of Securities Underlying Unexercised Options | Option Exercise Price | Option Expiration Date(1) | Number of Shares or Units of Stock That Have Not Vested (2) | Market Value of Shares or Units of Stock That Have Not Vested (3) | ||||||||||||||||||||
Exercisable | Unexercisable | |||||||||||||||||||||||
Alan Trefler | — | 132,909 | $ | 64.35 | 3/6/2029 | |||||||||||||||||||
39,026 | $ | 3,108,421 | ||||||||||||||||||||||
Kenneth Stillwell | — | 74,031 | $ | 27.74 | 8/1/2026 | |||||||||||||||||||
— | 4,221 | $ | 44.30 | 3/2/2027 | ||||||||||||||||||||
— | 17,838 | $ | 58.95 | 3/5/2028 | ||||||||||||||||||||
— | 29,240 | $ | 64.35 | 3/6/2029 | ||||||||||||||||||||
15,307 | $ | 1,219,203 | ||||||||||||||||||||||
1,279 | $ | 101,872 | ||||||||||||||||||||||
5,541 | $ | 441,341 | ||||||||||||||||||||||
8,586 | $ | 683,875 | ||||||||||||||||||||||
2,650 | (4) | $ | 211,073 | |||||||||||||||||||||
Douglas Kra | 13,700 | — | $ | 18.03 | 3/7/2022 | |||||||||||||||||||
26,026 | — | $ | 20.05 | 3/7/2024 | ||||||||||||||||||||
28,846 | 1,519 | $ | 20.49 | 3/2/2025 | ||||||||||||||||||||
24,264 | 8,089 | $ | 25.20 | 3/9/2026 | ||||||||||||||||||||
13,410 | 10,972 | $ | 44.30 | 3/2/2027 | ||||||||||||||||||||
8,164 | 15,163 | $ | 58.95 | 3/5/2028 | ||||||||||||||||||||
— | 22,595 | $ | 64.35 | 3/6/2029 | ||||||||||||||||||||
558 | $ | 44,445 | ||||||||||||||||||||||
2,762 | $ | 219,993 | ||||||||||||||||||||||
3,325 | $ | 264,836 | ||||||||||||||||||||||
4,710 | $ | 375,152 | ||||||||||||||||||||||
6,635 | $ | 528,478 | ||||||||||||||||||||||
Michael Pyle | 13,700 | — | $ | 18.03 | 3/7/2022 | |||||||||||||||||||
22,772 | — | $ | 20.05 | 3/7/2024 | ||||||||||||||||||||
28,846 | 1,519 | $ | 20.49 | 3/2/2025 | ||||||||||||||||||||
17,647 | 5,883 | $ | 25.20 | 3/9/2026 | ||||||||||||||||||||
— | (6) | 16,770 | (6) | $ | 64.35 | 3/6/2029 | ||||||||||||||||||
558 | $ | 44,445 | ||||||||||||||||||||||
2,009 | $ | 160,017 | ||||||||||||||||||||||
2,550 | (5) | $ | 203,108 | |||||||||||||||||||||
4,681 | (6) | $ | 372,842 | |||||||||||||||||||||
2,073 | (4) | $ | 165,114 | |||||||||||||||||||||
Leon Trefler | 59,165 | — | $ | 11.05 | 12/12/2022 | |||||||||||||||||||
24,553 | — | $ | 20.05 | 3/7/2024 | ||||||||||||||||||||
28,678 | 1,687 | $ | 20.49 | 3/2/2025 | ||||||||||||||||||||
26,471 | 8,824 | $ | 25.20 | 3/9/2026 | ||||||||||||||||||||
13,410 | 10,972 | $ | 44.30 | 3/2/2027 | ||||||||||||||||||||
8,164 | 15,163 | $ | 58.95 | 3/5/2028 | ||||||||||||||||||||
— | 26,582 | $ | 64.35 | 3/6/2029 | ||||||||||||||||||||
620 | $ | 49,383 | ||||||||||||||||||||||
3,013 | $ | 239,985 | ||||||||||||||||||||||
3,325 | $ | 264,836 | ||||||||||||||||||||||
4,710 | $ | 375,152 | ||||||||||||||||||||||
7,806 | $ | 621,748 | ||||||||||||||||||||||
1,649 | (4) | $ | 131,343 |
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(1) Unless otherwise noted, stock options vest on a five-year schedule, with 20% vesting after one year |
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Option Exercises and Stock Vested Table
the remaining 80% vesting in equal quarterly installments over the remaining four years. Options expire ten years from the grant date.
Option Awards | Stock Awards | |||||||||||||||
Number of Shares Acquired on Exercise | Value Realized on Exercise (1) | Number of Shares Acquired on Vesting | Value Realized on Vesting (2) | |||||||||||||
Alan Trefler | — | $ | — | — | $ | — | ||||||||||
Kenneth Stillwell | 57,065 | $ | 2,072,111 | 14,938 | $ | 1,031,021 | ||||||||||
Douglas Kra | 25,064 | $ | 1,424,363 | 8,955 | $ | 626,006 | ||||||||||
Michael Pyle | 25,272 | $ | 1,436,300 | 11,313 | $ | 761,215 | ||||||||||
Leon Trefler | 19,010 | $ | 1,039,009 | 11,154 | $ | 771,453 |
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Option Awards | Stock Awards | ||||||||||||||||||||||
Number of Shares Acquired on Exercise | Value Realized on Exercise(1) | Number of Shares Acquired on Vesting | Value Realized on Vesting(2) | ||||||||||||||||||||
Alan Trefler | — | $ | — | 17,557 | $ | 2,203,193 | |||||||||||||||||
Kenneth Stillwell | 41,638 | $ | 3,988,209 | 17,533 | $ | 2,223,126 | |||||||||||||||||
Rifat Kerim Akgonul | 4,400 | $ | 508,266 | 8,666 | $ | 1,088,066 | |||||||||||||||||
Michael Pyle | — | $ | — | 4,333 | $ | 549,860 | |||||||||||||||||
Hayden Stafford(3) | — | $ | — | 7,155 | $ | 918,433 | |||||||||||||||||
Leon Trefler | 23,065 | $ | 2,677,316 | 8,625 | $ | 1,079,206 |
Richard H. Jones, one transaction reported on a Form 4/A filed on June 5, 2019 on behalf of Kenneth Stillwell, and one transaction reported on a Form 4 filed on June 12, 2019July 16, 2021 on behalf of Alan Trefler.
July 2021.
(United (United States), and SEC RegulationS-X Rule2-07, including the process used by management in formulating particularly sensitive accounting estimates (including significant tax positions) and the basis for the conclusions of the independent registered public accounting firm regarding the reasonableness of those estimates.
2021.
2022.
James O’Halloran,
Peter Gyenes
Christopher Lafond
At the Annual Meeting, our stockholders will be asked to approve the amended and restated Pegasystems Inc. 2004 Long-Term Incentive Plan (the “Plan”). The Plan was originally approved by our stockholders in June 2004. As originally approved, the total number of authorized shares available for grant under the Plan was 7,000,000, and the Plan’s term would run until March 10, 2014. The Plan was amended and approved by our stockholders in July 2011. As amended and approved in 2011, 5,000,000 shares were added to the authorized grant amount to increase that amount to 12,000,000 shares, and the term was extended to May 18, 2021. In 2014, our Board of Directors approved atwo-for-one stock split of our common stock. As a result, the amount of shares authorized for issuance under the Plan doubled from 12,000,000 to 24,000,000. The Plan was approved by the stockholders on June 10, 2016. As amended and approved in 2016, 6,000,000 shares were added to the authorized grant amount to increase that amount to 30,000,000 shares, and the term was extended to June 10, 2026. The Plan was amended and adopted by the Board on May 23, 2017. As amended and adopted in 2017, changes were made to termination of employment, death or disability, and retirement sections.
If this proposal is approved, 6,000,000 shares will be added to the authorized grant amount to increase that amount to 36,000,000 shares. We estimate that we will have used approximately 25,909,613 shares by March 31, 2020 from our current authorization of 30,000,000 shares, leaving approximately 4,090,387 remaining shares authorized under the Plan (including shares from cancellations of stock options and RSUs). We believe that the proposed increase in shares will suffice for the Plan for at least the next three years. In addition, this year, together with legal counsel, we identified a number of provisions in the Plan to be removed in response to changes to Section 162(m) of the Internal Revenue Code made by federal tax legislation commonly referred to as the Tax Cuts and Jobs Act of 2017. Although not all these changes are required to be approved by stockholders under applicable law or regulation, we have included these discretionary amendments in a single amendment and restatement of the Plan that we are submitting for stockholder approval at the Annual Meeting. The Plan is also being amended to permit delegation by the Compensation Committee to our employees, in accordance with applicable law, of the authority to approve awards under the Plan.
In summary, the proposed amendments to the Plan would:
increase the total number of authorized shares under the Plan by 6,000,000 shares, so that the aggregate number of awards that may be granted under the Plan is 36,000,000 shares;
extend the term of the Plan from June 10, 2026 through June 23, 2030;
remove certain 162(m)-related plan provisions that are now outdated due to changes in applicable law.
We believe that our ability to attract and retain qualified, high-performing employees is vital to our success and growth as a Company. Equity awards are a very effective retention tool that encourages and rewards employee performance that aligns with stockholders’ interests. We believe that the Plan as proposed to be amended and restated is an essential,up-to-date platform to accomplish these objectives, and we request your approval of the Plan.
On April 28, 2020, our Board of Directors adopted, subject to stockholder approval, the amended and restated Plan described above. The above summary of the Plan, as so amended and restated, does not purport to be complete and is qualified in its entirety by reference to the full text of the Plan, which is attached asAppendix Ato this proxy statement.
The Board of Directors recommends that you vote FOR the approval of the Plan, and proxies solicited by the Board will be voted in favor of the Plan unless a stockholder has indicated otherwise on the proxy.
Purposes
The purposes of the Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to employees, directors and consultants, to promote the success of our business, and to continue to link employee compensation with our performance. Options, RSUs, stock purchase rights and other stock-based awards may be granted under the Plan.
Administration
Subject to the provisions of the Plan, the Committee has authority in its discretion to: (1) determine fair market value of our common stock; (2) select employees, directors and consultants to whom awards may be granted; (3) determine the number of shares covered by awards; (4) approve forms of agreements for use under the Plan; (5) determine the terms and conditions of awards; (6) determine whether and under what circumstances an option may be settled in cash instead of common stock; (7) reduce the exercise price or purchase price of any award to the then fair market value if the fair market value has declined since the date of grant (with shareholder approval); (8) initiate a program whereby outstanding options are exchanged for options with a lower exercise price (with shareholder approval); (9) prescribe, amend or rescind rules and regulations relating to the Plan; (10) construe and interpret the terms of the Plan and awards granted pursuant to the Plan; (11) subject awards granted pursuant to the Plan to forfeiture, setoff, recoupment or other recovery if the Committee determines in good faith that such action is required by applicable law or Company policy; and (12) modify terms of the Plan or adopt additional terms and conditions in order to facilitate the granting of awards in foreign jurisdictions. In addition, to the extent permitted by applicable law, the Committee may delegate to one or more employees of the Company the power to grant awards and exercise such other powers under the Plan as the Committee may determine; provided, however, that the Committee shall fix the maximum number of shares issuable to any one participant pursuant to awards granted by such employee.
Shares Subject to the Plan
The stock subject to options and awards under the Plan is authorized but unissued shares of our common stock or shares of treasury common stock. Any shares subject to an option that for any reason expires or is terminated unexercised as to such shares and any restricted stock that is forfeited and repurchased by us at not more than its exercise price as a result of the exercise of a repurchase option may again be the subject of an option or award under the Plan. The number of shares of common stock that may be issued under the Plan may not exceed 36,000,000 shares, subject to adjustment, as described below. On March 31, 2020, the closing sale price of our common stock was $71.23 per share.
Non-employee Director Limits
In addition, the maximum number of shares subject to awards granted during a single fiscal year to anynon- employee director under this plan and under any other equity plan maintained by us, taken together with any cash fees paid to suchnon-employee director during the fiscal year, shall not exceed $500,000 in total value (calculating the value of any such awards based on the grant date fair value of such awards for financial reporting purposes and excluding, for this purpose, the value of any dividend equivalent payments paid pursuant to any award granted in a previous fiscal year).
Eligibility
Nonstatutory stock options, or NSOs, RSUs, stock purchase rights and other stock-based awards (other than incentive stock options) may be granted to employees, directors, and consultants. Incentive stock options, or ISOs, may be granted only to employees. Each option will be designated in the stock option agreement as either an ISO or a NSO. Notwithstanding the terms of any award under the Plan, in the event of certain misconduct by a participant, all awards to that participant will be terminated and all shares acquired by the participant under the Plan will be subject to repurchase by us at any time within 180 days after we have knowledge of such
misconduct. In addition, awards under the Plan and shares obtained pursuant to or upon exercise of such awards are subject to forfeiture, setoff, recoupment or other recovery if the Committee determines in good faith that such action is required by applicable law or Company policy.
Terms and Conditions of Options
Exercise Price.The exercise price for shares issued upon exercise of options will be determined by the Committee. The exercise price of ISOs may not be less than 100% of the fair market value on the date the option is granted. The exercise price of ISOs granted to a 10% or greater stockholder may not be less than 110% of the fair market value on the date of grant.
Form of Consideration.The means of payment for shares issued upon exercise of an option will be specified in each option agreement. The Plan permits payment to be made by cash, check, promissory note of the participant, wire transfer, other shares of our common stock (with some restrictions), consideration received by us under a cashless exercise program implemented by us in connection with the Plan, or any combination of the foregoing.
Term of Options.The term of an option may be no more than ten years from the date of grant, except that the term of an incentive stock option granted to a 10% or greater stockholder may not exceed five years from the date of grant.
Termination of Service.No option may be exercised more than three months following termination other than by reason of the participant’s death, disability or retirement, or such other period as set forth in the option agreement. If, on the date of termination, a participant is not fully vested, the shares covered by the unvested portion will revert to the Plan unless the Committee has determined that all or part of the unvested portion of the Option will continue to vest following termination of Service, in which the case the Shares covered by portion of the Option that will continue to vest will not revert to the Plan until the vesting of those Shares is no longer possible. If, after termination of Service, the Participant does not exercise his or her Option within the time specified in the Stock Option Agreement, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.
Death or Disability.An option is exercisable for 12 months following death of the participant or 24 months following termination for a disability or such other period as set forth in the option agreement. If, on the date of death or termination, a participant is not fully vested, the shares covered by the unvested portion will revert to the Plan on the last day of the 12th month following the date of the Participant’s death unless the Committee earlier determines that all or part of the unvested portion of the Option will become vested as the date of the Participant’s death and/or will continue to vest following the death of the Participant, in which case the Shares covered by the unvested portion of the Option will not revert to the Plan until the vesting of those Shares is no longer possible. If the Option is not so exercised within the time specified in the Stock Option Agreement, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.
Retirement.Upon retirement at or after the age of 60, with no intention to continue to provide services, whether as an employee, director, independent contractor or otherwise, to any other person or entity and with the intention of concluding the Employee or Director’s working or professional career, an option is exercisable for 24 months following retirement or such other period as set forth in the option agreement. If, on the date of retirement, a participant is not fully vested, the shares covered by the unvested portion will revert to the Plan unless the Committee has determined that all or part of the unvested portion of the Option will continue to vest following termination of Service, in which case the Shares covered by the portion of the Option that will continue to vest will not revert to the Plan until the vesting of those Shares is no longer possible. If after termination of Service, the Participant does not exercise his or her Option within the time specified in the Stock Option Agreement, the Option shall terminate, and the Shares covered by such Option shall revert to the plan.
Other Provisions.The stock option agreement for each option grant may contain other terms, provisions and conditions not inconsistent with the Plan, as may be determined by the Committee.
Restricted Stock Units
The Committee may grant RSUs under the Plan with such terms and conditions as the Committee shall determine. Each RSU represents the right to acquire a share of our common stock in the future, with the future delivery of the shares subject to a risk of forfeiture or other restrictions that will lapse upon the satisfaction of one or more specified conditions. A participant may not vote the shares represented by an RSU, but an RSU award may provide a participant with the right to receive dividend equivalent payments with respect to the common stock subject to the award (both before and after such common stock is vested).
Terms and Conditions of Stock Purchase Rights
Rights to Purchase.Stock purchase rights may be issued either alone, in addition to, or in tandem with, other awards granted under the Plan and/or cash awards made outside of the Plan.
Right of Repurchase.Unless the Committee determines otherwise, the stock purchase agreement will grant us the right to repurchase the stock sold upon the termination of the participant’s service to us or upon the failure to satisfy any performance objectives or other conditions specified in the stock purchase agreement. The repurchase price will be the purchase price paid by the participant or the purchase price for Restricted Shares repurchased pursuant to the Right of Repurchase shall be the purchase price paid by the Purchaser or such other price determined by the Committee and set forth in the Stock Purchase Agreement, and may be paid by cancellation of any indebtedness of the Purchaser to the Company. The repurchase right will lapse upon such conditions or at such rate as the Committee may determine and set forth in the stock purchase agreement.
Other Stock-Based Awards
The Committee will have the right to grant other awards based upon our common stock, having such terms and conditions as the Committee may determine, including the grant of shares based upon certain conditions, the grant of securities convertible into common stock and the grant of stock appreciation rights.
Adjustments
Changes in Capitalization.In the event of a stock split, reverse stock split, stock dividend, recapitalization, combination of shares, reclassification of shares,spin-off or other similar change in capitalization or event, or any distribution to holders of common stock other than a normal cash dividend, (1) the number and class of securities available under the Plan, (2) theper-participant limit and thenon-employee director limit, (3) the number and class of securities and exercise price per share subject to each outstanding award, (4) the price per share at which outstanding restricted shares may be repurchased, and (5) the terms of each other outstanding award shall be appropriately adjusted (or substituted awards may be made, if applicable) to the extent that the administrator of the Plan shall determine, in good faith, is necessary and appropriate.
Dissolution or Liquidation.The Committee in its discretion may provide for a participant to have the right to exercise his or her award until 15 days prior to any dissolution or liquidation of Pegasystems. To the extent not previously exercised, an award will terminate immediately prior to the consummation of any proposed dissolution or liquidation.
Sale of the Company.Except as otherwise provided in any stock option agreement, stock purchase agreement, RSU agreement or other document evidencing such rights, in the event a third party acquires a majority of the voting power of Pegasystems, whether through the sale of substantially all our assets, the sale of our voting securities or a merger or consolidation, the Committee, in its discretion, may provide for the assumption, substitution or adjustment of each outstanding award, accelerate the vesting of options or RSUs and terminate any restrictions on stock awards, or cancel awards for a cash payment to the participant.
Limits on Transferability
An ISO granted under the Plan may not be transferred during a participant’s lifetime and will not be transferable other than by will or by the laws of descent and distribution following the participant’s death. With the permission of the Committee, NSOs, stock purchase rights, RSUs or shares granted under the Plan may be assigned during a participant’s lifetime to members of the participant’s family or to a trust established for such family members or the participant’s former spouse pursuant to the participant’s estate plan or pursuant to a domestic relations order.
Amendment and Termination
Our Board may at any time amend, alter, suspend or terminate the Plan. The Board will obtain stockholder approval of any Plan amendment to the extent necessary and desirable to comply with applicable laws. Except as otherwise provided in the Plan, no amendment, alteration, suspension or termination of the Plan shall materially and adversely impair the rights of any participant, unless mutually agreed in writing.
Federal Income Tax Consequences
Incentive Stock Options (“ISOs”)
The following general rules are applicable under current United States federal income tax law to ISOs granted under the Plan:
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Nonstatutory Stock Options (“NSOs”)
The following general rules are applicable under current federal income tax law to NSOs granted under the Plan:
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Awards and Purchases
The following general rules are applicable under current federal income tax law to awards of RSUs or the granting of opportunities to make direct stock purchases under the Plan:
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Other Tax Considerations
A participant who receives accelerated vesting, exercise or payment of awards contingent upon or in connection with a change of control may be deemed to have received an “excess parachute payment” under Section 280G of the Code. In such event, the participant may be subject to a 20% excise tax and the Company may be denied a tax deduction for such payments.
It is the intention of the Company that awards will comply with Section 409A of the Code regarding nonqualified deferred compensation arrangements or will satisfy the conditions of applicable exemptions. However, if an award is subject to and fails to comply with the requirements of Section 409A, the participant may recognize ordinary income on the amounts deferred under the award, to the extent vested, prior to the time when the compensation is received. In addition, Section 409A imposes a 20% penalty tax, as well as interest, on the participant with respect to such amounts.
The foregoing general tax discussion is intended for the information of the Company’s shareholders considering how to vote with respect to this proposal, and not as tax guidance to participants in the Plan.
PROPOSAL 4 — ADVISORY(NON-BINDING) SHAREHOLDER PROPOSAL REGARDING SIMPLE MAJORITY VOTE
A shareholder of the Company has advised the Company that the shareholder intends to present the proposal set forth below at the 2020 Annual Meeting. The name and address of, and the number of shares owned by, such shareholder will be provided upon written request to the Corporate Secretary.
In accordance with the proxy regulations of the Securities and Exchange Commission, the following is the complete text of the proposal exactly as submitted to the Company, for which the Company accepts no responsibility. The proposal is required to be voted upon at the 2020 Annual Meeting only if properly presented as the meeting. As an advisory vote, the results of this vote will not be binding on the Board or the Company.
As explained below, the Board unanimously recommends that you vote “AGAINST” the proposal.
Proposal 4 — Phase in Simple Majority Vote
RESOLVED, Pegasystems, Inc (“PEGA” or “Company”) shareholders request that our board take each step necessary so that each voting requirement in our charter and bylaws that calls for a greater than simple majority vote be eliminated, and replaced by a requirement for a majority of the votes cast for and against applicable proposals, or a simple majority in compliance with applicable laws to take effect within four years. This means the closest standard to a majority of the votes cast for and against such proposals consistent with applicable laws. It is also important that our company take each step necessary to avoid a failed vote on this proposal topic.
Supporting Statement: Shareowners are willing to pay a premium for shares of companies that have excellent corporate governance. Supermajority voting requirements have been found to be one of six entrenching mechanisms that are negatively related to company performance according to “What Matters in Corporate Governance” by Lucien Bebchuk, Alma Cohen and Allen Ferrell of the Harvard Law School (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=593423).
Large funds, such as T. Rowe Price, BlackRock, SSgA and Northern Trust generally support elimination of supermajority requirements, since most view them as an entrenchment device for management. For example, BlackRock’s Proxy Voting Guidelines for U.S. Securities(https://www.blackrock.com/corporate/literature/fact-sheet/blk-responsible-investment-guidelines-us.pdf) includes the following:
We generally favor a simple majority voting requirement to pass proposals. Therefore, we will support the reduction or the elimination of supermajority voting requirements to the extent that we determine shareholders’ ability to protect their economic interests is improved.
Last proxy season, according to data obtained through ProxyInsight, shareholder proposals on this topic won over:
90% of the vote at Legg Mason, Axon Enterprise, L Brands, Skyworks Solutions, Leidos Holdings.
70% of the vote at Netflix, New York Community Bancorp, Xerox, OGE Energy, Dean Foods, Sonoco Products.
Consideration should also be given to the fact that PEGA shareholders have no right to proxy access to nominate directors and have very limited written consent and special meeting rights.
Shareholders need a real voice through governance reforms, including a Simple Majority Vote standard, to take effect within four years. Please vote to enhance shareholder value.
Phase in Simple Majority Vote — Proposal 4
Pegasystems Opposing Statement
The Board has carefully considered this proposal and, for the reasons set forth below, does not believe it is in the best interests of the Company, its shareholders and all Pegasystems constituencies.
A simple majority vote requirement already applies to most corporate matters submitted to a vote of the Company’s shareholders. However, the Company’s articles of organization and bylaws and/or Massachusetts law provide for higher voting requirements in narrow circumstances, such as:
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The Board believes that a key element of the Company’s current and future success is its “brand promise” of independence. The Company’s software is strategic and clients and prospects depend on its ongoing enhancement. Thus, the possibility of the Company being acquired is of great concern to the Company’s prospects, clients and staff. This concern is understandable since it is common, after such acquisitions, for product/technical leadership to leave and for innovation to slow.
The higher voting requirements described in (a) — (f) above are intended to support our brand promise of independence and relate to fundamental elements of our corporate governance. These provisions are not intended to, and do not, preclude unsolicited,non-abusive offers to acquire the Company at a fair price. They are designed instead to encourage a potential acquiror to negotiate directly with the Board, which the Board believes is in the best position to evaluate the adequacy and fairness of proposed offers, to negotiate on behalf of the Company, its
shareholders and all Pegasystems constituencies, and to protect against abusive takeover tactics. Each of these voting requirements has been in effect since before the Company’s initial public offering in 1996.
The Board believes that the higher voting requirements described in (g) and (h) are consistent with good corporate governance.
Accordingly, the Board recommends that shareholders vote AGAINST this proposal.
shareholders.
2020.
(in thousands) | 2019 | 2018 | ||||||
Audit fees(1) | $ | 2,550 | $ | 2,410 | ||||
Audit related fees(2) | — | 256 | ||||||
Tax fees(3) | 330 | 216 | ||||||
All other fees(4) | 90 | 25 | ||||||
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$ | 2,970 | $ | 2,907 | |||||
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(1) Represents fees billed for professional services provided in connection with the annual audit, including the audit of internal control over financial reporting, the reviews of our quarterly reports on Form 10-Q, |
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Audit CommitteePre-Approval Policy and Procedures
statutory audits required internationally.
Management also submits to the Audit Committee a description ofnon-audit services that it recommends the independent registered public accounting firm to perform, and provides an estimate of the fees to be paid for each. Management and the independent registered public accounting firm must each confirm to the Audit Committee that the performance of thenon-audit services would not compromise the independence of the auditors and would be permissible under all applicable legal requirements. The Audit Committee must approve both thenon-audit services and the budget for each such service before commencement of the work. Management and the independent registered public accounting firm report to the Audit Committee periodically as to thenon-audit services actually provided by the independent registered public accounting firm and the approximate fees incurred by us for those services.
PEGASYSTEMS INC.
2004 LONG-TERM INCENTIVE PLAN
(as amended and restated and adopted by the Board on April 28, 2020 Approved by the stockholders on June XX, 2020)
1. Purposes of the Plan. The purposes of this 2004 Long-Term Incentive Plan, as amended and restated, are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees, Directors and Consultants, and to promote the success of the Company’s business. Options, Stock Purchase Rights, Restricted Stock Units, and other stock-based awards may be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
(a) “Applicable Laws” means the requirements relating to the administration of equity incentive plans under U.S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any other country or jurisdiction where Awards are granted under the Plan.
(b) “Award” means any Option, Stock Purchase Right, Restricted Stock Unit, or other stock-based award granted pursuant to the Plan.
(c) “Board” means the Board of Directors of the Company, as constituted from time to time.
(d) “Code” means the Internal Revenue Code of 1986, as amended, or any successor statute or statutes thereto. Reference to any particular Code section shall include any successor section.
(e) “Committee” means a committee of Directors appointed by the Board in accordance with Section 5(a) hereof.
(f) “Common Stock” means the Common Stock, $0.01 par value per share, of the Company.
(g) “Company” means Pegasystems Inc., a Massachusetts corporation.
(h) “Consultant” means any consultant or adviser if: (i) the consultant or adviser renders bona fide services to a Related Company; (ii) the services rendered by the consultant or adviser are not in connection with the offer or sale of securities in a capital-raising transaction and do not directly or indirectly promote or maintain a market for a Related Company’s securities; and the consultant or adviser is a natural person who has contracted directly with a Related Company to render such services.
(i) “Director” means a member of the Board.
(j) “Disability” means permanent and total disability as defined in Section 22(e)(3) of the Code.
(k) “Employee” means any person, including Officers and Directors, employed by a Related Company who is subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance. An Employee shall not cease to be an Employee in the case of (i) any leave of absence approved by a Related Company or (ii) transfers between locations of a Related Company or between the Related Companies, or any successor. For purposes of Incentive Stock Options, no such leave may exceed
three (3) months, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of leave of absence approved by the Related Company is not so guaranteed, any Incentive Stock Option held by the Participant shall cease to be treated as an Incentive Stock Option on the first day immediately following the date that is six (6) months after such leave commenced and shall be treated for tax purposes as a Nonstatutory Stock Option. Neither service as a Director nor payment of a director’s fee by the Company shall be sufficient to constitute “employment” by the Company.
(l) “Exchange Act” means the Securities Exchange Act of 1934, as amended, or any successor statute or statutes thereto. Reference to any particular Exchange Act section shall include any successor section.
(m) “Exercise Price” or “Purchase Price” means the per Share price to be paid by a Participant or Purchaser to exercise an Option or Stock Purchase Right.
(n) “Fair Market Value” means, as of any date, the value of a share of Common Stock determined as follows:
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(o) “Incentive Stock Option” means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and which is designated as an Incentive Stock Option by the Committee.
(p) “Nonstatutory Stock Option” means an Option (or portion thereof) that is not designated as an Incentive Stock Option by the Committee, or which is designated as an Incentive Stock Option by the Committee but fails to qualify as an incentive stock option within the meaning of Section 422 of the Code.
(q) “Officer” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.
(r) “Option” means a stock option granted pursuant to the Plan.
(s) “Option Exchange Program” means a program whereby outstanding Options are exchanged for Options with a lower Exercise Price.
(t) “Optioned Stock” means the Common Stock subject to an Option or a Stock Purchase Right.
(u) “Parent” means a “parent corporation,” whether now or hereafter existing, as a defined in Section 424(e) of the Code.
(v) “Participant” means the holder of an outstanding Award.
(w) “Plan” means this 2004 Long-Term Incentive Plan, as amended from time to time.
(x) “Purchased Shares” means the shares of Common Stock purchased by a Participant pursuant to his or her exercise of an Award.
(y) “Purchaser” means a Participant exercising an Option or Stock Purchase Right.
(z) “Related Company” means and includes the Company and the Parent and any Subsidiaries of the Company.
(aa) “Restricted Shares” means unvested shares of Common Stock acquired pursuant to the exercise of an Award which are subject to a Right of Repurchase.
(bb) “Restricted Stock Units” means the right to acquire Shares in the future, with the future delivery of the Shares subject to a risk of forfeiture or other restrictions that will lapse upon the satisfaction of one or more specified conditions.
(cc) “Restricted Stock Units Agreement” means a written agreement between the Company and a Participant evidencing the terms and conditions of a grant of Restricted Stock Units. A Restricted Stock Units Agreement is subject to the terms and conditions of the Plan.
(dd) “Retirement” means retirement of an Employee or Director from active employment or service with any Related Company after having attained age 60, with no intention to continue to provide services, whether as an employee, director, independent contractor or otherwise, to any other person or entity and with the intention of concluding the Employee or Director’s working or professional career.
(ee) “Right of Repurchase” means the right of the Company to repurchase Restricted Shares issued pursuant to any Award.
(ff) “Sale of the Company” means (i) a sale of substantially all of the assets of the Company, or (ii) a sale or transfer of voting securities of the Company to an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act), in one transaction or a series of related transactions, or (iii) a consolidation or merger of the Company, in each case, as a result of which the beneficial holders of a majority of the voting power of the Company’s voting securities entitled to vote generally in the election of directors (“Voting Power”) prior to such transaction do not, directly or indirectly, beneficially hold a majority of the Voting Power (or of the voting power of the surviving or acquiring entity) after such transaction.
(gg) “Section 16(b)” means Section 16(b) of the Exchange Act.
(hh) “Service” means the Participant’s performance of services for a Related Company in the capacity of an Employee, Director or Consultant.
(ii) “Service Provider” means an Employee, Director or Consultant.
(jj) “Share” means a share of the Common Stock, as adjusted in accordance with Section 12 hereof.
(kk) “Stock Option Agreement” means a written agreement between the Company and a Participant evidencing the terms and conditions of an individual Option grant. A Stock Option Agreement is subject to the terms and conditions of the Plan.
(ll) “Stock Purchase Agreement” means a written agreement between the Company and a Participant evidencing the terms and conditions of a Stock Purchase Right. A Stock Purchase Agreement is subject to the terms and conditions of the Plan.
(mm) “Stock Purchase Right’ means the right of a Participant to purchase Common Stock pursuant to Section 10 hereof.
(nn) “Subsidiary” means “subsidiary corporation,” whether now or hereafter existing, as defined in Section 424(f) of the Code.
(oo) “10% Stockholder” means the owner of stock (as determined under Section 424(d) of the Code) possessing more than ten percent (10%) of the voting power of all classes of stock of a Related Company.
3. Effective Date and Term of Plan. The Plan (as amended and restated herein) shall become effective upon the date of its adoption by the Board, April 28, 2020, provided that, the terms of this Plan (as amended and restated herein) that are required to be approved by stockholders under Applicable Law (including any increase to the number of Shares which may be subject to Awards in Section 4(a) and the amendment of Section 11 relating to the Performance Awards), Nasdaq listing requirements, or otherwise, shall apply to all Awards granted on or after June 23, 2020. No Awards shall be granted under the Plan after June 23, 2030, but Awards previously granted may extend beyond that date.
4. Stock Subject to the Plan.
(a) Number of Shares. Subject to the provisions of Section 12 of the Plan, the maximum aggregate number of Shares which may be subject to Awards and issued under the Plan is 36,000,000 Shares. The Shares may be authorized but unissued shares or treasury shares. If an Award expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an Option Exchange Program, the unpurchased Shares which were subject thereto shall become available for future grantor sale under the Plan (unless the Plan has terminated). However, Shares that have actually been issued under the Plan, upon exercise of an Award, shall not be returned to the Plan and shall not become available for future distribution under the Plan, except that if Restricted Shares are forfeited and repurchased by the Company at not more than their Exercise Price, such Shares shall become available for future Awards under the Plan. Shares which are delivered by the Participant or withheld by the Company upon the exercise of an Option under the Plan, in payment of the exercise price thereof or tax withholding thereon, may again be optioned, granted or awarded hereunder, subject to the limitations of this Section 4(a). Notwithstanding the provisions of this Section 4(a), no Shares may again be optioned, granted or awarded if such action would cause an Incentive Stock Option to fail to qualify as an Incentive Stock Option under Section 422 of the Code. Subject to adjustment under Section 12, no more than 36,000,000 shares shall be available for issuance as Incentive Stock Options under the Plan.
5. Administration of the Plan.
(a) Administration by Committee. The Plan will be administered by a committee (the “Committee”) composed solely of two (2) or more members of the Board that satisfy the independence requirements of the applicable national securities exchange which serves as the principal trading market for the Common Stock and of other Applicable Laws; provided, however, that unless otherwise prohibited by Applicable Law the Board, acting through a majority of its independent directors, may itself exercise any or all of the powers and responsibilities
assigned to the Committee under the Plan and when so acting shall have the benefit of all of the provisions of the Plan pertaining to the Committee’s exercise of its authorities hereunder. Unless the Board shall determine otherwise, and to the extent necessary to comply with Applicable Law, each member of the Committee shall also satisfy the requirements of a
(b) General Powers of the Committee. The Committee shall have authority to grant Awards and to adopt, amend and repeal such administrative rules, guidelines and practices relating to the Plan as it shall deem advisable. The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award in the manner and to the extent it shall deem expedient to carry the Plan into effect and it shall be the sole and final judge of such expediency. All decisions by the Committee shall be made in the Committee’s sole discretion and shall be final and binding on all persons having or claiming any interest in the Plan or in any Award. To the extent permitted by applicable law, the Committee may delegate to one or more employees of the Company the power to grant Awards and exercise such other powers under the Plan as the Committee may determine; provided, however, that the Committee shall fix the maximum number of shares issuable to any one Participant pursuant to Awards granted by such employee. No director or person acting pursuant to the authority delegated by the Committee shall be liable for any action or determination relating to or under the Plan made in good faith.
(c) Other Powers of the Committee. Subject to the provisions of the Plan, the Committee shall have the authority in its discretion:
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6. Option Eligibility.
(a) Nonstatutory Stock Options, Stock Purchase Rights, Restricted Stock Units and other stock-based awards (other than Incentive Stock Options) may be granted to Service Providers. Incentive Stock Options may be granted only to Employees.
(b) Each Option shall be designated in the Stock Option Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair
Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Participant during any calendar year (under all plans of the Related Companies) exceeds $100,000, such Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 6(b), Incentive Stock Options shall be taken into account in the order in which they were granted, except as otherwise provided in the Code or regulations issued thereunder. The Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted.
7. Term of Option. The term of each Option shall be stated in the Stock Option Agreement; provided, however, that the term shall be no more than ten (10) years from the date of grant thereof. In the case of an Incentive Stock Option granted to a 10% Stockholder, the term of the Option shall be five (5) years from the date of grant or such shorter term as may be provided in the Stock Option Agreement.
8. Option Exercise Price and Consideration.
(a) The Exercise Price for the Shares to be issued upon exercise of an Option shall be such price as is determined by the Committee; provided, however, that in the case of an Incentive Stock Option granted to a 10% Stockholder, the Exercise Price shall be no less than 110% of the Fair Market Value per Share on the date of grant, and provided further that in the case of an Incentive Stock Option granted to any other Employee, the Exercise Price shall be no less than 100% of the Fair Market Value per Share on the date of grant.
(b) For Options issued prior to December 13, 2007, the consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Committee (and, in the case of an Incentive Stock Option, shall be determined at the time of grant and set forth in the Stock Option Agreement). Such consideration may consist of (i) cash or a check payable to the Company, (ii) a promissory note of the Participant, (iii) when the Common Stock is registered under the Exchange Act other Shares which (x) in the case of Shares acquired upon exercise of an Option, have been owned by the Participant for more than six months on the date of surrender, and (y) have a Fair Market Value on the date of surrender equal to the aggregate Exercise Price of the Shares as to which such Option shall be exercised, (iv) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan, or (v) any combination of the foregoing methods of payment.
(c) For Options issued on or after December 13, 2007, the consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Committee (and, in the case of an Incentive Stock Option, shall be determined at the time of grant and set forth in the Stock Option Agreement). Such consideration may consist of (i) cash or a check payable to the Company; (ii) a promissory note of the Participant; (iii) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan; (iv) when the Common Stock is registered under the Exchange Act, consideration received by the Company under a “net exercise” arrangement pursuant to which the number of Shares issued to the Participant in connection with the Participant’s exercise of the Option is reduced by the Company’s retention of a portion of the Shares otherwise issuable in connection with such exercise having a Fair Market Value (determined as of the date of the exercise notice) equal to the aggregate exercise price of the Shares as to which such Option is being exercised; or (v) any combination of the foregoing methods of payment.
9. Exercise of Option.
(a) Procedure for Exercise. Any Option granted hereunder shall be exercisable according to the terms hereof at such times and under such conditions as determined by the Committee and set forth in the Stock Option Agreement. Unless the Committee provides otherwise, vesting of Options granted hereunder shall be tolled during any unpaid leave of absence. An Option may not be exercised for a fraction of a Share.
(b) An Option shall be deemed exercised when the Company receives: (i) written notice of exercise (in accordance with the Stock Option Agreement) from the person entitled to exercise the Option, and (ii) full payment for the Shares with respect to which the Option is exercised. Full payment may consist of any
consideration and method of payment authorized by the Committee and permitted by the Stock Option Agreement and the Plan. Shares issued upon exercise of an Option shall be issued in the name of the Participant or, if requested by the Participant, in the name of the Participant and his or her spouse.
(c) Exercise of an Option in any manner shall result in a decrease in the number of Shares thereafter available, both for purposes of the Plan and sale under the Option, by the number of Shares as to which the Option is exercised.
(d) Termination of Service. If a Participant terminates Service other than by reason of the Participant’s death, Disability or Retirement, such Participant may exercise his or her Option within such period of time as is specified in the Stock Option Agreement to the extent that the Option is vested on the date of termination (but in no event later than the expiration of the term of the Option as set forth in the Stock Option Agreement). In the absence of a specified time in the Stock Option Agreement, the Option shall remain exercisable for three months following the Participant’s termination of Service. If, on the date of termination, the Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan unless the Committee has determined that all or part of the unvested portion of the Option will continue to vest following termination of Service, in which case the Shares covered by the portion of the Option that will continue to vest will not revert to the Plan until the vesting of those Shares is no longer possible. If, after termination of Service, the Participant does not exercise his or her Option within the time specified by the Committee in the Stock Option Agreement, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.
(e) Disability of Participant. If a Participant terminates Service as a result of the Participant’s Disability, the Participant may exercise his or her Option within such period of time as is specified in the Stock Option Agreement to the extent the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Stock Option Agreement). In the absence of a specified time in the Stock Option Agreement, the Option shall remain exercisable for 24 months following the Participant’s termination of Service as the result of the Participant’s Disability. If, on the date of termination of Service, the Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan unless the Committee has determined that all or part of the unvested portion of the Option will continue to vest following termination of Service, in which case the Shares covered by the portion of the Option that will continue to vest will not revert to the Plan until the vesting of those Shares is no longer possible. If, after termination of Service, the Participant does not exercise his or her Option within the time specified in the Stock Option Agreement, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.
(f) Death of Participant. If a Participant dies while a Service Provider, the Option may be exercised within such period of time as is specified in the Stock Option Agreement to the extent that the Option is vested on the date of death (but in no event later than the expiration of the term of such Option as set forth in the Stock Option Agreement) by the Participant’s estate or by a person who acquires the right to exercise the Option by bequest or inheritance. In the absence of a specified time in the Stock Option Agreement, the Option shall remain exercisable for 24 months following the Participant’s termination of Service because of death. If, at the time of death, the Participant is not vested as to the entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan on the last day of the 12th month following the date of the Participant’s death unless the Committee earlier determines that all or part of the unvested portion of the Option will become vested as of the date of the Participant’s death and/or will continue to vest following the death of the Participant, in which case the Shares covered by the unvested portion of the Option will not revert to the Plan until the vesting of those Shares is no longer possible. If the Option is not so exercised within the time specified in the Stock Option Agreement, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.
(g) Retirement of Participant. If a Participant terminates Service as a result of Retirement, the Participant may exercise his or her Option within such period of time as is specified in the Stock Option Agreement to the extent
the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Stock Option Agreement). In the absence of a specified time in the Stock Option Agreement, the Option shall remain exercisable for 24 months following the Participant’s termination of Service as the result of the Participant’s Retirement. If, on the date of termination of Service, the Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan unless the Committee has determined that all or part of the unvested portion of the Option will continue to vest following termination of Service, in which case the Shares covered by the portion of the Option that will continue to vest will not revert to the Plan until the vesting of those Shares is no longer possible. If, after termination of Service, the Participant does not exercise his or her Option within the time specified in the Stock Option Agreement, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.
(h) Unvested Shares. The Committee shall have the discretion to grant Options which are exercisable for Restricted Shares. Should the Participant terminate Service or fail to satisfy performance objectives while holding such Restricted Shares, the Company shall have a Right of Repurchase, at the Exercise Price paid per Share or such other price determined by the Committee and set forth in the Stock Option Agreement, with respect to any or all of those Restricted Shares. The terms upon which such Right of Repurchase shall be exercisable (including the period and procedure for exercise and the appropriate vesting schedule for the purchased Shares) shall be established by the Committee and set forth in the Stock Option Agreement or other document evidencing such repurchase right.
(i) Automatic Extension of Post-Termination Exercise Periods. For Options issued on or after December 13, 2007, the period of time during which a Participant may exercise an Option after he or she terminates Service pursuant to this Section 9 or as specified in any Stock Option Agreement (the “Post-Termination Exercise Period”) shall be extended by the amount of time, if any, during the Post-Termination Exercise Period when the effectiveness of any registration statement covering the issuance of Shares under the Plan is suspended for any reason; provided, however, that in no event shall the Post-Termination Exercise Period be extended beyond the expiration of the stated term of the Option.
10. Stock Purchase Rights, Restricted Stock Units and Other Stock-Based Awards.
(a) Rights to Purchase. Stock Purchase Rights may be issued either alone, in addition to, or in tandem with other Awards granted under the Plan and/or cash awards made outside of the Plan. After the Committee determines that it will offer Stock Purchase Rights under the Plan, it shall advise the Participant in writing of the terms, conditions and restrictions related to the offer, including the number of Shares that such person shall be entitled to purchase, the price to be paid (including par value) if any, and the time within which such person must accept such offer.
(b) Company Right of Repurchase. Unless the Committee determines otherwise, the Stock Purchase Agreement shall grant the Company a Right of Repurchase exercisable upon the termination of the Purchaser’s Service with the Company for any reason (including death or disability) or upon the failure to satisfy any performance objectives or other conditions specified in the Stock Purchase Agreement. Shares issued as Restricted Shares may not be sold, assigned, transferred, pledged or otherwise disposed of, except by will or the laws of descent and distribution, or as otherwise determined by the Committee in the Stock Purchase Agreement, for such period as the Committee shall determine. The purchase price for Restricted Shares repurchased pursuant to the Right of Repurchase shall be the purchase price paid by the Purchaser or such other price determined by the Committee and set forth in the Stock Purchase Agreement, and may be paid by cancellation of any indebtedness of the Purchaser to the Company. The Righto Repurchase shall lapse upon such conditions or at such rate as the Committee may determine and set forth in the Stock Purchase Agreement.
(c) Each certificate for Restricted Shares shall bear an appropriate legend referring to the Right of Repurchase and other restrictions and shall be deposited by the stockholder with the Company together with a stock power endorsed in blank. Any attempt to dispose of Restricted Shares in contravention of the Right of Repurchase and
other restrictions shall be null and void and without effect. If Restricted Shares shall be repurchased by the Company pursuant to the Right of Repurchase, the stockholder shall forthwith deliver to the Company the certificates for the Restricted Shares, accompanied by such instrument of transfer, if any, as may reasonably be required by the Company. If the Company does not exercise its Right of Repurchase, such Right of Repurchase shall terminate and be of no further force and effect.
(d) The Committee may in its discretion waive the surrender and cancellation of one or more Restricted Shares (or other assets attributable thereto) which would otherwise occur upon the
(e) Other Provisions. The Stock Purchase Agreement shall contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Committee in its sole discretion.
(f) Restricted Stock Units. The Committee may also grant Restricted Stock Units with such terms and conditions as the Committee shall determine. A Participant may not vote the Shares represented by a Restricted Stock Unit, but (notwithstanding Section 13(c) of the Plan to the contrary) a Restricted Stock Unit Award may provide a Participant with the right to receive dividend equivalent payments with respect to the Common Stock subject to the Award (both before and after such Common Stock is vested).
(g) Other Stock-Based Awards. The Committee shall have the right to grant other Awards based upon the Common Stock having such terms and conditions as the Committee may determine, including the grant of Shares based upon certain conditions, the grant of securities convertible into Common Stock and the grant of stock appreciation rights.
11. Performance-Based Awards.
(a) General. Subject to the terms of the Plan, the Committee shall have the authority to establish and administer performance-based grant, exercise, and/or vesting conditions and Performance Goals (as defined in Section 11(b) below) with respect to such Awards as it considers appropriate, which Performance Goals must be satisfied, as determined by the Committee, before the Participant receives or retains an Award or before the Award becomes exercisable or nonforfeitable, as the case may be. Prior to a sale of the Company, the Committee may exercise its discretion in a uniform andnon-discriminatory manner for similarly-situated Participants to reduce (but not increase) any Award otherwise payable under this Plan in accordance with objective or subjective factors if necessary or appropriate to limit the amount payable under an Award to an amount consistent with the purposes of the Plan and the intended economic benefits of participation in the Plan. The Committee’s determination will be final and conclusive.
(b) Performance Goals. Performance goals (the “Performance Goals”) will be based exclusively on one or more of the following business criteria determined with respect to the Company and its Subsidiaries on a group-wide basis or on the basis of Subsidiary, business platform, or operating unit results, on a GAAP ornon-GAAP basis: (i) earnings per share (on a fully diluted or other basis), (ii) pretax or after tax net income, (iii) operating income, (iv) gross revenue, (v) profit margin, (vi) stock price targets or stock price maintenance, (vii) working capital, (viii) free cash flow, (ix) cash flow, (x) return on equity, (xi) return on capital or return on invested capital, (xii) earnings before interest, taxes, depreciation, and amortization (EBITDA), (xiii) economic value added, (xiv) strategic business criteria, consisting of one or more objectives based on meeting specified revenue, license signings, market penetration, geographic business expansion goals, cost targets, or objective goals relating to acquisitions or divestitures or other operational goals, (xv) total shareholder return, or (xvi) any combination of these measures as determined by the Committee.
(c) Each Performance Goal may be expressed in absolute and/or relative terms or ratios and may be based on or use comparisons with internal targets, the past performance of the Company (including the performance of one or
more Subsidiaries, divisions, platforms, operating units and/or other business unit) and/or the past or current performance of other companies. In the case of earnings-based measures, Performance Goals may use comparisons relating to capital (including, but not limited to, the cost of capital), cash flow, free cash flow, shareholders’ equity and/or shares outstanding, or to assets or net assets.
(d) The Committee shall determine the period for which Performance Goals are set and during which performance is to be measured to determine whether a Participant is entitled to payment of an Award under the Plan (the “Performance Period”). Performance Periods may be of varying and overlapping durations, but each such period shall not be less than 12 months.
(e) The Committee may specify in an Award that Performance Goals shall be adjusted to include or exclude the effect of: unusual or infrequent events, changes in accounting principles, material litigation, material judgments, material settlements, currency exchange rate fluctuations, changes in corporate tax rates, and the impact of acquisitions, divestitures, and discontinued operations.
12. Adjustments Upon Changes in Capitalization or Dissolution or Sale of the Company.
(a) Changes in Capitalization. In the event of any stock split, reverse stock split, stock dividend, recapitalization, combination of shares, reclassification of shares,spin-off or other similar change in capitalization or event, or any distribution to holders of Common Stock other than an ordinary cash dividend, (i) the number and class of securities available under the Plan, (ii) theper-Participant limit set forth in Section 4(b) and theNon-Employee Director Limit set forth in Section 4(c), (iii) the number and class of securities and exercise price per share subject to each outstanding Award, (iv) the price per share at which outstanding Restricted Shares may be repurchased pursuant to a Right of Repurchase and (v) the terms of each other outstanding Award shall automatically be proportionately adjusted on a pro rata basis.
(b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Committee shall notify each Participant as soon as practicable prior to the effective date of such proposed transaction. The Committee in its discretion may provide for a Participant to have the right to exercise his or her Award until 15 days prior to such transaction as to all of the Shares covered thereby, including Shares as to which the Award would not otherwise be exercisable. In addition, the Committee may provide that any Right of Repurchase applicable to any Restricted Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse as to all such Shares, provided the proposed dissolution or liquidation takes place at the time and in the manner contemplated. To the extent it has not been previously exercised, an Award will terminate immediately prior to the consummation of such proposed dissolution or liquidation of the Company.
(c) Sale of the Company. Except as otherwise provided in any Stock Option Agreement, Stock Purchase Agreement, Restricted Stock Unit Agreement or other document evidencing such rights, in the event of a Sale of the Company when any unexercised Award, Restricted Stock Unit, or Restricted Shares remain outstanding, the Committee may in its discretion apply one or more or any combination of the following provisions:
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13. General Provisions Applicable to Awards. Every Award and all Shares issued pursuant to the Plan shall be subject to the following provisions:
(a) Time of Granting Awards. The date of grant of an Award shall, for all purposes, be the date on which the Committee makes the determination granting such Award, or such other date as is determined by the Committee. The Committee will give notice of the determination to each Service Provider to whom an Award is so granted within a reasonable time after the date of such grant.
(b) No Rights to Employment or Other Status. Neither the Plan nor any Award shall confer upon any Participant any rights with respect to continuing in Service with any Related Company, nor shall the Plan or any Award interfere in any way with the Participant’s right or the Related Company’s right to terminate the Participant’s Service at any time, with or without cause.
(c) Rights as a Stockholder. Except as otherwise provided by the Committee with respect to dividend equivalent payments for Restricted Stock Units: (i) until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Shares, notwithstanding the exercise of an Award; (ii) the Company shall issue (or cause to be issued) the Shares promptly after an Award is duly exercised; and (iii) no adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 12 hereof.
(d) Acceleration. The Committee may at any time provide that any Awards shall become immediately exercisable in full or in part or that any Restricted Shares shall be free of restrictions or conditions in full or in part or otherwise realizable in full or in part, as the case may be.
(e) Buyout Provisions. The Committee may at any time and from time to time offer to buy out for a payment in cash or Shares any Award previously granted, based on such terms and conditions as the Committee shall establish and communicate to the holder of such Award at the time such offer is made.
(f) Conditions on Delivery of Shares. The Company shall not be obligated to deliver any Shares pursuant to the Plan or to remove any restrictions from Shares previously delivered under the Plan, until (i) all conditions of the Award have been met or removed to the satisfaction of the Committee, (ii) in the opinion of the Company’s counsel, all other legal matters in connection with the issuance and delivery of such Shares have been satisfied in accordance with Applicable Laws; and (iii) the Participant has executed and delivered to the Company such representations or agreements as the Company may consider appropriate to satisfy the requirements of Applicable Laws.
(g) Amendment of Award. The Committee may amend, modify or terminate any outstanding Award, including but not limited to, substituting therefor another Award of the same or different type, changing the expiration date or Exercise Price or Purchase Price, providing for continued vesting of the Award following termination of Service or converting an Incentive Stock Option to a Nonstatutory Stock Option, provided that the Participant’s consent to such action shall be required unless the Committee determines that the action would not materially and adversely affect the Participant.
(h) Withholding Taxes. Each Participant shall pay to the Company, or make provisions satisfactory to the Committee for payment of, any taxes required by Applicable Laws to be withheld in connection with any Awards to the Participant no later than the date of the event creating the tax liability. Except as the Committee may otherwise provide in an Award, when the Common Stock is registered under the Exchange Act, Participants may satisfy such tax obligations in whole or in part by delivery of Shares, including Shares retained from the Award creating the tax obligation, valued at their Fair Market Value. The Company may, to the extent permitted by Applicable Laws, deduct any such tax obligations from any payment of any kind otherwise due to a Participant.
(i) Cancellation and Forfeiture for Misconduct, Clawback Policy. Notwithstanding the terms of any Award or other provision of the Plan in the event of any Misconduct by the Participant or Purchaser (whether before or after the termination of Service), (i) all Awards granted to the Participant shall be terminated and the holder thereof shall have no further rights thereunder (ii) all Shares then held by the Participant or Purchaser (or any successor) which were acquired by the Participant or Purchaser (or any successor) pursuant to an Award under the Plan shall thereupon be (or revert to being) Restricted Shares and shall be subject to a Right of Repurchase exercisable by the Company and (iii) the Participant or Purchaser (or any successor) shall pay to the Company, within 10 business days of the Company’s request therefor, the aggregateafter-tax proceeds (taking into account all amounts of tax that would be recoverable upon a claim of loss for payment of such proceeds in the year of repayment) received by the Participant or Purchaser (or any successor) upon the sale or other disposition of, or distributions in respect of, any Award under the Plan and any Shares acquired in respect thereof. The purchase price for Shares repurchased by the Company pursuant to the Right of Repurchase pursuant to this Section 13(i) shall be equal to the lesser of (i) the purchase price originally paid by the Participant or Purchaser for such Shares or (ii) the Fair Market Value of such Shares as of the date of the repurchase. The following shall constitute “Misconduct” by an Participant or Purchaser: (i) the unauthorized use or disclosure of the confidential information or trade secrets of any Related Company which use or disclosure causes material harm to the Related Company; (ii) conviction of a crime involving moral turpitude, deceit, dishonesty or fraud; (iii) gross negligence or willful misconduct of the Participant or Purchaser with respect to any Related Company; or (iv) the breach by the Participant or Purchaser of any material term of an agreement with a Related Company including covenants not to compete and not to solicit, and provisions relating to confidential information and intellectual property rights. In addition, Awards and Shares (and proceeds therefrom) obtained pursuant to or upon exercise of such Awards are subject to forfeiture, setoff, clawback, recoupment or other recovery if the Committee determines in good faith that such action is required by Applicable Law or Company policy as amended from time to time.
(j) Limits on Transferability of Awards. An Incentive Stock Option shall be exercisable only by the participant during his or her lifetime and shall not be assignable or transferable other than by will or by the laws of descent and distribution following the Participant’s death. With the permission of the Committee, a Nonstatutory Stock Option, Stock Purchase Right, Restricted Stock Unit or Shares may be assigned in whole or in part during the Participant’s lifetime to one or more members of the Participant’s family or to a trust established exclusively for one or more such family members or to the Participant’s former spouse, to the extent such assignment is in connection with the Participant’s estate plan or pursuant to a domestic relations order. The assigned portion may only be exercised by the person or persons who acquired a proprietary interest in the Nonstatutory Stock Option, Stock Purchase Right, Restricted Stock Unit or Shares pursuant to the permitted assignment. The terms applicable to such assigned portion shall be the same as those in effect for the Nonstatutory Stock Option, Stock Purchase Right, Restricted Stock Unit or Shares immediately prior to such assignment and shall be set forth in such documents issued to the assignee as the Committee may deem appropriate. Notwithstanding the foregoing, the Participant may also designate one or more persons as the beneficiary or beneficiaries of his or her outstanding Awards under the Plan, and those Awards shall, in accordance with such designation, automatically be transferred to such beneficiary or beneficiaries upon the Participant’s death while holding those Awards. Such beneficiary or beneficiaries shall take the transferred Awards subject to all terms and conditions of the applicable agreement evidencing each such transferred Award, including (without limitation) the limited time period during which Awards may be exercised following the Participant’s death.
(k) Documentation. Each Award shall be evidenced by a written instrument in such form as the Committee shall determine. Each Award may contain terms and conditions in addition to those set forth in the Plan. The Committee may, in its sole discretion, deliver any documents related to an Award by electronic means, request that a Participant consent to participate in the Plan by electronic means (including anon-line or electronic system established and maintained by the Company or a third party designated by the Company), or provide in the terms of an Award that a Participant shall be deemed to accept the Award unless the Participant notifies the Company, in writing, that the Participant rejects the Award within a time period specified by the Committee.
(l) Committee Discretion. Except as otherwise provided by the Plan, each Award may be made alone or in addition or in relation to any other Award. The terms of each Award need not be identical, and the Committee need not treat Participants uniformly.
(m) Compliance with Code Section 409A. It is the intention of the Company that this Plan and each Award comply with and be interpreted in accordance with Section 409A of the Code, the United States Department of Treasury regulations, and other guidance issued thereunder, including any applicable exemptions (collectively, “Section 409A”). Each payment in any series of payments provided to a Participant pursuant to this Plan or an Award will be deemed separate payment for purposes of Section 409A. If any amount payable under this Plan or an Award is determined by the Company to constitute nonqualified deferred compensation for purposes of Section 409A (after taking into account applicable exemptions) and such amount is payable upon a termination of employment, then such amount shall not be paid unless and until the Participant’s termination of employment also constitutes a “separation from service” from the Company for purposes of Section 409A. In the event that the Participant is determined by the Company to be a “specified employee” for purposes of Section 409A at the time of his separation from service with the Company, then any nonqualified deferred compensation (after giving effect to any exemptions available under Section 409A) otherwise payable to the Participant as a result of the Participant’s separation from service during the first six (6) months following his separation from service shall be delayed and paid in a lump sum upon the earlier of (x) the Participant’s date of death, or (y) the first day of the seventh month following the Participant’s separation from service, and the balance of the installments (if any) will be payable in accordance with their original schedule.
(n) Foreign Jurisdictions. To the extent that the Committee determines that the material terms set by the Committee or imposed by the Plan preclude the achievement of the material purposes of the Plan in jurisdictions outside the United States, the Committee will have the authority and discretion to modify those terms and provide for such additional terms and conditions as the Committee determines to be necessary, appropriate or desirable to accommodate differences in local law, policy or custom or to facilitate administration of the Plan. The Committee may adopt or approvesub-plans, appendices or supplements to, or amendments, restatements or alternative versions of, the Plan as it may consider necessary, appropriate or desirable, without thereby affecting the terms of the Plan as in effect for any other purpose. The special terms and any appendices, supplements, amendments, restatements or alternative versions, however, shall not include any provisions that are inconsistent with the terms of the Plan as then in effect, unless the Plan could have been amended to eliminate such inconsistency without further approval by the stockholders. The Committee shall also have the authority and discretion to delegate the foregoing powers to appropriate employees of the Company.
14. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend, alter, suspend or terminate the Plan.
(b) Stockholder Approval. The Board shall obtain stockholder approval of any Plan amendment to the extent necessary and desirable to comply with Applicable Laws.
(c) Effect of Amendment or Termination. Except as otherwise provided by the Plan, no amendment, alteration, suspension or termination of the Plan shall materially and adversely impair the rights of any Participant, unless mutually agreed otherwise between the Participant and the Committee, which agreement must be in writing and
signed by the Participant and the Company. Termination of the Plan shall not affect the Committee’s ability to exercise the powers granted to it hereunder with respect to Awards granted under the Plan prior to the date of such termination.
15. Reservation of Shares. The Company, during the term of the Plan, shall at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan.
16. Stockholder Approval. The Plan shall be subject to approval by the stockholders of the Company within 12 months after the date the Plan is adopted. Such stockholder approval shall be obtained in the degree and manner required under Applicable Laws.
17. Governing Law. The provisions of the Plan and all Awards made hereunder shall be governed by and interpreted in accordance with the laws of The Commonwealth of Massachusetts, without regard to any applicable conflicts of law.
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PEGA 000004 ENDORSEMENT LINE SACKPACK MR A SAMPLE DESIGNATION (IF ANY) ADD 1 ADD 2 ADD 3 ADD 4 ADD 5 ADD 6 C123456789 000000000.000000 ext 000000000.000000 ext 000000000.000000 ext 000000000.000000 ext 000000000.000000 ext 000000000.000000 ext Your vote matters – here’s how to vote!You may vote online or by phone instead of mailing this card. Votes submitted electronically must be received by 1:00 a.m., EDT, on June 23, 2020.Online Go to www.envisionreports.com/PEGA or scan the QR code — login details are located in the shaded bar below.Phone Call toll free1-800-652-VOTE (8683) within the USA, US territories and CanadaSave paper, time and money! Sign up for electronic delivery at www.envisionreports.com/PEGAUsing a black ink pen, mark your votes with an X as shown in this example. Please do not write outside the designated areas.Annual Meeting Proxy Card 1234 5678 9012 345IF VOTING BY MAIL, SIGN, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.A Proposals — The Board of Directors recommends a vote FOR all the nominees listed and FOR Proposals 2, 3 and 5 and AGAINST Proposal 4. 1. To elect to our Board of Directors the eight nominees named in this proxy statement, each for a term of one year.For Against Abstain 01 - Alan Trefler 04 - Richard Jones 07 - Sharon Rowlands For Against Abstain 02 - Peter Gyenes 05 - Christopher Lafond 08 - Larry Weber For Against Abstain 03 - Ronald Hovsepian 06 - Dianne LedinghamFor Against Abstain2. To approve, by anon-binding advisory vote, the compensation of our named executive officers.4. To consider, if properly presented at the meeting, a stockholder proposal regarding simple majority voting.For Against Abstain3. To approve the amended and restated Pegasystems Inc. 2004 Long-Term Incentive Plan.5. To ratify the selection by the Audit Committee of our Board of Directors of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2020.B Authorized Signatures — This section must be completed for your vote to be counted. — Date and Sign BelowPlease sign exactly as name appears hereon. 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.Date (mm/dd/yyyy) — Please print date below. Signature 1 — Please keep signature within the box. Signature 2 — Please keep signature within the box. C 1234567890 J N T 84AM 460928MR A SAMPLE (THIS AREA IS SET UP TO ACCOMMODATE 140 CHARACTERS) MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND 0399VB
Small steps make an impact.Help the environment by consenting to receive electronic delivery, sign up at www.envisionreports.com/PEGAIF VOTING BY MAIL, SIGN, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.Proxy — Pegasystems Inc. + THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS2020 Annual Meeting of StockholdersThe undersigned stockholder of Pegasystems Inc., a Massachusetts corporation (“Pegasystems”), hereby acknowledges receipt of the Notice of Annual Meeting of Stockholders and Proxy Statement dated May 8, 2020 and hereby appoints Alan Trefler and Kenneth Stillwell, or any one or more of them, proxies andattorneys-in-fact with full power of substitution to each other 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 on June 23, 2020 at One Rogers Street, Cambridge, Massachusetts at 10:00 a.m., Eastern Daylight Time, or any adjournment or postponement thereof. Any of such attorneys or substitutes shall have and may exercise all of the powers of saidattorneys-in-fact hereunder.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” EACH OF THE NOMINEES LISTED ON THE REVERSE SIDE AND “FOR” PROPOSALS 2, 3 AND 5 AND “AGAINST” PROPOSAL 4.THE BOARD OF DIRECTORS RECOMMENDS THAT YOU INSTRUCT THE PROXIES TO VOTE “FOR” THE NOMINEES LISTED ON THE REVERSE SIDE AND “FOR” PROPOSALS 2, 3 AND 5 AND “AGAINST” PROPOSAL 4.CNon-Voting ItemsChange of Address — Please print new address below.
Using a black ink pen, mark your votes with an X as shown in this example. Please do not write outside the designated areas.Annual Meeting Proxy CardIF VOTING BY MAIL, SIGN, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.A Proposals — The Board of Directors recommends a vote FOR all the nominees listed and FOR Proposals 2, 3 and 5 and AGAINST Proposal 4.1. To elect to our Board of Directors the eight nominees named in this proxy statement, each for a term of one year.For Against Abstain 01 - Alan Trefler 04 - Richard Jones 07 - Sharon Rowlands For Against Abstain 02 - Peter Gyenes 05 -Christopher Lafond 08 - Larry Weber For Against Abstain 03 - Ronald Hovsepian 06 - Dianne Ledingham For Against Abstain2. To approve, by anon-binding advisory vote, the compensation of our named executive officers.4. To consider, if properly presented at the meeting, a stockholder proposal regarding simple majority voting.For Against Abstain3. To approve the amended and restated Pegasystems Inc. 2004 Long-Term Incentive Plan.5. To ratify the selection by the Audit Committee of our Board of Directors of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2020.B Authorized Signatures — This section must be completed for your vote to be counted. — Date and Sign BelowPlease sign exactly as name appears hereon. 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.Date (mm/dd/yyyy) — Please print date below. Signature 1 — Please keep signature within the box. Signature 2 — Please keep signature within the box.1UPX 4609280399WB
IF VOTING BY MAIL, SIGN, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.Proxy — Pegasystems Inc. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS 2020 Annual Meeting of StockholdersThe undersigned stockholder of Pegasystems Inc., a Massachusetts corporation (“Pegasystems”), hereby acknowledges receipt of the Notice of Annual Meeting of Stockholders and Proxy Statement dated May 8, 2020 and hereby appoints Alan Trefler and Kenneth Stillwell, or any one or more of them, proxies andattorneys-in-fact with full power of substitution to each other 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 on June 23, 2020 at One Rogers Street, Cambridge, Massachusetts at 10:00 a.m., Eastern Daylight Time, or any adjournment or postponement thereof. Any of such attorneys or substitutes shall have and may exercise all of the powers of saidattorneys-in-fact hereunder.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” EACH OF THE NOMINEES LISTED ON THE REVERSE SIDE AND “FOR” PROPOSALS 2, 3 AND 5 AND “AGAINST” PROPOSAL 4.THE BOARD OF DIRECTORS RECOMMENDS THAT YOU INSTRUCT THE PROXIES TO VOTE “FOR” THE NOMINEES LISTED ON THE REVERSE SIDE AND “FOR” PROPOSALS 2, 3 AND 5 AND “AGAINST” PROPOSAL 4.