8-K

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of Earliest Event Reported): December 8, 2005

Pegasystems Inc.
__________________________________________
(Exact name of registrant as specified in its charter)

Massachusetts	1-11859	04-2787865
_____________________ (State or other jurisdiction	_____________ (Commission	______________ (I.R.S. Employer
of incorporation)	File Number)	Identification No.)
101 Main Street, Cambridge, Massachusetts		02142
_________________________________ (Address of principal executive offices)		___________ (Zip Code)

Registrant’s telephone number, including area code: 617-374-9600

Not Applicable
______________________________________________
Former name or former address, if changed since last report

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[  ]  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[  ]  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[  ]  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[  ]  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01 Entry into a Material Definitive Agreement.

On December 8, 2005, the Compensation Committee of the Board of Directors of Pegasystems Inc. (the "Company") approved the 2006 Section 16 Officers Corporate Incentive Compensation Plan (the "Incentive Plan"), along with the incentive bonus targets and increases in base salaries for the Company’s executive officers. The Incentive Plan period runs from January 1, 2006 to December 31, 2006. The target bonus for each of the Company's Section 16 Officers (the "Executive Officers"), which is a percentage of base salary (ranging from 40% to 100%), was determined by the Compensation Committee based on the salary level and position of each such Executive Officer within the Company and based on benchmarking against companies of similar size or in the Company’s industry.

For each Executive Officer, the level of attainment of the target bonus is measured entirely against corporate performance. Corporate performance is measured based on two factors: (1) the extent to which the Company achieves the corporate financial goals approved by the Board of Directors in connection with setting the 2006 annual budget (70%); and (2) the qualitative strategic goals approved by the Board of Directors in connection with the Company’s long term strategic business plan (30%). For purposes of the Incentive Plan, the Company’s financial and strategic performance will be measured at year end.

The Incentive Plan bonus formula allows for 100% payment when 100% of the target is met. No bonus is paid if less than 70% of the target is met. Between 70% and 100% attainment of the performance targets, payment is made at the actual level of attainment. If the performance target is exceeded, for every 1% above the target, 2% is added to the bonus payment, up to a maximum of 200% of the incentive bonus target. The foregoing summary description of the Incentive Plan is qualified in its entirety by reference to Exhibit 99.1 to this Current Report on Form 8-K.

The 2006 base salaries and indivi dual target bonuses for Company’s Executive Officers are attached as Exhibit 99.2 to this Current Report on Form 8-K. Additional information regarding compensation of the Executive Officers can be found in the Company’s proxy statements mailed to stockholders in connection with the Company’s Annual Meetings of Stockholders.

In addition, on December 8, 2005, the Compensation Committee approved the grant of options to purchase shares of the Company’s common stock to three of the Company’s Executive Officers. These grants are fully vested as of the date of grant and have an exercise price of $8.67, representing a 20% premium to the fair market value of the Company’s common stock on the date of grant, measured as the average of the high and low trading prices of the common stock on such date. Mr. Sullivan received an option to purchase 35,000 shares, and Messrs. Kra and Pyle each received options to purchase 20,000 shares. Each of these grants was made pursua nt to a Notice of Grant of Stock Options and Option Agreement in the form filed as Exhibit 99.3 to this Current Report on Form 8-K.

Item 9.01 Financial Statements and Exhibits.

Exhibit 99.1 2006 Section 16 Officers Corporate Incentive Compensation Plan.

Exhibit 99.2 2006 Section 16 Officers Base Salaries and Target Bonus Percentages.

Exhibit 99.3 Form of Employee Stock Option Agreement, with Immediate Vesting.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	Pegasystems Inc.
December 14, 2005	By:	/s/ Shawn S. Hoyt
		Name: Shawn S. Hoyt
		Title: General Counsel and Secretary

Exhibit Index

Exhibit No.	Description
99.1	2006 Section 16 Officers Corporate Incentive Compensation Plan
99.2	2006 Section 16 Officers Base Compensation and Target Bonus Percentages
99.3	Form of Employee Stock Option Agreement, with Immediate Vesting

EX-99.1

Exhibit 99.1

Section 16 Officers Corporate Incentive Compensation Plan

Plan Period: January 1- December 31, 2006
Applies to Officers of the Company under Section 16(a) of the Securities Exchange Act of 1934 (“Section 16 Officers”)

General Purpose & Structure

This corporate incentive plan is designed to provide the potential for variable pay to Section 16 Officers of Pegasystems Inc. (the “Company”) when fully achieving annual goals that align and support the Company’s financial and strategic business objectives. Annual goals will be established by the Company’s senior management and Board of Directors (or the Compensation Committee of the Company’s Board of Directors), and evaluated regularly to ensure that the goals are effective in supporting and/or achieving the Company’s overall financial and strategic objectives.

Based on each Section 16 Officer’s position and role, he or she is eligible for a Target Incentive Opportunity, which is calculated as a percentage of his or her actual, earned base salary for the year. The Target Incentive Opportunity for each Section 16 Officer is determined by the Compensation Committee of the Company’s Board of Directors, which takes into account surveyed market values, and is approved at the beginning of the plan year.

Corporate Goal Performance

When the Company meets its financial and strategic goals relating to revenue, license bookings and profitability (referred to as Target), it will provide incentive compensation under this Plan at target incentive levels. Should the corporate performance come in below Target but above Threshold (which is defined as above 70% of Target), the incentive payment will be calculated based on the level of actual performance relative to Target. Should corporate performance fall below Threshold, incentive compensation will not be paid out.

If corporate performance comes in above Target, the Company will provide an enhanced incentive under this Plan, with an accelerated incentive payment rate used for the portion that exceeds Target. From 101% of Target, the accelerator will be 2.0 times the normal incentive payment rate. In no event will the incentive payout exceed 200% of the Target Incentive Opportunity for the Section 16 Officer.

Pay out for this plan shall be made after the close of the Plan year, but no later than March 15^th of the subsequent year.

Notwithstanding the above, Pegasystems reserves the right in its sole discretion to either increase or decrease individual payout amounts.

In addition, the Chief Executive Officer and the Compensation Committee of the Company’s Board of Directors may utilize management discretion and judgment to evaluate the individuals’ contribution towards Corporate goal achievement and performance to determine the final payment amounts.

Eligibility

Only active, full time Section 16 Officers are potentially eligible for this plan. Those hired after November 1st of the Plan year will need the Chief Executive Officer’s approval to participate.

In order to receive any payments under this plan, a Section 16 Officer must: A) Be actively employed by Pegasystems Inc at the time of pay out, and B) Sign an acknowledgement that he/she has read, understood, and agreed to this plan and requirements for participation.

Other Provisions

• This short-term (one year) incentive plan supersedes all other annual incentive plans for the eligible Section 16 Officers as of the effective date and will remain in effect only for the plan year indicated.

• Employees that are transferred into Section 16 Officer status or join as a Section 16 Officer during the Plan year will have a prorated payment based on time in their Section 16 Officer position.

• This plan is based on the company’s current position and goals, as well as market conditions, and is subject to change. Pegasystems reserves the sole right to modify, revoke, suspend, or terminate this plan at any time, with five days written notice.

• In the event of actual termination of employment for any reason, incentive that has not yet been paid will not be paid.

• The language in this policy is not intended to create, nor is it to be construed to create a contract of employment between Pegasystems and any of its employees. Employment at Pegasystems is at-will, which means the Section 16 Officer or Pegasystems can terminate the employment at any time for any reason or no reason with or without notice (to the extent permitted by law or superseded by the applicable Section 16 Officer’s Employment Agreement).

• This plan and the individual payments to Section 16 Officers are subject to receiving the approval of the Compensation Committee of the Company’s Board of Directors.

• By signing below, you are affirming that you have read and understand the terms of your plan. Your signature also serves as reaffirmation that as a Pegasystems’ employee you are agree to abide by Pegasystems’ policies, as well as the terms of your Standards Letter (or employment agreement for applicable employees outside of the United States) with Pegasystems and your obligations thereunder, including restrictions on competition and solicitation.

Approved By:

Chief Executive Officer, Alan Trefler      Date:     

VP of HR, Carmelina Procaccini      Date:     

CFO, Chris Sullivan     Date:     

Please indicate that you have read, understood, and agree to this plan by signing below. Return the signed original, within three weeks to C.J. Stabeno in the Human Resources Department.

           
Print Name Signature Date

CC: Employee file

Incentive file

Exhibit 99.2

2006 Section 16 Officers Base Salaries and Target Bonus Percentages

Name of Executive
Officer	Title	2006 Base Salary		2006 Target Bonus*
	Chief Executive
	Officer and
Alan Trefler	Chairman	$	225,000		100	%
	Vice President,
Douglas Kra	Global Services	$	210,000		45.0	%
	Senior Vice
	President,
Michael Pyle	Engineering	$	215,000		45.0	%
	Senior Vice
	President, Chief
	Financial Officer
Christopher Sullivan	and Treasurer	$	265,000		45.0	%

*(as a percentage of Base Salary)

In addition, the Compensation Committee determined the 2006 base salary and target bonus for Richard Jones. Mr. Jones is a Director of the Company and an employee, but not an Executive Officer. Mr. Jones’ base salary is $150,000, and his target bonus is 50%.

Exhibit 99.3

Pegasystems Inc.

Notice of Grant of Stock Options and Option Agreement Pegasystems Inc.
ID: 04-2787865
101 Main Street
Cambridge, MA 02142

First MI Last
Address 1		0000XXXX
Address 2	Option Number: Plan:	2004
City, State Country Zip Code	ID:	XXXXX

Effective X/X/20XX, you (the “Optionee”) have been granted a Non-Qualified Stock Option (the “Option”) to buy XXX shares of Pegasystems Inc. (the “Company”) common stock at an exercise price of $X.XXXX per share (the “Exercise Price”), pursuant to the Pegasystems Inc. 2004 Long-Term Incentive Plan (the “Plan”).

The total exercise price of the shares granted is $X,XXX.XX.

Shares subject to this Option will vest as of the Effective Date.

The undersigned Optionee agrees to all of the terms of the Plan and all those set forth on Exhibit A attached hereto and incorporated herein by reference.

IN WITNESS WHEREOF, the Company and the Optionee have executed this instrument as of the date set forth above.

Pegasystems Inc.
By:
	Alan Trefler, Chairman and
	Chief Executive Officer
	First Last

Exhibit A to Notice of Grant of Stock Option and Option Agreement

1. Exercise Price . The Exercise Price is equal to Fair Market Value, as defined in Section 2(o) of the Plan, of a share of the Company’s common stock on the date of the Notice of Grant of Stock Option and Option Agreement (of which this Exhibit A is a part) (the “Option Agreement”).

2. Option Exercise . Once vested, the Option shall remain exercisable in whole or in part at any time through and including the day immediately preceding the date of set forth under the heading “Expiration” on the Option Agreement (the “Expiration Date”), after which the Option shall expire and no longer be exercisable.

The Option shall be exercisable by notice to the Company which shall:

(a) state the election to exercise the Option, the number of shares with respect to which it is being exercised, the person in whose name the stock certificate or certificates for such shares of common stock are to be registered, and the address and Social Security number of such person;

(b) be signed by the person or persons entitled to exercise the Option, and if the Option is being exercised by a person or persons other than the Optionee, be accompanied by proof satisfactory to the Company’s legal counsel of the right of such person or persons to exercise the Option; and

(c) be in writing and delivered in person or by certified mail to the Chief Financial Officer of the Company.

Payment of the full purchase price of any shares, with respect to which the Option is being exercised, shall accompany the notice of exercise of the Option and such payment may be made in cash or check payable to the Company. The certificate or certificates for shares of common stock as to which the Option is exercised shall be registered in the name of the person or persons exercising the Option.

3. Termination of Service . If the Optionee terminates Service other than by reason of the Optionee’s death, Disability or Retirement, the Optionee may exercise his or her Option for three months following such termination 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).

4. Retirement of Optionee . If the Optionee terminates Service as a result of Retirement, the Optionee may exercise his or her Option for 24 months following such termination 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).

5. Disability of Optionee . If the Optionee terminates Service as a result of the Optionee’s Disability, the Optionee may exercise his or her Option for 24 months following such termination 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).

6. Death of Optionee . If the Optionee dies while a Service Provider, the Option may be exercised by the Optionee’s estate or by a person who acquires the right to exercise the Option by bequest or inheritance for 12 months following the Optionee’s termination of Service because of death.

7. Optionee’s Agreement . The Optionee agrees to all the terms stated in the Option Agreement (of which this Exhibit is a part), as well as to the terms of the Plan (which shall control in case of conflict with the Option Agreement), a copy of which is attached and of which the Optionee acknowledges receipt.

8. Withholding . The Optionee consents to fulfill all withholding obligations for all applicable payroll and income taxes with respect to the Option when they are due and arrange for satisfactory payment of all withholding obligations in a manner as set forth in Section 13(h) of the Plan. The Company may delay issuance of a certificate until proper payment of such taxes has been made by the Optionee.

9. Rights as Shareholders . The Optionee shall have no rights as a shareholder of the Company with respect to any of the shares covered by the Option until the issuance of a stock certificate or certificates upon the exercise of the Option, and then only with respect to the shares represented by such certificate or certificates.

10. Non-Transferability . The Option may not be transferred in any manner other than as permitted in Section 13(j) of the Plan. The terms of the Option shall be binding upon the executors, administrators, heirs and successors of the Optionee.

11. Compliance with Securities, Tax and Other Law . The Option may not be exercised if the issuance of shares upon such exercise would constitute a violation of any applicable federal or state securities law or any other law or valid regulation. As a condition to the exercise of the Option, the Company may require the Optionee, or any person acquiring the right to exercise the Option, to make any representation or warranty that the Company deems to be necessary under any applicable securities, tax, or other law or regulation.

12. Adjustments upon Changes in Capitalization . In the event of any change in the shares subject to the Plan or to any Option granted under the Plan by reason of a merger, consolidation, reorganization, recapitalization, stock dividend, stock split, combination or exchange of shares, or other change in the structure of the Company, the number of shares subject to each outstanding Option and/or the Option price with respect to the shares shall be appropriately adjusted by the Company and such adjustment shall be final, binding and conclusive.

13. No Right to Employment . The granting of the Option does not confer upon the Optionee the right to continue in the Service of the Company, or affect in any way the right and power of the Company to terminate the Service of the Optionee at any time with or without assigning a reason therefor, to the same extent as the Company might have done if the Option had not been granted.

14. No Guarantee . The Company offers no guarantee or assurance that the Company’s stock has any value at the time of this grant or will have any value or liquidity at any future time.

15 . Amendment and Termination of Option . The Company may not, without the consent of the Optionee, alter or impair any Option granted under the Plan. The Option shall be considered terminated in whole or in part, to the extent that, in accordance with the provisions of the Plan, it can no longer be exercised for shares originally subject to the Option.

16. Governing Law . The Option Agreement shall be governed by and interpreted in accordance with the laws of The Commonwealth of Massachusetts, without regard to any applicable conflicts of law provisions thereof.

17. Severability . In the event any one or more of the provisions of the Option Agreement shall for any reason be held to be invalid, illegal or unenforceable, the remaining provisions of the Option Agreement shall be unimpaired, and the invalid, illegal or unenforceable provision shall be replaced by a mutually acceptable provision, which being valid, legal and enforceable, comes closest to the intention of the parties underlying the invalid, illegal or unenforceable provision.

18. Definitions . All capitalized terms used herein and not otherwise defined shall have the meanings assigned to such terms in the Plan.