Item 9A. Controls and Procedures
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures
Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act) as of December 31, 2020. In designing and evaluating our disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and our management necessarily applied its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Based on this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of December 31, 2020.
Management’s report on and changes in internal control over financial reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act. Under the supervision and with the participation of our management, including our CEO and CFO, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2020 based on the framework in the updated Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) on May 14, 2013.
Based on this evaluation, management has concluded that (i) our internal control over financial reporting was effective as of December 31, 2020 and (ii) no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act) occurred during the quarter ended December 31, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Deloitte & Touche LLP, our independent registered public accounting firm which also audited our consolidated financial statements, has issued an attestation report on our internal control over financial reporting, which is included in Item 8 “Financial Statements and Supplementary Data”.
ITEM 9B. OTHER INFORMATION
On February 12, 2021, Pegasystems Inc. (the “Company”) executed the Lease Termination Agreement with Charles Park Owner LLC to accelerate the lease termination date for the Company’s corporate headquarters in Cambridge, Massachusetts to October 1, 2021. Under the terms of the Lease Termination Agreement, the Company will receive a payment of $18 million. The Company is obligated to make rent payments outlined in the existing lease agreements until October 1, 2021, the new lease termination date.
The foregoing description of the Lease Termination Agreement does not purport to be complete and is qualified in its entirety by reference to the Lease Termination Agreement, a copy of which is attached as Exhibit 10.17 hereto.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
Except as set forth below, information required by this item is incorporated herein by reference from the information contained in our proxy statement for our 2021 annual stockholders meeting (the “2021 proxy statement”) under the headings Executive Compensation, Election of Directors, Corporate Governance, Executive Officers, and Delinquent Section 16(a) Reports, which will be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year.
We have adopted a written code of conduct that applies to our Board of Directors and employees, including our principal executive officer, principal financial officer, principal accounting officer, and persons performing similar functions. A copy of our code of conduct can be found on our website, www.pega.com. We intend to satisfy the disclosure requirements under Item 5.05 of Form 8-K and the applicable the NASDAQ Global Select Market rules by posting such information on our website in accordance with such requirements.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference from the information contained in the 2021 proxy statement under the headings “Director Compensation”, “Compensation Discussion and Analysis”, and “Executive Compensation” and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this item is incorporated herein by reference from the information contained in the 2021 proxy statement under the headings “Executive Compensation”, “Equity Compensation Plan Information”, and “Security Ownership of Certain Beneficial Owners and Management”, and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item is incorporated herein by reference from the information contained in the 2021 proxy statement under the headings “Certain Relationships and Related Transactions” and “Determination of Independence” and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item is incorporated herein by reference from the information contained in the 2021 proxy statement under the heading “Independent Registered Public Accounting Firm Fees and Services” and is incorporated herein by reference.
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PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following are filed as part of this Annual Report:
(1) Financial Statements
The following consolidated financial statements are included in Item 8:
Page
Report of Independent Registered Public Accounting Firm 35
Consolidated Balance Sheets as of December 31, 2020 and 2019
37
Consolidated Statements of Operations for the years ended December 31, 2020, 2019, and 2018
38
Consolidated Statements of Comprehensive (Loss) Income for the years ended December 31, 2020, 2019, and 2018
39
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2020, 2019, and 2018
40
Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019, and 2018
41
(b) Exhibits
Exhibit No. Description
3.1 Restated Articles of Organization of the Registrant and Amendments thereto. (Filed as Exhibit 3.1 to the Registrant’s September 30, 2014 Form 10-Q and incorporated herein by reference.)
3.2 Amended and Restated Bylaws of Pegasystems Inc. (Filed as Exhibit 3.2 to the Registrant’s June 15, 2020 Form 8-K and incorporated herein by reference.)
4.1 Specimen Certificate Representing the Common Stock. (Filed as Exhibit 4.1 to the Registrant’s Registration Statement on Form S-1 (Registration No. 333-03807) or an amendment thereto and incorporated herein by reference.)
4.2 Indenture, dated as of February 24, 2020, between Pegasystems Inc. and U.S. Bank National Association, as trustee. (Filed as Exhibit 4 .1 to the Registrant’s February 24 , 2020 Form 8-K and incorporated herein by reference)
4.3 Form of certificate representing the 0.75% Convertible Senior Notes due 2025 (included as Exhibit A to Exhibit 4.1 to the Registrant’s Form 8-K filed February 24 , 2020 and incorporated herein by reference)
4.4 Description of Common Stock ( Filed as Exhibit 4.2 to the Registrant ’ s 2019 Form 10-K and incorporated herein by reference ) .
10.1++ 2004 Long-Term Incentive Plan (as amended and restated) (Filed as Exhibit 10.1 to the Registrant’s June 2 4 , 2020 Form 8 -K and incorporated herein by reference)
10.2++ Restricted Stock Unit Sub-Plan of the Registrant’s 2004 Long-Term Incentive Plan for French Participants (Filed as Appendix B within the Registrant’s 2016 Proxy Statement, filed April 18, 2016 and incorporated herein by reference.)
+10.3++ 2006 Employee Stock Purchase Plan, as amended on October 29, 2020.
10.4++ Form of Employee Stock Option Agreement, as amended. (Filed as Exhibit 10.3 to the Registrant’s March 31, 2017 Form 10-Q and incorporated herein by reference.)
+10.5++ Form of Global Stock Option Agreement
10.6++ Form of Restricted Stock Unit Agreement, as amended. (Filed as Exhibit 10.4 to the Registrant’s March 31, 2017 Form 10-Q and incorporated herein by reference.)
+10.7++ Form of Global Restricted Stock Unit Agreement
10.8++ Form of Non-Employee Director Stock Option Agreement. (Filed as Exhibit 10.2 to the Registrant’s September 30, 2004 Form 10-Q and incorporated herein by reference.)
10.9++ Form of Director Indemnification Agreement. (Filed as Exhibit 99.1 to the Registrant’s April 11, 2005 Form 8-K and incorporated herein by reference.)
10.10++ Offer Letter between the Registrant and Douglas I. Kra dated October 19, 2004. (Filed as Exhibit 10.20 to the Registrant’s 2004 Form 10-K and incorporated herein by reference.)
10.11++ Offer Letter, dated April 27, 2020, between Pegasystems Inc. and Hayden Stafford. (Filed as Exhibit 10. 3 to the Registrant’s June 30, 2020 Form 10-Q and incorporated herein by reference )
10.12++ Offer Letter between the Registrant and Kenneth Stillwell dated June 1, 2016. (Filed as Exhibit 99.1 to the Registrant’s June 14, 2016 Form 8-K and incorporated herein by reference.)
10.13++ Compensation program for non-employee members of the Registrant’s Board of Directors, effective August 5, 2019 (Filed as Item 1.01 of the Registrant’s August 9, 2019 Form 8-K and incorporated herein by reference.)
10.14++ 2020 Section 16 Officer/FLT Member Corporate Incentive Compensation Plan. (Filed as Exhibit 99.1 to the Registrant’s February 7, 2020 Form 8-K and incorporated herein by reference.)
10.15 2020 Section 16 Officers/FLT Member Executive Officers Base Salaries and Target Bonus Payments (Filed as Exhibit 99.1 to the Registrant’s March 9, 2020 Form 8-K and incorporated herein by reference)
10.16
2021 Section 16 Officers/FLT Member Corporate Incentive Compensation Plan (Filed as Exhibit 99.1 to the Registrant’s February 8 , 2021 Form 8-K and incorporated herein by reference.
10.17
Lease Agreement dated June 29, 2011 between Charles Park One, LLC and Pegasystems Inc. for premises at One Charles Park (Filed as Exhibit 99.1 to the Registrant’s Form 8-K/A filed on July 6, 2011 and incorporated herein by reference.)
10.18
First Amendment to Lease Agreement dated November 11, 2014 between Charles Park One, LLC and Pegasystems Inc. (Filed as Exhibit 10.2 to the Registrant’s September 30, 2015 Form 10-Q and incorporated herein by reference.)
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Exhibit No. Description
+10.18 Lease Termination Agreement, dated February 12, 2021, between Charles Park One, LLC and Pegasystems Inc.
10.19
Credit Agreement dated as of November 5, 2019 with PNC Bank, National Association (Filed as Exhibit 10.1 to the Registrant’s September 30, 2019 Form 10-Q and incorporated herein by reference.)
10.20 Amendment to Loan Documents, dated February 18, 2020, between Pegasystems Inc. and PNC Bank, National Association. (Filed as Exhibit 10 . 3 to the Registrant’s Form 8-K filed February 24 , 2020 and incorporated herein by reference)
10.21 Amendment 2 to Loan Documents, dated July 22, 2020, between Pegasystems Inc. and PNC Bank, National Association. (Filed as Exhibit 10. 2 to the Registrant’s June 30, 20 20 Form 10-Q and incorporated herein by reference.)
10.22 Amendment to Loan Documents, dated as of September 30, 2020, between Pegasystems Inc. and PNC Bank, National Association (Filed as Exhibit 10. 3 to the Registrant’s September 30, 2020 Form 10-Q and incorporated herein by reference.)
10.23 Form of Side Letter to Base Call Option Transaction (Filed as Exhibit 10 .1 to the Registrant’s September 30, 2014 Form 10-Q and incorporated herein by reference.)
10.24 Form of Side Letter to Additional Call Option Transaction (Filed as Exhibit 10 . 2 to the Registrant’s September 30, 20 20 Form 10-Q and incorporated herein by reference.)
10.25 Form of Confirmation of Base Call Option Transaction. (Filed as Exhibit 10 .1 to the Registrant’s Form 8-K filed February 24 , 2020 and incorporated herein by reference)
10.26 Form of Confirmation of Additional Call Option Transaction. (Filed as Exhibit 10 . 2 to the Registrant’s Form 8-K filed February 24, 2020 and incorporated herein by reference)
+21.1 Subsidiaries of the Registrant.
+23.1 Consent of Independent Registered Public Accounting Firm—Deloitte & Touche LLP.
+31.1 Certification pursuant to Exchange Act Rules 13a-14 and 15d-14 of the Chief Executive Officer.
+31.2 Certification pursuant to Exchange Act Rules 13a-14 and 15d-14 of the Chief Financial Officer.
+32 Certification pursuant to 18 U.S.C. Section 1350 of the Chief Executive Officer and the Chief Financial Officer.
101.INS Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH Inline XBRL Taxonomy Extension Schema Document.
101.CAL Inline XBRL Taxonomy Calculation Linkbase Document.
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB Inline XBRL Taxonomy Label Linkbase Document.
101.PRE Inline XBRL Taxonomy Presentation Linkbase Document.
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
+ Filed herewith
++ Management contracts and compensatory plan or arrangements required to be filed pursuant to Item 15(b) of Form 10-K.
(c) Financial Statement Schedules
All financial statement schedules are omitted because the required information is not present or not present in sufficient amounts to require submission of the schedule or because the information is reflected in the consolidated financial statements or notes thereto.
ITEM 16. FORM 10-K SUMMARY
Omitted at Registrant’s option.
64
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
Pegasystems Inc.
Date:
February 17, 2021 By: /s/ KENNETH STILLWELL
Kenneth Stillwell
Chief Financial Officer and Chief Administrative Officer
(Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below on February 17, 2021 by the following persons on behalf of the Registrant and in the capacities indicated.
Signature Title
/s/ ALAN TREFLER
Chairman and Chief Executive Officer
(Principal Executive Officer)
Alan Trefler
/s/ KENNETH STILLWELL Chief Financial Officer and Chief Administrative Officer
(Principal Financial Officer)
Kenneth Stillwell
/s/ EFSTATHIOS KOUNINIS Chief Accounting Officer, Vice President of Finance, and Treasurer
(Principal Accounting Officer)
Efstathios Kouninis
/s/ PETER GYENES Director
Peter Gyenes
/s/ RONALD HOVSEPIAN Director
Ronald Hovsepian
/s/ RICHARD JONES Director
Richard Jones
/s/ CHRISTOPHER LAFOND Director
Christopher Lafond
/s/ DIANNE LEDINGHAM Director
Dianne Ledingham
/s/ SHARON ROWLANDS Director
Sharon Rowlands
/s/ LARRY WEBER
Director
Larry Weber
65