Related Party Transactions and Outside Related Director Information

Pegasystems Inc. (PEGA)

4/11/2006 Proxy Information

From June 1999 to August 2001, Mr. O'Halloran was the Senior Vice President, Chief Financial Officer, Treasurer, and Secretary of Pegasystems Inc.

Except as described below, during 2005 there were no transactions involving more than $60,000, nor are any proposed, between us and any executive officer, Director, beneficial owner of 5% or more of our 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.

On November 15, 2004, we entered into an employment offer letter with Michael J. Wallrich, our former Senior Vice President, Global Sales, which stated that if we terminated his employment without cause, Mr. Wallrich would receive a one-time severance payment in an amount equal to six months of his then-current base salary. When Mr. WallrichÕs employment with the Company terminated on June 30, 2005, we paid Mr. Wallrich a one-time severance payment of $125,000, equal to six months of his then-current base salary, as required by his employment offer letter.

We have entered into employment offer letters with Mr. Kra and Mr. Sullivan that provide for a lump-sum payment of severance equal to six months of their then base salary in the event that their employment is terminated without cause.

Leon Trefler, the brother of our Chairman and Chief Executive Officer, is employed by the Company as a Managing Director, North America Sales. During 2005, Leon Trefler received base salary and sales commissions totaling $301,177 in consideration for his services to the Company. Leon Trefler was also granted an option to purchase 30,000 shares of our common stock at an exercise price of $8.67 per share, which represented a 20% premium to the fair market value of our common stock on the grant date, measured as the average of the high and low trading price of the common stock on such date.

We have adopted a policy whereby transactions between us and our officers, Directors, principal stockholders and their affiliates must be on terms no less favorable to us than could be obtained from unrelated third parties and must be approved by a majority of the disinterested members of our Board of Directors.