As filed with the Securities and Exchange Commission on May 15, 1996
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
PEGASYSTEMS INC.
(Exact name of Registrant as specified in its charter)
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Massachusetts 7389
(State or other jurisdiction of (Primary Standard 04-2787865
incorporation or organization) Industrial (I.R.S. Employer Identification Number)
Classification Code Number)
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101 Main Street, Cambridge, Massachusetts 02142 (617) 374-9600
(Address and Telephone Number of Registrant's Principal Executive Offices)
ALAN TREFLER
President
PEGASYSTEMS INC.
101 Main Street
Cambridge, Massachusetts 02142
(617) 374-9600
(Name, Address and Telephone Number of Agent for Service)
Copies to:
ROBERT V. JAHRLING III, ESQ. MARK G. BORDEN, ESQ.
Choate, Hall & Stewart JEFFREY A. STEIN, ESQ.
Exchange Place Hale and Dorr
53 State Street 60 State Street
Boston, Massachusetts 02109-2891 Boston, Massachusetts 02109-1816
(617) 248-5000 (617) 526-6000
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are being offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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Proposed Proposed
Maximum Maximum
Amount to be Offering Price Aggregate Amount of
Title of Each Class of Registered Per Offering Registration
Securities to be Registered (1) Share (2) Price (2) Fee
- --------------------------- ------------ -------------- -------------- ---------------
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Common Stock, $.01 par 3,910,000
value shares $14.00 $54,740,000 $18,876
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(1) Includes 510,000 shares subject to the Underwriters' over-allotment
option.
(2) Estimated solely for the purpose of calculating the registration fee, in
accordance with Rule 457(a) under the Securities Act of 1933.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this Registration
Statement shall become effective on such date as the Securities and Exchange
Commission, acting pursuant to said Section 8(a), may determine.
<PAGE>
PEGASYSTEMS INC.
CROSS-REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K
Showing Location in Prospectus of Information
Required by Part I of Form S-1
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Registration Statement Item and Caption Location in Prospectus
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1. Forepart of the Registration Statement and Outside front cover page of Prospectus
Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of Inside front and outside back cover pages of
Prospectus Prospectus; Additional Information
3. Summary Information, Risk Factors and Ratio of Prospectus Summary; Risk Factors
Earnings to Fixed Charges
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Outside front cover page; Underwriting
6. Dilution Dilution
7. Selling Security Holders Principal and Selling Stockholders
8. Plan of Distribution Outside front cover page; Underwriting
9. Description of Securities to be Registered Description of Capital Stock
10. Interests of Named Experts and Counsel Legal Matters; Experts
11. Information with Respect to the Registrant Prospectus Summary; Risk Factors; Use of
Proceeds; Dividend Policy; Capitalization;
Dilution; Selected Consolidated Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of Operations;
Business; Management; Certain Transactions;
Principal and Selling Stockholders; Description
of Capital Stock; Shares Eligible for Future
Sale; Consolidated Financial Statements
12. Disclosure of Commission Position on Not Applicable
Indemnification for Securities Act
Liabilities
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
SUBJECT TO COMPLETION, DATED MAY 15, 1996
3,400,000 Shares
[Logo-Pegasystems]
Common Stock
(par value $.01 per share)
Of the 3,400,000 shares of Common Stock offered hereby, 2,700,000 are being
sold by Pegasystems Inc. ("Pegasystems" or the "Company") and 700,000 shares
are being sold by the Selling Stockholders. See "Principal and Selling
Stockholders." The Company will not receive any of the proceeds from the sale
of shares by the Selling Stockholders.
Prior to this offering, there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering
price per share will be between $12.00 and $14.00. For factors to be
considered in determining the initial public offering price, see
"Underwriting."
See "Risk Factors" beginning on page 5 for certain considerations relevant
to an investment in the Common Stock.
Application has been made to have the Common Stock approved for quotation on
the Nasdaq National Market under the symbol "PEGA."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Initial Public Underwriting Proceeds to Proceeds to Selling
Offering Price Discount (1) Company (2) Stockholders
Per Share $ $ $ $
Total (3) $ $ $ $
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting."
(2) Before deducting expenses of the offering payable by the Company,
estimated to be $600,000.
(3) The Company has granted to the Underwriters an option for 30 days to
purchase up to an additional 510,000 shares at the initial offering price
per share, less the underwriting discount, solely to cover
over-allotments, if any. If such option is exercised in full, the total
initial public offering price, underwriting discount and proceeds to
Company will be $ , $ and $ , respectively. See
"Underwriting."
The shares offered hereby are offered by the several Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that
delivery of the shares of Common Stock offered hereby will be made at the
offices of Goldman, Sachs & Co., New York, New York, on or about ,
1996.
Goldman, Sachs & Co.
Cowen & Company
Montgomery Securities
The date of this Prospectus is , 1996.
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IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
COMMON STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ
NATIONAL MARKET, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
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Foldout: Illustration omitted:
Illustration of the Pegasystems' "service backbone." A circle, revolving
around customers, is divided into six segments corresponding to the customer
service management functions supported by the Company's products, each
segment containing labeled icons representing examples of such functions. In
the "receiving" segment are icons representing computer inbound faxes,
PegaView-ACE and Internet connections, high speed computer network links and
shows computer screens demonstrating PegaView-ACE and Internet access; in the
"reporting" segment, icons representing productivity, service and quality
management, relational database interfaces and opportunity analysis; in the
"resolving" segment, icons representing advisor checklists, system-driven
processing and multi-currency accounting; in the "responding" icon, outbound
faxes, internet electronic mail and personalized letters and automated
followups; in the "researching" segment, icons representing on-line disks,
micrographics and virtual archive opticals and tapes; and in the "routing"
segment, prioritization and queuing, rule-driven workflow, electronic baskets
and clustered work.
Inside cover: Illustration omitted:
Illustration of dispersed departments of an organization interacting with
customers contacting the organization through various means, each such
department connected to the organization's integrated service backbone, which
is represented by a circle divided into six segments corresponding to the
customer management functions supported by the Company's products support
(receiving, reporting, resolving, responding, researching and routing).
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Prospectus. Investors should carefully consider
the information set forth under the heading "Risk Factors."
The Company
Pegasystems develops customer service management software to automate
customer interactions across transaction-intensive enterprises. Many of the
world's largest banks, mutual funds and credit card organizations use the
Company's solutions to integrate, automate, standardize and manage a broad
array of mission-critical customer service activities, including account
set-up, record retrieval, correspondence, disputes, investigations and
adjustments. The Company's systems can be used by thousands of concurrent
users to manage customer interactions and to generate billions of dollars a
day in resulting transactions. Work processes initiated by the Company's
systems are driven by a highly adaptable "rule base" defined by the
user-organization for its specific needs. The rule base facilitates a high
level of consistency in customer interactions, yet drives different processes
depending on the customer profile or the nature of the request. The Company's
open, multi-tier, client/server systems operate on a broad variety of
platforms, including UNIX, Windows/NT and IBM/MVS. The Company offers
consulting, training and support services to facilitate the use of its
solutions.
Intensifying competition is forcing businesses to reduce costs while
focusing on customer service management as an important means of
differentiation. Due to the volume and precise nature of their transactions,
it is especially critical for financial services organizations to implement
cost-effective systems to manage customer interactions accurately and
efficiently. The Company's solutions provide a service backbone that drives
intelligent processing and seamlessly integrates an organization's
geographically dispersed and product specific service operations and isolated
computer systems. By bridging these "islands of automation" within large
organizations, the Company's solutions increase the efficiency of service
representatives and enable organizations to address multiple customer needs
during a single contact.
The Company's objective is to become the leading provider of
mission-critical client/server customer service management software to
organizations performing a high volume of complex interactions with demanding
customers. To achieve this objective, the Company is pursuing a number of
strategies, including expanding its marketing to additional business units
within its existing customers; leveraging its relationships and expertise
with large financial services organizations to penetrate the medium-sized
financial services market; targeting markets outside of financial services
which have similar customer service management needs; and developing standard
product templates to facilitate the more rapid implementation of its
solutions.
The Company markets its software and services primarily through a direct
sales force which consisted of six people as of April 30, 1996. The Company
intends to increase substantially the size of its sales force, which will be
necessary if the Company is to achieve significant revenue growth in the
future.
The Company was incorporated in the Commonwealth of Massachusetts in April
1983 and has been profitable in each quarter since the first quarter of 1985.
The Company's principal executive offices are located at 101 Main Street,
Cambridge, Massachusetts 02142, and its telephone number is (617) 374-9600.
Pegasystems, PegaCARD, PegaCLAIMS, PegaSHARES, PegaTRACE, PegaINDEX,
PegaPRISM, PegaREELAY, PegaSEARCH, PegaVIEW-ACE, PegaSTAR, Integrated Service
Backbone, Service Excellence Through Automation, and Virtual Archive are
trademarks of the Company. This Prospectus also includes trademarks of
companies other than the Company.
3
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The Offering
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Common Stock offered by the Company 2,700,000 shares
Common Stock offered by the Selling Stockholders 700,000 shares
Common Stock to be outstanding after the offering 26,290,800 shares (1)
Use of proceeds by the Company For general corporate purposes, including working
capital, product development, capital expenditures
and possible acquisitions. See "Use of Proceeds."
Proposed Nasdaq National Market symbol PEGA
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(1) Based on the number of shares of Common Stock outstanding on May 13,
1996, plus 100,800 shares of Common Stock issuable upon exercise of stock
options to be exercised immediately prior to the closing of this
offering. Excludes 2,308,200 shares of Common Stock issuable upon
exercise of stock options outstanding as of May 13, 1996, at a weighted
average exercise price of $2.60 per share, of which options to purchase
487,950 shares were then exercisable. See "Capitalization" and
"Management--Stock Plans."
Summary Consolidated Financial Data
(in thousands, except per share data)
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Three Months
Ended
Year ended December 31, March 31,
-------------------------- ----------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
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Consolidated Statement of Income
Data:
Total revenue $10,212 $16,263 $22,247 $4,005 $ 4,941
Income from operations 793 2,236 3,257 66 456
License interest income 1,305 1,457 1,486 370 368
Net income 1,233 2,193 2,878 263 486
Net income per common and common
equivalent share $ 0.05 $ 0.09 $ 0.11 $ 0.01 $ 0.02
Weighted average number of common
and common equivalent shares
outstanding 24,231 24,102 25,551 25,600 25,505
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March 31, 1996
----------------------
As Adjusted
Actual (1)
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Consolidated Balance Sheet Data:
Cash and cash equivalents $ 2,644 $33,318
Working capital 6,952 38,356
Long-term license installments,
net 11,444 11,444
Total assets 26,555 57,228
Long-term debt 672 --
Stockholders' equity 15,136 47,212
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(1) Gives effect to (i) the sale of the 2,700,000 shares of Common Stock
offered by the Company hereby at an assumed initial public offering price
of $13.00 per share, after deducting the estimated underwriting discount
and offering expenses payable by the Company, and gives effect to the
anticipated application of the net proceeds therefrom, and (ii) the
exercise of stock options to purchase 100,800 shares of Common Stock at
an aggregate exercise price of $32,928, which exercise will occur
immediately prior to the closing of this offering. See "Use of Proceeds"
and "Capitalization."
Unless otherwise indicated herein, all information in this Prospectus (i) has
been adjusted to give effect to a 15-for-1 split of the outstanding Common
Stock, in the form of a stock dividend, effective December 9, 1994, (ii) has
been adjusted to give effect to an amendment and restatement of the Company's
Articles of Organization (the "Restated Articles") to become effective
immediately prior to this offering, providing for, among other things, the
creation of a new undesignated class of Preferred Stock, (iii) has been
adjusted to give effect to a 3-for-1 split of the outstanding Common Stock,
in the form of a stock dividend, to be effective immediately prior to this
offering, and (iv) assumes no exercise of the Underwriters' over-allotment
option. See "Description of Capital Stock" and "Underwriting."
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RISK FACTORS
In addition to the other information contained in this Prospectus, the
following risk factors should be carefully considered in evaluating an
investment in the Common Stock offered by this Prospectus.
Potential Fluctuations in Quarterly Results; Seasonality
The Company's revenue and operating results have varied considerably in the
past, and are likely to vary considerably in the future. Such fluctuations
may be particularly pronounced because a significant portion of the Company's
revenue in any quarter is attributable to product acceptances or license
renewals by a relatively small number of customers, and reflects the
Company's policy of recognizing license fee revenue upon product acceptance
or license renewal in an amount equal to the present value of the total
committed license payments due during the initial license term or renewal
period, as the case may be. Product acceptance is preceded by an
implementation period, typically ranging from three to six months but in some
cases significantly longer, and by a lengthy sales cycle. The Company's sales
cycle is subject to a number of significant risks over which the Company has
little or no control, including customers' budgeting constraints and internal
authorization reviews. Product implementation may be delayed for a variety of
reasons including unforeseen technical problems and changes dictated by the
customer in the scope or schedule of the implementation. Other factors
contributing to fluctuations in the Company's revenue and operating results
include changes in the level of operating expenses, demand for the Company's
products and services, the introduction of new products and product
enhancements by the Company and its competitors, competitive conditions in
the industry and general economic conditions. The Company budgets its product
development and other expenses anticipating future revenue. If revenue falls
below expectations, the Company's business, operating results and financial
condition are likely to be materially and adversely affected because only a
small portion of the Company's expenses vary with its revenue. As a result,
the Company believes that period-to-period comparisons of its operating
results are not necessarily meaningful and should not be relied upon to
predict future performance. There can be no assurance that the Company will
be able to maintain profitability on an annual or quarterly basis.
The Company's business has experienced and may continue to experience
significant seasonality. In recent years the Company has recognized a greater
percentage of its revenue in its third and fourth quarters than in the first
and second quarters due to the Company's sales commission structure and the
impact of that structure on the timing of product acceptances and license
renewals by customers. This pattern is reinforced by the Company's practice
of offering customers without charge a fixed number of hours of service per
calendar year. Once the annual allotment of service hours is exhausted,
customers pay for additional services on an hourly basis, typically resulting
in higher services revenue in the Company's second, third and fourth
quarters.
Due to the foregoing factors, it is likely that in some future quarters
the Company's operating results will fall below the expectations of the
Company, market analysts and investors. In such event, the price of the
Company's Common Stock would likely be materially and adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Dependence on New Products; Rapid Technological Change; Product Development
and Implementation Risks
The market for customer management software and related consulting and
training services is subject to rapid technological change, changing customer
needs and preferences, frequent new product introductions, and evolving
programming languages and industry standards that may render existing
products and services obsolete. The Company's position in its current market
or other markets that it may enter could be eroded rapidly by product
advances. The life cycles of the Company's products are difficult to
estimate, and the Company's growth and future performance will depend in part
upon its ability to enhance existing products, and to develop and introduce
new products that keep pace with technological advancements, meet changing
customer requirements, respond to competitive products, and achieve market
acceptance. The Company's product development efforts require and are
expected to continue to require substantial investments by the Company for
research, refinement and testing, and there can be no assurance that the
Company will have the resources sufficient to make such investments. The
Company has in the past experienced developmental delays, and there can be no
assurance that the
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Company will not experience difficulties which would delay or prevent the
successful development, introduction or implementation of new or enhanced
products. In addition, there can be no assurance that such products will meet
the requirements of the marketplace and achieve market acceptance, or that
the Company's current or future products will conform to changing industry
requirements. If the Company is unable for technological or other reasons to
develop, introduce or implement new or enhanced products in a timely and
effective manner, the Company's business, operating results and financial
condition could be materially and adversely affected.
Products as complex as the Company's may contain errors that may be
detected at any point in the products' life cycles. In the past, the Company
has discovered certain errors in its products and has experienced shipping
delays while such errors were corrected. Such errors have also required the
Company to ship corrected products to existing customers. There can be no
assurance that errors will not be found in the future resulting in the loss
of, or delay in, market acceptance and/or sales and revenue, diversion of
development resources, injury to the Company's reputation, or increased
service and warranty costs, any of which could have a material adverse effect
on the Company's business, operating results and financial condition. See
"Business--Products" and "--Product Development."
Computing Platform Shift; Compatibility with Third Party Relational Databases
The majority of large financial services organizations have traditionally
used IBM MVS or Digital Equipment Corporation VMS systems for transaction
processing. Increasingly, however, such organizations are migrating towards
more open UNIX and Windows/NT server operating systems to meet their
transaction processing requirements. Responding to this trend, and while
continuing to support its core IBM and Digital Equipment Corporation
platforms, the Company commenced efforts in 1992 to evolve versions of its
products to use the C++ programming language and run on a variety of open
platforms. In December 1995, for the first time one of the new C++ versions
of the Company's products was used in production by a customer of the
Company. The Company has since shipped new C++ versions of its products to
other customers for use on RS 6000/AIX and Windows/NT platforms and the
Company is actively working with these customers to bring such products into
production. There can be no assurance that the new versions of the Company's
products will meet the requirements of the marketplace and achieve market
acceptance, or that organizations will not migrate to other computing
platforms not supported by the Company. Moreover, there can be no assurance
that, notwithstanding the benefits of the new versions of the Company's
products, some of the Company's existing customers may choose not to migrate
to UNIX and Windows/NT systems. In such event, the Company may be required to
support both the old and new versions of its products, which could have a
material adverse effect on its business, operating results and financial
condition.
The Company believes that the compatibility of customer service management
software systems with popular relational databases is an important factor in
the purchase decision of many organizations. Consequently, the Company
recently developed the capability for the Windows/NT versions of its software
to store work items in Microsoft's SQL Server relational database, and is
working to develop similar capabilities for versions of its software with the
relational databases of other third party vendors, including Oracle. There
can be no assurance that the Company will not experience difficulties which
would delay or prevent the successful development or introduction of these
additional capabilities. Any such difficulty could have a material and
adverse effect on the Company's business, operating results and financial
condition. See "Business--Product Development."
Dependence on the Financial Services Market; Industry Consolidation
The Company has derived all of its revenue to date from customers in the
financial services market, and the Company's future growth depends, in large
part, upon increased sales to this market. The financial condition of the
Company's customers and their willingness to pay for the Company's products
and services are affected by competitive pressures, decreasing operating
margins within the industry, currency fluctuations, active geographic
expansion and deregulation. The Company believes that its customers'
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purchasing patterns are somewhat discretionary. As a result, demand for the
Company's products and services could be affected by the condition of the
financial services market or a deterioration in economic or market conditions
generally.
The financial services market is undergoing intense domestic and
international consolidation. In recent years, several customers of the
Company have been merged or consolidated out of independent existence, and
there is no assurance that the Company will not experience declines in
revenue occasioned, in whole or in part, by future mergers or consolidations.
Any decline in the demand for the Company's products would have a material,
adverse effect on the Company's business, operating results and financial
condition. See "Business--Customers."
Uncertainty of Growth into other Markets
As part of its growth strategy the Company is exploring the possibility of
applying its technology to the customer service management requirements of
markets other than financial services, such as insurance, medical, utilities
and retail. The Company believes that in connection with such efforts it will
be necessary for the Company to hire additional personnel with expertise in
these other markets. There can be no assurance that the Company will be
successful in adapting its technology to these other markets or in attracting
and retaining personnel with the necessary industry expertise. The inability
of the Company to penetrate these other markets could have a material adverse
effect on its business, operating results and financial condition. See
"Business--Business Strategy."
Risks of Customer License Non-Renewal
To date, a substantial majority of the Company's licenses have been renewed
upon expiration. Revenue attributable to license renewals accounted for 32%,
26% and 28% of the Company's total revenue in 1993, 1994 and 1995,
respectively, and in each period was attributable to a relatively small
number of customers. There can be no assurance that a substantial majority of
the Company's customers will continue to renew expiring licenses; any such
non-renewal would require the Company to obtain revenue from other sources in
order to achieve its revenue targets. A decrease in the Company's license
renewal rate without offsetting revenue from other sources would have a
material adverse effect on the Company's business, results of operations and
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business--Customers" and Notes 1 and 8
of Notes to Consolidated Financial Statements.
Control by Existing Stockholders
Upon completion of this offering, Alan Trefler, the Company's President and
a member of its Board of Directors, will own approximately 84% of the
Company's outstanding Common Stock (83% if the over- allotment option granted
to the Underwriters is exercised in full). As of May 13, 1996, there were
outstanding options to purchase 2,409,000 shares of the Company's Common
Stock, of which options to purchase 588,750 shares were then exercisable.
Assuming the exercise of all such outstanding options, Mr. Trefler would own
approximately 77% of the outstanding Common Stock (76% if the over-allotment
option granted to the Underwriters is exercised in full). There can be no
assurance that any such stock options will be exercised. Accordingly, Mr.
Trefler will be able to control the Company through his ability to determine
the outcome of elections of the Company's directors, amend the Company's
Restated Articles of Organization and Restated By-laws and take certain other
actions requiring the vote or consent of stockholders of the Company. This
concentration of ownership may have the effect of delaying or preventing a
change in control of the Company. See "Principal and Selling Stockholders."
Dependence on Key Personnel
The Company's future success depends to a significant extent on Mr. Trefler,
its other executive officers and certain technical, managerial, consulting,
sales and marketing personnel. The loss of the services of any of these
individuals or group of individuals could have a material adverse effect on
the Company's business, operating results and financial condition. None of
the Company's executive officers has entered into an employment contract with
the Company, although each is subject to a non-disclosure and non-competition
agreement with the Company. The Company does not have, and is not
contemplating
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securing, any significant amount of key-man life insurance on any of its
executive officers or other key employees. The Company believes that its
future success also will depend significantly upon its ability to attract,
motivate and retain additional highly skilled technical, managerial,
consulting, sales and marketing personnel. In particular, delays in hiring
qualified sales personnel would adversely affect the Company's operating
results due to the substantial time period between the identification of new
customers and the successful implementation and acceptance of the Company's
products by those customers. Because developing, selling and maintaining the
Company's products requires extensive knowledge of computer hardware and
operating systems, programming languages and application software, the number
of qualified potential employees is limited. Moreover, competition for such
personnel is intense, and there can be no assurance that the Company will be
successful in attracting and retaining the personnel it requires to continue
to grow and operate profitably.
Intense Competition
The market for customer service management software and related consulting
and training services is relatively new, intensely competitive and highly
fragmented. The Company encounters significant competition from internal
information systems departments of potential or existing customers that
develop custom software. The Company also competes with companies that target
the customer interaction or workflow markets, and professional services
organizations that develop custom software in conjunction with rendering
consulting services. Such competitors vary in size and in the scope and
breadth of products and services offered. The Company anticipates increased
competition for market share and pressure to reduce prices and make sales
concessions, which could materially and adversely affect the Company's
business, operating results and financial condition.
Many of the Company's competitors have greater resources than the Company,
and may be able to respond more quickly and efficiently to new or emerging
technologies, programming languages or standards, or to changes in customer
requirements or preferences. Many of the Company's competitors can devote
greater managerial or financial resources than the Company can to develop,
promote and distribute customer service management software products and
provide related consulting and training services. There can be no assurance
that the Company's current or future competitors will not develop products or
services which may be superior in one or more respects to the Company's or
which may gain greater market acceptance. Some of the Company's competitors
have established or may establish cooperative arrangements or strategic
alliances among themselves or with third parties, thus enhancing their
abilities to compete with the Company. It is likely that new competitors will
emerge and rapidly acquire market share. There can be no assurance that the
Company will be able to compete successfully against current or future
competitors or that the competitive pressures faced by the Company will not
materially and adversely affect its business, operating results and financial
condition. See "Business--Competition."
Management of Growth
The growth in the size, geographic scope and complexity of the Company's
business and the expansion of its product offerings and customer base have
placed and are expected to continue to place a significant strain on the
Company's management, operations and capital needs. The Company's continued
growth, if any, will require it to hire, train and retain many employees both
in the United States and abroad, particularly additional sales and financial
personnel, and will also require the Company to enhance its financial and
managerial controls and reporting systems. There is no assurance that the
Company can manage its growth effectively or that the Company will be able to
attract and retain the necessary personnel to meet its business challenges.
If the Company is unable to manage its growth effectively, the Company's
business, operating results and financial condition could be materially and
adversely affected. See "Business--Business Strategy" and "--Sales and
Marketing."
Risks Associated with International Operations; Currency and Other Risks
Sales to customers headquartered outside of the United States represented
approximately 24% and 10% of the Company's total revenue in 1994 and 1995,
respectively. The Company, in part through its wholly-owned subsidiary based
in the United Kingdom, markets products and renders consulting and training
services to customers based in Canada, the United Kingdom, France,
Switzerland, Ireland and
8
<PAGE>
Luxembourg. The Company is in negotiations with potential customers based in
other foreign countries, and may establish a physical presence in continental
Europe, Australia or elsewhere in the Pacific Rim. The Company believes that
its continued growth will necessitate expanded international operations
requiring a diversion of managerial attention and financial resources. The
Company anticipates hiring additional personnel to accommodate international
growth, and the Company may also enter into agreements with local
distributors, representatives or resellers. If the Company is unable to do
one or more of these things in a timely manner, the Company's growth, if any,
in its foreign operations will be restricted, and the Company's business,
operating results and financial condition could be materially and adversely
affected.
In addition, there can be no assurance that the Company will be able to
maintain or increase international market demand for its products. Most of
the Company's international sales are denominated in U.S. dollars.
Accordingly, any appreciation of the value of the U.S. dollar relative to the
currencies of those countries in which the Company distributes its products
may place the Company at a competitive disadvantage by effectively making its
products more expensive as compared to those of its competitors.
Additional risks inherent in the Company's international business
activities generally include unexpected changes in regulatory requirements,
increased tariffs and other trade barriers, the costs of localizing products
for local markets and complying with local business customs, longer accounts
receivable patterns and difficulties in collecting foreign accounts
receivable, difficulties in enforcing contractual and intellectual property
rights, heightened risks of political and economic instability, the
possibility of nationalization or expropriation of industries or properties,
difficulties in managing international operations, potentially adverse tax
consequences (including restrictions on repatriating earnings and the threat
of "double taxation"), enhanced accounting and internal control expenses, and
the burden of complying with a wide variety of foreign laws. There can be no
assurance that one or more of these factors will not have a material adverse
effect on the Company's foreign operations, and, consequentially, the
Company's business, operating results and financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Sales and Marketing."
Dependence upon Proprietary Rights; Risks of Infringement
The Company's success is heavily dependent upon its ability to protect its
proprietary technology. To protect its proprietary rights, the Company relies
on a combination of copyright, trademark and trade secret laws, as well as
confidentiality agreements. The Company also has one United States patent
application pending. However, existing patent, copyright, trademark and trade
secret laws afford only limited protection. In addition, many countries' laws
do not protect the Company's proprietary rights to the same extent as do the
laws of the United States. Accordingly, there can be no assurance that the
Company will be able to protect its proprietary rights against unauthorized
third party copying, use or exploitation, any of which could have a material
adverse effect on the Company's business, operating results and financial
condition.
Attempts may be made to copy or reverse engineer aspects of the Company's
products, or to obtain, use or exploit information or methods which the
Company deems proprietary. Additionally, there can be no assurance that the
Company's customers and others will not develop products which infringe upon
the Company's rights, or that compete with the Company's products. Policing
the use of the Company's products is difficult and expensive, and there is no
assurance that such efforts would prove effective. Litigation or other action
may be necessary in the future to enforce the Company's proprietary rights,
to seek and confirm patent protection for the Company's technologies, or to
determine the validity and scope of the proprietary rights of others. The
Company expects that its software products may increasingly be subject to
claims as the number of products and competitors in the Company's markets
grows and the functionality of such products overlaps. Such litigation or
proceedings, whether or not meritorious, could result in substantial costs
and diversions of resources and management's attention, and could have a
material adverse impact on the Company's business, operating results and
financial condition. See "Business--Intellectual Property and Licenses."
9
<PAGE>
Reliance on Certain Relationships
The Company has a number of third party relationships that are significant
to its sales, marketing and support activities and product development
efforts. The Company relies upon relational database management systems
applications and development tool vendors, software and hardware vendors, and
consultants to provide marketing and sales opportunities for the Company's
direct sales force, and strengthen its product offerings through the use of
industry-standard tools and utilities. The Company's strategy in entering
into these relationships is to keep pace with the technological and marketing
developments of major software vendors, and to acquire technical assistance
for the Company's product development efforts. There can be no assurance that
these companies, most of which have significantly greater financial and
marketing resources than the Company, will not develop or market software
products which compete with the Company's products in the future or will not
otherwise discontinue their relationships with or support of the Company. The
failure of the Company to maintain its existing relationships, or to
establish new relationships in the future, because of a divergence of
interests, acquisition of one or more of these third parties, or for any
other reason, could have a material adverse effect on the Company's business,
results of operations and financial condition.
Product Liability; Warranty Claims
The Company's license agreements with its customers typically contain
provisions intended to limit the nature and extent of the Company's liability
for product liability claims or claims arising from breaches of warranties.
There is no assurance that such limitations would withstand judicial scrutiny
or that they would bind a party not in direct privity with the Company.
Furthermore, some of the Company's licenses with its customers are governed
by laws other than those of the United States, and there is no assurance that
purported limitations on liability would be enforced were foreign law to
govern. Although the Company has not experienced any material product
liability claims to date, the license and support of products by the Company
and the incorporation of third party products and components may entail the
risk of such claims. A product liability suit or action claiming a breach of
warranty, whether or not meritorious, could result in substantial costs and a
diversion of management's attention and the Company's resources, which costs
and diversion could have a material adverse effect on the Company's business,
operating results and financial condition. Additionally, a suit alleging a
product defect or a breach of an express or implied warranty, if successful,
may also have an adverse precedential effect on other or future actions.
Lack of Prior Dividends; No Plans to Pay Dividends in the Foreseeable Future
The Company has never declared or paid cash dividends and does not
anticipate paying cash dividends in the foreseeable future. The Company's
current bank line prohibits payment of dividends without the bank's consent.
Immediate and Substantial Dilution
Purchasers of shares of Common Stock offered hereby will suffer an immediate
and substantial dilution in the net tangible book value of $11.22 per share
of the Common Stock from the initial public offering price. See "Dilution"
and "Capitalization."
Potential Adverse Effects of Anti-Takeover Provisions; Possible Issuance of
Preferred Stock
The Company's Restated Articles of Organization (the "Restated Articles")
and Restated By-Laws contain provisions that may make it more difficult for a
third party to acquire, or discourage acquisition bids for, the Company. The
Restated Articles and Restated By-Laws provide that a stockholder seeking to
have business conducted at a meeting of stockholders must give notice to the
Company not less than 90 days prior to the scheduled meeting. The Restated
By-Laws further provide that a special stockholders meeting may be called by
the president or the Board of Directors or upon the request of stockholders
holding at least 40% of the voting power of the Company. The Restated
Articles and Restated By-Laws provide for a classified Board of Directors,
and for the removal of directors only for cause upon the affirmative vote of
the holders of at least 80% of the shares entitled to vote. Moreover, upon
completion of this offering, the Company will be subject to an anti-takeover
provision of the Massachusetts General Laws which prohibits, subject to
certain exceptions, a holder of 5% or more of the outstanding voting stock of
a corporation from engaging in certain transactions with the corporation,
including a merger or stock
10
<PAGE>
or asset sale. These provisions could limit the price that certain investors
might be willing to pay in the future for shares of the Company's Common
Stock and may have the effect of preventing changes in the management of the
Company. In addition, shares of the Company's Preferred Stock may be issued
in the future without further stockholder approval and upon such terms and
conditions, and having such rights, privileges and preferences, as the Board
of Directors may determine. The rights of the holders of Common Stock will be
subject to, and may be adversely affected by, the rights of any holders of
Preferred Stock that may be issued in the future. The issuance of Preferred
Stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire, or discouraging a third party
from acquiring, a majority of the outstanding voting stock of the Company.
The Company has no present plans to issue any shares of Preferred Stock. See
"Description of Capital Stock."
Shares Eligible for Future Sale
Sales of substantial amounts of shares of Common Stock in the public market
following this offering could adversely affect the market price of the Common
Stock. On the date of this Prospectus, in addition to the 3,400,000 shares
offered hereby, 12,000 shares of Common Stock will be eligible for future
sale in the public market pursuant to Rule 144(k) under the Securities Act of
1933, as amended (the "Securities Act"). Beginning 90 days after the date of
this Prospectus, an additional 139,500 shares will become eligible for sale
in the public market, pursuant to Rules 144 and 701 under the Securities Act.
Upon the expiration of lock-up agreements between certain stockholders of the
Company and the representatives of the Underwriters 180 days after the date
of this Prospectus, an additional 22,739,300 shares will become eligible for
sale in the public market, subject to the provisions of Rule 144 under the
Securities Act. The representatives of the Underwriters may waive some or all
of the provisions of such lock-up agreements on a case-by-case or general
basis, all without notice to the Company, its stockholders or any market on
which the Common Stock may then be trading. See "Shares Eligible for Future
Sale" and "Underwriting."
Shortly after the date of this Prospectus, the Company intends to file a
Form S-8 registration statement under the Securities Act registering
approximately 5,750,000 shares of Common Stock issuable under the Company's
stock plans. As of May 13, 1996, giving effect to the exercise of options for
the purchase of 100,800 shares immediately prior to the closing of this
offering, options to purchase a total of 2,308,200 shares were outstanding
(of which 487,950 were then exercisable) and 3,341,000 shares were reserved
for future issuance under such stock plans. See "Shares Eligible for Future
Sale."
No Prior Trading Market; Potential Volatility of Stock Price
Prior to this offering, there has been no public market for the Company's
Common Stock, and there can be no assurance that an active trading market
will develop or be sustained after this offering. The initial public offering
price to be negotiated between the Company, the Selling Stockholders and the
representatives of the Underwriters may not be indicative of prices that will
prevail in the trading market. See "Underwriting" for a discussion of the
factors to be considered in determining the initial public offering price.
The market price of the Company's Common Stock could be subject to wide
fluctuations in response to quarter-to-quarter variations in operating
results, the gain or loss of significant contracts, announcements of
technological developments or new products by the Company and its
competitors, changes in earnings estimates by analysts, market conditions in
the industry and general economic conditions. In addition, the stock market
has experienced volatility that has particularly affected the market prices
for the stock of many technology companies and that often has been unrelated
to the operating performance of such companies. These market fluctuations may
adversely affect the market price of the Company's Common Stock. See
"Underwriting."
11
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,700,000 shares of
Common Stock offered by the Company pursuant to this offering are estimated
to be $32,043,000 ($38,209,000 if the Underwriters' over-allotment option is
exercised in full), assuming an initial public offering price of $13.00 per
share and after deducting the estimated underwriting discount and offering
expenses payable by the Company. The principal purposes of this offering are
to increase the Company's equity capital, to create a public market for the
Common Stock, to increase the visibility of the Company in the marketplace
and to facilitate future access by the Company to public equity markets.
The Company anticipates using the net proceeds from this offering to repay
the Company's existing bank indebtedness and for general corporate purposes.
At March 31, 1996, the Company's bank indebtedness consisted of four term
promissory notes in the aggregate principal amount of $1,402,000, which are
due December 1996 ($155,000), November 1997 ($211,000), June 1998 ($885,000)
and December 1998 ($151,000). Interest accrues on such loans at the bank's
prime rate (8.25% at March 31, 1996) plus 0.5% per annum. The proceeds of
such loans were used by the Company primarily to acquire capital equipment.
The Company may seek acquisitions of businesses, products and technologies
that are complementary to those of the Company, and a portion of the net
proceeds may be used for such acquisitions. While the Company engages from
time to time in discussions with respect to potential acquisitions, the
Company has no plans, commitments or agreements with respect to any such
acquisitions as of the date of this Prospectus, and there can be no assurance
that any such acquisitions will be made. Pending such uses, the Company
intends to invest the net proceeds from this offering in short-term,
investment-grade, interest-bearing securities.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock and does not anticipate paying any cash dividends in the foreseeable
future. The Company currently intends to retain future earnings to fund the
development and growth of its business. The Company's current loan agreement
with a bank prohibits the payment of dividends without the bank's consent.
12
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1996 and as adjusted to give effect to the sale of 2,700,000 shares of
Common Stock offered by the Company hereby at an assumed initial public
offering price of $13.00 per share and the receipt and application of the
proceeds therefrom, after deducting the estimated underwriting discount and
offering expenses payable by the Company. See "Use of Proceeds." This
information should be read in conjunction with the Company's Consolidated
Financial Statements and the Notes thereto appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
March 31, 1996
---------------------
Adjusted
Actual (1)
------ -----------
(in thousands except
share-related data)
<S> <C> <C>
Long-term debt, less current maturities $ 672 --
Stockholders' equity
Common Stock, $.01 par value, 45,000,000 shares
authorized, 23,490,000 shares issued and
outstanding (actual); and 26,290,800 shares issued
and outstanding (as adjusted) (2) (3) 235 $ 263
Additional paid-in capital 15 32,063
Retained earnings 15,008 15,008
Cumulative foreign currency translation adjustment (122) (122)
------ ------
Total stockholders' equity 15,136 47,212
------ ------
Total capitalization $15,808 $47,212
====== ======
</TABLE>
(1) Adjusted to give effect to the sale of 2,700,000 shares of Common Stock
offered by the Company hereby at an assumed initial public offering price
of $13.00 per share, after deducting the estimated underwriting discount
and offering expenses payable by the Company, and the anticipated
application of the net proceeds therefrom.
(2) Includes 100,800 shares of Common Stock issuable upon exercise of stock
options to be exercised immediately prior to the closing of this
offering.
(3) Excludes 2,308,200 shares of Common Stock issuable pursuant to the
exercise of options outstanding at May 13, 1996, of which options to
purchase 487,950 shares were then exercisable. See "Management--Stock
Plans."
13
<PAGE>
DILUTION
The net tangible book value of the Company at March 31, 1996 was $14,814,418
or $0.63 per share of Common Stock, after giving effect to the anticipated
exercise of options to purchase 100,800 shares of Common Stock immediately
prior to the closing of this offering. Net tangible book value per share is
equal to the Company's total tangible assets less total liabilities, divided
by the total number of shares of Common Stock outstanding. Net tangible book
value dilution per share represents the difference between the amount per
share paid by purchasers of shares of Common Stock in the offering made
hereby and the net tangible book value per share of Common Stock immediately
after completion of this offering. After giving effect to the sale by the
Company of the 2,700,000 shares of Common Stock offered hereby at an assumed
initial public offering price of $13.00 per share, and after deducting the
estimated underwriting discount and offering expenses, the pro forma net
tangible book value of the Company as of March 31, 1996 would have been
$46,857,418 or $1.78 per share of Common Stock. This represents an immediate
increase in such pro forma net tangible book value of $1.15 per share to
existing stockholders and an immediate dilution of $11.22 per share to new
investors purchasing shares in this offering. If the initial public offering
price is higher or lower, the dilution to the new investors will be,
respectively, greater or less. The following table illustrates this per share
dilution:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per share $13.00
Net tangible book value per share as of March 31, 1996 $0.63
Increase per share attributable to new investors $1.15
-----
Pro forma net tangible book value per share as of March 31, 1996 after
offering 1.78
-----
Net tangible book value dilution per share to new investors $11.22
=====
</TABLE>
The following table summarizes on a pro forma basis as of March 31, 1996,
the number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the average price paid per share by
existing stockholders and by new investors (assuming an initial public
offering price of $13.00 per share):
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------- --------------------
Average Price
Number Percent Amount Percent Per Share
--------- ------ ---------- ------ -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders (1)
(2) 23,590,800 90% $ 107,728 0.3 % $ 0.005
New investors (1) 2,700,000 10 35,100,000 99.7 $ 13.00
--------- ---- ---------- ----- -------
Total 26,290,800 100% $35,207,728 100.0 %
========= ==== ========= ====
</TABLE>
- -------------
(1) Sales by Selling Stockholders in this offering will reduce the number of
shares of Common Stock held by existing stockholders to 22,890,800
shares, or 87% of the total number of shares of Common Stock to be
outstanding after this offering (85% if the Underwriters' over-allotment
option is exercised in full), and will increase the number of shares of
Common Stock held by new investors to 3,400,000, or 13% of the total
number of shares to be outstanding (3,910,000 shares or 15% if the
Underwriters' over-allotment option is exercised in full). See "Principal
and Selling Stockholders."
(2) Includes 100,800 shares of Common Stock issuable upon exercise of stock
options to be exercised immediately prior to the closing of this offering
at a weighted average exercise price of approximately $.33 per share.
As of May 13, 1996, there were options outstanding to purchase 2,409,000
shares of Common Stock under the Company's 1994 Long-Term Incentive Plan at a
weighted average exercise price of $2.51 per share, of which options to
purchase 588,750 shares were then exercisable. To the extent any such options
are exercised (other than those referred to in note (2) to the above table),
there will be further dilution to the new investors. In addition, on May 13,
1996, the Company's Board of Directors adopted the 1996 Non- Employee
Director Stock Option Plan (the "Director Plan") and the 1996 Employee Stock
Purchase Plan (the "Stock Purchase Plan"); and 250,000 shares and 500,000
shares have been reserved for issuance under the Director Plan and the Stock
Purchase Plan, respectively. The issuance of shares under these plans is not
reflected in the preceding tables. See "Management--Stock Plans."
14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data at December 31, 1994 and 1995 and
for the three years ended December 31, 1995, are derived from consolidated
financial statements of Pegasystems Inc., which have been audited by Ernst &
Young LLP, independent auditors. The selected consolidated financial data at
December 31, 1991 and 1992 and for each of the two years ended December 31,
1992, are derived from consolidated financial statements of the Company
audited by Ernst & Young LLP but not included in this Prospectus. The
selected consolidated financial data presented below at and for the three
months ended March 31, 1995 and 1996 are derived from the Company's unaudited
financial statements also appearing herein and which, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results for the
unaudited interim periods. The results of operations for the three months
ended March 31, 1996 are not necessarily indicative of the results that may
be expected for the full year or for any future period. The data presented
below should be read in conjunction with the consolidated financial
statements, related notes and other financial information included herein.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
<TABLE>
<CAPTION>
Three Months
Ended
Year Ended December 31, March 31,
-------------------------------------------- ----------------
1991 1992 1993 1994 1995 1995 1996
----- ----- ------ ------ ------ ----- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement of
Income Data:
Total revenue $7,784 $8,963 $10,212 $16,263 $22,247 $4,005 $ 4,941
Income from operations 1,858 1,944 793 2,236 3,257 66 456
License interest income 987 1,220 1,305 1,457 1,486 370 368
Net income 1,791 1,867 1,233 2,193 2,878 263 486
Net income per share $ 0.07 $ 0.08 $ 0.05 $ 0.09 $ 0.11 $ 0.01 $ 0.02
Weighted average common
and common equivalent
shares outstanding 24,471 24,471 24,231 24,102 25,551 25,600 25,505
</TABLE>
<TABLE>
<CAPTION>
March
December 31, 31,
----------------------------------------- --------
1991 1992 1993 1994 1995 1996
----- ----- ----- ----- ----- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents $ 80 $ 336 $ 435 $ 456 $ 511 $ 2,644
Working capital 1,904 3,428 4,231 4,441 4,393 6,952
Long-term license
installments, net 5,512 6,319 6,782 9,135 13,399 11,444
Total assets 11,992 14,387 17,057 20,787 25,876 26,555
Long-term debt 108 118 458 450 816 672
Stockholders' equity 6,576 8,444 9,676 11,872 14,674 15,136
</TABLE>
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of operation
of the Company should be read in conjunction with the Company's Consolidated
Financial Statements and Notes thereto, and the other financial information
included elsewhere in this Prospectus.
Overview
The Company was founded in April 1983 to develop, market and support
customer management software solutions for financial services organizations.
Product development began immediately and by the end of the year the Company
had secured its first customer. The Company has been profitable in each
fiscal quarter since the first quarter of 1985.
The Company's revenue is derived from two sources: software license fees
and services revenue. License fees, which have historically represented the
majority of the Company's total revenue, are generally payable on a monthly
basis under license agreements which typically have a five-year term and are
subject to renewal at the customer's option for an additional fixed period.
Such license agreements are generally non-cancellable, although some may be
terminated by the licensee for a fee prior to the expiration of the initial
term but after a minimum specified period. The Company's licenses generally
provide for annual license fee increases (the "inflation adjustments") based
on recognized inflation indexes (sometimes subject to maximums). The Company
believes that both it and its customers derive substantial benefits from the
recurring fee model because it encourages the Company to be responsive to
customer needs and provides the Company with additional revenue opportunities
through license renewals.
License revenue is recognized upon product acceptance. In the case of
license renewals, revenue is recognized upon execution of the renewal
agreement or if, as is generally the case, renewal is automatic unless the
customer gives notice of termination, at the expiration of the period during
which the customer has the right to terminate. The inflation adjustments are
recognized ratably over the months to which they apply. In accordance with
Statement of Position No. 91-1 issued by the American Institute of Certified
Public Accountants, the amount of software license revenue recognized upon
product acceptance or license renewal is equal to the present value of the
payments due during the minimum initial or renewal term, as the case may be,
plus the present value of any early termination fee. In 1993, 1994 and 1995
and the three months ended March 31, 1996, the discount rate for purposes of
the present value calculation was 7%. In the future, the Company intends to
establish the discount rate quarterly based on the Company's then current
marginal borrowing rate, reduced, with respect to licenses which provide for
inflation adjustments, by 1.5%, reflecting the Company's estimate of the
benefit of future inflation adjustments during the minimum license term. The
imputed interest portion of the license fees, which is reported as license
interest income in the Company's consolidated statements of income, is
recognized over the minimum initial or the renewal term, as the case may be.
To date, a substantial majority of the Company's software licenses have been
renewed upon expiration. License renewals accounted for 32%, 26%, 28% and 25%
of total revenue in 1993, 1994, 1995 and the three months ended March 31,
1996, respectively. The fact that a significant portion of the Company's
revenue is derived from the renewal of license agreements with fixed
expiration dates assists the Company in anticipating future revenue.
The Company's services revenue is comprised of fees for implementation,
consulting, maintenance and training services. All software license customers
are required to enter into a maintenance contract requiring the customer to
pay a monthly maintenance fee over the term of the related license agreement
equal to approximately 18% of the license fee. Maintenance fees are
recognized ratably over the term of the maintenance agreement. The Company's
software license agreements typically require the Company to provide a
specified level of implementation services for a fixed fee, typically with
additional implementation services available at an hourly rate.
Implementation fees are payable upon the achievement of specified milestones.
The Company generally recognizes implementation as well as consulting and
training fees as the services are provided.
In accordance with generally accepted accounting principles, the Company
has capitalized certain software development costs which it has typically
amortized over two years. No such costs, however, were
16
<PAGE>
capitalized in 1995 or in the three months ended March 31, 1996. At March 31,
1996, the Company carried $350,000 of capitalized software development costs.
These costs will be fully amortized by the end of 1996. As a result, the
Company expects that its cost of software license revenue will be lower in
1997 than in 1996.
Substantially all of the Company's contracts are denominated in U.S.
dollars, although several are denominated in British pounds sterling. The
Company expects that in the future more of its contracts will be denominated
in foreign currencies. The Company has not experienced any significant
foreign exchange gains or losses, and the Company does not expect that
foreign currency fluctuations will have a significant effect on either its
revenue or costs in the near term.
Results of Operations
The following table sets forth, for the periods indicated, certain items in
the Company's consolidated statement of income reflected as a percentage of
total revenue:
<TABLE>
<CAPTION>
Three Months
Year Ended Ended
December 31, March 31,
-------------------- --------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ------
<S> <C> <C> <C> <C> <C>
Revenue:
Software license 63.1 % 59.4 % 60.8 % 55.2 % 51.0 %
Services 36.9 40.6 39.2 44.8 49.0
-- -- -- -- ----
Total revenue 100.0 100.0 100.0 100.0 100.0
-- -- -- -- ----
Cost of revenue:
Cost of software license 12.2 6.6 2.9 4.8 2.4
Cost of services 21.8 23.3 27.7 30.6 28.4
-- -- -- -- ----
Total cost of revenue 34.0 29.9 30.6 35.4 30.8
-- -- -- -- ----
Gross margin 66.0 70.1 69.4 64.6 69.2
-- -- -- -- ----
Operating expenses:
Research and development 36.9 33.5 31.7 35.3 32.4
Sales and marketing 13.2 16.2 16.1 19.6 19.7
General and administrative 8.2 6.7 6.9 8.0 7.8
-- -- -- -- ----
Total operating expenses 58.3 56.4 54.7 62.9 59.9
-- -- -- -- ----
Income from operations 7.7 13.7 14.7 1.7 9.3
License interest income 12.8 9.0 6.7 9.2 7.4
Other interest income 0.3 0.1 0.1 0.1 0.2
Interest expense (0.3) (0.3) (0.5) (0.5) (0.8)
-- -- -- -- ----
Income before provision for
income taxes 20.5 22.5 21.0 10.5 16.1
Provision for income taxes 8.4 9.0 7.9 4.0 6.3
-- -- -- -- ----
Net income 12.1 % 13.5 % 13.1 % 6.5 % 9.8 %
== == == == ====
</TABLE>
Three Months Ended March 31, 1996 Compared to Three Months Ended March 31, 1995
Revenue
Total revenue for the three months ended March 31, 1996 (the "1996
Period") increased 23.4% to $4.9 million from $4.0 million for the three
months ended March 31, 1995 (the "1995 Period"). The increase was primarily
due to an increase in services revenue, and to a lesser extent, an increase
in software license revenue.
Software license revenue for the 1996 Period increased 14.1% to $2.5
million from $2.2 million for the 1995 Period. The increase in software
license revenue was primarily attributable to software license agreement
renewals, the licensing of standard product templates, and inflation-based
increases in monthly license fees.
17
<PAGE>
Services revenue for the 1996 Period increased 34.8% to $2.4 million from
$1.8 million for the 1995 Period. The increase in services revenue was
primarily attributable to increased demand for consulting and implementation
services, and to a lesser extent, increased maintenance revenue from a larger
installed product base.
Revenue from customers headquartered outside of the United States for the
1996 Period increased 398% to $1.3 million from $250,000 in the 1995 Period
due largely to the expanded operations of the Company's office in the United
Kingdom.
Cost of Revenue
Cost of software license consists of amortization expense related to
capitalized software development costs, royalty payments to third party
software vendors and costs of product media, duplication and packaging. Cost
of software license for the 1996 Period decreased 38.0% to $118,000 from
$191,000 for the 1995 Period, and decreased as a percentage of total revenue
from 4.8% for the 1995 Period to 2.4% for the 1996 Period. As a percentage of
software license revenue, cost of software license decreased from 8.6% for
the 1995 Period to 4.7% for the 1996 Period. Such decreases were due to
decreased amortization expense related to capitalized software development
costs.
Cost of services consists primarily of the costs of providing
implementation, consulting, maintenance and training services. Cost of
services for the 1996 Period increased 14.4% to $1.4 million from $1.2
million for the 1995 Period mainly due to increased staffing in the Company's
Reengineering and Client Services group in the United Kingdom and in the
Company's domestic regional offices. Cost of services as a percentage of
total revenue declined from 30.6% for the 1995 Period to 28.4% for the 1996
Period, and declined as a percentage of services revenue from 68.4% for the
1995 Period to 58.0% for the 1996 Period, in both cases due to the growth in
the Company's total revenue and increased utilization of service personnel.
Operating Expenses
Research and development expenses consist primarily of the cost of
personnel and equipment needed to conduct the Company's research and
development efforts. Research and development expenses for the 1996 Period
increased 13.4% to $1.6 million from $1.4 million for the 1995 Period. The
modest increase in research and development expenses reflected the
substantial completion in December 1995 of the Company's efforts to develop
versions of its products based on the C++ programming language. As a
percentage of total revenue, research and development expenses declined from
35.3% for the 1995 Period to 32.4% for the 1996 Period due to the growth in
the Company's total revenue.
Sales and marketing expenses for the 1996 Period increased 23.8% to
$972,000 from $785,000 for the 1995 Period. As a percentage of total revenue,
sales and marketing expenses increased slightly from 19.6% for the 1995
Period to 19.7% for the 1996 Period. Such increases were attributable to the
hiring of additional direct sales personnel, increased sales commission
payments attributable to higher sales, and investments in marketing
materials. The Company's license agreements, by providing for the payment of
license fees in installments over the term of the agreement, have
historically limited the Company's working capital and consequently its
ability to invest in sales and marketing. With the proceeds of this offering,
the Company intends to increase substantially its sales and marketing
spending.
General and administrative expenses consist primarily of the salaries of
the Company's executive, administrative and financial personnel, and
associated expenses. General and administrative expenses for the 1996 Period
increased 20.4% to $388,000 from $322,000 for the 1995 Period due to staff
growth. Such expenses declined slightly as a percentage of total revenue from
8.0% for the 1995 Period to 7.8% for the 1996 Period due to the growth in the
Company's total revenue.
License Interest Income
License interest income represents the portion of all license fees due
under software license agreements which was not recognized upon product
acceptance or license renewal. License interest income for the 1996 Period
and the 1995 Period remained constant at $370,000.
18
<PAGE>
Provision for Income Taxes
The provisions for federal, state and foreign taxes were $160,000 and
$310,000 for the 1995 Period and the 1996 Period, respectively. The effective
tax rates were 38% for the 1995 Period and 39% for the 1996 Period. The
increase in the effective tax rate was primarily due to the reduced
availability of research and development tax credit carryforwards. At March
31, 1996, the Company had $440,000 in research and development tax credit
carryforwards available to offset future federal taxable income.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Revenue
Total revenue for 1995 increased 36.8% to $22.2 million from $16.3 million
for 1994 due primarily to an increase in software license revenue, and to a
lesser extent, an increase in services revenue.
Software license revenue for 1995 increased 40.0% to $13.5 million from
$9.7 million in 1994 due to increased product acceptances and license
renewals.
Services revenue for 1995 increased 32.1% to $8.7 million from $6.6
million in 1994 primarily due to an increase in the amount of implementation
and consulting services provided, and to a lesser extent, increases in the
billing rates of the personnel providing these services and an increase in
training revenue.
Cost of Revenue
Cost of software license for 1995 decreased 42.9% to $640,000 from $1.1
million for 1994, and decreased as a percentage of total revenue from 6.6%
for 1994 to 2.9% for 1995. As a percentage of software license revenue, cost
of software license decreased from 11.1% for 1994 to 4.7% for 1995. Such
decreases were due to reduced amortization of capitalized software
development costs.
Cost of services for 1995 increased 62.5% to $6.2 million from $3.8
million for 1994 and increased as a percentage of total revenue from 23.3%
for 1994 to 27.7% for 1995. Cost of services as a percentage of total
services revenue increased from 57.4% for 1994 to 70.7% for 1995. Such
increases were due to the hiring of additional personnel to provide
implementation and consulting services to support the Company's growing
customer base.
Operating Expenses
Research and development expenses for 1995 increased 29.8% to $7.1 million
from $5.4 million for 1994 as a result of increased efforts by the Company to
develop versions of its products capable of running on multiple UNIX
platforms in a client/server environment. As a percentage of total revenue,
research and development expenses declined from 33.5% for 1994 to 31.7% for
1995 due to the growth in the Company's total revenue.
Sales and marketing expenses for 1995 increased 36.6% to $3.6 million from
$2.6 million for 1994 due to the hiring of additional sales and marketing
personnel, increased sales commission payments and increased investment in
trade shows and other sales and marketing efforts. As a percentage of total
revenue, sales and marketing expenses decreased slightly from 16.2% for 1994
to 16.1% for 1995 due to growth in the Company's total revenue.
General and administrative expenses for 1995 increased 41.2% to $1.5
million from $1.1 million for 1994 due to increased management recruiting
costs, the establishment of two new regional offices in Chicago and
Dallas/Fort Worth and the relocation of the Company's United Kingdom office.
General and administrative expenses were 6.9% of total revenue in 1995 and
6.7% in 1994.
License Interest Income
License interest income for 1995 and 1994 remained constant at $1.5
million.
19
<PAGE>
Provision for Income Taxes
The provisions for federal, state and foreign taxes were $1.5 million and
$1.8 million for 1994 and 1995, respectively. The effective tax rates were
40% for 1994 and 38% for 1995. The decrease in the effective tax rate was
primarily due to increased availability of research and development tax
credits.
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
Revenue
Total revenue for 1994 increased 59.2% to $16.3 million from $10.2 million
for 1993. In January 1994, the Company organized Pegasystems Limited, a
wholly-owned subsidiary based in the United Kingdom. In its first year of
operation, Pegasystems Limited introduced the Company's products into
Ireland, France and Luxembourg. Financial results for 1994 and subsequent
years reflect the consolidated earnings of Pegasystems Inc. and Pegasystems
Limited.
Software license revenue represented 59.4% and 63.1% of total revenue for
1994 and 1993, respectively. Software license revenue for 1994 increased
49.8% to $9.7 million from $6.4 million for 1993. The increase in software
license revenue in 1994 was primarily attributable to increased product
acceptances by customers headquartered outside of the United States. The
Company's software license revenue from customers headquartered outside of
the United States was $3.1 million, or 32.5% of software license revenue, and
$0.7 million, or 10.8% of software license revenue, in 1994 and 1993,
respectively.
Services revenue for 1994 increased 75.3% to $6.6 million from $3.8
million for 1993 primarily due to the increased amount of implementation and
consulting services provided to a widening customer base. Following a focused
internal reengineering effort which began in 1993 and continued into 1994,
the Company redeveloped its strategy for new customer implementations leading
to greater services revenue from more effective and timely implementations
and the creation of standard training courses.
Cost of Revenue
Cost of software license decreased 13.5% to $1.1 million for 1994 from
$1.2 million for 1993 and decreased as a percentage of total revenue from
12.2% for 1993 to 6.6% for 1994. As a percentage of software license revenue,
cost of software license decreased from 19.3% for 1993 to 11.1% for 1994.
Such decreases were due to reduced amortization of capitalized software
development costs.
Cost of services for 1994 increased 70.3% to $3.8 million from $2.2
million for 1993 and increased as a percentage of total revenue from 21.8%
for 1993 to 23.3% for 1994. Such increases were due to the costs associated
with establishing the Company's United Kingdom office in January 1994 and
with developing new training facilities in Cambridge, Massachusetts and San
Francisco, California. Cost of services as a percentage of total services
revenue decreased from 59.2% for 1993 to 57.4% for 1994 due to increased
utilization of service personnel.
Operating Expenses
Research and development expenses for 1994 increased 44.4% to $5.4 million
from $3.8 million for 1993 primarily as a result of efforts by the Company to
develop versions of its products capable of running on multiple UNIX
platforms in a client/server environment. As a percentage of total revenue,
research and development expenses declined to 33.5% for 1994 from 36.9% for
1993 due to growth in the Company's total revenue.
Sales and marketing expenses for 1994 increased 94.7% to $2.6 million from
$1.4 million for 1993, representing 16.2% and 13.2% of total revenue in the
respective years. Such increases reflected the establishment of a sales
operation in the United Kingdom and increased sales commission payments.
General and administrative expenses for 1994 increased 30.8% to $1.1
million from $830,000 for 1993 due to overhead associated with the expansion
of the Company's headquarters in Cambridge, Massachusetts, relocation of the
regional office in San Francisco, California, and the establishment of
operations in the United Kingdom. General and administrative expenses as a
percentage of total revenue declined slightly to 6.7% for 1994 from 8.2% for
1993 due to the growth in the Company's total revenue.
20
<PAGE>
License Interest Income
License interest income for 1994 increased 10.9% to $1.5 million from $1.3
million in 1993 primarily due to the prepayment by one customer in 1994 of
certain monthly software license fees.
Provision for Income Taxes
The provisions for federal, state and foreign taxes were $860,000 and $1.5
million for 1993 and 1994, respectively. The effective tax rates were 41% for
1993 and 40% for 1994. The decrease in the effective tax rate was primarily
due to the use of certain tax credits.
Quarterly Operating Results
The following tables set forth certain unaudited consolidated financial
information for each of the four quarters in 1995 and for the first quarter
of 1996. In management's opinion, this unaudited quarterly information has
been prepared on the same basis as the audited consolidated financial
statements and includes all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the information for the
quarters presented, when read in conjunction with the audited consolidated
financial statements and notes thereto included elsewhere in this Prospectus.
The Company believes that quarter-to-quarter comparisons of its financial
results are not necessarily meaningful and should not be relied upon as an
indication of future performance.
21
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------------------------
March 31, June 30, September 30, December 31, March 31,
1995 1995 1995 1995 1996
---------- ---------- ------------- ------------ ---------
(in thousands except percentage data)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Income Data:
Revenue:
Software license $ 2,209 $2,581 $3,624 $ 5,115 $ 2,520
Services 1,796 2,113 2,032 2,777 2,421
-------- -------- ----------- ---------- -------
Total revenue 4,005 4,694 5,656 7,892 4,941
-------- -------- ----------- ---------- -------
Cost of revenue:
Cost of software license 191 191 127 127 118
Cost of services 1,228 1,383 1,584 1,966 1,405
-------- -------- ----------- ---------- -------
Total cost of revenue 1,419 1,574 1,711 2,093 1,523
Gross profit 2,586 3,120 3,945 5,799 3,418
-------- -------- ----------- ---------- -------
Operating expenses:
Research and development $ 1,413 $1,615 $1,846 $ 2,187 $ 1,602
Sales and marketing 785 854 865 1,088 972
General and administrative 322 375 376 468 388
-------- -------- ----------- ---------- -------
Total operating expenses 2,520 2,844 3,087 3,743 2,962
-------- -------- ----------- ---------- -------
Income from operations 66 276 858 2,056 456
License interest income 370 368 383 364 368
Other interest income 6 4 7 0 12
Interest expense (18) (17) (33) (50) (39)
-------- -------- ----------- ---------- -------
Income before provision for
income taxes 424 631 1,215 2,370 797
Provision for income taxes 161 240 462 901 311
-------- -------- ----------- ---------- -------
Net income $ 263 391 753 1,469 486
======== ======== =========== ========== =======
Percent of Total Revenue:
Revenue:
Cost of software license 55.2% 55.0% 64.1% 64.8% 51.0%
Cost of services 44.8 45.0 35.9 35.2 49.0
-------- -------- ----------- ---------- -------
Total revenue 100.0 100.0 100.0 100.0 100.0
Cost of revenue:
Software license 4.8 4.1 2.2 1.6 2.4
Services 30.6 29.5 28.0 24.9 28.4
-------- -------- ----------- ---------- -------
Total cost of revenue 35.4 33.6 30.2 26.5 30.8
Gross margin 64.6 66.4 69.8 73.5 69.2
-------- -------- ----------- ---------- -------
Operating expenses:
Research and development 35.3 34.4 32.6 27.7 32.4
Sales and marketing 19.6 18.2 15.3 13.8 19.7
General and administrative 8.0 8.0 6.7 5.9 7.8
-------- -------- ----------- ---------- -------
Total operating expenses 62.9 60.6 54.6 47.4 59.9
Income from operations 1.7 5.8 15.2 26.1 9.3
License interest income 9.2 7.8 6.8 4.6 7.4
Other interest income 0.1 0.1 0.1 0.0 0.2
Interest expense (0.5) (0.4) (0.6) (0.6) (0.8)
-------- -------- ----------- ---------- -------
Income before provision for
income taxes 10.5 13.3 21.5 30.1 16.1
Provision for income taxes 4.0 5.1 8.2 11.4 6.3
-------- -------- ----------- ---------- -------
Net income 6.5% 8.2% 13.3% 18.7% 9.8%
======== ======== =========== ========== =======
</TABLE>
22
<PAGE>
The Company's business has experienced and is expected to continue to
experience significant seasonality. In recent years the Company has
recognized a greater percentage of its revenue in its third and fourth
quarters than in its first and second quarters due to the Company's sales
commission structure and the impact of that structure on the timing of
product acceptances and license renewals by customers. This pattern is
reinforced by the Company's practice of offering customers a fixed number of
hours of service per calendar year without charge. Once the annual allotment
of service hours is exhausted, customers pay for additional services on an
hourly basis, typically resulting in higher services revenue in the Company's
second, third and fourth quarters.
Cost of software license declined in each of the quarters shown above due
to decreasing amortization expense relating to capitalized software
development costs. No software development costs were capitalized in 1995 or
the first quarter of 1996.
The increase in total operating expenses in the fourth quarter of 1995
reflected annual accruals for certain expenses including bad debts and earned
vacation. The Company has implemented revised accounting policies to accrue
such expenses on a quarterly basis in the future.
Liquidity and Capital Resources
The Company historically has satisfied its cash requirements through cash
generated from operations and borrowings. The Company's approach of charging
license fees payable in installments over the term of its licenses has
historically deferred the receipt of cash and limited the availability of
working capital.
Net cash provided by operating activities for the years ended December 31,
1993, 1994, 1995, and the three months ended March 31, 1996 was $1.6 million,
$1.5 million, $830,000 and $2.6 million, respectively. During each of these
periods, these sources of cash were used to support the Company's working
capital requirements.
The Company used $890,000, $1.1 million, $1.4 million and $220,000 of net
cash during 1993, 1994, 1995, and the three months ended March 31, 1996,
respectively, to purchase property and equipment, primarily computer hardware
and software, to support the Company's growing employee base and new regional
office and training facilities. The Company's commitments consist primarily
of leases on its office facilities. See Note 6 of Notes to Consolidated
Financial Statements.
The Company has a $5.0 million revolving credit line, which expires June
30, 1997, and four term loans from the same bank in the aggregate principal
amount of $1.4 million at March 31, 1996, which are due December 1996
($155,000), November 1997 ($211,000), June 1998 ($885,000) and December 1998
($151,000). The term loans are secured by certain fixed assets of the
Company; the revolving credit line is unsecured. At March 31, 1996, the
Company had no borrowings under its revolving credit line. The Company's
credit agreement prohibits the payment of dividends, has profitability
requirements and requires maintenance of specified levels of tangible net
worth and certain financial ratios. See Note 4 of Notes to the Consolidated
Financial Statements.
The Company believes that the net proceeds from this offering together
with cash generated by operations and availability under its bank credit
facility will be sufficient to fund the Company's operations for at least one
year following the completion of this offering. However, there can be no
assurance that additional capital beyond the amounts currently forecasted by
the Company will not be required or that any such required additional capital
will be available on reasonable terms, if at all, at such time as required by
the Company.
Inflation
Inflation has not had a significant impact on the Company's operating
results to date, nor does the Company expect it to have a significant impact
in the future due to the fact that the Company's license and maintenance fees
are typically subject to annual increases based on recognized inflation
indexes.
Significant Customers
In 1993, First Interstate Bank and Fidelity Investments accounted for
approximately 12.9% and 12.3%, respectively, of the Company's total revenue.
In 1994, Chemical Bank accounted for approximately 16.8% of the Company's
total revenue. In 1995, Citibank, Household Credit Services and Chemical Bank
accounted for approximately 16.2%, 14.9% and 12.6%, respectively, of the
Company's total revenue. During the three months ended March 31, 1996,
Fidelity Investments, Bank of America and Cedel accounted for approximately
25.3%, 11.7% and 10.5%, respectively, of the Company's total revenue.
23
<PAGE>
BUSINESS
Pegasystems develops customer service management software to automate
customer interactions across transaction-intensive enterprises. Many of the
world's largest banks, mutual funds and credit card organizations use the
Company's solutions to integrate, automate, standardize and manage a broad
array of mission-critical customer service activities, including account
set-up, record retrieval, correspondence, disputes, investigations and
adjustments. The Company's systems can be used by thousands of concurrent
users to manage customer interactions and to generate billions of dollars a
day in resulting transactions. Work processes initiated by the Company's
systems are driven by a highly adaptable "rule base" defined by the
user-organization for its specific needs. The rule base facilitates a high
level of consistency in customer interactions, yet drives different processes
depending on the customer profile or the nature of the request. The Company's
open, multi-tier, client/server systems operate on a broad variety of
platforms, including UNIX, Windows/NT and IBM/MVS. The Company offers
consulting, training and support services to facilitate the use of its
solutions.
Industry Background
Intensifying competition is forcing businesses to reduce costs while
focusing on customer service management as an important means of
differentiation. Many types of businesses are increasingly recognizing
customer interactions as a critical opportunity to solidify and expand
customer relationships. Due to the volume and precise nature of their
transactions, it is especially critical for financial services organizations
to implement cost-effective systems to manage customer interactions
accurately and efficiently.
Providing high quality, cost-effective customer service management is
complex. Organizations with global operations must be able to manage customer
interactions in different languages, time zones, currencies and regulatory
environments. The challenge is magnified as the product offerings of an
organization increase and organizations are combined. Work processes
occasioned by a single customer interaction often involve multiple
departments within an organization, which may have different priorities and
service standards, and may involve a variety of different computer systems.
Customers may contact an organization through various means, including
telephone, facsimile, the Internet or in person. The organization must be
able to respond in a timely, accurate and consistent fashion or risk customer
defection.
Historically, in attempting to meet demand for new customer management
software systems, organizations have faced a choice between building custom
systems or purchasing third party systems. Building custom systems or
modifying third party systems can be slow and costly and has often led to
isolated, departmentalized solutions. Traditional third party systems are
often inflexible, requiring organizations to conform their work processes to
the system, rather than vice-versa. Neither custom nor third party solutions
have generally accommodated an organization's need to evolve or expand
operations without significant programming effort. Moreover, neither has had
the high volume transaction processing or integration capabilities necessary
to support the comprehensive customer interaction requirements of large
organizations. Today, organizations need flexible, scalable customer service
management solutions that can be implemented on an enterprise-wide basis to
facilitate consistent, cost-effective customer service management.
A 1995 report of the Aberdeen Group, Inc., a market research firm,
estimates the size of the customer interaction software market at $1.7
billion in 1996, and projects that it will grow to $2.7 billion by 1998. Of
this market, the share held by independent software vendors is estimated at
$540 million in 1996, growing to $925 million in 1998. The total market, as
defined by the Aberdeen Group, includes software supporting customer service,
internal help desks, field and telesales automation, order entry, sales or
product configuration, service dispatching and quality assurance.
24
<PAGE>
The Pegasystems Solution
The Company's solutions integrate, automate, standardize and manage on an
enterprise-wide basis a broad array of mission-critical customer interactions
for financial services organizations, including account set- up, record
retrieval, correspondence, disputes, investigations and adjustments.
Pegasystems' solutions provide a service backbone that drives intelligent
processing and seamlessly integrates an organization's geographically
dispersed and product specific service operations and isolated computer
systems. By bridging these "islands of automation" within large
organizations, the Company's solutions increase the efficiency of service
representatives and enable organizations to address multiple customer needs
during a single contact.
The Company's customer service management solutions offer the following
advantages:
Flexibility and Consistency. The Company's solutions are based on rules
defined by the user- organization which drive various types of processing
depending on such factors as the content of the customer request, the profile
of the customer, the organization's policies and procedures and the authority
or qualifications of the customer service representative. By modifying its
rule base, an organization can evolve its processing to address the
competitive requirements of its business without costly and time consuming
reprogramming. Significantly, the rule base feature of the Company's systems
permits an organization to establish consistent standards yet interact
differently with different segments of its customer base and thereby "mass
customize" its services.
Scalability and Robust Functionality. The scalability of the Company's
multi-tier client/server architecture allows an organization to add branches
or departments easily to new or existing servers without performance
degradation. Organizations currently entrust the Company's systems with the
storage and management of data relating to hundreds of millions of financial
transactions. The Company's systems can be used by more than 4,000 concurrent
users to manage customer interactions and to process accurately and securely
transactions involving billions of dollars a day that result from those
interactions.
Ease-of-Use. The Company's client software application, PegaVIEW-ACE,
increases the effectiveness and productivity of customer service
representatives by providing them with a flexible graphical user interface
and processing capabilities that leverage the power of client/server desktop
computers. The Company's solutions allow customer service representatives to
focus on delivering superior customer service, rather than on mastering the
protocols and procedures of multiple applications.
Integration Capabilities. The Company's open architecture permits its
solutions to be integrated with a wide variety of other applications and
technologies, including industry standard relational database management
systems, advanced telephony equipment and diverse storage media (including
magnetic, optical, tape and microfilm). The Company's solutions also support
the message formats of major financial transaction networks such as the SWIFT
international funds network, the Federal Reserve's Fedwire system and the
VISA and MasterCard networks.
Multi-Platform Server Support. The Company's solutions feature a common
software code base which, in addition to facilitating maintenance and
enhancement development efforts, simplifies the support of multiple
platforms. The Company's solutions are designed to run on a broad range of
computer operating systems including IBM's MVS/CICS and AIX/UNIX systems,
Digital Equipment Corporation's VMS and UNIX systems, Microsoft's Windows/NT
system and Sun Microsystems' Solaris UNIX system.
Improved Efficiency of Customer Service Representatives. Pegasystems'
solutions actually perform work, rather than simply track a customer service
representative's tasks. Variable data elements (for example, date, amount,
customer, account) automatically route service requests and invoke system
processes, depending on an organization's rule base. This feature allows
customer service representatives to focus on revenue enhancing opportunities,
such as cross-selling, and other matters requiring personal attention. When
service representative involvement is required during a customer interaction,
the Company's solutions provide pertinent, consolidated information to guide
the service representative. Savings are realized through reduced talk time,
fewer manual processes and less rework.
25
<PAGE>
Business Strategy
Pegasystems' objective is to become the leading provider of mission-critical
client/server customer service management software to organizations
performing a high volume of complex interactions with demanding customers. To
achieve this objective, the Company is pursuing the following strategies:
Leverage Strength in Financial Services Market. Pegasystems provides
customer service management solutions to many of the largest financial
services organizations in the world. The Company is seeking to expand its
business with these organizations through a sales group focused on marketing
the Company's products and services to other business operations of these
organizations. The Company is also leveraging its relationships and expertise
with large financial services organizations to penetrate the medium-sized
financial services market.
Target Other Markets. Pegasystems believes that the insurance, medical,
utilities, retail and other markets have similar customer service management
needs and that the Company's core technology is readily adaptable to these
additional markets. The Company is exploring these additional markets, and if
appropriate, expects to develop the necessary industry specific extensions of
its core technology and hire or otherwise gain access to personnel with
expertise in such markets.
Increase Sales and Support Efforts. Pegasystems intends to establish
additional sales and support offices and to increase significantly its
domestic and international direct sales forces. In addition, the Company
plans to explore relationships with financial transaction processors and
consulting firms through which the Company's products can be distributed and
implemented.
Develop Standard Product Templates. The Company recently commenced
licensing standard product templates that give organizations an advanced
starting point for configuring their work processes. The Company intends to
continue to develop and market standard product templates for financial
services organizations, including templates for outbound telemarketing,
collections and account set-up. The Company believes that these templates
will facilitate more rapid implementation of the Company's solutions and will
be a cost-effective way to address the needs of smaller organizations.
Reduce Implementation Time. The Company is continuing to refine its
PegaSTAR consulting methodology, an approach to the reengineering of an
organization's work processes that facilitates more rapid implementation of
the Company's customer management systems and continued evolution of such
systems by an organization's personnel after initial implementation. This
methodology complements the Company's standard product templates in reducing
the time required to implement the Company's systems.
Maintain Technological Leadership Position. Pegasystems is continuing to
develop and invest in its technology. Current development efforts include
integration of additional databases and support of emerging technical and
workflow standards.
Technology
The Company's technology is designed to optimize the performance of
mission-critical, customer service management processes over a variety of
computer platforms, networks and databases. Pegasystems' solutions have the
following key technological attributes:
"Any-Call, Any-Time, Anywhere" Information Management. Effective customer
response requires up-to-date information about the customer relationship,
regardless of how, why, when or where the customer contacts the organization.
Pegasystems' customer service management systems centralize core customer
information to facilitate global access.
Multi-tier, Dynamic Distributed Processing. Although the Company's systems
are currently used primarily in a two-tier client/server environment, they
are also designed to run in an advanced, highly scalable three-tier
environment. In traditional three-tier client/server environments, the user
interface, the application code, and the data are segregated onto separate
tiers. In the Pegasystems three-tier client/server environment, the
application code, the rule base and selected data are replicated on both the
central and satellite tiers so that processing may occur on either the
central server or the distributed
26
<PAGE>
satellite servers to minimize network traffic and enhance performance. The
rule base determines the optimal location for processing to occur based on
the nature of the work required and the data involved. Rule base changes are
replicated across the organization's central and satellite servers to
facilitate consistent processing by all parts of the organization.
Distributed Processing Environment
[Graphic Representation of Pegasystems Worldwide
Platform Processing Environment]
Satellite Server
Rules
Central Server
Rules
Work Items
Satellite Server
Rules
Satellite Server
Rules
Inherited Workflow. Pegasystems solutions maintain organizational
consistency while providing the flexibility needed for mass customization.
The rule base of the Company's systems may be defined so that certain
processes are standardized across an organization while others may be
superseded or supplemented by "local" rules tailored to the specific
requirements of groups within the organization.
Resiliency. Fallback options are provided to deal with hardware or network
failure. For example, in a three-tier environment, the PC client can bypass a
failed satellite server and connect directly to the central server. The
Company is presently working to enhance its systems so that should a failure
occur at the central server, each satellite server's replicated code and rule
base could support continued processing, with "store and forward"
capabilities to automatically re-synchronize the central server when it
resumes operation.
Platform Independence. Recognizing that organizations often use a variety of
computer platforms, Pegasystems provides technology alternatives by
supporting a range of mainframes, minicomputers, PC networks and interface
devices. While the Company offers its advanced Windows-based PegaVIEW-ACE
application for the desktop, the Company's server applications can also drive
"dumb terminals", allowing organizations to preserve their investments in
legacy networks.
27
<PAGE>
*******
P. 24--Illustration omitted:
Illustration, set over a map of the world, of the Company's three-tier,
client/server environment. A central server is connected to three satellite
servers, with rules and code replicated on all servers.
Pegasystems Platform Options
[Graphic of Pegasystems Platform Options]
<TABLE>
<CAPTION>
Desktop Local Distributed Global Central
Networks Satellite Servers Networks Servers
<S> <C> <C> <C> <C> <C>
Windows TCP/IP IBM AIX TCP/IP IBM MVS
UNIX C/CS
Windows 95 LU6.2 DEC Open LU6.2 IBM AIX
VMS UNIX
Windows NT Pathworks Microsoft Pathworks DEC Open Data
Windows NT VMS
OS/2 Novell SUN Solaris(1) Novell SUN Solaris(1) Data
IPX UNIX IPX UNIX
IBM 3270 IBM DEC UNIX IBM DEC UNIX Data
"Dumb Terminal" VTAM LU2 VTAM LU2
Character-Based Async IBM MVS Async Windows NT
"Dumb Terminal" CICS
Netscape(1) Microsoft HP/UX(2) SNA HP/UX(2)
Motif DDE UNIX UNIX
Netscape(1) Procedure (1) Shipping in Q3, 1996
Windows Call (2) Availability planned in Q4, 1996
</TABLE>
Internet and Intranet Access. Pegasystems' solutions use the Internet-based
HTML (Hypertext Markup Language) to define display attributes for its
PegaVIEW-ACE graphical user interface, leveraging logic and presentation
rules between PegaVIEW-ACE and Internet/Intranet workflows. Pegasystems'
rules dynamically create HTML forms, menus and displays, thereby facilitating
interaction with the Internet. Pegasystems is a Netscape Development partner
and supports the Netscape Commerce Server interface.
Interfacing With Other Systems. Pegasystems' open architecture permits
integration with a wide variety of other applications and networks, including
relational databases, legacy systems accessed through IBM 3270 emulation, and
messaging protocols. The Company offers a Universal Application Programming
Interface (API) that allows an organization's custom software to be
integrated with the Company's applications without the need to modify the
Company's core application code. Pegasystems' solutions also integrate with
other applications, accounting systems and imaging products. The Company's
systems support the message formats of major financial transaction networks,
such as the SWIFT international funds network, the Federal Reserve's Fedwire
system and the VISA and MasterCard networks.
Storage Options. Data storage flexibility is important to the Company's
customers, and the Company's software uses an innovative object-oriented
approach that dynamically maps data according to the type of workflow.
Versions of the Company's systems designed to run on Windows/NT can store
customer service request data in Microsoft's SQL Server relational database,
and the Company is currently working to develop similar compatibility for
databases from Oracle Corporation and other vendors.
Products
The Company's products employ a consistent architecture and support the
following customer service management functions:
Receiving. Organizations receive service requests by telephone, mail,
facsimile, or personal contact. Customer service representatives enter
details of incoming requests into PegaVIEW-ACE, the
28
<PAGE>
Company's easy-to-use, graphical user interface. Alternatively, electronic
service requests received from various networks and systems, such as the
SWIFT network, Fedwire system, and the VISA and MasterCard networks are
entered directly into the Company's system. The Company's systems also
support direct electronic access by customers through PCs, Internet browsers
and voice response units. In all cases, the service request automatically
initiates appropriate processing.
Routing. As processing steps are completed, the Company's systems
categorize and queue the request either for automatic or manual processing.
Productivity-based load leveling and dynamic prioritization ensure high
performance and responsiveness. As work is processed, each service
representative's "work-list" is automatically updated in real time. The
systems monitor each service request for conformance to the organization's
timeliness standards, automatically increasing priority and generating
warnings based on the service standards of the organization.
Researching. The Company's systems determine when more information is
needed, where to locate it, and how to retrieve it from databases or other
repositories. Pegasystems' rule-driven processing automatically extracts
relevant data, directs it to the customer service representative or customer,
links it to the work, and keeps it readily accessible. The Company's systems
can access information from multiple data sources, whether maintained by the
Company's systems or third party systems.
Responding. The Company's systems facilitate communications by an
organization with its customers by combining user-defined templates and
specific customer information to create personalized correspondence. When
appropriate, service representatives may further refine message content
before forwarding by mail, facsimile or electronic transmission, and may
attach images of statements, checks and other data. Follow-up communications
are automatically composed, customized and sent. Sensitive correspondence can
be queued for online review before release, and the systems create a
permanent audit trail of all customer communications.
Resolving. Concluding a piece of work involves application of the
organization's rules for resolving a request or stepping the customer service
representative through the process when human judgment is required.
Resolution also includes the creation of transactions, transmission to
production systems, management of financial adjustments, posting of service
charges, updating of general ledger accounts and synchronization of multiple
item requests.
Reporting. Data automatically collected by the Company's systems enables
an organization to analyze service representative efficiency and determine
needs for service representative training or changes to work processes. The
Company's systems produce reports, graphical output and feeds to spreadsheets
illustrating the volume and status of customer requests, the productivity of
customer service representatives and service levels with specific customers.
The Company offers a number of different products, each with components
and features designed to address particular business areas, but all sharing
core technology and adaptable rule-driven processing:
PegaCARD manages credit and debit card customer service operations by
supporting a wide variety of interactions with cardholders and merchants,
including simple inquiries (for example, balances or credit limits), customer
requests (address changes, additional cards, credit line increases) and
problem management (disputes, chargebacks, fraud, financial adjustments,
penalties). Automated features include processing of electronic chargeback
messages and images from the MasterCard and VISA networks. PegaCARD allows
service representatives to move seamlessly among multiple back-end accounting
systems without having to be familiar with the different protocols of each
system.
PegaCLAIMS manages corporate and wholesale banking customer service by
supporting a broad spectrum of customer interactions, including inquiries
(product terms, rates), customer requests (account data changes, duplicate
copies), and problem management (research, financial adjustments). PegaCLAIMS
processes customer service interactions relating to money transfers,
securities movement and control, global custody, trade services, foreign
exchange and cash management, and features electronic message routing, SWIFT
processing and interbank financial compensation management.
PegaSHARES manages customer service for transfer agents, brokers, dealers,
shareholder servicers and mutual fund managers by supporting inquiries (share
balances, net asset values, transactions), customer
29
<PAGE>
requests (account changes, copies of statements) and problem resolution
(incorrect purchases, monetary adjustments). Automated features include share
transfer accounting, literature fulfillment and securities processing
compliance.
PegaTRACE facilitates retail banking and check clearing customer service
by processing inquiries (account balances, fees), customer requests (copies
of statements, account transfers) and problem management (research, financial
adjustments). PegaTRACE securely manages the suspense accounts that major
organizations use to control the flow of accounting entries. Additional
features include integration with check clearing systems, suspense ledger
management, multi-debit/credit adjustments, and electronic check presentment
(ECP) interfaces.
PegaSEARCH and PegaINDEX manage high volumes of archived data, such as
check information, contained on multiple types of storage media including
magnetic disk, optical disk and magnetic tape silos. These systems are
designed for organizations that process tens of millions of checks per day
and require seven years of archived check data.
PegaPRISM and PegaREELAY are used by customer service representatives to
retrieve images, view them on a PC and correlate them with specific customer
service requests. PegaREELAY is a specialized image retrieval product that
automates request processing of reel microfilm.
PegaVIEW-ACE (the Advanced Client Environment) is a graphical client
application designed for use with the Company's server applications to
increase the effectiveness and productivity of customer service
representatives. PegaVIEW-ACE organizes customer data to facilitate service
representative effectiveness and supports graphical methods to view and enter
information.
Product Pricing
The Company's systems are licensed to organizations under agreements
requiring the payment of fees, typically in monthly installments, over the
term of the agreement. The amount of the license fee is based on various
factors, including the number of concurrent users, the functionality of the
system, the number of servers on which product is installed, and the scope of
business usage. Typical recent individual system licenses have provided for
the payment of monthly installments of between $5,000 and $50,000. Some
organizations receive discounts for licensing multiple systems. The monthly
license payments generally begin once a system is installed and accepted. The
term of such licenses is typically five years, subject to automatic renewal
at the organization's option.
Services
Pegasystems' Reengineering and Client Services Group, which as of April 30,
1996 was comprised of 50 people located in the Company's six offices,
provides consulting, training and customer support.
Consulting Services. The Company works with its customers during and after
system installation to reengineer customer workflows to leverage the
capabilities of the Company's systems. Using an installation approach based
on its PegaSTAR (the Pegasystems Structured Technique for Analysis and
Reengineering) methodology, the Company's consultants assist customers in six
major areas--analysis, data collection, process definition, configuration,
piloting and measurement. The Company encourages team building and transfer
of knowledge from its consultants to an organization's staff through an
interactive co-production methodology. Pegasystems and its customers work
together to design, document and tailor the system's rule base to the
customer's organization. Pegasystems' goal is to empower its customers'
staffs with the knowledge and confidence to operate, refine and evolve their
systems.
Training. The Company offers training programs for those persons within
the customer organization responsible for evolving the rules that drive the
various processes related to customer interactions. Pegasystems also
organizes periodic user group meetings enabling customers to exchange ideas,
learn about product directions and influence Pegasystems' development
process.
Maintenance and Support. Pegasystems provides comprehensive maintenance
and support services, which may include 24 hours a day, 7 days a week
customer service, periodic preventative maintenance, documentation updates
and new software releases.
30
<PAGE>
Each organization which licenses the Company's systems is required to
enter into a maintenance contract providing for the payment to the Company of
a monthly maintenance fee over the term of the related license agreement
equal to approximately 18% of the license fee. The Company's maintenance
agreements typically obligate Pegasystems to provide up to a specified number
of hours of consulting and support. Organizations seeking additional
consulting and support services are generally charged an incremental fee
ranging between $90 and $170 per hour.
Customers
Pegasystems provides robust and scalable customer service management
solutions that can support thousands of concurrent users based in multiple
countries, speaking different languages, and working with different
currencies. A representative list of the Company's major customers and the
uses to which they apply the Company's products is shown below:
Advanta Services Corporation -- Credit card operations, including
telephony center, correspondence generation, dispute and chargeback
processing.
Banco Popular de Puerto Rico -- Retail service center automation, check
research and consumer loan inquiry and service.
Bank of America -- Retail/check customer service and research, automation
of branch support centers. Institutional funds transfer and foreign exchange
customer service for U.S. and European operations. Credit and debit card
correspondence, dispute and chargeback service processing.
Bank of Ireland -- Retail/check clearings and research, automation of
branch support centers, and exception/credit item review and verification.
Banque Nationale de Paris -- Institutional funds transfer service,
research and archive.
Barclays Bank -- Institutional funds transfer and foreign exchange
customer service for international operations. Credit card (merchant and
individual) service including telephony center, correspondence, dispute and
chargeback processing.
Cedel Bank -- Global custody and securities movement and control customer
service.
Citibank -- Global funds transfer and foreign exchange customer service.
Check-related customer service and research. Domestic MasterCard service
including image integration, correspondence, dispute and chargeback
processing.
Colonial Group -- Mutual fund customer service supporting telephony center
and correspondence.
Federal Reserve Banks of Boston and San Francisco -- Check processing
customer service, suspense ledger management, research, adjustment and
archive.
Fidelity Investments -- Mutual fund customer service supporting telephony
center and correspondence.
First National Bank of Chicago -- Retail/check customer service and
research. Wholesale banking, funds transfer, check, corporate lockbox and
interbank compensation service for global operations.
Franklin/Templeton -- Mutual fund customer service supporting telephony
center, correspondence and research.
Household Credit Services -- Credit card service including telephony
center, correspondence, dispute and chargeback processing. Private label
customer service for major retailers.
Marine Midland -- Institutional funds transfer customer service.
Mellon Bank -- Retail/check customer service, research and archive.
Wholesale, institutional, cash management, and corporate lockbox customer
service.
Prudential Securities -- "All-in-one" account support and service for
brokerage, credit, and clearing transactions.
Trans Union Corporation -- Credit bureau data-management customer service
for institutional customers and real estate property appraisal processing.
31
<PAGE>
Sales and Marketing
The Company markets its software and services primarily through a direct
sales force. As of April 30, 1996, the Company's sales force consisted of
four people located in the Company's Cambridge, Massachusetts headquarters,
and two people based in the Company's United Kingdom office. The Company
intends to increase substantially the size of its sales force, which will be
necessary if the Company is to achieve significant revenue growth in the
future. Competition for qualified sales personnel is intense and there can be
no assurance that the Company will be able to attract such personnel. If the
Company is unable to hire additional qualified sales personnel on a timely
basis, the Company's business, operating results and financial condition
could be materially and adversely affected. See "Risk Factors-- Dependence on
Key Personnel."
In the future, the Company may market and sell its products through value
added resellers (VARs) and systems integrators. There can be no assurance,
however, that the Company will be able to attract and retain VARs and system
integrators that will be able to market and sell the Company's products
effectively.
To support its sales force, the Company conducts marketing programs which
include trade shows, public relations and seminars. Sales leads are also
generated by the Company's consulting staff.
In 1993, 1994 and 1995, international sales represented 10%, 24% and 10%,
respectively, of the Company's total revenue. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Results of
Operations."
Product Development
Since its inception, the Company has made substantial investments in product
development. The Company believes that its future performance depends on its
ability to maintain and enhance its current products and develop new
products. The Company's product development priorities include (1) developing
the capability of the Company's systems to operate with additional third
party relational databases such as Oracle; (2) developing standard
Application Programming Interfaces that allow other client workstation and
server applications to interoperate with the Company's systems; and (3)
enhancing existing interfaces between the Company's systems and popular
applications such as e-mail, spreadsheets and Lotus Notes.
In 1993, 1994, 1995 and the three months ended March 31, 1996, the
Company's research and development expenses were approximately $3.8 million,
$5.4 million, $7.1 million and $1.6 million, respectively.
Competition
The customer service management software market is intensely competitive and
subject to rapid change. Competitors vary in size and in the scope and
breadth of the products and services offered. The Company encounters
competition primarily from internal information systems departments of
potential or current customers that develop custom software. The Company also
competes with: (1) software companies that target the customer interaction or
workflow markets such as Remedy Corporation, Scopus Technology, Inc. and The
Vantive Corporation; (2) companies that target specific service areas such as
DST Systems Inc. and First Data Corp.; and (3) professional services
organizations such as Andersen Consulting that develop custom software in
conjunction with rendering consulting services. In addition, the Company
expects additional competition from other established and emerging companies,
including Oracle Corporation and SAP AG, as the market continues to develop
and expand. Increased competition may result in price reductions, less
beneficial contract terms, reduced gross margins and loss of market share,
any of which could materially and adversely affect the Company's business,
operating results and financial condition.
The Company believes that the principal competitive factors affecting its
market include product features such as adaptability, scalability, ability to
integrate with other products and technologies, functionality and
ease-of-use, the timely development and introduction of new products and
product enhancements, as well as product reputation, quality, performance,
price, customer service and support, and the vendor's reputation. Although
the Company believes that its products currently compete favorably
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<PAGE>
with regard to such factors, there can be no assurance that the Company can
maintain its competitive position against current and potential competitors.
Many of the Company's competitors have greater resources than the Company,
and may be able to respond more quickly and efficiently to new or emerging
technologies, programming languages or standards, or to changes in customer
requirements or preferences. Many of the Company's competitors can devote
greater managerial or financial resources than the Company can to develop,
promote and distribute customer service management software products and
provide related consulting, training and support services. There can be no
assurance that the Company's current or future competitors will not develop
products or services which may be superior in one or more respects to the
Company's or which may gain greater market acceptance. Some of the Company's
competitors have established or may establish cooperative arrangements or
strategic alliances among themselves or with third parties, thus enhancing
their abilities to compete with the Company. It is likely that new
competitors will emerge and rapidly acquire market share. There can be no
assurance that the Company will be able to compete successfully against
current or future competitors or that the competitive pressures faced by the
Company will not materially and adversely affect its business, operating
results and financial condition. See "Risk Factors--Intense Competition."
Intellectual Property and Licenses
The Company relies primarily on a combination of copyright, trademark and
trade secrets laws, as well as confidentiality agreements to protect its
proprietary rights. The Company also has one patent application pending in
the United States relating to the architecture of the Company's systems.
While the Company believes that its pending patent application relates to a
patentable invention, there can be no assurance that such patent application
or any future patent application will be granted or that any patent relied
upon by the Company in the future will not be challenged, invalidated or
circumvented or that rights granted thereunder will provide competitive
advantages to the Company. Moreover, despite the Company's efforts to protect
its proprietary rights, unauthorized parties may attempt to copy aspects of
the Company's products or to obtain the use of information that the Company
regards as proprietary. In addition, the laws of some foreign countries do
not protect the Company's proprietary rights to as great an extent as do the
laws of the United States. There can be no assurance that the Company's means
of protecting its proprietary rights will be adequate or that the Company's
competitors will not independently develop similar technology.
The Company is not aware that any of its products infringes the
proprietary rights of third parties. There can be no assurance, however, that
third parties will not claim infringement by the Company with respect to
current or future products. The Company expects that software product
developers will increasingly be subject to infringement claims as the number
of products and competitors in the Company's industry segment grows and the
functionality of products in different industry segments overlaps. Any such
claims, with or without merit, could be time-consuming, result in costly
litigation, cause product shipment delays or require the Company to enter
into royalty or licensing agreements. Such royalty or licensing agreements,
if required, may not be available on terms acceptable to the Company or at
all, which could have a material adverse effect upon the Company's business,
operating results and financial condition.
From time to time, the Company licenses software from third parties for
use with its products. The Company believes that no such license agreement to
which it is presently a party is material and that if any such license
agreement were to terminate for any reason, the Company would be able to
obtain a license or otherwise acquire other comparable technology or software
on terms and on a timetable that would not be materially adverse to the
Company.
Employees
As of April 30, 1996, the Company had a total of 160 employees, of whom 135
were based in the United States and 25 were based in the United Kingdom. Of
the total, 73 were in research and development, 50 were in consulting and
customer support, 15 were in sales and marketing, six were in market strategy
and delivery and 16 were in administration and finance. The Company's future
performance depends in significant part upon the continued service of its key
technical, sales and marketing and senior management personnel and its
continuing ability to attract and retain highly qualified
33
<PAGE>
technical, sales and marketing and managerial personnel. Competition for such
personnel is intense and there can be no assurance that the Company will be
successful in attracting or retaining such personnel in the future. None of
the Company's employees is represented by a labor union or is subject to a
collective bargaining agreement. The Company has not experienced any work
stoppages and considers its relations with its employees to be good. See
"Risk Factors--Dependence on Key Personnel."
Facilities
Pegasystems' principal administrative, sales, marketing, support, and
research and development facility is located in approximately 35,000 square
feet of space in Cambridge, Massachusetts. The Company also maintains offices
in New York, New York, Chicago, Illinois, Dallas, Texas, San Francisco,
California and Reading, United Kingdom. The Company believes that additional
or alternative space will be available in the future on commercially
reasonable terms as needed.
Legal Proceedings
The Company is not a party to any material legal proceedings.
34
<PAGE>
MANAGEMENT
Executive Officers and Directors
The executive officers and directors of the Company and their ages are as
follows:
<TABLE>
<CAPTION>
Name Age Position
- ---------------------- -- ----------------------------------------------
<S> <C> <C>
Alan Trefler 40 President, Clerk and Director
Clifford R. Balzer Vice President of Reengineering and Client
45 Services
Eugene A. Bonte Vice President of Market Strategy and
45 Delivery
Joseph J. Friscia 41 Vice President of Sales and Marketing
Kenneth W. Olson 46 Vice President of Technical Development
Michael R. Pyle 41 Vice President of Applications Development
Ira Vishner Vice President of Corporate Services,
Treasurer, Chief Financial Officer and
42 Director
Edward A. Maybury (1) (2) 56 Director
</TABLE>
(1) Member of Audit Committee
(2) Member of Compensation Committee
Alan Trefler, a founder of the Company, has served as President and Clerk
and has been a director since the Company's organization in 1983. Prior
thereto, he managed an electronic funds transfer product for TMI Systems
Corporation, a software and services company. Mr. Trefler holds a degree in
economics and computer science from Dartmouth College.
Clifford R. Balzer joined the Company in December 1995 as Vice President
of Reengineering and Client Services. From January through November 1995, he
was a Senior Consultant for Arthur D. Little, a research and consulting firm.
From July 1990 through January 1995, Mr. Balzer was employed as a Director of
U.S. Consulting by DMR Group, Inc., an international consulting firm. Mr.
Balzer holds a B.A. from Kansas Wesleyan University and an M.B.A. from
Fordham University.
Eugene A. Bonte joined the Company in April 1996 as Vice President of
Market Strategy and Development. He was a founder of Object Design, Inc., a
developer of object database management systems and tools, where he served as
Vice President from August 1988 through September 1995 and was responsible,
at different times, for marketing, corporate development and product
management. Mr. Bonte holds a B.A. from The Johns Hopkins University and an
M.B.A. from the Harvard Graduate School of Business.
Joseph J. Friscia joined the Company in 1984 to establish its New York
office and has served as Vice President of Sales and Marketing since 1987.
Prior to joining the Company, he worked as a money transfer operations
manager with Bankers Trust Company and J. Henry Schroder Bank and Trust
Company. Mr. Friscia holds a B.A. from Long Island University and an M.B.A.
from Adelphi University.
Kenneth W. Olson, a founder of the Company, has served as Vice President
of Technical Development since 1983. Prior thereto, he managed the
development of specialized computer systems for large-volume transaction
processing for TMI Systems Corporation. Mr. Olson holds an S.B. in Humanities
and Sciences from the Massachusetts Institute of Technology.
Michael R. Pyle joined the Company in 1985 as an application development
manager and has been Vice President of Applications Development since 1990.
Mr. Pyle holds a B.C.S. from the CS College in London. Prior to joining the
Company, Mr. Pyle worked in Europe and the United States developing and
deploying large-scale communications systems for the financial and commercial
sectors.
Ira Vishner, a founder of the Company, has served as Vice President of
Corporate Services, Treasurer and Chief Financial Officer of the Company
since 1983 and has been a director since 1994. Prior to 1983,
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<PAGE>
he worked in the executive offices of TMI Systems Corporation where he was
responsible for corporate planning, financial analysis and product marketing.
Mr. Vishner holds an S.B. in Mathematics from the Massachusetts Institute of
Technology.
Edward A. Maybury has been a director of the Company since its
organization in 1983. Since July 1991, he has served as a director, and from
July 1991 through May 1993 was the President and Chief Executive Officer, of
Creative Systems, Inc., a software and services company. Prior thereto, Mr.
Maybury was the Chief Executive Officer of Data Architect Systems, Inc., a
software and services company.
Classes of Directors
Following this offering, the Board of Directors will be divided into three
classes, each of whose members will serve for a staggered three-year term.
Mr. Trefler will serve in the class whose term expires in 1997; Mr. Maybury
will serve in the class whose term expires in 1998; and Mr. Vishner will
serve in the class whose term expires in 1999. Upon the expiration of the
term of a class of directors, directors within such class will be elected for
a three-year term at the annual meeting of stockholders in the year in which
such term expires.
Executive Officers
Executive officers of the Company are elected by the Board of Directors on
an annual basis and serve until the next annual meeting of the Board of
Directors and until their successors have been duly elected and qualified.
There are no family relationships among any of the executive officers or
directors of the Company.
Board Committees
The Company's Board of Directors has established an Audit Committee and a
Compensation Committee. The Audit Committee is responsible for nominating the
Company's independent accountants for approval by the Board of Directors,
reviewing the scope, results and costs of the audit with the Company's
independent accountants and reviewing the financial statements of the
Company. Mr. Maybury is currently the sole member of the Audit Committee. The
Compensation Committee is responsible for recommending compensation and
benefits for the executive officers of the Company to the Board of Directors
and for administering the Company's stock plans. Mr. Maybury is currently the
sole member of the Compensation Committee.
Director Compensation
Each non-employee director of the Company receives $1,000 for every Board or
committee meeting attended. The Company also reimburses non-employee
directors for expenses incurred in attending Board meetings. In addition,
non-employee directors of the Company will receive stock options under the
1996 Non-Employee Director Stock Option Plan. See "Management--Stock Plans."
No other compensation is paid to directors for attending Board or committee
meetings. Mr. Maybury is currently the sole non-employee director of the
Company.
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Executive Compensation
The following table sets forth all compensation awarded to, earned by or
paid for services rendered to the Company in all capacities during the year
ended December 31, 1995 by (i) the Company's Chief Executive Officer and (ii)
the four most highly compensated other executive officers who received annual
compensation in excess of $100,000 (collectively, the "Named Executive
Officers"):
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation (1)
--------------------------
All Other
Name and Principal Position Salary Bonus Compensation
- ---------------------------------------------- ------- --------------- -------------
<S> <C> <C> <C>
Alan Trefler, President $171,250 $23,545 (2) --
Joseph J. Friscia, Vice President of Sales and
Marketing 124,583 24,154 (3) --
Michael R. Pyle, Vice President of
Applications Development 102,083 23,044 (2) --
Ira Vishner, Vice President of Corporate
Services, Treasurer and Chief Financial
Officer 100,500 16,892 (2) $ 8,483 (4)
Kenneth W. Olson, Vice President of Technical
Development 98,083 13,118 (2) 30,000 (4)
</TABLE>
(1) In accordance with the rules of the Securities and Exchange Commission,
other compensation in the form of perquisites and other personal benefits
has been omitted because the aggregate amount of such perquisites and
other personal benefits constituted less than the lesser of $50,000 or
10% of the total of annual salary and bonuses for each of the Named
Executive Officers for 1995.
(2) The amounts presented are bonuses earned between July 1994 and June 1995,
and paid in 1995. Bonuses, if any, for the period from July 1995 through
June 1996 have not yet been determined.
(3) The amount presented is bonus earned in 1995 and paid in February 1996.
Mr. Friscia earned a bonus of $66,650 in 1994, which was paid in February
1995.
(4) Represents payments in lieu of paid days off.
Option Grants
No stock options or stock appreciation rights ("SARs") were granted to any
of the Named Executive Officers during 1995.
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Year-End Option Table
The following table sets forth certain information concerning the number and
value of unexercised stock options held by each of the Named Executive
Officers as of December 31, 1995. No SARs or stock options were exercised
during 1995.
Year-End Option Values
<TABLE>
<CAPTION>
Number of Shares
Underlying Value of Unexercised
Unexercised Options In-the-Money Options at
at Year-End Year-End (1)
-------------------------- ----------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---------------- ---------- ------------ ---------- --------------
<S> <C> <C> <C> <C>
Alan Trefler -- -- -- --
Joseph J.
Friscia 180,000 216,000 (2) $2,281,212 $2,737,454
Michael R. Pyle 151,200 172,800 (2) 1,916,218 2,189,963
Ira Vishner -- -- -- --
Kenneth W. Olson -- -- -- --
</TABLE>
(1) There was no public trading market for the Common Stock as of December
31, 1995. Accordingly, as permitted by the rules of the Securities and
Exchange Commission, these values have been calculated on the basis of an
assumed market value of $13.00 per share, which is the mid-point of the
estimated initial public offering price range of $12.00 to $14.00 per
share.
(2) These options vest in equal installments on December 29, 1996, 1997, 1998
and 1999.
Merit Payment Program
The Company frequently awards merit payments to its employees as part of a
performance assessment process, under which employees may be awarded cash
payments based upon individual performance. Historically, the Company's
supervisors have been responsible for recommending the amount of merit
payment for each of the employees under their direct review. These
recommendations are then reviewed by the Board of Directors to promote
consistency among departments.
Sales Compensation
In addition to base salary, the Company pays commissions to its sales
personnel based on the attainment of annual sales quotas, monthly fees
generated during the period from July 1 through June 30 of each year, and
cash received by the Company from new accounts within one year after the
initial signing of a contract with a customer.
Stock Plans
1994 Long-Term Incentive Plan
The Company's 1994 Long-Term Incentive Plan (the "1994 Plan") was adopted by
the Board of Directors on November 23, 1994, and approved by the stockholders
on April 21, 1995. The 1994 Plan provides for the issuance of a maximum of
5,000,000 shares of Common Stock pursuant to the grant of incentive stock
options ("ISOs") to employees and nonqualified stock options ("NSOs"), stock
appreciation rights ("SARs"), restricted stock or long-term performance
awards to employees, consultants, directors and officers of the Company. At
April 30, 1996, the Company had 161 employees eligible to participate in the
1994 Plan and options to purchase 2,409,000 were outstanding. To date, no
restricted stock, SARs or long-term performance awards have been granted
under the 1994 Plan.
The 1994 Plan is administered by the Compensation Committee of the Board
of Directors (the "Compensation Committee"). Subject to the provisions of the
1994 Plan, the Compensation Committee has the authority to select the
optionees or SAR, long-term performance award or restricted stock recipients
and determine the terms of the options, SARs, long-term performance awards or
restricted stock granted,
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including: (i) the number of shares or SARs; (ii) the option exercise terms;
(iii) the amount of awards; (iv) the exercise or purchase price (which in the
case of an incentive stock option cannot be less than the market price of the
Common Stock as of the date of grant); (v) the type and duration of transfer
or other restrictions; and (vi) the time and form of payment for restricted
stock and upon exercise of options. Generally, an option is not transferable
by the optionholder except by will or by the laws of descent and
distribution. No option may be exercised following termination for cause or
voluntary termination, or more than three months following involuntary
termination. Upon termination due to death, an option is exercisable for a
maximum of one year after such termination, and upon termination due to
disability, the option is exercisable for a maximum of two years after such
termination.
Federal Income Tax Consequences. The following is a brief description of
the federal income tax consequences related to options awarded under the 1994
Plan.
ISOs. A participant who receives an ISO will recognize no taxable income
for regular federal income tax purposes upon either the grant or the exercise
of such ISO. However, when a participant exercises an ISO, the difference
between the fair market value of the shares purchased and the option price of
those shares will be includible in determining the participant's alternative
minimum taxable income.
If the shares are retained by the participant for at least one year from
date of exercise and two years from date of grant of the option, gain will be
taxable to the participant, upon sale of the shares acquired upon exercise of
the ISO, as a long-term capital gain. In general, the adjusted basis for the
shares acquired upon exercise will be the option price paid with respect to
such exercise. The Company will not be entitled to a tax deduction upon the
exercise of an ISO.
If the shares are sold within a period of one year from the date of
exercise or two years from the date of grant of the ISO, the participant will
be required to recognize ordinary income equal to the difference between the
option price and the lesser of the fair market value of the shares on the
date of exercise or the amount realized on the sale or exchange of the shares
and the Company will be entitled to a tax deduction of an equal amount. Any
additional gain will be treated as long-term capital gain if the shares are
held for more than one year prior to the sale and as short-term capital gain
if the shares are held for a shorter period. If the participant sells the
stock for less than the option price, the participant will recognize a
capital loss equal to the difference between the sale price and the option
price. The loss will be a long- term capital loss if the shares are held for
more than one year prior to the sale and short-term if the shares are held
for a shorter period.
NSOs. A participant will not recognize taxable income for federal income
tax purposes at the time an NSO is granted. However, the participant will
recognize compensation taxable as ordinary income at the time of exercise for
all shares which are not subject to a substantial risk of forfeiture. The
amount of such compensation will be the difference between the option price
and the fair market value of the shares on the date of exercise of the
option. The Company will be entitled to a deduction for federal income tax
purposes at the same time and in the same amount as the participant is deemed
to have recognized compensation income with respect to shares received upon
exercise of the NSO. The participant's basis in the shares will be adjusted
by adding the amount so recognized as compensation to the purchase price paid
by the participant for the shares.
The participant will recognize gain or loss when he or she disposes of
shares obtained upon exercise of an NSO in an amount equal to the difference
between the selling price and the participant's tax basis in such shares.
Such gain or loss will be treated as long-term or short-term capital gain or
loss, depending upon the holding period.
1996 Non-Employee Director Stock Option Plan
The 1996 Non-Employee Director Stock Option Plan (the "Director Plan") was
adopted by the Board of Directors on May 13, 1996. The Director Plan provides
for the grant of options for the purchase of up to 250,000 shares of Common
Stock of the Company. To date, no options have been granted under the
Director Plan.
The Director Plan is administered by the Compensation Committee and
provides that each person who becomes a director of the Company after May 13,
1996, and who is not also an employee of the
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<PAGE>
Company will receive upon initial election to the Board of Directors an
option to purchase 30,000 shares of Common Stock vesting in equal annual
installments over five years. The exercise price for all options granted
under the Director Plan will be equal to the market price of the Common Stock
as of the date of grant. Options may not be assigned or transferred except by
will or by the laws of descent and distribution and are exercisable, only to
the extent vested, within 90 days after the optionee ceases to serve as a
director of the Company (except that if a director dies or becomes disabled
while he or she is serving as a director of the Company, the option is
exercisable until the earlier of the scheduled expiration date of the option
or one year from the date of death or disability).
Federal Income Tax Consequences. All options granted under the Director
Plan are NSOs. See the discussion concerning the 1994 Plan above for a
description of the federal income tax consequences of NSOs.
1996 Employee Stock Purchase Plan
The 1996 Employee Stock Purchase Plan (the "Stock Purchase Plan") was
adopted by the Board of Directors on May 13, 1996. An aggregate of 500,000
shares of Common Stock are reserved for issuance pursuant to this plan.
The Stock Purchase Plan is administered by the Compensation Committee. All
employees of the Company whose customary employment is in excess of 20 hours
per week and more than five months per year, other than those employees who
own 5% or more of the stock of the Company, are eligible to participate in
the Stock Purchase Plan. As of April 30, 1996, approximately 135 of the
Company's employees would have been eligible to participate in the Stock
Purchase Plan. The Stock Purchase Plan will be implemented by one or more
offerings of such duration as the Compensation Committee may determine,
provided that no offering period may be longer than 27 months. An eligible
employee participating in an offering will be able to purchase Common Stock
at a price equal to the lesser of: (i) 85% of its fair market value on the
date the right was granted, or (ii) 85% of its fair market value on the date
the right was exercised. Payment for Common Stock purchased under the Stock
Purchase Plan will be through regular payroll deduction or lump sum cash
payment, or both, as determined by the Compensation Committee. The maximum
value of Common Stock an employee may purchase during an offering period is
10% of the employee's base salary during such period, calculated on the basis
of the employee's compensation rate on the date the employee elects to
participate in that offering.
To date, there have been no offerings under the Stock Purchase Plan and no
shares of Common Stock have been issued thereunder.
Federal Income Tax Consequences. The Stock Purchase Plan is intended to
qualify as an "employee stock purchase plan" as defined in Section 423 of the
Internal Revenue Code of 1986, as amended (the "Code") which provides that an
employee will not realize any federal tax consequences when such employee
joins the Stock Purchase Plan, or when an offering ends and such employee
receives shares of the Company's Common Stock. An employee must, however,
recognize income or loss on the difference, if any, between the price at
which he or she sells the shares and the price he or she paid for them. If
any employee has owned shares purchased under the plan for more than one
year, disposes of them at least two years after the date the offering
commenced, and the market price of the shares on the date of sale is equal to
or less than the purchase price under the Stock Purchase Plan, he or she will
recognize a long-term capital loss in the amount equal to the price paid over
the sale price. If an employee has owned shares for more than one year, more
than two years has elapsed from the date the offering commenced, and the
market price of the shares on the date of sale is higher than the purchase
price under the Stock Purchase Plan, the employee must recognize ordinary
income in an amount equal to the lesser of (i) the fair market value of the
shares on the day the offering commenced over the price paid, or (ii) the
excess of the amount actually received for the shares over the purchase
price. Any further gain would be treated as long-term capital gain.
If an employee sells shares purchased under the Stock Purchase Plan prior
to holding them for more than one year or prior to two years from the date
the offering commenced, he or she must recognize ordinary income in the
amount of the difference between the price he or she paid and the market
price of the shares on the date of purchase and the Company will receive an
expense deduction for the same amount. The employee will recognize a capital
gain or loss on the difference between the sale price and the market price on
the date of purchase. The Company will not be entitled to a tax deduction
upon either
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the purchase or sale of shares under the Stock Purchase Plan if the holding
period requirements set forth above are met. The Stock Purchase Plan is not
qualified under Section 401(a) of the Code.
401(k) Plan
In December 1989, the Company adopted a tax-qualified employee savings and
retirement plan (the "401(k) Plan") covering all of the Company's domestic
employees upon commencement of employment and attainment of the age of 18.
Participants may elect to contribute to the 401(k) Plan up to the lesser of
the statutorily prescribed annual limit ($9,500 in 1996) or 20% of their
total pre-tax compensation. The 401(k) Plan permits, but does not require,
the Company to make additional matching contributions on behalf of
participants. The 401(k) Plan is intended to qualify under Section 401 of the
Code so that contributions by employees or by the Company to the 401(k) Plan,
and income earned on plan contributions, are not taxable to employees until
withdrawn from the 401(k) Plan, and so that contributions by the Company, if
any, will be deductible by the Company when made. Participants are fully
vested in their deferred salary contributions, and Company contributions, if
any, vest 20% after three years and an additional 20% on each anniversary
thereof. The administrator of the 401(k) Plan, at the direction of each
participant, invests the plan assets of such participant among various
investment options. Participants have the option of obtaining loans from the
401(k) Plan secured by their account balances.
Vacation Policy
The Company generally provides its employees with a flexible vacation and
paid time off policy. This policy provides that employees are given one block
of paid days off for all uses, including vacation, sick days, personal days
and holidays. The number of paid days off given to each employee per year
varies according to each employee's length of service with the Company.
Unused paid days off are carried over from year to year. Employees are
generally entitled to payment in cash for the value of unused paid days off.
The Company retains the right to repurchase paid days off in excess of thirty
at the end of any quarter from employees who have accumulated more than
thirty paid days off.
Compensation Committee Interlocks and Insider Participation
In 1995, decisions concerning compensation of executive officers were made
by the Board of Directors which included Mr. Trefler, the President of the
Company, and Mr. Vishner, a Vice President and the Chief Financial Officer of
the Company. The Company recently established a Compensation Committee of its
Board of Directors, which currently consists of Mr. Maybury. No executive
officer of the Company has served as a director or member of the compensation
committee (or other committee serving an equivalent function) of any other
entity, whose executive officers served as a director of the Company.
CERTAIN TRANSACTIONS
The Company has adopted a policy whereby all future transactions between the
Company and its officers, directors, principal stockholders and their
affiliates will be on terms no less favorable to the Company than could be
obtained from unrelated third parties and will be approved by a majority of
the disinterested members of the Company's Board of Directors. No such
transactions are currently being considered.
The Company borrowed $230,000 from its President, Alan Trefler, in order to
increase the Company's working capital and to fund operations. This loan,
which was evidenced by a note renewed in January 1993 and bore interest at a
rate of 8.5% per annum, was repaid in full by the Company in 1995.
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of May 13, 1996, and as adjusted
for the sale of the shares of Common Stock offered hereby, by: (i) each
person who is known by the Company to own beneficially more than 5% of the
Common Stock, (ii) each director and Named Executive Officer of the Company,
(iii) all directors and executive officers of the Company as a group, and
(iv) each Selling Stockholder. Unless otherwise indicated below, to the
knowledge of the Company, all persons listed below have sole voting and
investment power with respect to their shares of Common Stock, except to the
extent authority is shared by spouses under applicable law.
<TABLE>
<CAPTION>
Shares to be
Shares Beneficially Beneficially Owned
Owned Prior to After Offering (1)
Offering (1) (2)
------------------- ---------------------
Number
of
Number of Shares Number of
Name Shares Percent Offered Shares Percent
- -------------------------- --------- ------ ------- --------- --------
<S> <C> <C> <C> <C> <C>
Alan Trefler 22,488,000 95.7 % 385,900 22,102,100 84.1 %
Joseph J. Friscia (3) 234,000 * 90,000 144,000 *
Michael R. Pyle (4) 151,200 * 64,800 86,400 *
Ira Vishner 346,500 1.5 69,300 277,200 1.1
Kenneth W. Olson 450,000 1.9 90,000 360,000 1.4
Edward A. Maybury -- -- -- -- --
All directors and
executive officers as a
group (8 persons) (5) 23,669,700 99.4 700,000 22,969,700 86.6
</TABLE>
* Less than 1% of the outstanding Common Stock.
(1) The number of shares of Common Stock deemed outstanding prior to the
offering includes (i) 23,490,000 shares of Common Stock outstanding as of
May 13, 1996 and (ii) shares issuable pursuant to outstanding options
held by the respective person or group which are currently exercisable or
which will be exercisable within 60 days of May 13, 1996, as set forth
below. The number of shares of Common Stock deemed outstanding after the
offering includes (i) 2,700,000 shares which are being offered for sale
by the Company in the offering and (ii) 100,800 shares issuable upon
exercise of stock options to be exercised immediately prior to the
closing of this offering.
(2) Assumes no exercise of the Underwriters' over-allotment option.
(3) Shares beneficially owned prior to offering includes 180,000 shares of
Common Stock subject to stock options exercisable within 60 days of May
13, 1996; shares to be beneficially owned after offering consists solely
of shares of Common Stock subject to stock options exercisable within 60
days of May 13, 1996.
(4) Consists solely of shares of Common Stock subject to stock options
exercisable within 60 days of May 13, 1996.
(5) Shares beneficially owned prior to offering includes 331,200 shares of
Common Stock subject to stock options exercisable within 60 days of May
13, 1996; shares to be beneficially owned after offering includes 230,400
shares of Common Stock subject to stock options exercisable within 60
days of May 13, 1996.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Effective upon the filing of the Restated Articles of Organization (the
"Restated Articles") prior to this offering, the authorized capital stock of
the Company will consist of 45,000,000 shares of Common Stock, $.01 par value
per share, and 1,000,000 shares of preferred stock, $.01 par value per share
(the "Preferred Stock"), which may be issued in one or more series.
Common Stock
As of May 13, 1996, there were 23,490,000 shares of Common Stock outstanding
and held of record by twelve stockholders. Based upon the number of shares
outstanding as of that date and giving effect to (i) the issuance of the
2,700,000 shares of Common Stock offered by the Company hereby, and (ii) the
exercise of options to purchase 100,800 shares of Common Stock anticipated to
occur immediately prior to the closing of this offering, there will be
26,290,800 shares of Common Stock outstanding upon the closing of this
offering.
Holders of Common Stock are entitled to one vote for each share held on
all matters submitted to a vote of stockholders and do not have cumulative
voting rights. Accordingly, holders of a majority of the shares of Common
Stock entitled to vote in any election of directors may elect all of the
directors standing for election. Holders of Common Stock are entitled to
receive ratably such dividends, if any, as may be declared by the Board of
Directors out of funds legally available therefor, subject to any
preferential dividend rights of outstanding Preferred Stock. Upon the
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to receive ratably the net assets of the Company available
after the payment of all debts and other liabilities and subject to the prior
rights of any outstanding Preferred Stock. Holders of the Common Stock have
no preemptive, subscription, redemption or conversion rights. The outstanding
shares of Common Stock are, and the shares offered by the Company in this
offering will be, when issued and paid for, fully paid and nonassessable. The
rights, preferences and privileges of holders of Common Stock are subject to,
and may be adversely affected by, the rights of the holders of shares of any
series of Preferred Stock which the Company may designate and issue in the
future. Upon the closing of this offering, there will be no shares of
Preferred Stock outstanding.
Preferred Stock
Upon filing of the Restated Articles, the Board of Directors will be
authorized, subject to certain limitations prescribed by law, without further
stockholder approval, to issue from time to time up to an aggregate of
1,000,000 shares of Preferred Stock in one or more series and to fix or alter
the designations, preferences, rights and any qualifications, limitations or
restrictions of the shares of each such series thereof, including the
dividend rights, dividend rates, conversion rights, voting rights, terms of
redemption (including sinking fund provisions), redemption price or prices,
liquidation preferences and the number of shares constituting any series or
designations of such series. The issuance of Preferred Stock may have the
effect of delaying, deferring or preventing a change of control of the
Company. The Company has no present plans to issue any shares of Preferred
Stock. See "Risk Factors--Potential Adverse Effects of Anti-Takeover
Provisions; Possible Issuance of Preferred Stock."
Massachusetts Law and Certain Provisions of the Company's Restated Articles
of Organization and Restated By-Laws
Following this offering, the Company expects that it will have more than 200
stockholders, thus making it subject to Chapter 110F of the Massachusetts
General Laws, an anti-takeover law. In general, this statute prohibits a
publicly held Massachusetts corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years
after the date of the transaction in which the person becomes an interested
stockholder, unless (i) the interested stockholder obtains the approval of
the Board of Directors prior to becoming an interested stockholder, (ii) the
interested stockholder acquires 90% of the outstanding voting stock of the
corporation (excluding shares held by certain affiliates of the corporation)
at the time it becomes an interested stockholder, or (iii) the business
combination is approved by both the Board of Directors and the holders of
two-thirds of the outstanding voting stock of the corporation (excluding
shares held by the interested stockholder). An "interested stockholder" is a
person who, together with affiliates and associates, owns (or at any time
within the prior three years did own)
43
<PAGE>
5% or more of the outstanding voting stock of the corporation. A "business
combination" includes a merger, a stock or asset sale, and certain other
transactions resulting in a financial benefit to the interested stockholder.
The Company's Restated Articles and the Restated By-Laws (the "Restated
By-Laws") provide for a classified board of directors consisting of three
classes as nearly equal in size as possible. See "Management--Executive
Officers and Directors." In addition, the Restated Articles and Restated
By-Laws provide that directors may be removed only for cause by the
affirmative vote of the holders of at least 80% of the shares issued
outstanding and entitled to vote. Under the Restated Articles and Restated
By-Laws, any vacancy, however occurring, including a vacancy resulting from
an enlargement of the Board, may only be filled by a vote of a majority of
the directors then in office. The classification of the Board of Directors
and the limitations on the removal of directors and filling of vacancies
could have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from acquiring, control of the
Company.
The Restated By-Laws include a provision excluding the Company from the
applicability of Massachusetts General Laws Chapter 110D, entitled
"Regulation of Control Share Acquisitions". In general, this statute provides
that any stockholder of a corporation subject to this statute who acquires
20% or more of the outstanding voting stock of a corporation may not vote
such stock unless the stockholders of the corporation so authorize. The Board
of Directors may amend the Company's Restated By-Laws at any time to subject
the Company to this statute prospectively.
The Restated By-Laws also require that a stockholder seeking to have any
business conducted at a meeting of stockholders give notice to the Company
not less than 90 days prior to the scheduled meeting. The notice from the
stockholder must describe the proposed business to be brought before the
meeting and include information about the stockholder making the proposal,
any beneficial owner on whose behalf the proposal is made and any other
stockholder known to be supporting the proposal. The Restated By- Laws
further provide that a special stockholders meeting may be called by the
president or the Board of Directors or upon the request of stockholders
holding at least 40% of the voting power of the Company. These provisions may
discourage another person or entity from making a tender offer for the
Company's Common Stock, because such person or entity, even if it acquired a
majority of the outstanding shares, would be able to take action as a
stockholder (such as electing new directors or approving a merger) only at a
duly called stockholders meeting.
The Massachusetts General Laws provide generally that the affirmative vote
of a majority of the shares entitled to vote on any matter is required to
amend a corporation's articles of organization or by- laws, unless a
corporation's articles of organization or by-laws, as the case may be,
require a greater percentage. The Restated Articles and Restated By-Laws
require the affirmative vote of the holders of at least 80% of the shares
issued, outstanding and entitled to vote to amend or repeal any of the
provisions described in the previous three paragraphs.
The Restated By-Laws provide that the directors, officers, employees and
certain other agents of the Company shall be indemnified by the Company to
the fullest extent authorized by Massachusetts law, as it now exists or may
in the future be amended, against all expenses and liabilities reasonably
incurred in connection with service for or on behalf of the Company. In
addition, the Restated Articles provide that the directors of the Company
will not be personally liable for monetary damages to the Company for
breaches of their fiduciary duty as directors, unless they violated their
duty of loyalty to the Company or its stockholders, acted in bad faith,
knowingly or intentionally violated the law, authorized illegal dividends or
redemptions or derived an improper personal benefit from their action as
directors.
Transfer Agent and Registrar
The transfer agent and registrar for the Company's Common Stock is Fleet
National Bank.
44
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon the closing of this offering, the Company will have an aggregate of
26,290,800 shares of Common Stock outstanding, assuming no exercise of the
Underwriters' over-allotment option and no exercise of outstanding options to
purchase Common Stock other than the options to purchase 100,800 shares to be
exercised immediately prior to the closing of this offering by certain
Selling Stockholders. Of these shares, the 3,400,000 shares sold in this
offering are freely tradable without restriction or further registration
under the Securities Act of 1933, as amended (the "Securities Act"), except
that any shares held by "affiliates" of the Company, as that term is defined
in Rule 144 under the Securities Act ("Rule 144"), may generally only be sold
in compliance with the limitations of Rule 144 described below.
The remaining 22,890,800 shares of Common Stock are deemed "Restricted
Securities" as defined under Rule 144. Restricted Securities may be sold in
the public market only if registered or if they qualify for an exemption from
registration under Rules 144, 144(k) or 701 promulgated under the Securities
Act, which rules are summarized below. Subject to the executive officers and
directors of the Company entering into lock-up agreements described below and
the provisions of Rules 144, 144(k) and 701, additional shares will be
available for sale in the public market (subject in the case of shares held
by affiliates to compliance with certain volume restrictions) as follows: (i)
12,000 shares will be available for immediate sale in the public market on
the date of this Prospectus, (ii) 139,500 shares will be eligible for sale 90
days after the date of this Prospectus and (iii) 22,739,300 shares will be
eligible for sale upon the expiration of lock-up agreements 180 days after
the date of this Prospectus.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially
owned shares for at least two years is entitled to sell, within any
three-month period commencing 90 days after the date of this Prospectus, a
number of shares that does not exceed the greater of (i) 1% of the then
outstanding shares of Common Stock (approximately 262,000 shares immediately
after this offering) or (ii) the average weekly trading volume in the Common
Stock during the four calendar weeks preceding the date on which notice of
such sale is filed, subject to certain restrictions. In addition, a person
who is not deemed to have been an affiliate of the Company at any time during
the 90 days preceding a sale and who has beneficially owned the shares
proposed to be sold for at least three years would be entitled to sell such
shares under Rule 144(k) without regard to the requirements described above.
To the extent that shares were acquired from an affiliate of the Company,
such stockholder's holding period for the purpose of effecting a sale under
Rule 144 commences on the date of transfer from the affiliate. The Securities
and Exchange Commission has recently proposed to reduce the two- and
three-year holding periods under Rule 144 to one and two years, respectively.
If enacted, such modifications will have material effect on the timing of
when certain shares of Common Stock become eligible for resale.
Rule 701 promulgated under the Securities Act provides that shares of Common
Stock acquired pursuant to written plans such as the 1994 Plan may be resold
by persons other than affiliates, beginning 90 days after the date of this
Prospectus, subject only to the manner of sale provisions of Rule 144, and by
affiliates, beginning 90 days after the date of this Prospectus, subject to
all provisions of Rule 144 except its two-year minimum holding period.
Shortly after the date of this Prospectus, the Company intends to file a
Form S-8 registration statement under the Securities Act to register all
shares of Common Stock issuable under the 1994 Plan, the Director Plan and
the Stock Purchase Plan (collectively, the "Stock Plans"). See
"Management--Stock Plans." Such registration statement is expected to become
effective immediately upon filing, and shares covered by that registration
statement will thereupon be eligible for sale in the public markets, subject
to Rule 144 limitations applicable to affiliates.
Prior to this offering, there has not been any public market for the Common
Stock of the Company, and no prediction can be made as to the effect, if any,
that market sales of shares of Common Stock or the availability of shares for
sale will have on the market price of the Common Stock prevailing from time
to time. Nevertheless, sales of substantial amounts of Common Stock in the
public market could adversely affect the market price of the Common Stock and
could impair the Company's future ability to raise capital through the sale
of its equity securities.
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<PAGE>
Except to the extent they have agreed to sell shares in the offering, all
directors and officers, who hold in the aggregate 23,338,500 shares of Common
Stock and options to purchase 906,000 shares of Common Stock, have agreed,
pursuant to agreements with the representatives of the Underwriters, that
they will not, without the prior written consent of the representatives of
the Underwriters, sell or otherwise dispose of any shares of Common Stock or
options to acquire shares of Common Stock during the 180-day period following
the date of this Prospectus.
The Company has agreed not to sell or otherwise dispose of any shares of
Common Stock during the 180-day period following the date of the Prospectus,
except the Company may issue, and grant options to purchase, shares of Common
Stock under the Stock Plans.
LEGAL MATTERS
The validity of the shares of Common Stock offered by this Prospectus will
be passed upon for the Company and the Selling Stockholders by Choate, Hall &
Stewart, Boston, Massachusetts. Certain legal matters in connection with the
offering will be passed upon for the Underwriters by Hale and Dorr, Boston,
Massachusetts.
EXPERTS
The consolidated financial statements of Pegasystems Inc., at December 31,
1994 and 1995 and for each of the three years in the period ended December
31, 1995, appearing in this Prospectus and Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein and are included in reliance upon
such report given upon the authority of such firm as experts in accounting
and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 under the Securities Act
with respect to the shares of Common Stock offered hereby. As permitted by
the rules and regulations of the Commission, this Prospectus omits certain
information contained in the Registration Statement. For further information
with respect to the Company and the Common Stock offered hereby, reference is
hereby made to the Registration Statement and to the exhibits and schedules
filed therewith. Statements contained in this Prospectus as to the contents
of any agreement or other document filed as an exhibit to the Registration
Statement are not necessarily complete, and in each instance reference is
made to the copy of such agreement filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. The Registration Statement, including the exhibits and schedules
filed therewith, may be inspected without charge at the Commission's Public
Reference Room, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the Commission's regional offices located at Seven World Trade
Center, 13th Floor, New York, New York 10048 and at Northwest Atrium Center,
Suite 1400, 500 West Madison Street, Chicago, Illinois 60661. Copies of the
Registration Statement may be obtained from the Commission from its Public
Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549, upon
payment of prescribed fees.
The Company intends to distribute to its stockholders annual reports
containing financial statements audited by its independent accountants and
will make available copies of quarterly reports for the first three quarters
of each fiscal year containing unaudited financial statements.
46
<PAGE>
PEGASYSTEMS INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
-------
<S> <C>
Report of Independent Auditors F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995 and
as of March 31, 1996 (unaudited) F-3
Consolidated Statements of Income for the years ended December 31, 1993, 1994 and
1995 and for the three months ended March 31, 1995 and 1996 (unaudited) F-4
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1993,
1994 and 1995 and for the three months ended March 31, 1996 (unaudited) F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994
and 1995 and for the three months ended March 31, 1995 and 1996 (unaudited) F-6
Notes to Consolidated Financial Statements F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Pegasystems Inc.
We have audited the accompanying consolidated balance sheets of
Pegasystems Inc. as of December 31, 1994 and 1995 and the related
consolidated statements of income, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Pegasystems Inc. at December 31, 1994 and 1995, and the consolidated
results of its operations and its cash flows for each of the three years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Boston, Massachusetts
May 6, 1996, except for Notes 10 and 11
as to which the date is , 1996.
The foregoing report is in the form that will be signed upon completion of
the restatement of the capital accounts described in Note 10 to the
consolidated financial statements.
ERNST & YOUNG LLP
Boston, Massachusetts
May 14, 1996
F-2
<PAGE>
PEGASYSTEMS INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
1994 1995 1996
------ ----- --------
(unaudited)
(in thousands except
share-related data)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 456 $ 511 $ 2,644
Trade and installment accounts receivable, net
of allowance for doubtful accounts of $0 and
$434 at December 31, 1994 and 1995,
respectively, and $434 at March 31, 1996 8,315 8,896 9,628
Prepaid expenses and other assets 204 425 342
---- ---- --------
Total current assets 8,975 9,832 12,614
Long-term license installments, net 9,135 13,399 11,444
Equipment and improvements, net 1,564 2,172 2,143
Software development costs, net 1,113 473 354
---- ---- --------
Total assets $20,787 $25,876 $26,555
==== ==== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 1,991 $ 1,747 $ 970
Deferred revenue 139 114 803
Current portion of long-term debt 378 782 730
Deferred income taxes 1,976 2,796 3,159
Note payable to stockholder 50 -- --
---- ---- --------
Total current liabilities 4,534 5,439 5,662
Deferred income taxes 3,931 4,947 5,085
Long-term debt 450 816 672
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000
shares authorized; no shares issued and
outstanding -- -- --
Common stock, $.01 par value, 45,000,000 shares
authorized, 23,490,000 shares issued and
outstanding 235 235 235
Additional paid-in-capital 15 15 15
Retained earnings 11,644 14,522 15,008
Cumulative foreign currency translation
adjustment (22) (98) (122)
---- ---- --------
11,872 14,674 15,136
---- ---- --------
Total liabilities and stockholders' equity $20,787 $25,876 $26,555
==== ==== ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
PEGASYSTEMS INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
1993 1994 1995 1995 1996
--------- --------- --------- --------- ----------
(unaudited)
(in thousands except share-related data)
<S> <C> <C> <C> <C> <C>
Revenue
Software license $ 6,448 $ 9,662 $ 13,528 $ 2,209 $ 2,520
Services 3,764 6,601 8,719 1,796 2,421
------- ------- ------- ------- --------
Total Revenue 10,212 16,263 22,247 4,005 4,941
Cost of Revenue
Cost of software license 1,242 1,075 635 191 118
Cost of services 2,227 3,791 6,161 1,228 1,405
Total cost of revenue 3,469 4,866 6,796 1,419 1,523
------- ------- ------- ------- --------
Gross profit 6,743 11,397 15,451 2,586 3,418
Operating expenses
Research and development 3,766 5,440 7,061 1,413 1,602
Sales and marketing 1,350 2,629 3,592 785 972
General and
administrative 834 1,092 1,541 322 388
------- ------- ------- ------- --------
Total operating expenses 5,950 9,161 12,194 2,520 2,962
------- ------- ------- ------- --------
Income from operations 793 2,236 3,257 66 456
License interest income 1,305 1,457 1,486 370 368
Other interest income 27 21 16 6 12
Interest expense (32) (56) (118) (18) (39)
------- ------- ------- ------- --------
Income before provision for
income taxes 2,093 3,658 4,641 424 797
Provision for income taxes 860 1,465 1,763 161 311
------- ------- ------- ------- --------
Net income $ 1,233 $ 2,193 $ 2,878 $ 263 $ 486
======= ======= ======= ======= ========
Net income per common and
common equivalent share $ .05 $ .09 $ .11 $ .01 $ .02
======= ======= ======= ======= ========
Weighted average number of
common and common
equivalent shares
outstanding 24,231,000 24,102,000 25,551,000 25,600,000 25,505,000
======= ======= ======= ======= ========
</TABLE>
See accompanying notes.
F-4
<PAGE>
PEGASYSTEMS INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
------------------
Cumulative
Foreign
Number Additional Currency Total
of Paid-in Retained Translation Stockholders'
Shares Amount Capital Earnings Adjustment Equity
--------- ----- -------- ------- --------- -------------
(in thousands except for share-related data)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1992 22,500,000 $225 -- $ 8,218 -- $ 8,443
Exercise of stock
options 117,000 1 -- -- -- 1
Net income -- -- -- 1,233 -- 1,233
------- --- ------ ----- ------- -----------
Balance at December 31,
1993 22,617,000 226 -- 9,451 -- 9,677
Exercise of stock
options 873,000 9 $15 -- -- 24
Foreign currency
translation adjustment -- -- -- -- $ (22) (22)
Net income -- -- -- 2,193 -- 2,193
------- --- ------ ----- ------- -----------
Balance at December 31,
1994 23,490,000 235 15 11,644 (22) 11,872
Foreign currency
translation adjustment -- -- -- -- (76) (76)
Net income -- -- -- 2,878 -- 2,878
------- --- ------ ----- ------- -----------
Balance at December 31,
1995 23,490,000 235 15 14,522 (98) 14,674
Foreign currency
translation adjustment -- -- -- -- (24) (24)
Net income (unaudited) -- -- -- 486 -- 486
------- --- ------ ----- ------- -----------
Balance at March 31,
1996 (unaudited) 23,490,000 $235 $15 $15,008 $(122) $15,136
========== === ====== ===== ======= ===========
</TABLE>
See accompanying notes.
F-5
<PAGE>
PEGASYSTEMS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months
Ended
Year Ended December 31, March 31,
1993 1994 1995 1995 1996
------ ------ ------ ----- -------
(unaudited)
(in thousands)
<S> <C> <C> <C> <C> <C>
Operating activities
Net income $1,233 $2,193 $2,878 $ 263 $ 486
Adjustments to reconcile net income to net
cash provided (used) by operating
activities:
Provision for deferred income taxes 629 961 1,836 127 501
Depreciation and amortization 1,536 1,511 1,455 309 369
Change in operating assets and liabilities:
Decrease (increase) in trade and
installment accounts receivable (1,823) (3,988) (4,845) 722 1,223
Decrease (increase) in prepaid expenses
and other assets (121) (16) (221) (41) 83
Decrease (increase) in inventory (215) 215 -- -- --
Increase (decrease) in accounts payable
and accrued expenses 8 971 (244) (686) (777)
Increase (decrease) in deferred revenue 333 (336) (25) 416 689
---- ---- ---- --- -----
Net cash provided by operating
activities 1,580 1,511 834 1,110 2,574
Investing activities
Purchase of equipment and improvements (888) (1,131) (1,423) (370) (221)
Software development costs (1,060) (297) -- -- --
---- ---- ---- ---- -----
Net cash used in investing activities (1,948) (1,428) (1,423) (370) (221)
Financing activities
Repayment of note payable to shareholder -- (180) (50) -- --
Proceeds from issuance of long-term debt 710 380 1,345 -- --
Repayments of long-term debt (243) (263) (575) (95) (196)
Exercise of stock options -- 23 -- -- --
---- ---- ---- --- -----
Net cash provided (used) by financing
activities 467 (40) 720 (95) (196)
Effect of exchange rate on cash -- (22) (76) (5) (24)
---- ---- ---- --- -----
Net increase in cash 99 21 55 640 2,133
Cash and equivalents at beginning of year 336 435 456 456 511
---- ---- ---- --- -----
Cash and equivalents at end of period $ 435 $ 456 $ 511 $1,096 $2,644
==== ==== ==== ===== =====
Supplemental Disclosure of Cash Flow
Information:
Cash paid during period:
Interest $ 32 $ 56 $ 119 $ 18 $ 39
Income taxes $ 553 $ 135 $ 315 $ 92 $ 13
</TABLE>
See accompanying notes.
F-6
<PAGE>
PEGASYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
1. SIGNIFICANT ACCOUNTING POLICIES
Business
Pegasystems Inc. (the Company) was incorporated on April 21, 1983, and
develops customer service management software used by large,
transaction-intensive organizations to automate and manage their customer
interactions. Customers of the Company include large banks and credit card
processors and mutual fund companies. The Company also offers consulting,
training and maintenance and support services to facilitate the installation
and use of its solutions.
The environment of rapid technological change and intense competition
which is characteristic of the software development industry results in
frequent new products and evolving industry standards. The Company's
continued success depends upon its ability to enhance current products and
develop new products on a timely basis which keep pace with the changes in
technology and competitors' innovations.
International revenue is subject to various risks including imposition of
government controls, export license requirements, political and economic
conditions and instability, trade restrictions, currency fluctuations,
changes in taxes, difficulties in staffing and managing international
operations, and high local wage scales and other operating costs and
expenses.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, Pegasystems Limited. All intercompany
accounts and transactions have been eliminated in consolidation.
Foreign Currency Translation
The translation of assets and liabilities of the Company's foreign
subsidiary is made at year-end rates of exchange, while revenue and expense
accounts are recorded at the average rates of exchange. The resulting
translation adjustments are excluded from net income and are charged or
credited to "Cumulative foreign currency translation adjustment" included as
part of stockholder's equity. Realized and unrealized exchange gains or
losses from transaction adjustments are reflected in operations and are not
material.
Revenue Recognition
The Company recognizes revenue in accordance with Statement of Position
91-1, Software Revenue Recognition, issued by the American Institute of
Certified Public Accountants. Specifically, revenue from software licenses is
recognized upon product acceptance pursuant to noncancelable license
agreements, and is based on management's assessment that the collectibility
risk on the long-term license installments is low. Upon acceptance, the
Company has no significant vendor obligations. In the case of license
renewals, revenue is recognized upon execution of the renewal license
agreement or if, as is generally the case, renewal is automatic unless the
customer gives notice of termination, at the expiration of the period during
which the customer has the right to terminate. Maintenance fees are
recognized ratably over the term of the maintenance agreement. The Company
recognizes implementation as well as consulting and training fees as the
services are provided.
Software license revenue represents the present value of future payments
under noncancelable license agreements which provide for payment in
installments typically over a five-year period. A portion of the revenue from
each agreement is recognized as interest income over the term of the
agreement.
F-7
<PAGE>
PEGASYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1995
1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
The discount rate in effect for 1993, 1994, 1995 and for the three months
ended March 31, 1996 was 7%. The trade and installment accounts receivable
recorded on the balance sheet are net of $3,477,000, $3,937,000 and
$3,887,000 as of December 31, 1994 and 1995, and March 31, 1996,
respectively, which represents the imputed interest portion of future
payments due under the Company's license agreements. Deferred revenue
represents payments from customers, primarily for maintenance services, which
are recognized as revenue as the related services are performed.
Cash and Cash Equivalents
Cash and cash equivalents are stated at cost, which approximates market,
and consist of short-term, highly liquid investments with original maturities
of less than three months.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentration of credit risk consist primarily of trade accounts receivable
and long-term license installments. The Company records long-term license
installments in accordance with its revenue recognition policy which results
in receivables from customers, primarily large financial service
organizations with strong credit ratings.
Interim Financial Statements
The consolidated balance sheet at March 31, 1996, the consolidated
statements of income and consolidated statements of cash flows for the three
months ended March 31, 1995 and 1996 and the consolidated statement of
stockholders' equity for the three months ended March 31, 1996 are unaudited,
but, in the opinion of management, include all adjustments (consisting of
normal recurring adjustments) necessary for a fair presentation of results
for these interim periods. The results of operations for the three months
ended March 31, 1996 are not necessarily indicative of results to be expected
for the entire year.
Equipment and Improvements
Equipment and improvements are recorded at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets
which are three years for equipment and five years for furniture and
fixtures. Leasehold improvements are amortized over the life of the lease.
Software Development Costs
In compliance with Statement of Financial Accounting Standards (SFAS) No.
86, Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed, certain software development costs are capitalized in the
accompanying consolidated balance sheets. Capitalization of software
development costs begins upon the establishment of technological feasibility.
During 1994, the Company capitalized $297,000 of software costs. No costs
were capitalized during 1995 or the three months ended March 31, 1996.
Amortization of capitalized software development cost is included in costs
of software license revenue and is provided on a straight-line basis over a
period of two years. Total amortization expense charged to operations was
$1,242,000, $1,075,000, $635,000 and $118,000 during 1993, 1994 and 1995 and
the three months ended March 31, 1996, respectively.
F-8
<PAGE>
PEGASYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1995
1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Net Income Per Share
Net income per common and common equivalent share is computed using the
weighted average number of common and dilutive common equivalent shares
outstanding during each period, assuming the exercise of stock options into
common stock under the treasury stock method. Stock issued after May 14, 1995
and common stock issuable pursuant to stock options granted after May 14,
1995 have been reflected as outstanding for all of 1993, 1994 and 1995, using
the treasury stock method. Fully diluted earnings per common share are not
presented as they are not materially different from primary earnings per
common share. Dilutive common equivalent shares consist of stock options
(using the treasury stock method and using the assumed initial public
offering price). Net income per share also reflects a fifteen- for-one stock
split effective December 9, 1994, and a three-for-one stock split effective
on the effective date of the Form S-1 registration statement.
Stock Options
The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to the estimated fair market value of the shares
at the date of the grant. The Company accounts for stock option grants in
accordance with APB Opinion No. 25 "Accounting for Stock Issued to
Employees," and intends to continue to do so. Accordingly, the Company
recognizes no compensation expense for stock option grants.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Some of the areas where estimates are
utilized included allowance for bad debts, capitalized software, income
taxes, revenue and various accrued expenses. Actual results could differ from
those estimates.
2. EQUIPMENT AND IMPROVEMENTS
The cost and accumulated depreciation of equipment and improvements
consist of the following:
<TABLE>
<CAPTION>
December 31,
(in thousands)
1994 1995
----- --------
<S> <C> <C>
Equipment $1,435 $2,186
Furniture and fixtures 630 863
Leasehold improvements 202 434
--- ------
2,267 3,483
Less accumulated depreciation (703) (1,311)
--- ------
Equipment and improvements,
net $1,564 $2,172
=== ======
</TABLE>
F-9
<PAGE>
PEGASYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1995
3. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 31,
(in thousands)
1994 1995
----- ------
<S> <C> <C>
Trade accounts payable $ 744 $ 557
Employee compensation and
benefits 508 568
Accrued income taxes 253 --
Other 486 622
--- ----
$1,991 $1,747
=== ====
</TABLE>
4. DEBT AND OTHER FINANCIAL INSTRUMENTS
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
(in
thousands)
1994 1995
--- ------
<S> <C> <C>
Note payable to bank, with monthly payments of $3,750
plus interest through December 15, 1995 $ 45 --
Note payable to bank, with monthly payments of $17,222
plus interest through December 1, 1996 413 $ 207
Note payable to bank, with monthly payments of $10,556
plus interest through December 1, 1997 370 243
Note payable to bank, with monthly payments of $32,778
plus interest through June 28, 1998 -- 983
Note payable to bank, with monthly payments of $4,583
plus interest through December 28, 1998 -- 165
---- -----
828 1,598
Less current portion 378 782
---- ------
$450 $ 816
==== =====
</TABLE>
The notes bear interest at the bank's prime rate (6% at December 31, 1993
and 8.5% at December 31, 1994 and 1995) plus 1/2%. The notes are secured by
all computer equipment and furniture and fixtures of the Company. Maturities
of these notes are $782,000 in 1996, $564,000 in 1997 and $252,000 in 1998.
The Company has a line of credit with a bank allowing for borrowings up to
$2,500,000 at the prime rate. The line expires June 1, 1996. The Company had
no drawings against the line of credit at December 31, 1995 and 1994.
Borrowings are subject to various covenants which call for a specified level
of working capital and net worth, and maintenance of certain financial
ratios.
The Company had a note payable of $50,000 to the president at December 31,
1994, which was repaid in full during 1995. The interest rate on the note was
8.5% in 1994 and 1995.
F-10
<PAGE>
PEGASYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1995
4. DEBT AND OTHER FINANCIAL INSTRUMENTS (Continued)
Financial instruments outstanding at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Carrying Fair
Amount Value
------- --------
(in thousands)
<S> <C> <C>
Assets
Cash and cash equivalents $ 511 $ 511
Liabilities
Notes payable to bank ($1,598) ($1,598)
</TABLE>
The fair value of the long-term debt approximates the carrying amount due
to the variable interest rate of the debt.
5. EMPLOYEE BENEFIT PLANS
Stock Option Plan
The Company adopted an incentive stock option plan effective July 29, 1983
(the 1983 Plan). Key employees, as selected by the Board of Directors of the
Company, were granted options to purchase the Company's common stock at a
price, which in the Board of Directors' opinion, reflected fair value on the
date of the grant. The 1983 plan expired in 1993. At December 31, 1995, no
options issued under this plan were outstanding.
Long-Term Incentive Plan
During the year ended December 31, 1994, the Company adopted a Long-Term
Incentive Plan (the 1994 Plan) to provide incentives to employees, directors
and consultants through opportunities to purchase stock through incentive
stock options and through options which do not qualify as incentive stock
options.
In addition to options, eligible participants under the 1994 Plan may be
granted stock appreciation rights, restricted stock and long-term performance
awards. A maximum of 2,400,000 shares are reserved for issuance under the
plan. Shares equal to 2% of the outstanding shares at the start of each
fiscal year shall be reserved for granting of replacement options; however,
this may not cause the maximum shareholder dilution caused by the Plan to
exceed the 2,400,000 shares of stock reserved for issuance under the plan.
The option price per share is to be determined at the date of grant. For
incentive stock options, the option price may not be less than 100% of the
fair market value of the Company's common stock at the grant date. Incentive
stock options granted to a person having greater than 10% of the voting power
of all classes of stock must have an exercise price of at least 110% of fair
market value of the Company's common stock.
F-11
<PAGE>
PEGASYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1995
5. EMPLOYEE BENEFIT PLANS (Continued)
Stock option activity is summarized as follows:
<TABLE>
<CAPTION>
March 31,
December 31, 1996
1993 1994 1995 (unaudited)
---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Outstanding options at beginning of
period 1,494,000 1,269,000 1,671,750 1,924,500
Granted -- 1,635,750 335,250 24,000
Exercised (117,000 ) (873,000 ) -- --
Canceled (108,000 ) (360,000 ) (82,500 ) (25,500)
-------- -------- -------- -----------
Outstanding at end of period 1,269,000 1,671,750 1,924,500 1,923,000
======== ======== ======== ===========
Price range of outstanding options $.01 -$.69 $.33 -$.69 $.33 -$.69 $.33 - $.69
======== ======== ======== ===========
Exercisable at end of period 1,216,125 396,000 605,850 600,750
======== ======== ======== ===========
Available for grant at end of period -- 764,250 475,500 477,000
======== ======== ======== ===========
</TABLE>
6. LEASES
The Company leases certain equipment and office space under noncancelable
operating leases. Future minimum rental payments required under the operating
leases with noncancelable terms in excess of one year at December 31, 1995
are as follows:
<TABLE>
<CAPTION>
<S> <C>
Year ended December 31, (in thousands)
1996 $1,016
1997 1,090
1998 1,090
1999 579
------
Total $3,775
======
</TABLE>
Total rent expense under operating leases was approximately $800,000,
$863,000, and $1,100,000 for the years ended December 31, 1993, 1994 and
1995, respectively.
7. INCOME TAXES
The provision (benefit) for income taxes for the years ended December 31,
1993, 1994 and 1995 consisted of the following:
<TABLE>
<CAPTION>
1993 1994 1995
--- ----- -------
(in thousands)
<S> <C> <C> <C>
Current:
Federal $180 $ 297 $ (107)
State 51 176 (39)
Foreign -- 31 73
----- ------ ------
Total current 231 504 (73)
Deferred:
Federal 449 691 1,563
State 180 270 273
---- ------ ------
Total deferred 629 961 1,836
---- ------ ------
$860 $1,465 $1,763
==== ====== ======
</TABLE>
F-12
<PAGE>
PEGASYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1995
7. INCOME TAXES (Continued)
The effective income tax rate differed from the statutory federal income
tax rate due to:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ------
<S> <C> <C> <C>
Statutory federal income tax rate 34.0% 34.0% 34.0%
State income taxes, net of federal benefit 7.3 7.3 5.8
Permanent differences 1.5 2.0 0.7
Tax credits (1.7) (3.3) (2.5)
--- --- ----
Effective income tax rate 41.1% 40.0% 38.0%
=== === ====
</TABLE>
At December 31, 1993, 1994 and 1995, the Company had research and
development credit carryforwards of approximately $495,000, $421,000 and
$440,000, respectively, available to offset future federal taxable income.
These carryforward amounts generally expire from 2004 to 2008. In addition,
as of December 31, 1993, 1994 and 1995, the Company had available alternative
minimum tax (AMT) credit carryforwards of approximately $194,000. The
carryforward period for the AMT credit is unlimited.
Deferred income taxes at December 31, 1994 and 1995 reflect the net tax
effects of temporary differences between the carrying amounts of assets and
liabilities for financial statement purposes and the amounts used for tax
purposes. Significant components of the Company's deferred tax liabilities
and assets as of December 31, 1994 and 1995 are as follows:
<TABLE>
<CAPTION>
December 31,
1994 1995
------- ---------
(in thousands)
<S> <C> <C>
Deferred tax liabilities:
Software revenue $(6,924) $(9,303)
Capitalized software (501) (213)
Depreciation -- (142)
Other -- (41)
----- -------
Total deferred tax
liabilities (7,425) (9,699)
Deferred tax assets:
Deferred state taxes 590 729
License fees 119 119
Vacation accrual 64 109
Other 133 274
Tax credits 612 725
----- -------
Total deferred tax assets 1,518 1,956
----- -------
Net deferred tax liabilities (5,907) (7,743)
Less current portion (1,976) (2,796)
----- -------
$(3,931) $(4,947)
===== =======
</TABLE>
8. SIGNIFICANT CUSTOMERS
During 1993 the Company had two customers that accounted for 12.9% and
12.3%, respectively, of the Company's consolidated revenue. In 1994 one
customer accounted for 16.8% of the Company's consolidated revenue. This
customer also accounted for 12.6% of the Company's 1995 consolidated revenue.
Additionally, in 1995 two other customers accounted for 16.2% and 14.9%,
respectively, of the Company's consolidated revenue.
F-13
<PAGE>
PEGASYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1995
9. INTERNATIONAL OPERATIONS
The Company has sales in the United States, Canada and Europe. The
European countries include England, Ireland, France, Switzerland and
Luxembourg. Export sales were $1,015,000, $3,932,000 and $2,334,000 in 1993,
1994 and 1995, respectively.
10. RECAPITALIZATION AND STOCK SPLIT
During the year ended December 31, 1994, the Company increased the number
of shares authorized from 600,000 shares of $.01 par value common stock to 9
million shares of $.01 par value common stock.
On December 9, 1994, the Company's Board of Directors declared a
fifteen-for-one split of shares of $.01 par value common stock effected in
the form of a dividend. This dividend resulted in 7,830,000 shares of common
stock being issued and outstanding after the split. The par value of the
additional shares of common stock issued in connection with the stock split
was credited to common stock and a like amount was charged to additional
paid-in capital to the extent available, and the remainder to retained
earnings.
The Company's Board of Directors has approved an increase in the number of
shares of common stock authorized from 9 million to 45 million shares and a
three-for-one stock split in the form of a stock dividend on the effective
date of the Form S-1 registration statement.
The financial statements give effect to both stock splits for all periods
presented.
Upon filing of the Restated Articles, the Board of Directors will be
authorized, subject to certain limitations prescribed by law, without further
stockholder approval, to issue from time to time up to an aggregate 1,000,000
shares of Preferred Stock in one or more series and to fix or alter the
designations, preferences, rights and any qualifying limitations or
restrictions of the shares of each such series thereof, including the
dividend rights, dividend rates, conversion rights, voting rights, terms of
redemptions (including sinking fund provisions), redemption price or prices,
liquidation preferences and the number of shares constituting any shares or
designations of such series.
11. SUBSEQUENT EVENTS
1996 Non-Employee Director Stock Option Plan The 1996 Non-Employee
Director Stock Option Plan (the "Director Plan") was adopted by the Board of
Directors on May 13, 1996. The Director Plan provides for the grant of
options for the purchase of up to 250,000 shares of common stock of the
Company. To date, no options have been granted under the Director Plan.
The Director Plan is administered by the Compensation Committee and
provides that each person who becomes a director of the Company after May 13,
1996 and who is not also an employee of the Company will receive upon his
initial election to the Board of Directors, an option to purchase 30,000
shares of common stock vesting in equal annual installments over five years.
The exercise price per share for all options granted under the Director Plan
will be equal to the market price of the common stock as of the date of
grant. Options may not be assigned or transferred except by will or by the
laws of descent and distribution and are exercisable, only to the extent
vested, within 90 days after the optionee ceases to serve as a director of
the Company (except that if a director dies or becomes disabled while he or
she is serving as a director of the Company, the option is exercisable until
the earlier of the scheduled expiration date of the option or one year from
the date of death or disability).
1996 Employee Stock Purchase Plan The 1996 Employee Stock Purchase Plan
(the "Stock Purchase Plan") was adopted by the Board of Directors on May 13,
1996. An aggregate of 500,000 shares of common stock are reserved for
issuance pursuant to this plan.
The Stock Purchase Plan is administered by the Compensation Committee. All
employees of the Company whose customary employment is in excess of 20 hours
per week and more than five months
F-14
<PAGE>
PEGASYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1995
11. SUBSEQUENT EVENTS (Continued)
per year, other than those employees who own 5% or more of the stock of the
Company, are eligible to participate in the Stock Purchase Plan. The Stock
Purchase Plan will be implemented by one or more offerings of such duration
as the Compensation Committee may determine, provided that no offering period
may be longer than 27 months. An eligible employee participating in an
offering will be able to purchase common stock at a price equal to the lesser
of: (i) 85% of its fair market value on the date the right was granted, or
(ii) 85% of its fair market value on the date the right was exercised.
Payment for common stock purchased under the Stock Purchase Plan will be
through regular payroll deduction or lump sum cash payment, or both, as
determined by the Compensation Committee. The maximum value of common stock
an employee may purchase during an offering period is 10% of the employee's
base salary during such period, calculated on the basis of the employee's
compensation rate on the date the employee elects to participate in that
offering.
To date, there have been no offerings under the Stock Purchase Plan and no
shares of common stock have been issued thereunder.
Line of Credit The Company's bank line of credit was increased to $5
million and extended until June 30, 1997.
1994 Long Term Incentive Plan On May 13, 1996, the Company approved an
increase in the number of shares issuable under the 1994 Long-Term Incentive
Plan from 2,400,000 to 5,000,000.
F-15
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company and the Selling Stockholders have agreed to sell to each of the
Underwriters named below, and each of such Underwriters, for whom Goldman,
Sachs & Co., Cowen & Company and Montgomery Securities are acting as
representatives, has severally agreed to purchase from the Company and the
Selling Stockholders, the respective number of shares of Common Stock set
forth opposite its name below:
<TABLE>
<CAPTION>
Number of
Shares of
Common
Underwriter Stock
- --------------------- ---------
<S> <C>
Goldman, Sachs & Co.
Cowen & Company
Montgomery Securities
-------
Total 3,400,000
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the shares offered
hereby, if any are taken.
The Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus and in part to certain securities dealers at
such price less a concession of $ per share. The Underwriters may allow,
and such dealers may reallow, a concession not in excess of $ per share
to certain brokers and dealers. After the shares of Common Stock are released
for sale to the public, the offering price and other selling terms may from
time to time be varied by the representatives.
The Company has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus to purchase up to an aggregate of 510,000
additional shares of Common Stock to cover over- allotments, if any. If the
Underwriters exercise their over-allotment option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately
the same percentage thereof that the number of shares to be purchased by each
of them, as shown in the foregoing table, bears to the 3,400,000 shares of
Common Stock offered.
The Company and the Selling Stockholders have agreed that, subject to
certain exceptions, during the period beginning from the date of this
Prospectus and continuing to and including the date 180 days after the date
of the Prospectus, they will not offer, sell, contract to sell or otherwise
dispose of any shares of Common Stock or of any other securities of the
Company (other than pursuant to stock plans existing on the date of this
Prospectus) which are substantially similar to the shares of Common Stock or
which are convertible or exchangeable into securities which are substantially
similar to the shares of Common Stock without the prior written consent of
the representatives, except for the shares of Common Stock offered in
connection with the offering.
The representatives of the Underwriters have informed the Company that
they do not expect sales to accounts over which the Underwriters exercise
discretionary authority to exceed five percent of the total number of shares
of Common Stock offered hereby.
U-1
<PAGE>
Prior to the offering, there has been no public market for the shares of
Common Stock. The initial public offering price will be negotiated among the
Company and the representatives. Among the factors to be considered in
determining the initial public offering price of the Common Stock, in
addition to prevailing market conditions, will be the Company's historical
performance, estimates of business potential and earnings prospects for the
Company, an assessment of the Company's management and the consideration of
the above factors in relation to market valuation of companies in related
businesses.
The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act.
U-2
<PAGE>
=========================================================
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, and, if given
or made, such information or representations must not be relied upon as
having been authorized. This Prospectus does not constitute an offer to sell
or the solicitation of an offer to buy any securities other than the
securities to which it relates or an offer to sell or the solicitation of an
offer to buy such securities in any circumstances in which such offer or
solicitation is unlawful. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, create any implication
that there has been no change in the affairs of the Company since the date
hereof or that the information contained herein is correct as of any time
subsequent to its date.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-------
<S> <C>
Prospectus Summary 3
Risk Factors 5
Use of Proceeds 12
Dividend Policy 12
Capitalization 13
Dilution 14
Selected Consolidated Financial Data 15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 16
Business 24
Management 35
Certain Transactions 41
Principal and Selling Stockholders 42
Description of Capital Stock 43
Shares Eligible for Future Sale 45
Legal Matters 46
Experts 46
Additional Information 46
Index to Consolidated Financial Statements F-1
Underwriting U-1
</TABLE>
Through and including , 1996 (the 25th day after the date of this
Prospectus), all dealers effecting transactions in the Common Stock, whether
or not participating in this distribution, may be required to deliver a
Prospectus. This is in addition to the obligation of dealers to deliver a
Prospectus when acting as Underwriters and with respect to their unsold
allotments or subscriptions.
3,400,000 Shares
PEGASYSTEMS INC.
Common Stock
(par value $.01 per share)
Goldman, Sachs & Co.
Cowen & Company
Montgomery Securities
Representatives of the Underwriters
=========================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
Estimated expenses (other than underwriting discounts and commissions)
payable in connection with the sale of the Common Stock offer hereby are as
follows:
<TABLE>
<CAPTION>
<S> <C>
SEC registration fee $ 18,876
NASD filing fee 5,974
Nasdaq National Market listing fee 50,000
Printing and engraving expenses 100,000
Legal fees and expenses 200,000
Accounting fees and expenses 150,000
Blue Sky fees and expenses (including legal
fees) 18,000
Transfer agent and registrar fees and expenses 10,000
Miscellaneous 47,150
--------
Total $600,000
========
</TABLE>
The Registrant will bear all expenses shown above.
Item 14. Indemnification of Directors and Officers.
Section 67 of Chapter 156B of the Massachusetts General Laws provides that
a corporation may indemnify its directors and officers to the extent
specified in or authorized by (i) the articles of organization, (ii) a by-law
adopted by the stockholders, or (iii) a vote adopted by the
holders of a majority of the shares of stock entitled to vote on the election
of directors. In all instances, the extent to which a corporation provides
indemnification to its directors and officers under Section 67 is optional.
In its Restated Articles of Organization, the Registrant has elected to
commit to provide indemnification to its directors and officers in specified
circumstances. Generally, the Restated Articles of Organization provide that
the Registrant shall indemnify directors and officers of the Registrant
against liabilities and expenses arising out of legal proceedings brought
against them by reason of their status as directors or officers or by reason
of their agreeing to serve, at the request of the Registrant, as a director
or officer with another organization. Under this provision, a director or
officer of the Registrant shall be indemnified by the Registrant for all
costs and expenses (including attorneys' fees), judgments, liabilities and
amounts paid in settlement of such proceedings, even if he is not successful
on the merits, if he acted in good faith in the reasonable belief that his
action was in the best interests of the Registrant. The Board of Directors
may authorize advancing litigation expenses to a director or officer at his
request upon receipt of an undertaking by any such director or officer to
repay such expenses if it is ultimately determined that he is not entitled to
indemnification for such expenses.
Article VI of the Registrant's Restated Articles of Organization
eliminates the personal liability of the Registrant's directors to the
Registrant or its stockholders for monetary damages for breach of a
director's fiduciary duty, except to the extent Chapter 156B of the
Massachusetts General Laws prohibits the elimination or limitation of such
liability.
Section of the Underwriting Agreement provides that the Underwriters
are obligated, under certain circumstances, to indemnify the Company,
directors, officers and controlling persons of the Company against certain
liabilities, including liabilities under the Securities Act. Reference is
made to the form of Underwriting Agreement filed as Exhibit 1.1 hereto.
The Company maintains directors and officers liability insurance for the
benefit of its directors and certain of its officers.
Item 15. Recent Sales of Unregistered Securities.
In the three years preceding the filing of this registration statement,
the Company has issued the below-listed securities that were not registered
under the Securities Act. The numbers below have been
II-1
<PAGE>
adjusted to give effect to (i) the 15-for-1 split of the Registrant's Common
Stock, in the form of a dividend, which became effective on December 9, 1994
and (ii) the 3-for-1 split of the Registrant's Common Stock, in the form of a
dividend, to be effective immediately prior to this offering.
Between December 1993 and May 13, 1996, the Registrant issued an aggregate
of 990,000 shares of Common Stock upon the exercise of options, at a weighted
average exercise price of approximately $0.03 per share, to certain officers
and employees of the Registrant for total consideration of $24,800.
In addition, the Registrant will issue an aggregate of 100,800 shares of
Common Stock upon the exercise of options at an exercise price of
approximately $.33 per share, immediately prior to the closing of this
offering, to certain officers of the Registrant for total consideration of
$32,928.
Since December 1994, the Registrant has issued options to certain
officers, directors and employees of the Registrant to purchase an aggregate
of 2,409,000 shares of Common Stock under the Registrant's 1994 Long-Term
Incentive Plan at a weighted average exercise price of approximately $2.60
per share.
No underwriters were involved in the foregoing sales of securities. Such
sales were made in reliance upon an exemption from the registration
provisions of the Securities Act set forth in Section 4(2) thereof relative
to sales by an issuer not involving any public offering or the rules and
regulations thereunder, or, in the case of options, Rule 701 of the
Securities Act. All of the foregoing securities are deemed restricted
securities for the purposes of the Securities Act.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit
No. Description
- ---------- ----------------------------------------------------------------------------------------
<S> <C>
1.1.* Form of Underwriting Agreement.
3.1. Articles of Organization of the Registrant, as amended.
3.2. By-Laws of the Registrant.
3.3. Form of Restated Articles of Organization of the Registrant, to be effective immediately
prior to the effectiveness of the offering.
3.4. Form of Restated By-Laws of the Registrant, to be effective immediately prior to the
effectiveness of the offering.
4.1.* Specimen certificate representing the Common Stock.
5.1.* Opinion of Choate, Hall & Stewart with respect to the legality of the securities of the
Registrant being registered.
10.1. Amended and Restated 1994 Long-Term Incentive Plan.
10.2. 1996 Non-Employee Director Stock Option Plan.
10.3. 1996 Employee Stock Purchase Plan.
10.4. Loan Agreement dated as of December 16, 1993 between the Registrant and Fleet Bank of
Massachusetts, N.A.
10.5. Loan Modification Agreement dated as of May 5, 1995 between the Registrant and Fleet
Bank of Massachusetts, N.A.
10.6.* Second Loan Modification Agreement between the Registrant and Fleet National Bank
(successor by merger to Fleet Bank of Massachusetts, N.A.).
10.7. Promissory Note in the amount of $620,000.00 dated December 16, 1993 made by the
Registrant to the order of Fleet Bank of Massachusetts, N.A.
10.8. Promissory Note in the amount of $380,000.00 dated November 17, 1994 made by the
Registrant to the order of Fleet Bank of Massachusetts, N.A.
10.9. Promissory Note in the amount of $1,180,000.00 dated June 28, 1995 made by the
Registrant to the order of Fleet Bank of Massachusetts, N.A.
II-2
<PAGE>
10.10. Promissory Note in the amount of $165,000.00 dated December 28, 1995 made by the
Registrant to the order of Fleet Bank of Massachusetts, N.A.
10.11.* Promissory Note in the amount of $5,000,000 made by the Registrant to the order of Fleet
National Bank.
10.12. Security Agreement dated as of December 16, 1993 between the Registrant and Fleet Bank
of Massachusetts, N.A.
10.13. Lease Agreement dated February 26, 1993 between the Registrant and Riverside Office Park
Joint Venture.
10.14. Amendment Number 1 to Lease Agreement dated August 7, 1994 between the Registrant and
Riverside Office Park Joint Venture.
21.1. Subsidiaries of the Registrant.
23.1. Consent of Ernst & Young LLP.
23.2. Consent of Choate, Hall & Stewart (included in Exhibit 5.1).
24.1. Powers of Attorney (included on page II-4).
27.1. Financial Data Schedule.
99.1 Valuation and Qualifying Accounts of the Registrant.
</TABLE>
*To be filed by amendment.
(b) Financial Statement Schedules:
Schedule II--Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable, not
required under the instructions, or all of the information required is set
forth in the financial statements or notes thereto.
Item 17. Undertakings.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to provisions described in Item 14 above, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
The Registrant hereby undertakes (1) to provide to the Underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser; (2) that for purposes of
determining any liability under the Securities Act, the information omitted
from the form of prospectus filed as part of this Registration Statement in
reliance upon Rule 430A and contained in a form of prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this Registration Statement as of the time
it was declared effective; and (3) that for the purpose of determining any
liability under the Securities Act, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Cambridge, Massachusetts on May
15, 1996.
PEGASYSTEMS INC.
By /s/ Alan Trefler
Alan Trefler
President
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of Pegasystems Inc., hereby
severally constitute and appoint Alan Trefler, Ira Vishner and Robert V.
Jahrling III, and each of them singly, our true and lawful attorneys, with
full power to them and each of them singly, to sign for us in our names in
the capacities indicated below, all pre-effective and post-effective
amendments to this registration statement and any related subsequent
registration statement pursuant to Rule 462(b) of the Securities Act of 1933,
as amended, and generally to do all things in our names and on our behalf in
such capacities to enable Pegasystems Inc. to comply with the provisions of
the Securities Act of 1933, as amended, and all requirements of the
Securities and Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title(s) Date
- ----------------------- ------------------------------- ------------
/s/ Alan Trefler President, Clerk and Director
- ----------------------- (Principal Executive Officer) May 15, 1996
Alan Trefler
/s/ Ira Vishner Vice President of Corporate
- ----------------------- Services, Treasurer and
Ira Vishner Director (Principal Financial
and Accounting Officer) May 15, 1996
/s/ Edward A. Maybury Director May 15, 1996
- ----------------------
Edward A. Maybury
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit Description Page
- ---------- ------------- -----
<S> <C> <C>
1.1.* Form of Underwriting Agreement.
3.1. Articles of Organization of the Registrant, as amended.
3.2. By-Laws of the Registrant.
3.3. Form of Restated Articles of Organization of the Registrant, to be effective immediately
prior to the effectiveness of the offering.
3.4. Form of Restated By-Laws of the Registrant, to be effective immediately prior to the
effectiveness of the offering.
4.1.* Specimen certificate representing the Common Stock.
5.1.* Opinion of Choate, Hall & Stewart with respect to the legality of the securities of the
Registrant being registered.
10.1. Amended and Restated 1994 Long-Term Incentive Plan.
10.2. 1996 Non-Employee Director Stock Option Plan.
10.3. 1996 Employee Stock Purchase Plan.
10.4. Loan Agreement dated as of December 16, 1993 between the Registrant and Fleet Bank of
Massachusetts, N.A.
10.5. Loan Modification Agreement dated as of May 5, 1995 between the Registrant and Fleet
Bank of Massachusetts, N.A.
10.6.* Second Loan Modification Agreement between the Registrant and Fleet National Bank
(successor by merger to Fleet Bank of Massachusetts, N.A.).
10.7. Promissory Note in the amount of $620,000.00 dated December 16, 1993 made by the
Registrant to the order of Fleet Bank of Massachusetts, N.A.
10.8. Promissory Note in the amount of $380,000.00 dated November 17, 1994 made by the
Registrant to the order of Fleet Bank of Massachusetts, N.A.
10.9. Promissory Note in the amount of $1,180,000.00 dated June 28, 1995 made by the
Registrant to the order of Fleet Bank of Massachusetts, N.A.
10.10. Promissory Note in the amount of $165,000.00 dated December 28, 1995 made by the
Registrant to the order of Fleet Bank of Massachusetts, N.A.
10.11.* Promissory Note in the amount of $5,000,000 made by the Registrant to the order of Fleet
National Bank.
10.12. Security Agreement dated as of December 16, 1993 between the Registrant and Fleet Bank
of Massachusetts, N.A.
10.13. Lease Agreement dated February 26, 1993 between the Registrant and Riverside Office Park
Joint Venture.
10.14. Amendment Number 1 to Lease Agreement dated August 7, 1994 between the Registrant and
Riverside Office Park Joint Venture.
21.1. Subsidiaries of the Registrant.
23.1. Consent of Ernst & Young LLP.
23.2. Consent of Choate, Hall & Stewart (included in Exhibit 5.1).
24.1. Powers of Attorney (included on page II-4).
27.1. Financial Data Schedule.
99.1 Valuation and Qualifying Accounts of the Registrant.
</TABLE>
*To be filed by amendment.
The Commonwealth of Massachusetts
OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE
MICHAEL JOSEPH CONNOLLY, Secretary
ONE ASHBURTON PLACE, BOSTON, MASS. 02108
ARTICLE OF ORGANIZATION
(Under G.L. Ch. 156B)
Incorporators
Name POST OFFICE ADDRESS
----
Include given name in full in case of natural persons; in case of a corporation,
give state of incorporation.
Jane G. Hall Room 1500
Gaston Snow & Ely Bartlett
One Federal Street
Boston, MA 02110
The above-named incorporator(s) do hereby associate (themselves) with
the intention of forming a corporation under the provisions of General Laws,
Chapter 156B and hereby state(s):
1. The name by which the corporation shall be known is:
Pegasystems Inc.
2. The purpose for which the corporation is formed is as follows:
To provide consulting services including advice with respect
to computers and computer programs or data; to engage in
research, design, development, systems analysis, manufacture,
purchase, import, export, license, distribution, repair
maintenance and marketing of computer equipment, computer
software, and related products and services; and in general to
carry on any and all businesses and activities permitted to
corporations organized under said Chapter 156B, as amended
from time to time, wherever the same may lawfully be done.
Note: If the space provided under any article or item on this form is
insufficient, additions shall be set forth on separate 8-1/2 x 11 sheets of
paper leaving a left hand margin of at least 1 inch for binding. Additions to
more than one article may be continued on a single sheet so long as each article
requiring each such addition is clearly indicated.
<PAGE>
3. The total number of shares and the par value, if any, of each
class of stock within the corporation is authorized as
follows:
<TABLE>
<CAPTION>
================================================================================================================================
WITHOUT PAR VALUE WITH PAR VALUE
CLASS OF STOCK
--------------------------------------------------------------------------------------------------------
NUMBER OF SHARES NUMBER OF SHARES PAR VALUE AMOUNT
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Preferred $
................................................................................................................................
................................................................................................................................
Common 300,000 $.01 $3,000
================================================================================================================================
</TABLE>
*4. If more than one class is authorized, a description of each of
the different classes of stock with, if any, the preferences,
voting powers, qualifications, special or relative rights or
privileges as to each class thereof and any series now
established:
N/A
*5. The restrictions, if any imposed by the Articles of
Organization upon the transfer of shares of stock of any class
are as follows:
N/A
*6. Other lawful provisions, if any, for the conduct and
regulation of business and affairs of the corporation, for its
voluntary dissolution, or for limiting, defining, or
regulating the powers of the corporation, or of its directors
or stockholders, or of any class of stockholders:
See Attached Pages 6A, 6B, 6C
*If there are no provisions state "None".
<PAGE>
6A
The following provisions are hereby established for the conduct and
regulation of the business and affairs of the corporation, for its voluntary
dissolution, or for limiting, defining or regulating the powers of the
corporation, or of its directors or stockholders:
The corporation may be partner in any business enterprise which the
corporation has power to conduct by itself.
Meetings of stockholders may be held anywhere in the United States as
shall be determined from time to time by the directors or as shall be stated in
the call of the meeting.
The by-laws may provide that the directors may make, amend or repeal
the by-laws, in whole or in part, except with respect to any provision thereof
which by law, by the articles of organization or by the by-laws requires action
by the stockholders.
Except as specifically authorized by statute, no stockholder shall have
any right to examine any property or any books, accounts or other writings of
the corporation if there is reasonable ground for belief that such examination
will for any reason be adverse to the interests of the corporation, and a vote
of the directors refusing permission to make such examination and setting forth
that in the opinion of the directors such examination would be adverse to the
interests of the corporation shall be prima facie evidence that such examination
would be adverse to the interests of the corporation. Every such examination
shall be subject to such reasonable regulations as the directors may establish
in regard thereto.
The corporation may enter into contracts and otherwise transact
business as vendor, purchaser or otherwise with its directors, officers and
stockholders and with corporations, joint stock companies, trusts, firms and
associations in which they are or may be or become interested as directors,
officers, shareholders, members, trustees, beneficiaries or otherwise as freely
as though such adverse interest did not exist even though the vote, action or
presence of such director, officer or stockholder may be necessary to obligate
the corporation upon such contract or transaction; and no such contract or
transaction shall be avoided and not such director, officer or stockholder shall
be held liable to account to the corporation or to any creditor or stockholder
of the corporation for any profit or benefit realized by him through any such
contract or transaction by reason of such adverse interest not by reason of any
fiduciary relationship of such director, officer or stockholder to the
corporation arising out of such office or stock ownership; provided (in the case
of directors and officers but not in the case of any stockholder who is not a
director or officer of the corporation) the nature of the interest of such
director or officer, though not necessarily
<PAGE>
6B
the details or extent thereof, be known by or disclosed to the directors.
Ownership of or beneficial interest in a minority of the stock or
securities of another corporation, joint stock company, trust, firm or
association shall not be deemed to constitute an interest adverse to this
corporation in such other corporation, joint stock company, trust, firm or
association and need not be disclosed. A general notice that a director or
officer of the corporation is interested in any corporation, joint stock
company, trust firm or association shall be sufficient disclosure as to such
director or officer with respect to all contracts and transactions with that
corporation, joint stock company, trust, firm or association. In any event the
authorization or ratifying vote of a majority of the capital stock of the
corporation outstanding and entitled to vote passed at a meeting duly called and
held for the purpose shall validate any such contract or transaction as against
all stockholders of the corporation, whether of record or not at the time of
such vote, and as against all creditors and other claimants, under the
corporation, and no contract or transaction shall be avoided by reason of any
provision of this paragraph which would be valid but for these provisions.
The corporation shall, to the extent legally permissible, indemnify
each of its directors and officers and persons who serve at its request as
directors or officers of another organization in which it directly or indirectly
owns shares or of which it is a creditor, against all liabilities (including
expenses) imposed upon or reasonably incurred by him in connection with any
action, suit or other proceeding in which he may be involved or with which he
may be threatened, while in office or thereafter, by reason of his acts or
omissions as such director or officer, unless in any proceeding he shall be
finally adjudged not to have acted in good faith in the reasonable belief that
his action was in the best interest of the corporation; provided, however,
that such indemnification shall not cover liabilities in connection with any
matter which shall be disposed of through a compromise payment by such director
or officer, pursuant to a consent decree or otherwise, unless such compromise
shall be approved as in the best interests of the corporation, after notice that
it involves such indemnification, (a) by a vote of the directors in which no
interested director participates, or (b) by a vote or the written approval of
the holders of a majority of the outstanding stock at the time having the right
to vote for directors, not counting as outstanding any stock owned by any
interested director or officer. Such indemnification may include payment by the
corporation of expenses incurred in defending a civil or criminal action or
proceeding in advance of the final disposition of such action or proceeding,
upon receipt of an undertaking by the person indemnified to repay such payment
if he shall be adjudicated to be not entitled to indemnification hereby provided
shall not be exclusive of or
<PAGE>
6C
affect other rights to which any director or officer may be entitled.
As used in this paragraph, the terms "director" and "officer" include their
respective heirs, executors and administrators, and an "interested" director or
officer is one against whom as such the proceeding in question or another
proceeding on the same or similar grounds is then pending.
Indemnification of employees and other agents of the corporation
(including persons who serve at its request as employees or other agents of
another organization in which it owns shares or of which it is a creditor) may
be provided by the corporation to whatever extent shall be authorized by the
directors before or after the occurrence of any event as to or in consequence of
which indemnification may be sought. An indemnification to which a person is
entitled under these provisions may be provided although the person to be
indemnified is no longer a director, officer, employee or agent of the
corporation or of such other organization.
The terms and conditions upon which a sale or exchange of all the
property and assets, including the good will of the corporation, or any part
hereof, is voted may include the payment therefor in whole or in part in shares,
notes, bonds or other certificates of interest or indebtedness of any voluntary
association, trust, joint stock company or corporation. Such vote or a
subsequent vote may in the event of or in contemplation of proceedings for the
dissolution of the corporation also provide, subject to the rights of creditors
and preferred stockholders, for the distribution pro rata among the stockholders
of the corporation, of the proceeds of any such sale or exchange whether such
proceeds be in cash or in securities as aforesaid (at values to be determined by
the directors).
<PAGE>
7. By-laws of the corporation have been duly adopted and the
initial directors, president, treasurer and clerk, whose names
are set out below, have been duly elected.
8. The effective date of organization of the corporation shall be
the date of filing with the Secretary of the Commonwealth or
if later date is desired, specify date (not more than 30 days
after the date of filing).
9. The following information shall not for any purpose be treated
as a permanent part of the Articles of Organization of the
corporation.
a. The post office address of the initial principal
office of the corporation of Massachusetts is:
16 Winter Street #47A, Waltham, MA 02154
b. The name, residence, and post office address of each
of the initial directors and following officers of
the corporation are as follows:
<TABLE>
<CAPTION>
==========================================================================================================================
NAME RESIDENCE POST OFFICE ADDRESS
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
President: Alan N. Trefler 16 Winter Street #47A 16 Winter Street #47A
Waltham, MA 02154 Waltham, MA 02154
- --------------------------------------------------------------------------------------------------------------------------
Treasurer: Alan N. Trefler same as above same as above
- --------------------------------------------------------------------------------------------------------------------------
Clerk: Alan N. Trefler same as above same as above
- --------------------------------------------------------------------------------------------------------------------------
Assistant
Clerk: Donna M. Sherry 105 Thornberry Road One Federal Street
Winchester, MA 01890 Boston, MA 02110
- --------------------------------------------------------------------------------------------------------------------------
Director: Alan N. Trefler same as above same as above
==========================================================================================================================
</TABLE>
c. The date initially adopted on which the corporation's
fiscal year ends is:
December 31
d. The date initially fixed in the by-laws for the
annual meeting of stockholders of the corporation is:
Third Tuesday in April
e. The name and business address of the resident agent,
if any, of the corporation is:
N/A
IN WITNESS WHEREOF and under the penalties of perjury the INCORPORATOR(S)
sign(s) these Articles of Organization this 20th day of April, 1983.
[Signature of Jane G. Hall]
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
The signature of each incorporator which is not a natural person must be an
individual who shall show the capacity in which he acts and by signing shall
represent under the penalties of perjury that he is duly authorized on its
behalf to sign these Article of Organization.
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF ORGANIZATION
GENERAL LAWS, CHAPTER 156B, SECTION 12
=======================================
I hereby certify that, upon an examination of the within written
articles of organization, duly submitted to me, it appears that the provisions
of the General Laws relative to the organization of corporations have been
complied with, and I hereby approve said articles; and the filing fee in the
amount of $150.00 having been paid, said articles are deemed to have been filed
with me this 21st day of April, 1983.
Effective date
/s/ Michael Joseph Connolly
MICHAEL JOSEPH CONNOLLY
Secretary of State
PHOTO COPY OF ARTICLES OF ORGANIZATION TO BE SENT
TO BE FILLED IN BY CORPORATION
TO:
Donna M. Sherry, Esq.
Gaston Snow & Ely Bartlett
One Federal Street
Boston, MA 02110
Telephone: 426-4600
FILING FEE: 1/20 of 1% of the total amount of the authorized
capital stock with par value, and one cent a share for all
authorized shares without par value, but not less than $125.
General Laws, Chapter 156B. Shares of stock with a par value less
than one dollar shall be deemed to have par value of one dollar per
share.
Copy Mailed
<PAGE>
The Commonwealth of Massachusetts
JCM
- ---------
Examiner
OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE
MICHAEL J. CONNOLLY, Secretary
ONE ASHBURTON PLACE, BOSTON, MASSACHUSETTS 02108
ARTICLES OF AMENDMENT FEDERAL IDENTIFICATION
General Laws, Chapter 156B, Section 72 NO. 04-2787865
I, Alan N. Trefler , President and
Clerk of
PEGASYSTEMS INC.
- -------------------------------------------------------------------------------
(EXACT Name of Corporation)
located at: 101 Main Street, Cambridge, MA 02142
-------------------------------------------------------------------
(MASSACHUSETTS Address of Corporation)
do hereby certify that these ARTICLES OF AMENDMENT affecting Articles
NUMBERED: 3
--
- ------------------------------------------------------------------------------
(Number those articles 1, 2, 3, 4, 5 and/or 6 being amended hereby)
- -------
Name
Approved
of the Articles of Organization were duly adopted by unanimous written consent
dated December 9, 1994, by vote of:
522,000 shares of Common out of 522,000 shares outstanding,
- ------------ -------------- -----------
type, class & series, (if any)
shares of out of shares outstanding, and
- ------------ -------------- -----------
type, class & series, (if any)
shares of out of shares outstanding,
- ------------ -------------- -----------
type, class & series, (if any)
CROSS OUT
INAPPLI-
CABLE
CAUSE
being at least a majority of each type, class or series outstanding
and entitled to vote thereon:-1
being at least two-thirds of each type, class or series outstanding and entitled
to vote thereon and of each type, class or series of stock whose rights are
adversely affected thereby:-2
Third: The total number of shares of stock
which the Corporation shall have the
authority to issue is 9,000,000
shares of common stock, $.01 par value.
C [ ]
P [ ]
M [ ]
R.A [ ]
1 For amendments adopted pursuant to Chapter 156B, Section 70.
2 For amendments adopted pursuant to Chapter 156B, Section 71.
Note: If the space provided under any Amendment or item on this form is
insufficient, additions shall be set forth on separate 8-1/2 x 11 sheets of
paper leaving a left-hand margin of at least 1 inch for binding. Additions to
more than one Amendment may be continued on a single sheet so long as each
Amendment requiring each such addition is clearly indicated.
<PAGE>
To CHANGE the number of shares and the par value (if any) of any type, class or
series of stock which the corporation is authorized to issue, fill in the
following:
The total presently authorized is:
<TABLE>
<CAPTION>
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
- ---------------------------------------------------- -----------------------------------------------------------------------
- ---------------------------------------------------- -----------------------------------------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- ---------------------------------------------------- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON: COMMON: 600,000 $.01
.................................................... .......................................................................
.................................................... .......................................................................
- ---------------------------------------------------- -----------------------------------------------------------------------
PREFERRED: PREFERRED:
.................................................... .......................................................................
.................................................... .......................................................................
- ---------------------------------------------------- -----------------------------------------------------------------------
CHANGE the total authorized to:
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
- ---------------------------------------------------- -----------------------------------------------------------------------
- ---------------------------------------------------- -----------------------------------------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- ---------------------------------------------------- -----------------------------------------------------------------------
COMMON: COMMON: 9,000,000 $.01
.................................................... .......................................................................
.................................................... .......................................................................
- ---------------------------------------------------- -----------------------------------------------------------------------
PREFERRED: PREFERRED:
.................................................... .......................................................................
.................................................... .......................................................................
- ---------------------------------------------------- -----------------------------------------------------------------------
</TABLE>
<PAGE>
The foregoing amendment will become effective when these articles of amendment
are filed in accordance with Chapter 156B, Section 6 of The General Laws unless
these articles specify, in accordance with the vote adopting the amendment, a
later effective date not more than thirty days after such filing, in which event
the amendment will become effective on such later date. LATER EFFECTIVE DATE:
- ------------------------------------------------------------------------------
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereunto signed
our names this 24th day of December, in the year 1994.
President
- ---------------------------------------------------------------------
Alan N. Trefler
Clerk
- ----------------------------------------------------------------------
Alan N. Trefler
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
GENERAL LAWS, CHAPTER 156B, SECTION 72
============================================
I hereby approve the within articles of amendment and, the filing fee
in the amount of $8,400 having been paid, said articles are deemed to have been
filed with me this 29th day of December, 1994.
[Signature of Michael Joseph Connolly]
MICHAEL J. CONNOLLY
Secretary of State
TO BE FILLED IN BY CORPORATION
PHOTOCOPY OF ARTICLES OF AMENDMENT TO BE SENT
TO: Ira Vishner
PEGASYSTEMS INC.
101 Main Street, Cambridge, MA 02142
Telephone: (617) 374-9600
<PAGE>
The Commonwealth of Massachusetts
- -----------
Examiner
OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE
MICHAEL J. CONNOLLY, Secretary
ONE ASHBURTON PLACE, BOSTON, MASS. 02108
ARTICLES OF AMENDMENT FEDERAL IDENTIFICATION
General Laws, Chapter 156B, Section 72 NO. 04-2787865
This certificate must be submitted to the Secretary of the Commonwealth
within sixty days after the date of the vote of stockholders adopting the
amendment. The fee for filing this certificate is prescribed by General Laws,
Chapter 156B, Section 114. Make check payable to the Commonwealth of
Massachusetts.
----------------
I, Alan N. Trefler , President and
Alan N. Trefler , Clerk of
Pegasystems Inc.
- -------------------------------------------------------------------------------
(Name of Corporation)
located at 875 Main Street, Cambridge, MA 02139
--------------------------------------------------------------------
- ---------------
Name
Approved
do hereby certify that the following amendment to the articles of organization
of the corporation was duly adopted at a meeting held on June 25, 1984, by vote
of
50,000 shares of common stock out of 50,000 shares outstanding,
- ------------- -------------- ---------
(Class of Stock)
shares of out of shares outstanding, and
- ------------- -------------- ---------
(Class of Stock)
shares of out of shares outstanding,
- ------------- -------------- ---------
(Class of Stock)
CROSS OUT
INAPPLICABLE
CLAUSE
being at least a majority of each class outstanding and entitled
to vote thereon:-1
two-thirds of each class outstanding and entitled to vote
thereon and of each class or series of stock whose rights are
adversely affected thereby:-2
Third: The total number of shares of stock
which the Corporation shall have
the authority to issue is 600,000
shares of common stock, $.01 par value.
1 For amendments adopted pursuant to Chapter 156B, Section 70.
2 For amendments adopted pursuant to Chapter 156B, Section 71.
C [ ]
F [ ]
M [ ]
- ---------
P.C.
Note: If the space provided under any Amendment or item on this form is
insufficient, additions shall be set forth on separate 8-1/2 x 11 sheets of
paper leaving a left hand margin of at least 1 inch for binding. Additions to
more than one Amendment may be continued on a single sheet so long as each
Amendment requiring each such addition is clearly indicated.
<PAGE>
To CHANGE the number of shares and the par value, if any, of each class of stock
within the corporation fill in the following:
The total presently authorized is:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
NO PAR VALUE WITH PAR VALUE PAR
KIND OF STOCK NUMBER OF SHARES NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON 300,000 $.01
............................................................................................................
............................................................................................................
- ------------------------------------------------------------------------------------------------------------
PREFERRED
............................................................................................................
............................................................................................................
- ------------------------------------------------------------------------------------------------------------
CHANGE the total to:
- ------------------------------------------------------------------------------------------------------------
NO PAR VALUE WITH PAR VALUE PAR
KIND OF STOCK NUMBER OF SHARES NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
COMMON 600,000 $.01
............................................................................................................
............................................................................................................
- ------------------------------------------------------------------------------------------------------------
PREFERRED
............................................................................................................
............................................................................................................
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
The foregoing amendment will become effective when these articles of
amendment are filed in accordance with Chapter 156B, Section 6 of The General
Laws unless these articles specify, in accordance with the vote adopting the
amendment, a later effective date not more than thirty days after such filing,
in which event the amendment will become effective on such later date.
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed our
names this 20th day of July, in the year 1984.
[Signature of Alan Trefler] President
[Signature of Alan Trefler] Clerk
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
(General Laws, Chapter 156B, Section 72)
I hereby approve the within articles of amendment and, the filing fee
in the amount of $150.00 having been paid, said articles are deemed to have been
filed with me this 26th day of July, 1984.
[Signature of Michael Joseph Connolly]
MICHAEL JOSEPH CONNOLLY
Secretary of State
TO BE FILLED IN BY CORPORATION
PHOTO COPY OF AMENDMENT TO BE SENT
TO:
J. Thomas Franklin
Gaston Snow & Ely Bartlett
One Federal Street, Boston, MA 02110
Telephone
Copy Mailed Aug. 15, 1984
BY-LAWS
OF
Pegasystems,Inc.
ARTICLE I.
----------
Articles of Organization
------------------------
All provisions of these by-laws for the regulation and management of
the affairs of the corporation shall be subject to such provisions in regard
thereto, if any, as are set forth in the articles of organization as from time
to time amended. All references in these by-laws to the articles of organization
shall be deemed to refer to the articles of organization of the corporation, as
amended and in effect from time to time.
ARTICLE II.
-----------
Place of Stockholders' Meetings
-------------------------------
Meetings of the stockholders shall be held in Massachusetts or, to the
extent permitted by the articles or organization, elsewhere in the United States
as shall be determined from time to time by the president or the directors and
stated in the notice of the meeting.
ARTICLE III.
------------
Annual Meeting
--------------
There shall be an annual meeting of stockholders at the principal
office of the corporation on the third Tuesday in April in each year, if it be
not a legal holiday and if it be a legal holiday, then at the same hour on the
next succeeding day not a legal holiday unless a different hour or place or both
shall have been determined by the directors and stated in the notice of the
meeting. Purposes for which an annual meeting is to be held additional to those
prescribed by law, by the articles of organization and by these by-laws may be
specified by the directors or by the president and shall be included in the
notice of the meeting by the clerk, or, in case of the death, absence,
incapacity or refusal of the clerk, by another officer upon written application
by one or more stockholders who hold at least one-tenth part in interest of the
capital stock entitled to vote thereon. In the event an annual meeting has not
been held on the date fixed in this article, a special meeting in lieu of the
annual meeting may be held with all the force and effect of an annual meeting.
<PAGE>
ARTICLE IV.
-----------
Special Meetings of Stockholders
--------------------------------
Special meetings of stockholders may be called by the president or by
the directors, and shall be called by the clerk, or, in case of the death,
absence, incapacity or refusal of the clerk, by any other officer, upon written
application of one or more stockholders who hold at least one-tenth part in
interest of the capital stock entitled to vote thereat. Such call may be oral or
written and shall state the time, place and purposes of the meeting.
ARTICLE V.
----------
Notice of Stockholders' Meeting
--------------------------------
A written notice of the place, date and hour of all meetings of
stockholders, stating the purposes of the meeting, shall be given by the clerk
(or other person empowered to call special meetings of stockholders) at least
seven days before the meeting to each stockholder entitled to vote thereat and
to each stockholder who, by law, the articles of organization or these by-laws,
is entitled to such notice, by leaving such notice with him or at his residence
or usual place of business, or by mailing it, postage prepaid, and addressed to
such stockholder at his address as it appears in the records of the corporation.
In case of the death, absence, incapacity or refusal of the clerk or such other
person, such notice may be given by any other officer or by a person designated
either by the clerk or by the person or persons calling the meeting or by the
board of directors.
Whenever notice of a meeting is required to be given to a stockholder
under any provisions of law, of the articles of organization or of these
by-laws, a written waiver thereof, executed before or after the meeting by such
stockholder or his attorney thereunto authorized and filed with the records of
the meeting, shall be deemed equivalent to such notice.
ARTICLE VI.
-----------
Quorum of Stockholders
-----------------------
The holders of a majority in interest of all stock issued, outstanding
and entitled to vote on any matter shall constitute a quorum with respect to
such matter, but, if a quorum is not present, holders of a lesser interest may
adjourn any meeting from time to time, and the meeting may be held as adjourned
without further notice; except that, if two or more classes of stock are
outstanding and entitled to vote as separate classes, then in the case of each
such class, a quorum shall consist of the holders of a majority in interest of
the stock of that class issued,
2
<PAGE>
outstanding and entitled to vote. Stock owned directly or indirectly by the
corporation, if any, shall not be deemed outstanding for the purpose of
determining a quorum.
ARTICLE VII.
------------
Proxies and Voting
------------------
Stockholders entitled to vote shall have the number of votes specified
in the articles of organization for each share of stock owned by them and a
proportionate vote for a fractional share. Stockholders may vote in person or by
written proxy dated not more than six months before the meeting named therein.
Proxies shall be filed with the clerk of the meeting, or of any adjournment
thereof, before being voted. Except as otherwise limited therein, proxies shall
entitle the person named therein to vote at any meeting or adjournment of such
meeting but shall not be valid after final adjournment of such meeting. A proxy
with respect to stock held in the name of two or more persons shall be valid if
executed by any one of them unless at or prior to its exercise the corporation
receives a specific written notice to the contrary from any one of them. A proxy
purporting to be executed by or on behalf of a stockholder shall be deemed valid
unless challenged at or prior to its exercise, and the burden of proving
invalidity shall rest on the challenger.
When a quorum is present at any meeting, the holders of a majority of
the stock represented thereat and entitled to vote on any question (or if there
are two or more classes of stock entitled to vote as separate classes, then in
the case of each such class, the holders of a majority of the stock of that
class represented thereat and entitled to vote on any question) other than an
election by stockholders shall, except where a larger vote is required by law,
by the articles of organization or by these by-laws, decide any question brought
before such meeting. Any election by stockholders shall be determined by a
plurality of the votes cast.
Any action to be taken by stockholders may be taken without a meeting
if all stockholders entitled to vote on the matter consent to the action in
writing and the written consents are filed with the records of the meetings of
stockholders.
ARTICLE VIII.
-------------
Fixing Record Date; Closing Transfer Books
------------------------------------------
The directors may fix in advance a time which, unless a shorter period
is provided in the articles of organization, shall not be more than sixty days
before the date of any meeting of stockholders or the date for the payment of
any dividend or the making of any distribution to stockholders or the last day
on which
3
<PAGE>
the consent or dissent of stockholders may be effectively expressed for any
purpose, as the record date for determining the stockholders having the right to
notice of and to vote at such meeting and any adjournment thereof or the right
to receive such dividend or distribution or the right to give such consent or
dissent, and in such case only stockholders of record on such date shall have
such right, notwithstanding any transfer of stock on the books of the
corporation after the record date. Without fixing such record date the directors
may for any of such purposes close the transfer books for any part or all of
such period.
If no record date is fixed and the transfer books are not closed, the
record date for determining stockholders having the right to notice of and to
vote at any meeting of stockholders shall be the close of business on the day
next preceding the day on which notice of such meeting is given and the record
date for determining stockholders for any other purpose shall be the close of
business on the day on which the board of directors acts with respect to such
purposes.
ARTICLE IX.
-----------
Board of Directors
------------------
Except as conferred upon or reserved to the stockholders by law, the
articles of organization or these by-laws, the business of the corporation shall
be managed by a board of not less than three (except that whenever there shall
be only two stockholders, the number of directors shall be not less than two and
whenever there shall be only one stockholder or prior to the issuance of any
stock, there shall be at least one director) nor more than three directors as
shall be fixed and elected at the annual meeting of stockholders by such
stockholders as have the right to vote thereon. Any such election shall be by
ballot if so requested by any stockholder entitled to vote thereon. During any
year, the board of directors may be enlarged and additional directors elected to
complete the enlarged number, to not more than the maximum number above
specified, by the stockholders at any meeting or by a vote of a majority of the
directors then in office. The stockholders may, at any meeting held for the
purpose during such year, decrease to not fewer than the minimum number above
specified, the number of directors as thus fixed or enlarged and remove
directors to the decreased number.
Subject to the provisions of the articles of organization and to other
provisions of these by-laws, each director shall hold office until the next
annual meeting and until his successor is chosen and qualified. Any director may
resign by delivering his written resignation to the corporation at its principal
office or to the president, clerk, or secretary. Such resignation shall be
effective upon receipt unless it is specified to be effective at some other time
or upon the happening of some other event.
4
<PAGE>
ARTICLE X.
----------
Powers of Directors
-------------------
The board of directors may exercise all the powers of the corporation
except such as by law, by the articles of organization or by other provisions of
these by-laws are conferred upon or reserved to the stockholders. In the event
of a vacancy in the board of directors, the remaining directors, except as
otherwise provided by law, may exercise all powers of the board until the
vacancy is filled.
ARTICLE XI.
-----------
Committees
----------
The directors may provide for an executive committee or other
committees to be elected from and by the directors and, except as otherwise
provided by law, may delegate to any such committee or committees such of the
powers of the directors as the directors shall designate, may determine the
tenure and composition of such committees, the manner of conducting committee
business, the number of members required to constitute a quorum or required to
take specified types of action and any or all of their other characteristics and
authority. Except as the board of directors may otherwise determine, any such
committee may make rules for the conduct of its business, but unless otherwise
provided by the board of directors or in such rules, its business shall be
conducted so far as possible in the same manner as is provided by these by-laws
for the board of directors. All members of such committees shall hold such
offices at the pleasure of the board of directors. The board of directors may
abolish any such committee at any time. The board of directors shall have power
to rescind any action of any committee, but no such rescission shall have
retroactive effect.
ARTICLE XII.
------------
Meeting of the Board of Directors
and of Committees
---------------------------------
Meetings of the directors may be held within or without Massachusetts.
Regular meetings of the directors may be held without notice if the
time and place of such meetings are fixed by the board, provided that any
director who is absent when the vote fixing such time and place is taken shall
be given notice of such vote. A regular meeting of the directors may be held
without call or formal notice immediately after, and at the same place as, the
annual meeting of stockholders, or the special meeting of stockholders held in
place of such annual meeting.
5
<PAGE>
Special meetings of the directors may be held at any time and at any
place when called, orally or in writing, by the president, treasurer, or two or
more directors, reasonable notice thereof being given to each director by the
secretary (or, if there be no secretary, by the clerk), or, in case of the
death, absence, incapacity or refusal of the secretary (or the clerk, as the
case may be), by the officer or directors calling the meeting. In any case, the
sending of notice by mail, at least forty-eight hours, or by telegram, at least
twenty-four hours, before the meeting, addressed to the directors at their usual
or last known business or residence addresses, shall be deemed reasonable
notice.
Notice of a meeting need not be given to any director, if a written
waiver of notice, executed by him before or after the meeting, is filed with the
records of the meeting, or to any director who attends the meeting without
protesting prior thereto or at its commencement the lack of notice to him. A
notice or waiver of notice need not specify the purpose of any meeting of the
directors.
Except as the articles or organization or other provisions of these
by-laws otherwise provide, (a) any action required or permitted to be taken at
any meeting of the directors or of any committee thereof may be taken without a
meeting, if all members of the board or of such committee consent to the action
in writing and the written consents are filed with the records of the meetings
of the directors or committee, and such consents shall be treated for all
purposes as a vote at a meeting; and (b) members of the board of directors or of
any committee designated thereby may participate in a meeting of such board or
committee by means of a conference telephone or similar communications equipment
whereby all persons participating in the meeting can hear each other at the same
time, and participation by such means shall constitute presence in person at the
meeting.
ARTICLE XIII.
-------------
Quorum of the Board of Directors
--------------------------------
A majority of the board of directors then in office shall constitute a
quorum for the transaction of business. A number less than a quorum may adjourn
any meeting from time to time, and the meeting may be held as adjourned without
further notice. When a quorum is present at any meeting, a majority of the
directors present may take any action on behalf of the board except to the
extent that a larger number is required by law, by the articles of organization
or by other provisions of these by-laws.
6
<PAGE>
ARTICLE XIV.
------------
Officers and Agents
-------------------
The officers of the corporation shall consist of a president, a
treasurer and a clerk, and such other officers, including but not limited to one
or more vice presidents and a secretary, as the directors may appoint. The
president, who shall be a director, the treasurer and the clerk shall be elected
by the directors at their first meeting following the annual meeting of the
stockholders. The clerk shall be a resident of Massachusetts unless a resident
agent of the corporation shall be appointed as permitted by law. So far as is
permitted by law, any two or more offices may be filled by the same person.
Subject to law, to the articles of organization and to other provisions of these
by-laws, each officer elected by the directors shall hold office until the first
meeting of the board of directors following the next annual meeting of the
stockholders and until his successor is chosen and qualified. Any officer may
resign by delivering his written resignation to the president, clerk, or
secretary, and such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event. Any officer or agent of the corporation may be required by the directors
to give bond in such amount and with such sureties as the directors may
determine for the faithful performance of his duties. The premiums for such
bonds may be paid by the corporation.
The directors may define the respective tenure, authority and duties of
all officers and agents appointed by them except as other provisions of these
by-laws may fix the tenure, authority or duties of any such officer.
ARTICLE XV.
-----------
The President
-------------
The president shall be the chief executive officer of the corporation
and shall have the powers generally pertaining to that office, subject to the
supervision and direction of the directors. Except as otherwise voted by the
directors, he shall preside at al meetings of the stockholders and of the
directors at which he is present. In addition, the present shall have such other
powers and perform such other duties as the directors may from time to time
prescribe.
ARTICLE XVI.
------------
Vice President
--------------
In the absence of the president or in case of his inability to act, the
senior vice president in length of service as vice president shall preside at
all meetings of the stockholders and
7
<PAGE>
directors at which the president, if present, would have presided. Any vice
president shall have such other powers and perform such other duties as the
directors may from time to time prescribe.
ARTICLE XVII.
-------------
Treasurer and Assistant Treasurer
---------------------------------
Subject to the supervision and direction of the directors, the
treasurer shall have general charge of the financial concerns of the corporation
and the care and custody of the funds and valuable papers of the corporation,
except as the directors may otherwise provide. He shall keep, or cause to be
kept, accurate books of account, which shall be the property of the corporation,
and shall have such other powers and perform such other duties as the directors
may from time to time prescribe.
Any assistant treasurer shall have such powers and perform such duties
as the directors may from time to time prescribe.
ARTICLE XVIII.
--------------
Clerk and Assistant Clerk
-------------------------
The clerk shall record all proceedings of the stockholders, and, if no
secretary is appointed, of the directors, in a book or books to be kept
therefor.
The clerk shall also keep, or cause to be kept, in Massachusetts, the
original, or attested copies, of the articles of organization, by-laws, and
records of all meetings of incorporators and stockholders for inspection by
stockholders at the principal office of the corporation or at the office of the
clerk or of a transfer agent or the resident agent if any be appointed. Unless a
transfer agent is appointed, the clerk shall also keep or cause to be kept at
any such office the stock and transfer records, which shall contain the names of
all stockholders and the record address and the amount of stock held by each,
for inspection by stockholders. Any such inspection by a stockholder of the
articles of organization, by-laws, records of meetings of the incorporators or
stockholders, or the stock and transfer records must be at a reasonable time and
for a proper purpose, but not to secure a list of stockholders for the purpose
of selling said list of copies thereof or of using the same for a purpose other
than in the interest of the applicant, as a stockholder, relative to the affairs
of the corporation.
Said copies and records need not all be kept in the same office.
Any assistant clerk shall have the powers and perform the duties of the
clerk in his absence or in case of his inability to
8
<PAGE>
act and shall have such other powers and duties as the directors may from time
to time prescribe. If neither the clerk nor any assistant clerk is present at
any meeting of the stockholders, a temporary clerk to be designated by the
person presiding at the meeting shall perform the duties of the clerk.
ARTICLE XIX.
------------
Secretary and Assistant Secretary
---------------------------------
If a secretary is appointed, he shall record all proceedings of the
directors in a book to be kept therefor. In the absence of the secretary at any
such meeting, an assistant secretary, or, if none, a temporary secretary
designated by the person presiding at the meeting shall record the proceedings
of such meeting in the record book.
Any assistant secretary shall have the powers and perform the duties of
the secretary in his absence or in case of his inability to act and shall have
such other powers and duties as the directors may from time to time prescribe.
ARTICLE XX.
-----------
Removals
--------
Except as the articles of organization provide otherwise, directors,
including persons elected by directors to fill vacancies on the board, may be
removed from their respective offices with or without cause by the vote of the
holders of a majority of the shares entitled to vote in the election of such
directors and such stockholders may likewise elect successors; provided, that
the directors of a class elected by a particular class of stockholders may be
removed, and their successors may be elected, only by the vote of the holders of
a majority of the shares of such class. Officers may be removed from their
respective offices with or without cause by vote of a majority of the directors
then in office; provided, that an officer may be removed for cause only after
reasonable notice and opportunity to be heard by the board of directors.
Directors may be removed from office for cause by vote of a majority of the
directors then in office after reasonable notice and opportunity to be heard;
vacancies so created may be filled by the directors pending the filling of such
vacancies by such stockholders.
ARTICLE XXI.
------------
Vacancies
---------
Except as the articles of organization provide otherwise, any vacancy
in the board of directors, however occurring, including a vacancy resulting from
resignation of a director or enlargement of
9
<PAGE>
the board, and any vacancy in any other office, however occurring, may be filled
by the directors or the remaining directors, though less than a quorum, unless
such vacancy, if in the office of director, shall have been filled by the
stockholders. Successors so elected shall hold office for the unexpired term,
subject to the provisions of Article XX of these by-laws. In lieu of filling any
vacancy in the board of directors, the stockholders, in accordance with Article
IX of these by-laws, may reduce the number of directors, but not to a number
less than three or less than the number of stockholders, if less than three.
ARTICLE XXII.
-------------
Certificates of Stock
---------------------
Each stockholder shall be entitled to a certificate stating the number
and the class and the designation of the series, if any, of the shares held by
him in the corporation, and setting forth any other information required by law,
in such form as shall, in conformity with law, be prescribed from time to time
by the board of directors. Such certificate shall be signed by the president or
a vice president and by the treasurer or an assistant treasurer. Such signatures
may be facsimiles if the certificate is signed by a transfer agent or by a
registrar, other than a director, officer, or employee of the corporation. In
case any officer who has signed or whose facsimile signature has been placed on
such certificate shall have ceased to be such officer before such certificate is
issued, it may be issued by the corporation with the same effect as if he were
such officer at the time of its issue.
Every certificate for shares of stock which are subject to any
restriction on transfer pursuant to the articles of organization, these by-laws
or any agreement to which the corporation is a party, shall have the restriction
noted conspicuously on the certificate and shall also set forth on the face or
back either the full text of the restriction or a statement of the existence of
such restriction and a statement that the corporation will furnish a copy
thereof to the holder of such certificate upon written request and without
charge. Every certificate issued when the corporation is authorized to issue
more than one class or series of stock shall set forth on its face or back
either the full text of the preferences, voting powers, qualifications and
special and relative rights of the shares of each class and series authorized to
be issued or a statement of the existence of such preferences, powers,
qualifications and rights, and a statement that the corporation will furnish a
copy thereof to the holder of such certificate upon written request and without
charge.
10
<PAGE>
ARTICLE XXIII.
--------------
Transfer of Shares of Stock
---------------------------
Subject to the restrictions on transfer, if any, imposed by the
articles of organization or these by-laws, noted conspicuously on the
certificate and set forth or referred to on the certificate in the manner
required by law and these by-laws, and to notice of adverse claims afforded in
the manner required by law, title to a certificate of stock and to the shares
represented thereby may be transferred (with the effects provided by law) by
delivery of the certificate, but such transfer shall be effective as to third
persons only when an appropriate person shall have signed on it or on a separate
document an assignment or transfer of such certificate and of the shares or any
of them represented thereby or a power to assign or transfer them or when the
signature of such person is written without more upon the back of such
certificate. Such indorsement may be in blank or may specify the person to whom
such certificate and shares are to be transferred or who has power to transfer
it. When any certificate of stock is presented to the corporation with a request
to register transfer of the same and of the shares represented thereby or any of
them, the corporation shall register the transfer as requested if there are on
or with such certificate the necessary indorsements aforesaid and if reasonable
assurance is given to the corporation that such indorsements or assignments or
power, one or more, are genuine and effective and if the corporation has no duty
to inquire into adverse claims or has discharged such duty and if any and all
applicable laws relating to the collection of taxes have been complied with and
if such transfer is in fact rightful or is to a bona fide purchaser. Prior to
due presentment for registration of such a transfer, the corporation may treat
the registered owner appearing on its books as the person exclusively entitled
to vote, to receive notifications and otherwise to exercise all the rights and
powers of an owner. Nothing herein contained shall be construed to affect the
liability of the owner of shares registered on the books of the corporation for
calls, assessments or the like.
It shall be the duty of each stockholder to notify the corporation of
his post office address.
ARTICLE XXIV.
-------------
Restrictions on Transfer
------------------------
The following restrictions are imposed upon the transfer of shares of
the capital stock of the corporation:
The corporation shall have the right to purchase, or to direct the
transfer of, the shares of its capital stock in the events and subject to the
conditions and at a price fixed as provided below; each holder of shares of such
capital stock holds his shares
11
<PAGE>
subject to this right and by accepting the same upon original issue or
subsequent transfer thereof, the stockholder agrees for himself, his legal
representatives and assigns as follows:
In the event of any change in the ownership of any share or shares of
such capital stock (made or proposed) or in the right to vote thereon (whether
by the holder's act or by death, legal disability, operation of law, legal
processes, order of court, or otherwise, except by ordinary proxies or powers of
attorney) the corporation has the right to purchase such share or all or any
part of such shares or to require the same to be sold to a purchaser or
purchasers designated by the corporation or to follow each such method in part
at a price per share equal to the fair value thereof at the close of business on
the last business day next preceding such event as determined by mutual
agreement or, failing such agreement, by arbitration as provided below.
In any such event the owner of the share or shares concerned therein
(being for the purposes of these provisions, all persons having any property
interest therein) shall give notice thereof in detail satisfactory to the
corporation. Within ten days after receipt of said owner's notice, the
corporation shall elect whether or not to exercise its said rights in respect of
said shares and, if it elects to exercise them, shall give notice of its
election.
Failing agreement between the owner and the corporation as to the price
per share to be paid, such price shall be the fair value of such shares as
determined by three arbitrators, one designated within five days after the
termination of said ten-day period by the registered holder of said share or
shares or his legal representatives, one within said period of five days by the
corporation and the third within five days after said appointment last occurring
by the two so chosen. Successor arbitrators, if any shall be required, shall be
appointed, within reasonable time, as nearly as may be in the manner provided as
to the related original appointment. No appointment shall be deemed as having
been accomplished unless such arbitrator shall have accepted in writing his
appointment as such within the time limited for his appointment. Notice of each
appointment of an arbitrator shall be given promptly to the other parties in
interest. Said arbitrators shall proceed promptly to determine said fair value.
The determination of the fair value of said share or shares by agreement of any
two of the arbitrators shall be conclusive upon all parties interested in such
shares. Forthwith upon such determination the arbitrators shall mail or deliver
notice of such determination to the owner (as above defined) and to the
corporation.
Within ten days after agreement upon said price or mailing of notice of
determination of said price by arbitrators as provided below (whichever shall
last occur), the shares specified therein for purchase shall be transferred to
the corporation or to the
12
<PAGE>
purchaser or purchasers designated therein or in part to each as indicated in
such notice of election against payment of said price at the principal office of
the corporation.
If in any of the said events, notice therefor having been given as
provided above, the corporation elects in respect of any such shares or any part
thereof not to exercise its said rights, or fails to exercise them or to give
notice or make payment all as provided above, or waives said rights by vote or
in authorized writing, then such contemplated transfer or such change may become
effective as to those shares with respect to which the corporation elects not to
exercise its rights or fails to exercise them or to give notice or to make
payment, if consummated within thirty days after such election, failure or
waiver by the corporation, or within such longer period as the corporation may
authorize.
If the owner's notice in respect of any of such shares of capital stock
is not received by the corporation as provided above, or if the owner fails to
comply with these provisions in respect of any such shares in any other regard,
the corporation, at its option and in addition to its other remedies, may
suspend the rights to vote or to receive dividends on said shares, or may refuse
to register on its books any transfer of said shares or otherwise to recognize
any transfer or change in the ownership thereof or in the right to vote thereon,
one or more, until these provisions are complied with to the satisfaction of the
corporation; and if the required owner's notice is not received by the
corporation after written demand by the corporation it may also or independently
proceed as though a proper owner's notice has been received at the expiration of
ten days after mailing such demand, and, if it exercises its rights with respect
to said shares or any of them, the shares specified shall be transferred
accordingly.
In respect of these provisions with respect to the transfer of shares
of capital stock, the corporation may act by its board of directors. Any notice
or demand under said provisions shall be deemed to have been sufficiently given
if in writing delivered by hand or addressed by mail postpaid, to the
corporation at its principal office or to the owner (as above defined) or to the
holder registered on the books of the corporation (or his legal representative)
of the share or shares in question at the address stated in his notice or at his
address appearing on the books of the corporation.
Nothing herein contained shall prevent the pledging of shares, if there
is neither a transfer of the legal title thereto nor a transfer on the books of
the corporation into the name of the pledgee, but no pledgee or person claiming
thereunder shall be entitled to make or cause to be made any transfer of pledged
shares by sale thereof or otherwise (including in this prohibition transfer on
the books of the corporation into the name of the
13
<PAGE>
pledgee) except upon compliance herewith and any such pledge shall be subject to
those conditions and restrictions.
The provisions contained in this Article XXIV (a) shall not apply to
any transfer to or in trust for the benefit of any stockholder of the
corporation, any partner of any stockholder of the corporation, or any member of
the immediate family of any such stockholder or partner, and (b) shall terminate
upon the occurrence of the initial public offering of the corporation's capital
stock (registered pursuant to the Securities Act of 1933 or successor statute,
or exempt from registration by reason of Regulation A, or successor regulation,
thereunder).
ARTICLE XXV.
------------
Loss of Certificate
-------------------
The directors may, subject to law, determine the conditions upon which
a new certificate of stock may be issued in place of any certificate alleged to
have been lost, mutilated or destroyed. They may, in their discretion, require
the owner of a lost, mutilated or destroyed certificate, or his legal
representative, to give a bond, sufficient in their opinion, with or without
surety, to indemnify the corporation against any loss or claim which may arise
by reason of the issue of a certificate in place of such lost, mutilated or
destroyed stock certificate.
ARTICLE XXVI.
-------------
Issuance of Capital Stock
-------------------------
The board of directors shall have the authority, without offering the
same or any part thereof to the stockholders for subscription, to issue or
reserve for issue from time to time the whole or any part of the capital stock
of the corporation which may be authorized from time to time, to such persons or
organizations, whether or not stockholders of this corporation, for such
consideration, whether cash, property, services or expenses, or as such stock
dividends, and on such terms as the board of directors may determine, including
without limitation the granting of options, warrants, or conversion or other
rights to subscribe to said capital stock.
ARTICLE XXVII.
--------------
Seal
----
The board of directors shall have power to adopt and alter the form of
seal of the corporation.
14
<PAGE>
ARTICLE XXVIII.
---------------
Execution of Papers
-------------------
Except as the directors may generally or in particular cases authorize
the execution thereof in some other manner, all deeds, leases, transfers,
contracts, bonds, notes, checks, drafts and other obligations made, accepted or
endorsed by the corporation shall be signed by the president or by the
treasurer.
ARTICLE XXIX.
-------------
Fiscal Year
-----------
Except as from time to time otherwise provided by the board of
directors, the fiscal year of the corporation shall end on the last day of
December of each year.
ARTICLE XXX.
------------
Voting of Securities of Other Corporation
Held by This Corporation
Unless otherwise provided by the board of directors, the president or
treasurer may waive notice of and act on behalf of this corporation, or appoint
another person or persons to act as proxy or attorney in fact for this
corporation with or without discretionary power or power of substitution, at any
meeting of stockholders or shareholders of any other corporation or
organization, any of whose securities are held by this corporation.
ARTICLE XXXI.
-------------
Indemnification
---------------
The corporation shall, to the extent legally permissible, indemnify
each of its directors and officers and persons who serve at its request as
directors or officers of another organization in which it directly or indirectly
owns shares or of which it is a creditor, against all liabilities (including
expenses) imposed upon or reasonably incurred by him in connection with any
action, suit or other proceeding in which he may be involved or with which he
may be threatened, while in office or thereafter, by reason of his acts or
omissions as such director or officer, unless in any proceeding he shall be
finally adjudged not to have acted in good faith in the reasonable belief that
his action was in the best interest of the corporation; provided, however, that
such indemnification shall not cover liabilities in connection with any matter
which shall be disposed of through a compromise payment by such director or
officer, pursuant to a consent decree or otherwise, unless such compromise shall
be approved as in the best interests of the corporation, after notice that it
involves such
15
<PAGE>
indemnification, (a) by a vote of the directors in which no interested director
participates, or (b) by a vote or the written approval of the holders of a
majority of the outstanding stock at the time having the right to vote for
directors, not counting as outstanding any stock owned by any interested
director or officer. Such indemnification may include payment by the corporation
of expenses incurred in defending a civil or criminal action or proceeding in
advance of the final disposition of such action or proceeding, upon receipt of
an undertaking by the person indemnified to repay such payment if he shall be
adjudicated to be not entitled to indemnification. The right of indemnification
hereby provided shall not be exclusive of or affect other rights to which any
director or officer may be entitled. As used in this paragraph, the terms
"director" and "officer" include their respective heirs, executors and
administrators, and an "interested" director or officer is one against whom as
such the proceeding in question or another proceeding on the same or similar
grounds is then pending.
Indemnification of employees and other agents of the corporation
(including persons who serve at its request as employees or other agents of
another organization in which it owns shares or of which it is a creditor) may
be provided by the corporation to whatever extent shall be authorized by the
directors before or after the occurrence of any event as to or in consequence of
which indemnification may be sought. An indemnification to which a person is
entitled under these provisions may be provided although the person to be
indemnified is no longer a director, officer, employee or agent of the
corporation or of such other organization.
ARTICLE XXXII.
--------------
Amendments
----------
These by-laws may be amended or repealed and new by-laws may be made at
any annual or special meeting of the stockholders called for the purpose, of
which the notice shall specify the subject matter of the proposed alteration,
amendment or repeal, or the articles to be affected thereby, except that no
change in the date fixed for the annual meeting shall be made within sixty days
before the date stated in Article III. Notice of any change in such date shall
be given to all stockholders at least twenty days before the new date fixed for
such meeting. If the articles of organization so provide, these by-laws may also
be amended or repealed and new by-laws may be made at any time by vote of a
majority of the directors then [in?] office, except that no change may be made
by the directors in the date fixed for the annual meeting of stockholders except
in conformity with the foregoing provisions respecting such change made by the
stockholders and except that no by-law may be made, amended or repealed by the
directors which alters the provisions of these by-laws with respect to the
number,
16
<PAGE>
election or removal of directors or the amendment of these by-laws. Not later
than the time of giving notice of the meeting, annual or special, of
stockholders next following the making, amending or repealing by the directors
of any by-laws, notice thereof stating the substance of such change shall be
given to all stockholders entitled to vote on amending the by-laws. Any by-laws
whether adopted by the stockholders or by the directors may be amended or
repealed by the stockholders.
17
The Commonwealth Of Massachusetts
William Francis Galvin
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108
RESTATED ARTICLES OF ORGANIZATION
(General Laws, Chapter 156B, Section 74)
I, Alan Trefler , President
- -------------------------------------------------------------------
and _______________________________________________________________ , Clerk and
of Pegasystems Inc.
- -------------------------------------------------------------------------------
(Exact name of corporation)
located at 101 Main Street, Cambridge, MA 02142
--------------------------------------------------------------------
(Street address of corporation Massachusetts)
do hereby certify that the following Restatement of the Articles of
Organization was duly adopted at a meeting
held on _________________, 1996 by a vote of the directors/or:
_____________ shares of Common Stock of ________________ shares outstanding,
(type, class & series, if any)
_____________ shares of ____________ of ______________ shares outstanding, and
(type, class & series, if any)
_____________ shares of ______________ of ________________ shares outstanding,
(type, class & series, if any)
being at least a majority of each type, class or series outstanding and entitled
to vote thereon:/being at least two-thirds of each type, class or series
outstanding and entitled to vote thereon and of each type, class or series of
stock whose rights are adversely affected thereby:
ARTICLE I
The name of the corporation is:
Pegasystems Inc.
ARTICLE II
The purpose of the corporation is to engage
in the following business activities:
Please see Continuation Sheet 2A, which is attached hereto and
incorporated herein by reference.
<PAGE>
Continuation Sheet 2A
ARTICLE II
To provide consulting services including advice with respect to computers
and computer programs or data; to engage in research, design, development,
systems analysis, manufacturing, purchasing, importing, exporting, licensing,
distribution, repair, maintenance and marketing of computer equipment, computer
software and related products and services; and in general to carry on any and
all businesses and activities permitted to corporations organized under Chapter
156B, as amended from time to time, wherever the same may lawfully be done.
<PAGE>
ARTICLE III
State the Total number of shares and par value, if any, of each class of stock
which the corporation is authorized to issue:
WITHOUT PAR VALUE WITH PAR VALUE
- -------------------------------------------------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- -------------------------------------------------------------------------------
Common: Common: 45,000,000 $.01
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Preferred: Preferred: 1,000,000 $.01
- -------------------------------------------------------------------------------
ARTICLE IV
If more than one class of stock is authorized, state a distinguishing
designation for each class. Prior to the issuance of any shares of a class, if
shares of another class are outstanding, the corporation must provide a
description of the preferences, voting powers, qualifications, and special or
relative rights or privileges of that class and of each other class of which
shares are outstanding and of each series then established within any class.
Please see Continuation Sheets 4A and 4B, which are attached hereto and
incorporated herein by reference.
ARTICLE V
The restrictions, if any, posed by the Articles of Organization upon the
transfer of shares of stock of any class are:
None.
ARTICLE VI
Other lawful provisions, if any, for the conduct and regulation of the business
and affairs of the corporation, for its voluntary dissolution, or for limiting,
defining, or regulating the powers of the corporation, or of its directors or
stockholders, or of any class of stockholders:
Please see Continuation Sheets 6A-6E, which are attached hereto and
incorporated herein by reference.
<PAGE>
Continuation Sheet 4A
ARTICLE IV
1. Common Stock. The Corporation shall have authority to issue
45,000,000 shares of Common Stock. The rights, privileges, preferences
and voting powers of the Common Stock are as follows:
a. Dividend Rights. Subject to the prior rights of holders of all
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of any assets of the corporation legally
available therefor, such dividends as may be declared from time to time by the
Board of Directors.
b. Liquidation Rights. Subject to the prior rights of holders of all
classes of stock at the time outstanding have prior rights on liquidation, upon
the liquidation, dissolution or winding up of the Corporation, the assets of the
Corporation shall be distributed ratably among the holders of the Common Stock
in proportion to the number of shares of Common Stock held by each such holder.
c. Voting Rights. The holder of each share of Common Stock shall
have the right to one vote, and shall be entitled to notice of any stockholders
meeting in accordance with the By-laws of the Corporation, and shall be entitled
to vote upon such matters and in such manner as may be provided by law.
d. Increase in Authorized Common Stock. The number of authorized
shares of Common Stock may be increased or decreased (but not below the number
of shares of Common Stock then outstanding) by an affirmative vote of the
holders of a majority of the outstanding capital stock of the Corporation
outstanding and entitled to vote thereon, voting as a single class.
2. Preferred Stock. The Corporation shall have the authority to issue
1,000,000 shares of undesignated Preferred Stock. The shares of undesignated
Preferred Stock may be issued from time to time in one or more series as the
Board of Directors may determine. Each series shall be so designated to
distinguish the shares thereof from the shares of all other series and classes.
Except as to the relative preferences, powers, qualifications, rights and
privileges referred to below, in respect of any or all of which there may be
variations between different series, all shares of Preferred Stock shall be
identical. Different series of Preferred Stock shall not be construed to
constitute different classes of shares for the purpose of voting by classes.
The Board of Directors is expressly authorized, subject to the limitations
prescribed by law and the provisions of these Restated Articles of Organization,
to provide by adopting a
<PAGE>
Continuation Sheet 4B
vote or votes, a certificate of which shall be filed in accordance with the
Business Corporation Law of The Commonwealth of Massachusetts, for the issuance
of the Preferred Stock in one or more series, each with such designations,
preferences, voting powers, qualifications, special or relative rights and
privileges as shall be stated in the vote or votes creating such series. The
authority of the Board of Directors with respect to each such series shall
include without limitation of the foregoing the right to determine and fix:
a. the distinctive designation of such series and the number of shares
to constitute such series;
b. the rate at which dividends on the shares of such series shall be
declared and paid, or set aside for payment, whether dividends at the rate so
determined shall be cumulative, and whether the shares of such series shall be
entitled to any participating or other dividends in addition to the dividends at
the rate so determined, and if so, on what terms;
c. the right, if any, of the Corporation to redeem shares of the
particular series and, if redeemable, the price, terms and manner of
such redemption;
d. the special and relative rights and preferences, if any, and the
amount or amounts per share, which the shares of such series shall be
entitled to receive upon any voluntary or involuntary liquidation, dissolution
or winding up of the Corporation;
e. the terms and conditions, if any, upon which shares of such series
shall be convertible into, or exchangeable for, shares of stock of any other
class or classes, including the price or prices or rate or rates of conversion
or exchange and the terms of adjustment, if any;
f. the obligation, if any, of the Corporation to retire or purchase
shares of such series pursuant to a sinking fund or fund of a similar
nature or otherwise, and the terms and conditions of such obligation;
g. voting rights, if any;
h. limitations, if any, on the issuance of additional shares of such
series or any shares of any other series of Preferred Stock; and
i. such other preferences, powers, qualifications, special or relative
rights and privileges thereof as the Board of Directors may deem advisable and
are not inconsistent with law and the provisions of these Restated Articles of
Organization.
<PAGE>
Continuation Sheet 6A
ARTICLE VI
PART A. CLASSIFICATION OF BOARD OF DIRECTORS
This Article VI, Part A shall be effective only from and after the closing
of this Corporation's initial public offering of shares of Common Stock pursuant
to the Securities Act of 1933, as amended (the "Public Offering Date").
The number of directors of the Corporation shall be determined in the
manner provided in the by-laws.
The provisions of Chapter 156B, ss.50A of the Massachusetts General Laws
with respect to staggered terms for directors shall not apply to this
Corporation. The directors of this Corporation shall be divided into three
classes, as nearly equal in number as possible; the term of office of the first
class ("Class I Directors") to continue until the first annual meeting following
the Public Offering Date and until their successors are chosen and qualified;
the term of office of the second class ("Class II Directors") to continue until
the second annual meeting following the Public Offering Date and until their
successors are chosen and qualified; and the term of office of the third class
("Class III Directors") to continue until the third annual meeting following the
Public Offering Date and until their successors are chosen and qualified. At
each annual meeting of this Corporation, the successors to the class of
directors whose term expires at that meeting shall be elected to hold office for
a term continuing until the annual meeting held in the third year following the
year of their election and until their successors are duly elected and
qualified.
Vacancies and newly created directorships, whether resulting from an
increase in the size of the board of directors, from the death, resignation,
disqualification or removal of a director or otherwise, shall be filled solely
by the affirmative vote of a majority of the directors then in office, even
though less than a quorum of the board of directors. Any director so elected
shall hold office for the remainder of the full term of the class of directors
in which the vacancy occurred or the new directorship was created and until such
director's successor shall have been elected and qualified.
At any meeting of the stockholders called for the purpose, any director
may be removed from office only for cause by the affirmative vote of at least
eighty percent (80%) of the shares issued, outstanding and entitled to vote in
the election of directors.
Notwithstanding any other provision of these Restated Articles of
Organization, or any other provision of law that might otherwise permit a lesser
vote or no vote, the affirmative vote of at least eighty percent (80%) of the
shares issued, outstanding and entitled to vote in the election of directors
shall be required to alter, amend or repeal this Article VI, Part A.
<PAGE>
Continuation Sheet 6B
PART B. MISCELLANEOUS
By-Laws
The board of directors is authorized to make, amend or repeal the by-laws
of this Corporation in whole or in part, except with respect to any provisions
thereof which by law, by these Restated Articles of Organization or by the
by-laws requires action by the stockholders.
Place of Meetings of The Stockholders
Meetings of the stockholders may be held anywhere in the United States.
Partnership
The Corporation may be a partner in any business enterprise which the
Corporation would have power to conduct by itself.
Indemnification of Directors, Officers and Others
The Corporation shall indemnify each person who is or was a director,
officer, employee or other agent of the Corporation, each person who is or was
serving at the request of the Corporation as a director, trustee, officer,
employee or other agent of another organization in which it directly or
indirectly owns shares or of which it is directly or indirectly a creditor, and
each person who is or was serving at the request of the Corporation in any
capacity with respect to any employee benefit plan against all liabilities,
costs and expenses, including but not limited to amounts paid in satisfaction of
judgments, in settlement or as fines and penalties, and counsel fees and
disbursements, reasonably incurred by him in connection with the defense or
disposition of or otherwise in connection with or resulting from any action,
suit or other proceedings, whether civil, criminal, administrative or
investigative, before any court or administrative or legislative or
investigative body, in which he may be or may have been involved as a party or
otherwise or with which he may be or may have been threatened, while in office
or thereafter, by reason of his being or having been such a director, officer,
employee, agent or trustee, or having served in any capacity with respect to any
employee benefit plan, or by reason of any action taken or not taken in any such
capacity, except with respect to any matter as to which he shall have been
finally adjudicated by a court of competent jurisdiction not to have acted in
good faith in the reasonable belief that his action was in the best interest of
the Corporation or, to the extent that such matter relates to service with
respect to any employee benefit, in the best interests of the participants or
beneficiaries of such employee benefit plan. Expenses, including but not limited
to counsel fees and disbursements, so incurred by any such person in defending
any such action, suit or proceeding may be paid from time to time by the
Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of the person
indemnified to repay the amounts so paid if it shall ultimately be determined
that
<PAGE>
Continuation Sheet 6C
indemnification of such expenses is not authorized hereunder, which undertaking
may be accepted without reference to the financial ability of such person to
make repayment.
As to any matter disposed of by settlement by any such person, pursuant to
a consent decree or otherwise, no such indemnification either for the amount of
such settlement or for any other expenses shall be provided unless such
settlement shall be approved as in the best interests of the Corporation, after
notice that it involves such indemnification, (a) by a vote of a majority of the
disinterested directors then in office (even though the disinterested directors
be less than a quorum), or (b) by any disinterested person or persons to whom
the question may be referred by a vote of a majority of such disinterested
directors, or (c) by vote of the holders of a majority of the outstanding stock
at the time entitled to vote for directors, voting as a single class, exclusive
of any stock owned by any interested persons, or (d) by any disinterested person
or persons to whom the question may be referred by vote of the holders of a
majority of such stock. No such approval shall prevent the recovery from any
such officer, director, employee, agent or trustee or any such person serving in
any capacity with respect to any employee benefit plan of any amounts paid to
him or on his behalf as indemnification in accordance with the preceding
sentence if such person is subsequently adjudicated by a court of competent
jurisdiction not to have acted in good faith in the reasonable belief that his
action was in the best interests of the Corporation or, to the extent that such
matter relates to service with respect to an employee benefit plan, in the best
interests of the participants or beneficiaries of such employee benefit plan.
The right of indemnification hereby provided shall not be exclusive of or
affect any other rights to which any director, officer, employee, agent, or
trustee or any such person serving in any capacity with respect to any employee
benefit plan may be entitled or which may lawfully be granted to him. As used
herein, the terms "director," "officer," "employee," "agent" and "trustee"
include their respective executors, administrators and other legal
representatives, and "interested" person is one against whom the action, suit or
other proceeding in question or another action, suit or other proceeding on the
same or similar grounds is then or had been pending or threatened, and a
"disinterested" person is a person against whom no such action, suit or other
proceeding is then or had been pending or threatened.
By action of the board of directors, notwithstanding any interest of the
directors in such action, the Corporation may purchase and maintain insurance,
in such amounts as the board of directors may from time to time deem
appropriate, on behalf of any person who is or was a director, officer, employee
or other agent of the Corporation, or is or was serving at the request of the
Corporation as a director, trustee, officer, employee or other agent of another
organization or with respect to any employee benefit plan, in which it directly
or indirectly owns shares or of which it is directly or indirectly a creditor,
against any liability incurred by him in any such capacity, or arising out of
his status as such, whether or not the Corporation would have the power to
indemnify him against such liability.
<PAGE>
Continuation Sheet 6D
Intercompany Transactions
No contract or transaction between the Corporation and one or more of its
directors or officers, or between the Corporation and any other organization of
which one or more of its directors or officers are directors, trustees or
officers, or in which any of them has any financial or other interest, shall be
void or voidable, or in any way affected, solely for this reason, or solely
because the director or officer is present at or participates in the meeting of
the board of directors or committee thereof which authorizes, approves or
ratifies the contract or transaction, or solely because his or their votes are
counted for such purposes, if:
(a) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the board of
directors or the committee which authorizes, approves or ratifies
the contract or transaction, and the board or committee in good
faith authorizes, approves or ratifies the contract or transaction
by the affirmative vote of a majority of the disinterested
directors, even though the disinterested directors be less than a
quorum; or
(b) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or
transaction is specifically authorized, approved or ratified in good
faith by vote of the stockholders; or
(c) The contract or transaction is fair as to the Corporation as of the
time it is authorized, approved or ratified by the board of
directors, a committee thereof, or the stockholders.
Interested directors may be counted in determining the presence of a
quorum at a meeting of the board of directors or of a committee thereof which
authorizes, approves or ratifies the contract or transaction. No director or
officer of the Corporation shall be liable or accountable to the Corporation or
to any of its stockholders or creditors or to any other person, either for any
loss to the Corporation or to any other person or for any gains or profits
realized by such director or officer, by reason of any contract or transaction
as to which clauses (a), (b) or (c) above are applicable.
<PAGE>
Continuation Sheet 6E
Limitations on Director Liability
No director of the Corporation shall be liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 61 or 62 of Chapter 156B of the General Laws of The Commonwealth of
Massachusetts, or (iv) for any transaction in which the director derived an
improper personal benefit. No amendment to or repeal of any provision of this
paragraph, directly or by adoption of an inconsistent provision of these
Articles of Organization, shall apply to or have any effect on any liability or
alleged liability of any director of the Corporation for or with respect to any
acts or omissions of such director occurring prior to such amendment or repeal.
<PAGE>
Continuation Sheet 8A
Article III - Increased the authorized shares of Common Stock to 45,000,000, and
authorized 1,000,000 shares of Preferred Stock.
Article IV - Established relative rights of Common Stock and Preferred Stock.
Article VI - Amended and restated Article VI.
ds1/264197
<PAGE>
ARTICLE VII
The effective date of the restated Articles of Organization of the corporation
shall be the date approved and filed by the Secretary of the Commonwealth. If a
later effective date is desired, specify such date which shall not be more than
thirty days after the date of filing.
ARTICLE VIII
The information contained in Article VIII is not a permanent part of the
Articles of Organization.
a. The street address (post office boxes are not acceptable) of the principal
office of the corporation in Massachusetts is: 101 Main Street,
Cambridge, MA 02142
b. The name, residential address and post office address of each director and
officer of the corporation is as follows:
<TABLE>
<CAPTION>
NAME RESIDENTIAL ADDRESS POST OFFICE ADDRESS
<S> <C> <C>
President: Alan Trefler 228 Allandale Road, Unit 3c same
Chestnut Hill, MA 08167
Treasurer: Ira Vishner 88 Tappan Street same
Brookline, MA 02146
Clerk: Alan N. Trefler same as above same
Directors: Alan N. Trefler same as above same
Ira Vishner same as above same
Edward A. Maybury 254 Phillips Road P.O. Box 443
Sagamore Beach, MA Sagamore Beach, MA 02562-0443
02562-0443
</TABLE>
c. The fiscal year (i.e., tax year) of the corporation shall end on the last
day of the month of: December
d. The name and business address of the resident agent, if any, of the
corporation is:
We further certify that the foregoing Restated Articles of Organization
affect no amendments to the Articles of Organization of the corporation as
heretofore amended, except amendments to the following articles. Briefly
describe amendments below:
See Continuation Sheet 8A, which is attached hereto and incorporated
herein by reference.
SIGNED UNDER THE PENALTIES OF PERJURY, this____________ day of May , 1996,
--------
_________________________________________________________________ , President
_____________________________________________________________________ , Clerk
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
RESTATED ARTICLES OF ORGANIZATION
(General Laws, Chapter 156B, Section 74)
I hereby approve the within Restated Articles of Organization and, the filing
fee in the amount of $ ______________ having been paid, said articles are
deemed to have been filed with me this ___________ day of
_______________, 19_____.
Effective date: ___________________________________________
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
TO BE FILLED IN BY CORPORATION
Photocopy of document to be sent to:
Ira Vishner
Pegasystems Inc.
----------------------------------------
101 Main Street
----------------------------------------
Cambridge, MA 02142
----------------------------------------
Telephone: (617) 374-9600
----------------------------------------
ds1/264197
AMENDED AND RESTATED BY-LAWS
OF
PEGASYSTEMS INC.
ARTICLE I
Stockholders
Section 1. Annual Meeting. The annual meeting of the stockholders shall be
held within six months after the end of the corporation's fiscal year on such
date, and at such place and time, as may be determined each year by the board of
directors. The purpose for which the annual meeting is to be held, in addition
to those prescribed by law, by the articles of organization of the corporation
or by these by-laws, may be specified by the board of directors or the
president. If in any year the annual meeting is not held within the period
specified above, a special meeting in lieu thereof may be held at a later time
and any elections held or business transacted at such meeting shall have the
same force and effect as if held or transacted at the annual meeting.
Section 2. Special Meetings. Special meetings of the stockholders may be
called at any time by the president or by the board of directors and shall be
called by the clerk, or in case of the death, absence, incapacity or refusal of
the clerk, by any other officer, upon written application of one or more
stockholders who hold at least forty percent (40%) in interest of the capital
stock entitled to vote thereat. Such application shall specify the purposes for
which the meeting is to be called and may designate the date, hour and place of
such meeting, provided, however, that no such application shall designate a date
not a full business day or an hour not within normal business hours as the date
or hour of such meeting without the approval of the president or the board of
directors.
Section 3. Place of Meetings. Meetings of the stockholders may be held
anywhere within, but not without, the United States.
Section 4. Notice. Except as hereinafter provided, a written or printed
notice of every meeting of stockholders stating the place, date, hour and
purposes thereof shall be given by the clerk or an assistant clerk (or by any
other officer in the case of an annual meeting or by the person or persons
calling the meeting in the case of a special meeting) at least seven (7) days
before the meeting to each stockholder entitled to vote thereat and to each
stockholder who, by law, by the articles of organization or by these by-laws, is
entitled to such notice, by leaving such notice with him or at his residence or
usual place of business or by mailing it, postage prepaid, addressed to him at
his address as it appears upon the records of the corporation. No notice of the
place, date, hour or purposes of any annual or special meeting of stockholders
need be given to a stockholder if a written waiver of
<PAGE>
such notice, executed before or after the meeting by such stockholder or his
attorney thereunto authorized, is filed with the records of the meeting.
Section 5. Notice of Stockholder Business. The following
provisions of this Section 5 shall apply to the conduct of business
at any meeting of the stockholders.
(a) At any meeting of the stockholders, only such matters shall be
considered and acted upon as shall have been brought before the meeting (i)
pursuant to the corporation's notice of meeting, (ii) by or at the direction of
the Board of Directors or any committee of the Board of Directors or (iii) by
any stockholder of the corporation who is a stockholder of record at the time of
giving of the notice provided for in paragraph (b) of this Section 5, who shall
be entitled to vote at the meeting and who complies with the notice procedures
set forth in paragraph (b) of this Section 5.
(b) For a matter to be properly brought before any meeting of the
stockholders by a stockholder pursuant to clause (iii) of paragraph (a) of this
Section 5, the stockholder must have given timely notice thereof in writing to
the clerk of the corporation. Unless otherwise required by the Exchange Act, to
be timely a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the corporation not later than 90 days prior
to the meeting. As to each matter proposed to be brought before the meeting, the
stockholder's notice to the clerk shall set forth the following information: (i)
a brief description of the matter to be considered by the stockholders at the
meeting and the reasons for bringing such matter to the stockholders at the
meeting; (ii) as to the stockholder proposing that such matter be considered,
each beneficial owner, if any, on whose behalf the matter is to be considered,
and each other stockholder and beneficial owner known to the proposing
stockholder and such beneficial owner, if any, to support the matter proposed
for consideration: (a) such person's name and address, as they appear on the
corporation's books; (b) the class or series and number of shares of the
corporation which are owned beneficially and of record by such person; and (c)
any material interest, financial or otherwise, of such person in the matter
proposed for consideration by the stockholders.
(c) Nothing in this Section 5 shall require the consideration of any
matter noticed by a stockholder pursuant to this Section 5. The person presiding
at the meeting shall have the discretion to determine whether the matter was
properly brought before the meeting and whether the procedures set forth in
these by-laws were complied with in connection with such matter, and if the
presiding person determines that such matter was not properly brought before the
meeting or that such procedures were not followed, the matter shall not be
considered or acted upon at the meeting. Any
2
<PAGE>
stockholder noticing a matter to be considered at a stockholders' meeting
pursuant to this Section 5 shall in all events comply with all relevant
provisions of the Exchange Act.
Section 6. Quorum. Except as otherwise provided by the articles of
organization, at any meeting of the stockholders a majority of all shares of
stock then issued, outstanding and entitled to vote (including shares as to
which a nominee has no voting authority as to certain matters brought before the
meeting) shall constitute a quorum for the transaction of business. Though less
than a quorum be present, any meeting may without further notice be adjourned to
a subsequent date or until a quorum be had, and at any such adjourned meeting
any business may be transacted which might have been transacted at the original
meeting.
Section 7. Voting and Proxies. Except as otherwise provided by law or by
the articles of organization or by these by-laws, each holder of record of
shares of stock entitled to vote on any matter shall have one vote for each such
share held of record by him and a proportionate vote for any fractional shares
so held by him. Stockholders may vote either in person or by proxy. No proxy
dated more than six months before the meeting named therein shall be valid and
no proxy shall be valid after the final adjournment of such meeting. A proxy
with respect to stock held in the name of two or more persons shall be valid if
executed by any one of them unless at or prior to the exercise of the proxy the
corporation receives a specific written notice to the contrary from any one of
them. A proxy purporting to be executed by or on behalf of a stockholder shall
be deemed valid unless challenged at or prior to its exercise and the burden of
proving its invalidity shall rest on the challenger.
Section 8. Action at a Meeting. When a quorum is present at any meeting,
the affirmative vote of the holders of a majority of the shares voted at the
meeting shall be necessary and sufficient to the determination of such question,
unless a larger vote is required by law, by the articles of organization or by
these by-laws; provided, however, that any election by stockholders shall be
determined by a plurality of the votes cast by the stockholders entitled to vote
in such election. Shares as to which a nominee has no voting authority as to a
particular question or questions brought before the meeting will not be deemed
to be voted or cast with respect to such question or questions. Any election by
stockholders and the determination of any other questions to come before a
meeting of the stockholders shall be by ballot if so requested by any
stockholder entitled to vote thereon but need not be otherwise.
Section 9. Action Without a Meeting. Any action required or permitted to
be taken at any meeting of the stockholders may be taken without a meeting if
all stockholders entitled to vote on the matter consent to the action in writing
and the written consents
3
<PAGE>
are filed with the records of the meetings of stockholders. Such
consents shall be treated for all purposes as a vote at a meeting.
ARTICLE II
Directors
Section 1. Number and Election. There shall be a board of not less than
three directors. The number of directors shall be determined from time to time
by the board of directors and shall be elected at the annual meeting of the
stockholders by such stockholders as have the right to vote thereon. No decrease
in the number of directors constituting the board of directors shall shorten the
term of any incumbent director.
Section 2. Term. The provisions of Chapter 156B, ss.50A of the
Massachusetts General Laws with respect to staggered terms for directors shall
not apply to this corporation. Except as otherwise provided by law, by the
articles of organization or by these by-laws, the directors of this corporation
shall be divided into three classes, as nearly equal in number as possible; the
term of office of the first class ("Class I Directors") to continue until the
first annual meeting following the closing of this Corporation's initial public
offering of shares of Common Stock (the "Public Offering Date") pursuant to the
Securities Act of 1933, as amended, and until their successors are chosen and
qualified; the term of office of the second class ("Class II Directors") to
continue until the second annual meeting following the Public Offering Date and
until their successors are chosen and qualified; and the term of office of the
third class ("Class III Directors") to continue until the third annual meeting
following the Public Offering Date and until their successors are chosen and
qualified. At each annual meeting of this corporation, the successors to the
class of directors whose term expires at that meeting shall be elected to hold
office for a term continuing until the annual meeting held in the third year
following the year of their election and until their successors are duly elected
and qualified.
Section 3. Resignations. Any director may resign by delivering his or her
written resignation to the corporation at its principal office or to the
president or clerk or if there by one, to the secretary. Such resignation shall
become effective at the time or upon the happening of the condition, if any,
specified therein or, if no such time or condition is specified, upon its
receipt.
Section 4. Removal. At any meeting of the stockholders called for the
purpose, any director may be removed from office only for cause by the
affirmative vote of at least eighty percent (80%) of the shares issued,
outstanding and entitled to vote in the election of directors. At any meeting of
the board of directors
4
<PAGE>
any director may be removed from office for cause by vote of a majority of the
directors then in office. A director may be removed for cause only after a
reasonable notice and opportunity to be heard before the body proposing to
remove him.
Section 5. Vacancies. Vacancies and newly created directorships, whether
resulting from an increase in the size of the board of directors, from the
death, resignation, disqualification or removal of a director or otherwise,
shall be filled solely by the affirmative vote of a majority of the directors
then in office, even though less than a quorum of the board of directors. Any
director elected in accordance with this Section 5 shall hold office for the
remainder of the full term of the class of directors in which the vacancy
occurred or the new directorship was created and until such director's successor
shall have been elected and qualified.
Section 6. Regular Meetings. Regular meetings of the board of directors
may be held at such times and places within or without The Commonwealth of
Massachusetts as the board of directors may fix from time to time and, when so
fixed, no notice thereof need be given. The first meeting of the board of
directors following the annual meeting of the stockholders shall be held without
notice immediately after and at the same place as the annual meeting of the
stockholders or the special meeting held in lieu thereof. If in any year a
meeting of the board of directors is not held at such time and place, any
elections to be held or business to be transacted at such meeting may be held or
transacted at any later meeting of the board of directors with the same force
and effect as if held or transacted at such meeting.
Section 7. Special Meetings. Special meetings of the board of directors
may be called at any time by the president or secretary (or, if there be no
secretary, the clerk) or by any director. Such special meetings may be held
anywhere within or without The Commonwealth of Massachusetts. A written, printed
or telegraphic notice stating the place, date and hour (but not necessarily the
purposes) of the meeting shall be given by the secretary or an assistant
secretary (or, if there be no secretary or assistant secretary, the clerk or an
assistant clerk) or by the officer or director calling the meeting at least
forty-eight (48) hours before such meeting to each director by leaving such
notice with him or at his residence or usual place of business or by mailing it,
postage prepaid, or sending it by prepaid telegram, addressed to him at his last
known address. No notice of the place, date or hour of any meeting of the board
of directors need be given to any director if a written waiver of such notice,
executed by him before or after the meeting, is filed with the records of the
meeting, or to any director who attends the meeting without protesting prior
thereto or at its commencement the lack of notice to him.
5
<PAGE>
Section 8. Action at a Meeting. At any meeting of the board of directors,
a majority of the directors then in office shall constitute a quorum. Though
less than a quorum be present, any meeting may without further notice be
adjourned to a subsequent date or until a quorum be had. When a quorum is
present at any meeting a majority of the directors present may take any action
on behalf of the board except to the extent that a larger number is required by
law, by the articles of organization or by these by-laws.
Section 9. Action Without a Meeting. Any action required or permitted to
be taken at any meeting of the directors may be taken without a meeting if all
the directors consent to the action in writing and the written consents are
filed with the records of the meetings of the directors. Such consents shall be
treated for all purposes as a vote at a meeting.
Section 10. Powers. The board of directors shall have and may exercise all
the powers of the corporation, except such as by law, by the articles of
organization or by these by-laws are conferred upon or reserved to the
stockholders. In the event of any vacancy in the board of directors, the
remaining directors then in office, except as otherwise provided by law, shall
have and may exercise all of the powers of the board of directors until the
vacancy is filled.
Section 11. Committees. The board of directors may elect from the board an
executive committee or one or more other committees and may delegate to any such
committee or committees any or all of the powers of the board except those which
by law, by the articles of organization or by these by-laws may not be so
delegated. Such committees shall serve at the pleasure of the board of
directors. Except as the board of directors may otherwise determine, each such
committee may make rules for the conduct of its business, but, unless otherwise
determined by the board or in such rules, its business shall be conducted as
nearly as may be as is provided in these by-laws for the conduct of the business
of the board of directors.
Section 12. Meeting by Telecommunications. Members of the board of
directors or any committee elected thereby may participate in a meeting of such
board or committee by means of a conference telephone or similar communications
equipment by means of which all persons participating in a meeting can hear each
other at the same time and participation by such means shall constitute presence
in person at the meeting.
6
<PAGE>
ARTICLE III
Officers
Section 1. Enumeration. The officers of the corporation shall consist of a
president, a treasurer and a clerk and such other officers, including without
limitation a chairman of the board of directors, a secretary and one or more
vice presidents, assistant treasurers, assistant clerks and assistant
secretaries, as the board of directors may from time to time determine.
Section 2. Qualifications. No officer need be a stockholder or a director.
The same person may hold at the same time one or more offices unless otherwise
provided by law. The clerk shall be a resident of Massachusetts unless the
corporation shall have a resident agent. Any officer may be required by the
board of directors to give a bond for the faithful performance of his duties in
such form and with such sureties as the board may determine.
Section 3. Elections. The president, treasurer and clerk shall be elected
annually by the board of directors at its first meeting following the annual
meeting of the stockholders. All other officers shall be chosen or appointed by
the board of directors.
Section 4. Term. Except as otherwise provided by law, by the articles of
organization or by these by-laws, the president, treasurer and clerk shall hold
office until the first meeting of the board of directors following the next
annual meeting of the stockholders and until their respective successors are
chosen and qualified. All other officers shall hold office until the first
meeting of the board of directors following the next annual meeting of the
stockholders, unless a shorter time is specified in the vote choosing or
appointing such officer or officers.
Section 5. Resignations. Any officer may resign by delivering his written
resignation to the corporation at its principal office or to the president or
clerk, or, if there be one, to the secretary. Such resignation shall be
effective at the time or upon the happening of the condition, if any, specified
therein or, if no such time or condition is specified, upon its receipt.
Section 6. Removal. Any officer may be removed from office with or without
cause by vote of a majority of the directors then in office. An officer may be
removed for cause only after a reasonable notice and opportunity to be heard
before the board of directors.
Section 7. Vacancies. Vacancies in any office may be filled by the board
of directors.
7
<PAGE>
Section 8. Certain Duties and Powers. The officers designated below,
subject at all times to these by-laws and to the direction and control of the
board of directors, shall have and may exercise the respective duties and powers
set forth below:
The Chairman of the Board of Directors. The chairman of the board of
directors, if there be one, shall, when present, preside at all meetings
of the board of directors.
The President. The president shall be the chief executive officer of
the corporation and shall have general operating charge of its business.
Unless otherwise prescribed by the board of directors, he shall, when
present, preside at all meetings of the stockholders, and, if a director,
at all meetings of the board of directors unless there be a chairman of
the board of directors who is present at the meeting.
The Treasurer. The treasurer shall be the chief financial officer of
the corporation and shall cause to be kept accurate books of account.
The Clerk. The clerk shall keep a record of all proceedings of the
stockholders and, if there be no secretary, shall also keep a record of
all proceedings of the board of directors. In the absence of the clerk
from any meeting of the stockholders or, if there be no secretary, from
any meeting of the board of directors, an assistant clerk, if there be
one, otherwise a clerk pro tempore designated by the person presiding at
the meeting, shall perform the duties of the clerk at such meeting.
The Secretary. The secretary, if there be one, shall keep a record
of all proceedings of the board of directors. In the absence of the
secretary, if there be one, from any meeting of the board of directors, an
assistant secretary, if there be one, otherwise a secretary pro tempore
designated by the person presiding at the meeting, shall perform the
duties of the secretary at such meeting.
Section 9. Other Duties and Powers. Each officer, subject at all times to
these by-laws and to the direction and control of the board of directors, shall
have and may exercise, in addition to the duties and powers specifically set
forth in these by-laws, such duties and powers as are prescribed by law, such
duties and powers as are commonly incident to his office and such duties and
powers as the board of directors may from time to time prescribe.
8
<PAGE>
ARTICLE IV
Capital Stock
Section 1. Amount and Issuance. The total number of shares and the par
value, if any, of each class of stock which the corporation is authorized to
issue shall be stated in the articles of organization. The directors may at any
time issue all or from time to time any part of the unissued capital stock of
the corporation from time to time authorized under the articles of organization,
and may determine, subject to any requirements of law, the consideration for
which stock is to be issued and the manner of allocating such consideration
between capital and surplus. Shares of stock previously issued which have been
reacquired by the corporation may be restored to the status of authorized but
unissued shares by vote of the board of directors, without amendment of the
articles of organization.
Section 2. Certificates. Each stockholder shall be entitled to a
certificate or certificates stating the number and the class and the designation
of the series, if any, of the shares held by him, and otherwise in form approved
by the board of directors. Such certificate or certificates shall be signed by
the president or a vice president and by the treasurer or an assistant
treasurer. Such signatures may be facsimiles if the certificate is signed by a
transfer agent, or by a registrar, other than a director, officer or employee of
the corporation. In case any officer who has signed or whose facsimile signature
has been placed on such certificate shall have ceased to be such officer before
such certificate is issued, it may be issued by the corporation with the same
effect as if he were such officer at the time of its issue.
Every certificate issued for shares of stock at a time when such shares
are subject to any restriction on transfer pursuant to the articles of
organization, these by-laws or any agreement to which the corporation is a party
shall have the restriction noted conspicuously on the certificate and shall also
set forth on the face or back of the certificate either (i) the full text of the
restriction or (ii) a statement of the existence of such restriction and a
statement that the corporation will furnish a copy thereof to the holder of such
certificate upon written request and without charge.
Every certificate issued for shares of stock at a time when the
corporation is authorized to issue more than one class or series of stock shall
set forth on the face or back of the certificate either (i) the full text of the
preferences, voting powers, qualifications and special and relative rights of
the shares of each class and series, if any, authorized to be issued, as set
forth in the articles of organization or (ii) a statement of the existence of
such preferences, powers, qualifications and rights and a statement that the
corporation will furnish a copy
9
<PAGE>
thereof to the holder of such certificate upon written request and
without charge.
Section 3. Transfers. The board of directors may make such rules and
regulations not inconsistent with the law, with the articles of organization or
with these by-laws as it deems expedient relative to the issue, transfer and
registration of stock certificates. The board of directors may appoint a
transfer agent and a registrar of transfers or either and require all stock
certificates to bear their signatures. Except as otherwise provided by law, by
the articles of organization or by these by-laws, the corporation shall be
entitled to treat the record holder of any shares of stock as shown on the books
of the corporation as the holder of such shares for all purposes, including the
right to receive notice of and to vote at any meeting of stockholders and the
right to receive any dividend or other distribution in respect of such shares.
Section 4. Record Date. The board of directors may fix in advance a time,
which shall be not more than sixty (60) days before the date of any meeting of
stockholders or the date for the payment of any dividend or the making of any
distribution to stockholders or the last day on which the consent or dissent of
stockholders may be effectively expressed for any purpose, as the record date
for determining the stockholders having the right to notice of and to vote at
such meeting and any adjournment thereof or the right to receive such dividend
or distribution or the right to give such consent or dissent, and in such case
only stockholders of record on such record date shall have such right,
notwithstanding any transfer of stock on the books of the corporation after the
record date; or without fixing such record date the directors may for any of
such purposes close the transfer books for all or any part of such period.
Section 5. Lost Certificates. The board of directors may, except as
otherwise provided by law, determine the conditions upon which a new certificate
of stock may be issued in place of any certificate alleged to have been lost,
mutilated or destroyed.
ARTICLE V
Miscellaneous Provisions
Section 1. Fiscal Year. The fiscal year of the corporation shall begin on
the first day of January in each year and end on the last day of December next
following.
Section 2. Corporate Seal. The seal of the corporation shall be in such
form as shall be determined from time to time by the board of directors.
10
<PAGE>
Section 3. Corporation Records. The original, or attested copies, of the
articles of organization, by-laws and records of all meetings of the
incorporators and stockholders, and the stock and transfer records, which shall
contain the names of all stockholders and the record address and the amount of
stock held by each, shall be kept in The Commonwealth of Massachusetts at the
principal office of the corporation in said Commonwealth or at an office of the
transfer agent or of its clerk or of its resident agent, if any. Said copies and
records need not all be kept in the same office. They shall be available at all
reasonable times to inspection by any stockholder for any proper purpose but not
if the purpose for which such inspection is sought is to secure a list of
stockholders or other information for the purpose of selling said list or
information or copies thereof or of using the same for a purpose other than the
interest of the applicant, as a stockholder, relative to the affairs of the
corporation.
Section 4. Voting of Securities. Except as the board of directors may
otherwise prescribe, the president or the treasurer shall have full power and
authority in the name and on behalf of the corporation, subject to the
instructions of the board of directors, to waive notice of, to attend, act and
vote at, and to appoint any person or persons to act as proxy or attorney in
fact for this corporation (with or without power of substitution) at any meeting
of stockholders or shareholders of any other corporation or organization, the
securities of which may be held by this corporation.
Section 5. Execution of Instruments. All deeds, leases, transfers,
contracts, bonds, notes and other obligations authorized to be executed by an
officer of the corporation in its behalf shall be signed by the president, any
vice president or the treasurer except as the board of directors may generally
or in particular cases otherwise determined.
Section 6. Control Share Acquisitions. The provisions of Chapter 110D of
the Massachusetts General Laws with respect to the regulation of control share
acquisitions shall not apply to this corporation.
ARTICLE VI
Amendments
These by-laws may be amended or repealed at any annual or special meeting
of the stockholders by the affirmative vote of at least eighty percent (80%) of
the shares of capital stock then issued, outstanding and entitled to vote,
provided notice of the proposed amendment or repeal is given in the notice of
the meeting.
11
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If authorized by the articles of organization, these by-laws may also be
amended or repealed in whole or in part, or new by-laws made, by the board of
directors except with respect to any provision hereof which by law, the articles
of organization or these by-laws requires action by the stockholders. Not later
than the time of giving notice of the meeting of stockholders next following the
making, amendment or repeal by the directors of any by-laws, notice thereof
stating the substance of such change shall be given to all stockholders entitled
to vote on amending the by-laws. Any by-law to be made, amended or repealed by
the directors may be amended or repealed by the stockholders.
1-258036
12
Pegasystems Inc.
1994 Long-Term Incentive Plan
As Amended and Restated on May __, 1996
=========================================
<PAGE>
Pegasystems Inc.
1994 Long-Term Incentive Plan
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<TABLE>
<CAPTION>
SECTION CONTENTS PAGE
- ------- -------- -----
<S> <C> <C>
1. Purpose; Definitions 1
2. Administration 4
3. Stock Subject to Plan 5
4. Eligibilitiy 7
5. Stock Options 7
6. Stock Appreciation Rights 13
7. Restricted Stock 15
8. Long-Term Performance Awards 17
9. Amendments and Termination 19
10. Unfunded Status of Plan 20
11. General Provisions 21
12. Effective Date of Plan 22
13. Term of Plan 22
</TABLE>
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1994 Long-Term Incentive Plan
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SECTION 1. Purpose; Definitions.
The name of this Plan is the Pegasystems Inc. 1994 Long-Term Incentive
Plan (the "Plan"). The purpose of the Plan is to provide incentives: (a) to
employees of Pegasystems Inc. (the "Corporation") by providing them with
opportunities to purchase stock in the Corporation pursuant to options granted
hereunder which qualify as Incentive Stock Options under Section 422 of the
Internal Revenue Code of 1986; (b) to directors (whether or not employees),
employees and consultants of the Corporation by providing them with
opportunities to purchase stock in the Corporation pursuant to options granted
hereunder which do not qualify as Incentive Stock Options under Section 422 of
the Internal Revenue Code of 1986, and otherwise to participate in shareholder
value which has been created.
For the purposes of the Plan, the following terms shall be defined as
set forth below:
a. "Award" means any Option, Stock Apreciation Right, Restricted
Stock or Long-Term Award granted under this Plan.
b. "Board" means the Board of Directors of the Corporation.
c. "Cause" means a felony conviction of a Participant or the failure
of a Participant to contest prosecution for a felony, or a
Participant's willful misconduct or dishonesty, any of which is
directly and materially harmful to the business or reputation of
the Corporation.
d. "Code" means the Internal Revenue Code of 1986, as amended from
time to time, and any successor thereto.
e. "Committee" means a Compensation Committee of the Board, if such
Committee has been appointed by the Board and has been authorized
to administer the Plan. Such Committee will consist of two or more
members of the Board. In the event the Corporation registers any
class of any equity security pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"),
each member of the Committee shall be a "Disinterested Person" as
defined below. All references herein to the Committee shall mean
the Board if there is no Committee so appointed.
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1994 Long-Term Incentive Plan
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From time to time the Board may increase the size of the Committee
and appoint additional members thereof, remove members (with or
without cause), and appoint new members in substitution thereof,
fill vacancies however caused, or remove all members of the
Committee and thereafter directly administer the Plan.
f. "Corporation" means Pegasystems Inc., a corporation organized
under the laws of the Commonwealth of Massachusetts, or any
successor organization.
g. "Disability" means permanent and total disability as determined
under the Corporation's long-term disability program.
h. "Disinterested Person" shall have the meaning set forth in Rule
16b-3(c)(2)(i) as promulgated by the Securities and Exchange
Commission under the Exchange Act, or any successor definition
adopted by the Securities and Exchange Commission.
i. "Early Retirement" means that a Participant has attained the
consent of the Committee to retire prior to having attained age 60
or qualifies for early retirement pursuant to the early retirement
provisions as set forth in a pension plan of the Corporation in
which the Optionee is a participant.
j. "Fair Market Value" means, as of any given date, the mean of the
highest and lowest quoted selling prices of the Stock on the
exchange on which the Corporation's shares are listed for trading
(consolidated trading) or, if no such sale occurs on the exchange
on such date, the fair market value of the Stock as determined by
the Committee in good faith based on the best available facts and
circumstances at the time.
k. "Incentive Stock Option" means any Stock Option intended to be and
designated as an "Incentive Stock Option" within the meaning of
Section 422 of the Code.
l. "Insider" means a Participant who is subject to the requirements
of the Rules (as defined below).
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Pegasystems Inc.
1994 Long-Term Incentive Plan
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m. "Long-Term Performance Award" or "Long-Term Award" means an award
made pursuant to Section 8 below that is payable in cash and/or
Stock (including Restricted Stock) in accordance with the terms of
the grant, based on Corporation, business unit and/or individual
performance over a period of at least two years.
n. "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
o. "Normal Retirement" means retirement of a Participant from active
employment with the Corporation and any subsidiary or affiliate
after either having attained age 60 or pursuant to the normal
retirement provisions of an applicable pension plan of the
Corporation.
p. "Option" means any Incentive Stock Option or Non-Qualified Stock
Option to purchase shares of Stock (including Restricted Stock, if
the Committee so determines) granted pursuant to Section 5 below.
q. "Optionee" means a Participant who is the recipient of any
Incentive Stock Option or Non-Qualified Stock Option under this
Plan.
r. "Participant" means anyone to whom an Award is granted pursuant to
the Plan.
s. "Plan" means the Pegasystems Inc. 1994 Long-Term Incentive Plan,
as hereinafter amended form time to time.
t. "Restricted Stock" means an award of shares of Stock that is
subject to restrictions pursuant to Section 7 below.
u. "Retirement" means Normal or Early Retirement.
v. "Rules" means Section 16 of the Securities Exchange Act of 1934,
as amended (the "Exchange Act") and the regulations promulgated
thereunder.
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1994 Long-Term Incentive Plan
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w. "Securities Broker" means the registered securities broker
acceptable to the Corporation who agrees to effect the cashless
exercise of an Option pursuant to Section 5(m) hereof.
x. "Stock" means the Common Stock, $.01 par value per share, of the
Corporation.
y. "Stock Appreciation Right" means the right, pursuant to an award
granted under Section 6 below, to surrender to the Corporation all
(or a portion) of a Stock Option in exchange for an amount equal
to the difference between (i) the Fair Market Value (or such
lesser ceiling as may be specified in the option grant), as of the
date such Stock Option (or such portion thereof) is surrendered,
of the shares of Stock covered by such Stock Option (or such
portion thereof), and (ii) the aggregate exercise price of such
Stock Option (or such portion thereof).
SECTION 2. Administration
The Plan shall be administered by the Committee.
The Committee shall have the authority to grant to eligible
Participants, pursuant to the terms of the Plan: (i) Stock Options, (ii) Stock
Appreciation Rights, (iii) Restricted Stock and/or (iv) Long-Term Performance
Awards.
In particular, the Committee shall have the authority:
(i) to select the Participants to whom Stock Options, Stock
Appreciation Rights, Restricted Stock and Long-Term Performance
Awards may from time to time be granted hereunder.
(ii) to determine whether and to what extent Incentive Stock Options,
Non-Qualified Stock Options, Stock Appreciation Rights, Restricted
Stock and Long-Term Performance Awards, or any combination
thereof, are to be granted hereunder;
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1994 Long-Term Incentive Plan
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(iii) to determine the number of shares to be covered by each such award
granted hereunder;
(iv) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of any award granted hereunder including, but
not limited to, the share price and any restriction or limitation,
or any vesting acceleration or forfeiture waiver regarding any
Stock Option or other award and/or the shares of Stock relating
thereto, based on such factors as the Committee shall determine,
in its sole discretion;
(v) to determine whether and under what circumstances a Stock Option
may be settled in cash or stock, including Restricted Stock under
Section 5(k);
(vi) to determine whether and under what circumstances a Stock Option
may be exercised without a payment of cash under Section 5(1); and
(vii) to determine whether, to what extent and under what circumstances
Stock and other amounts payable with respect to an award under
this Plan shall be deferred either automatically or at the
election of the Participant.
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable; to interpret the terms and provisions of the
Plan and any award issued under the Plan (and any agreements relating thereto);
and to otherwise supervise the administration of the Plan.
All decisions made by the Committee pursuant to the provisions of the
Plan shall be final and binding on all persons, including the Corporation and
Plan Participants.
SECTION 3. Stock Subject to the Plan
(a) Stock Subject to Plan. The stock to be subject or related to
awards under the Plan shall be shares of the Corporation's Stock
and may be either authorized and unissued or held in the treasury
of the Corporation. The maximum number of shares of Stock
authorized with respect to the grant of awards under the Plan,
subject to adjustment in accordance with paragraph 3(c) below,
shall be up to 5,000,000 shares of Stock; any or all of such
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Pegasystems Inc.
1994 Long-Term Incentive Plan
================================================================================
5,000,000 shares of Stock may be granted for awards of Incentive
Stock Options.
In addition, shares equal to 2% of Stock outstanding shares at
the start of each Fiscal Year shall each year be reserved
exclusively for the granting of replacement Options under Section
5(e) below to all Participants. Such additional authorization of
Stock for the granting of replacement Options shall not, at any
time, cause the maximum shareholder dilution caused by the Plan
to exceed the 5,000,000 shares of Stock authorized for grant
under the Plan.
Notwithstanding the foregoing, no individual shall receive, over
the term of the Plan, more than an aggregate of 30% of the shares
authorized for grant under the Plan, including shares subject to
replacement Options awarded under the Plan.
(b) Unused, Forfeited and Reacquired Shares. The shares related to the
unexercised or undistributed portion of any terminated, expired or
forfeited Award for which no material benefit was received by a
Participant (i.e. dividends) shall be made available for
distribution in connection with future awards under the plan to
the extent permitted to receive exemptive relief pursuant to the
Rules. Any shares made available for distribution in connection
with future awards under this Plan pursuant to this paragraph (b)
shall be in addition to the shares available pursuant to paragraph
(a) of this Section 3.
(c) Other Adjustments. In the event of any merger, reorganization,
consolidation, recapitalization, Stock dividend, or other change
in corporate structure affecting the Stock, such substitution or
adjustment shall be made in the aggregate number of shares
reserved for issuance under the Plan, in the number and option
price of shares subject to outstanding Options granted under the
Plan and in the number and price of shares subject to other Awards
made under the Plan, as may be determined to be appropriate by the
Committee in its sole discretion, provided that the number of
shares subject to any award shall always be a whole number. Such
adjusted option price shall also be used to determine the amount
payable by the Corporation upon
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Pegasystems Inc.
1994 Long-Term Incentive Plan
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the exercise of any Stock Appreciation Right associated with any
Stock Option.
SECTION 4. Eligibility
Directors (whether or not employees of the Corporation), consultants and
employees of the Corporation who are responsible for or who contribute to the
management, growth and/or profitability of the Corporation and/or any Subsidiary
(as defined below) or affiliate of the Corporation are eligible to be granted
Awards under the Plan.
SECTION 5 Stock Options
Stock Options may be granted alone, in addition to or in tandem with
other awards granted under the Plan. Any Stock Option granted under the Plan
shall be in such form as the Committee may from time to time approve.
Stock Options granted under the Plan may be of two types: (i) Incentive
Stock Options and (ii) Non-Qualified Stock Options.
With the exception of Optionees who are either (i) consultants or (ii)
directors who are not also employees of the corporation, who shall not be
eligible to receive Incentive Stock Options, the Committee shall have the
authority to grant any Optionee Incentive Stock Options, Non-Qualified Stock
Options, or both types of Stock Options (in each case with or without Stock
Appreciation Rights). To the extent that any Stock Option does not qualify as an
Incentive Stock Option, it shall constitute a separate Non-Qualified Stock
Option.
Anything in the Plan to the contrary notwithstanding, no term of this
Plan relating to Incentive Stock Options shall be interpreted, amended or
altered, nor shall any discretion or authority granted under the Plan be so
exercised, so as to disqualify the Plan under Section 422 of the Code, or,
without the consent of the Optionee(s) affected, to disqualify any Incentive
Stock Option under such Section 422.
Options granted under the Plan shall be subject to the following terms
and conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem
appropriate:
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1994 Long-Term Incentive Plan
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(a) Option Price. The option price per share of Stock purchasable
under a Stock Option shall be determined by the Committee at the
time of grant, but for Non-Qualified Stock Options shall not be
less than 50% of the Fair Market Value of the Stock at the time of
grant, and for Incentive Stock Options shall be not less than 100%
of the Fair Market Value of the Stock at the time of grant.
However, any Incentive Stock Option granted to any Optionee who,
at the time the Option is granted, owns more than 10% of the
voting power of all classes of stock of the Corporation or of a
Parent or Subsidiary corporation, shall have an exercise price no
less than 110% of Fair Market Value per share on date of the
grant. The term "Parent" and "Subsidiary" as used herein shall
mean "parent corporation" and "subsidiary corporation" as those
terms are defined in Section 424 of the Code.
(b) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Incentive Stock Option or Non-Qualified Stock
Option shall be exercisable more than ten years after the date the
Option is granted. However, any Option granted to any Optionee who
at the time the Option is granted owns more than 10% of the voting
power of all classes of Stock of the Corporation or of a Parent or
Subsidiary corporation may not have a term of more than five
years. No Option may be exercised by any person after expiration
of the term of the Option.
(c) Exercisability. Stock Options shall be exercisable at such time or
times and subject to such terms and conditions as shall be
determined by the Committee at or after grant, provided, however,
that, except as provided in Section 5(g), unless otherwise
determined by the Committee at or after grant, no Stock Option
shall be exercisable during the six months following the date of
the granting of the Option. If the Committee provides, in its
discretion, that any Stock Option is exercisable only in
installments, the Committee may waive such installment exercise
provisions at any time at or after grant in whole or in part,
based on such factors as the Committee shall determine, in its
sole discretion.
(d) Method of Exercise. Subject to whatever installment exercise
provisions apply under Section 5(c), Stock Options may be
exercised in whole or in part at any time and from time to time
during the Option period, by giving
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1994 Long-Term Incentive Plan
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written notice of exercise to the Corporation specifying the
number of shares to be purchased.
Such notice shall be accompanied by payment in full of the
purchase price, either by certified or bank check, or such other
instrument as the Committee may accept. As determined by the
Committee, in its sole discretion, at or after grant, payment in
full or in part may also be made in the form of unrestricted
Stock already owned by the Optionee or, in the case of the
exercise of a Non-Qualified Stock Option or Restricted Stock
subject to an award hereunder (based, in each case, on the Fair
Market Value of the Stock on the date the Option is exercised, as
determined by the Committee), provided, however, that, in the
case of an Incentive Stock Option, the right to make a payment in
the form of already owned shares may be authorized only at the
time the Option is granted.
The Committee, in its sole discretion, may at the time of grant
or such later time as it determines, permit payment of the Option
exercise price of a Non-Qualified Stock Option to be made in
whole or in part in the form of Restricted Stock. If such payment
is permitted, then such Restricted Stock (and any replacement
shares relating thereto) shall remain (or be) restricted in
accordance with the original terms of the Restricted Stock award
in question, and any additional Stock received upon the exercise,
shall be subject to the same forfeiture restrictions, unless
otherwise determined by the Committee, in its sole discretion, at
or after grant.
If payment of the Option exercise price of a Non-Qualified Option
is made in whole or in part in the form of unrestricted stock
already owned by the Participant, the Corporation may require
that the stock be owned by the Participant for a period of six
months or longer so that such payment would not result in a
pyramid exercise.
No shares of Stock shall be issued until full payment therefor
has been made. An Optionee shall generally have the rights to
dividends or other rights of a shareholder with respect to shares
subject to the Option when the Optionee has given written notice
of exercise, has paid in full for such shares, and, if requested,
has given the representation described in Section 11(a).
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1994 Long-Term Incentive Plan
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(e) Replacement Options. If an Option granted pursuant to the Plan may
be exercised by an Optionee by means of a stock-for-stock swap
method of exercise as provided in 5(d) above, then the Committee
may, in its sole discretion , at the time of the original Option
grant or at such subsequent time during the term of such Option as
the Committee, in its sole discretion, shall deem appropriate,
authorize the Participant to automatically receive a replacement
Option pursuant to this part of the Plan. This replacement Option
shall cover a number of shares determined by the Committee, but in
no event more than the number of shares equal to the difference
between the number of shares covered by the original Option
exercised and the net shares received by the Participant from such
exercise. The exercise price of the replacement Option shall equal
the then current Fair Market Value, and with a term not to exceed
ten years.
The Committee shall have the right, in its sole discretion and at
any time, to discontinue the automatic grant of replacement
Options if it determines the continuance of such grants to no
longer be in the best interest of the Corporation.
(f) Non-transferability of Options. No Stock Option shall be
transferable by the Optionee otherwise than by will or by the laws
of descent and distribution, and all Stock Options shall be
exercisable, during the Optionee's lifetime, only by the Optionee.
(g) Termination by Reason of Death. Subject to Section 5(j), if an
Optionee's employment by the Corporation and any Subsidiary or
affiliate terminates by reason of death, any Stock Option held by
such Optionee may thereafter be exercised, to the extent then
exercisable or on such accelerated basis as the Committee may
determine at or after grant, by the legal representative of the
estate or by the legatee of the Optionee under the will of the
Optionee, for a period of one year (or such shorter period as the
Committee may specify at grant) from the date of such death or
until the expiration of the stated term of such Stock Option,
whichever period is the shorter.
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(h) Termination by Reason of Disability. Subject to Section 5(k), if
an Optionee's employment by the Corporation and any Subsidiary or
affiliate terminates by reason of Disability, any Stock Option
held by such Optionee may thereafter be exercised by the Optionee,
to the extent it was exercisable at the time of termination, or on
such accelerated basis as the Committee may determine at or after
grant, for a period of two years (or such shorter period as the
Committee may specify at grant) from the date of such termination
of employment or until the expiration of the stated term of such
Stock Option, whichever period is the shorter; provided, however,
that if the Optionee dies within such two-year period (or such
shorter period as the Committee shall specify at grant), any
unexercised Stock Option held by such Optionee shall, at the sole
discretion of the Committee, thereafter be exercisable to the
extent to which it was exercisable at the time of death for a
period of twelve months from the date of such death or until the
expiration of the stated term of such Stock Option, whichever
period is the shorter. In the event of termination of employment
by reason of Disability, if an Incentive Stock Option is exercised
after the expiration of the exercise periods that apply for
purposes of Section 422 of the Code, such Stock Option will
thereafter be treated as a Non-Qualified Stock Option.
(i) Termination by Reason of Retirement. Subject to Section 5(j), if
an Optionee's employment by the Corporation terminates by reason
of Normal or Early Retirement, any Stock Option held by such
Optionee may thereafter be exercised by the Optionee, to the
extent it was exercisable at the time of such Retirement or on
such accelerated basis as the Committee may determine at or after
grant, for a period of two years (or such shorter period as
Committee may specify at grant) from the date of such termination
of employment or the expiration of the stated term of such Stock
Option, whichever period is the shorter; provided, however, that,
if the Optionee dies within such two-year period, any unexercised
Stock Option held by such Optionee shall, at the sole discretion
of the Committee, thereafter be exercisable, to the extent to
which it was exercisable at the time of death, for a period of
twelve months from the date of such death or until the expiration
of the stated term of such Stock Option, whichever period is the
shorter. In the event of termination of employment by reason of
Retirement, if an Incentive Stock Option is exercised after the
expiration of the exercise
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1994 Long-Term Incentive Plan
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periods that apply for purposes of Section 422 of the Code, such
Stock Option will thereafter be treated as a Non-Qualified Stock
Option.
(j) Other Termination. Unless otherwise determined by the Committee at
or after grant, if an Optionee's employment by the Corporation
terminates for any reason other than death, Disability or Normal
or Early Retirement, the Stock Option shall thereupon terminate,
except that such Stock Option may be exercised for the lesser of
three months or the balance of such Stock Option's term if the
Optionee is involuntarily terminated by the Corporation without
Cause.
(k) Incentive Stock Option Limitations. To the extent required for
"Incentive Stock Option" status under Section 422 of the Code, the
aggregate Fair Market Value (determined as of the time of grant)
of the Stock with respect to which Incentive Stock Options granted
after 1986 are exercisable for the first time by the Optionee
during any calendar year under the Plan and/or any other Option
plan of the Corporation (within the meaning of Section 424 of the
Code) after 1986 shall not exceed $100,000.
To the extent (if any) permitted under Section 422 of the Code,
if (i) a Participant's employment with the Corporation is
terminated by reason of death, Disability or Retirement and (ii)
the portion of any Incentive Stock Option that is otherwise
exercisable during the post-termination period specified under
Section 5(g), (h) or (i), applied without regard to this Section
5(k), is greater than the portion of such Option that is
exercisable as an "Incentive Stock Option" during such
post-termination period under Section 422, such post-termination
period shall automatically be extended (but not beyond the
original Option term) to the extent necessary to permit the
Optionee to exercise such Incentive Stock Option.
(l) Cash-out of Option; Settlement of Spread Value in Restricted
Stock. On receipt of written notice to exercise, the Committee
may, in its sole discretion, elect to cash out all or part of the
portion of the Option(s) to be exercised by paying the Optionee an
amount, in cash or stock, equal to the excess of the Fair Market
Value of the Stock over the option price (the "Spread Value") on
the effective date of such cash-out.
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1994 Long-Term Incentive Plan
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In addition, if the Option agreement so provides at grant or is
amended (with the Optionee's consent) after grant and prior to
exercise to so provide, the Committee may require that all or
part of the shares to be issued with respect to the Spread Value
of an exercised Option take the form of Restricted Stock, which
shall be valued on the date of exercise on the basis of the Fair
Market Value of such Restricted Stock determined without regard
to the forfeiture restrictions involved.
(m) Cashless Exercise. To the extent permitted under the applicable
laws and regulations under Section 16 of the Securities Exchange
act of 1934, as amended, and the Rules promulgated thereunder, and
with the consent of the Committee, the Corporation agrees to
cooperate in a "cashless exercise" of an Option. The cashless
exercise shall be effected by the Participant delivering to the
Securities Broker instructions to sell a sufficient number of
shares of Common Stock to cover the costs and expenses associated
therewith.
SECTION 6. Stock Appreciation Rights
(a) Grant and Exercise. Stock Appreciation Rights may be granted in
conjunction with all or part of any Stock Option granted under the
Plan. In the case of a Non-Qualified Stock Option, such rights may
be granted either at or after the time of the grant of such Stock
Option. In the case of an Incentive Stock Option, such rights may
be granted only at the time of the grant of such Stock Option.
A Stock Appreciation Right or applicable portion thereof granted
with respect to a given Stock Option shall terminate and no
longer be exercisable upon the termination or exercise of the
related Stock Option, except that, unless otherwise determined by
the Committee, in its sole discretion, at the time of grant, a
Stock Appreciation Right granted with respect to less than the
full number of shares covered by a related Stock Option shall not
be reduced until the number of shares covered by an exercise or
termination of the related Stock Option exceeds the number of
shares not covered by the Stock Appreciation Right.
A Stock Appreciation Right may be exercised by an Optionee, in
accordance with Section 6(b), by surrendering the applicable
portion of the
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related Stock Option. Upon such exercise and
surrender, the Optionee shall be entitled to receive an amount
determined in the manner prescribed in Section 6(b). Stock
Options which have been so surrendered, in whole or in part,
shall no longer be exercisable to the extent the related Stock
Appreciation Rights have been exercised.
b. Term and Conditions. Stock Appreciation Rights shall be subject to
such terms and conditions, not inconsistent with the provisions of
the Plan, as shall be determined from time to time by the
Committee, including the following:
(i) Stock Appreciation Rights shall be exercisable only at such
time or times and to the extent that the Stock Options to
which they relate, if any, shall be exercisable in
accordance with the provisions of Section 5 and this Section
6 of the Plan; provided, however, that any Stock
Appreciation Right granted subsequent to the grant of the
related Stock Option shall not be exercisable during the
first six months of its term, except that this special
limitation shall not apply in the event of death or
Disability of the Optionee prior to the expiration of the
six-month period.
(ii) Upon the exercise of a Stock Appreciation Right, an Optionee
shall be entitled to receive up to, but not more than, an
amount in cash and/or shares of Stock equal in value to the
excess of the Fair Market Value of one share of Stock over
the Option price per share or such lesser amount as
specified in the grant agreement, multiplied by the number
of shares in respect of which the Stock Appreciation Right
shall have been exercised, with the Committee having the
right to determine the form of payment.
(iii) Stock Appreciation Rights shall be transferable only when
and to the extent that the underlying Stock Option would be
transferable under Section 5(f) of the Plan.
(iv) Upon the exercise of a Stock Appreciation Right, the Stock
Option or part thereof to which such Stock Appreciation
Right is related shall be deemed to have been exercised for
the purpose of the limitation set forth in Section 3 of the
Plan on the number of shares of Stock to be
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1994 Long-Term Incentive Plan
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issued under the Plan, but only to the extent of the number
of shares issued under the Stock Appreciation Right at the
time of exercise based on the value of the Stock
Appreciation Right at such time.
(v) A Stock Appreciation Right granted in connection with an
Incentive Stock Option may be exercised only if and when the
market price of the Stock subject to the Incentive Stock
Option exceeds the exercise price of such Stock Option.
SECTION 7. Restricted Stock
(a) Administration. Shares of Restricted Stock may be issued either
alone or in addition to other awards granted under the Plan. The
Committee shall determine the Participants to whom, and the time
or times at which, grants of Restricted Stock will be made, the
number of shares to be awarded, the price (if any) to be paid by
the recipient of Restricted Stock (subject to Section 7(b)), the
time or times within which such awards may be subject to
forfeiture, and all other conditions of the awards.
The Committee may condition the grant of Restricted Stock upon
the attainment of specified performance goals or such other
factors as the Committee may determine, in its sole discretion.
The provisions of Restricted Stock awards need not be the same
with respect to each recipient.
(b) Awards and Certificates. The prospective recipient of a
Restricted Stock award shall not have any rights with respect to
such award, unless and until such recipient has executed an
agreement evidencing the award and has delivered a fully executed
copy thereof to the Corporation, and has otherwise complied with
the applicable terms and conditions of such award.
(i) The purchase price for shares of Restricted Stock shall
not be less than what prevailing law may require.
(ii) Awards of Restricted Stock must be accepted within a
period of 60 days (or such shorter period as the Committee
may specify at grant)
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1994 Long-Term Incentive Plan
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after the award date, by executing a Restricted Stock Award
Agreement and paying whatever price (if any) is required under
Section 7(b)(i).
(iii) Each Participant receiving a Restricted Stock award shall
be issued a stock certificate in respect of such shares of
Restricted Stock. Such certificate shall be registered in
the name of such Participant, and shall bear an
appropriate legend referring to the terms, conditions, and
restrictions applicable to such award, substantially in
the following form:
"The transferability of this certificate and the
shares of stock represented hereby are subject to the
terms and conditions (including forfeiture) of the
Pegasystems Inc. 1994 Long-Term Incentive Plan and an
Agreement entered into between the registered owner
and Pegasystems Inc. Copies of such Plan and or
Agreement are on file in the offices of Pegasystems
Inc. 101 Main Street, Cambridge, MA 02142-1590
Attention: Vice President, Corporate Services.
(iv) The Committee shall require that the stock certificates
evidencing such shares be held in custody by the
Corporation until the restrictions thereon shall have
lapsed, and that, as a condition of any Restricted Stock
award, the Participant shall have delivered a stock power,
endorsed in blank, relating to the Stock covered by such
award.
(c) Restrictions and Conditions. The shares of Restricted Stock
awarded pursuant to this Section 7 shall be subject to the
following restrictions and conditions:
(i) Subject to the provisions of this Plan and the award
agreement, during a period set by the Committee commencing
with the date of such award (the "Restriction Period"), the
Participant shall not be permitted to sell, transfer,
pledge, assign or otherwise encumber shares of Restricted
Stock awarded under the Plan. Within these limits, the
Committee, in its sole discretion, may provide for the
lapse of such restrictions in installments and may
accelerate or waive such
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1994 Long-Term Incentive Plan
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restrictions in whole or in part, based on service,
performance and/or such other factors or
criteria as the Committee may determine, in its sole
discretion.
(ii) Except as provided in this paragraph (ii) and Section
7(c)(i), the Participant shall have, with respect to the
shares of Restricted Stock, all of the rights of a
shareholder of the Corporation, including the right to vote
the shares, and the right to receive any cash dividends.
The Committee, in its sole discretion, as determined at the
time of award, may permit or require the payment of cash
dividends to be deferred and, if the Committee so
determines, reinvested in additional Restricted Stock to
the extent shares are available under Section 3.
(iii) Subject to the applicable provisions of the award agreement
and this Section 7, upon termination of a Participant's
employment with the Corporation for any reason during the
Restriction Period, all shares still subject to restriction
shall be forfeited by the Participant.
(iv) In the event of hardship or other special circumstances of
a Participant whose employment with the Corporation is
involuntarily terminated (other than for Cause), the
Committee may, in its sole discretion, waive in whole or
in part any or all remaining restrictions with respect to
such Participant's shares of Restricted Stock, based on
such factors as the Committee may deem appropriate.
(v) If and when the Restriction Period expires without a prior
forfeiture of the Restricted Stock subject to such
Restriction Period, the certificates for such shares shall
be delivered to the Participant promptly.
SECTION 8. Long Term Performance Awards
(a) Awards and Administration. Long Term Performance Awards may be
awarded either alone or in addition to other awards granted under
the Plan. The Committee shall determine the nature, length and
starting date of the performance period (the "Performance Period")
for each Long Term Performance Award, which shall be at least two
years, and shall determine the performance objectives to be used
in valuing Long Term Performance Awards
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1994 Long-Term Incentive Plan
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and determining the extent to which such Long Term Performance
Awards have been earned. Performance objectives may vary from
Participant to Participant and between groups of Participants and
shall be based upon such Corporation, business unit and/or
individual performance factors and criteria as the Committee may
deem appropriate, including, but not limited to, earnings per
share or return on equity. Performance Periods may overlap and
Participants may participate simultaneously with respect to Long
Term Performance Awards that are subject to different Performance
Periods and/or different performance factors and criteria.
At the beginning of each Performance Period, the Committee shall
determine for each Long Term Performance Award subject to such
Performance Period the range of dollar values or number of shares
of Stock to be awarded to the Participant at the end of the
Performance Period if and to the extent that the relevant
measure(s) of performance for such Long Term Performance Award is
(are) met. Such dollar values or number of shares of Stock may be
fixed or may vary in accordance with such performance and/or
other criteria as may be specified by the Committee, in its sole
discretion.
(b) Adjustment of Awards. In the event of special or unusual events
or circumstances affecting the application of one or more
performance objectives to a Long Term Performance Award, the
Committee may revise the performance objectives and/or underlying
factors and criteria applicable to the Long Term Performance
Awards affected, to the extent deemed appropriate by the
Committee, in its sole discretion, to avoid unintended windfalls
or hardship.
(c) Termination of Employment. Unless otherwise provided in the
applicable award agreement(s), if a Participant terminates
employment with the Corporation during a Performance Period
because of death, Disability or Retirement, such Participant
shall be entitled to a payment with respect to each outstanding
Long Term Performance Award at the end of the applicable
Performance Period:
(i) based, to the extent relevant under the terms of the
award, upon the Participant's performance
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1994 Long-Term Incentive Plan
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for the portion of such Performance Period ending on the
date of termination and the performance of the applicable
business unit(s) for the entire Performance Period, and
(ii) prorated where deemed appropriate by the Committee, for
the portion of the Performance Period during which the
Participant was employed by the Corporation, all as
determined by the Committee, in its sole discretion.
However, the Committee may provide for an earlier payment in
settlement of such award in such amount and under such terms and
conditions as the Committee deems appropriate.
If a Participant terminates employment with the Corporation
during a Performance Period for any other reason, then such
Participant shall not be entitled to any payment with respect to
the Long Term Performance Awards subject to such Performance
Period, unless the Committee shall otherwise determine, in its
sole discretion.
(d) Form of Payment. The earned portion of a Long Term Performance
Award may be paid currently or on a deferred basis with such
interest or earnings equivalent as may be determined by the
Committee, in its sole discretion. Payment shall be made in the
form of cash or whole shares of Stock, including Restricted Stock,
either in a lump sum payment or in annual installments commencing
as soon as practicable after the end of the relevant Performance
Period, all as the Committee shall determine at or after grant. If
and to the extent a Long Term Performance Award is payable in
Stock and the full amount of such value is not paid in Stock, then
the shares of Stock representing the portion of the value of the
Long Term Performance Award not paid in Stock shall again become
available for award under the Plan.
SECTION 9. Amendments and Termination
The Board may amend, alter, or discontinue the Plan at any time and from
time to time, but no amendment, alteration, or discontinuation shall be made
which would impair the rights of an Optionee or Participant with respect to a
Stock Option, Stock Appreciation Right, Restricted Stock or Long Term
Performance Award which has been granted under the Plan, without the Optionee's
or Participant's consent, or which,
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1994 Long-Term Incentive Plan
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without the approval of the Corporation's stockholders obtained within 12 months
before or after the Board adopts a resolution authorizing any of the following
amendments, would:
(a) except as expressly provided in this Plan, increase the total
number of shares reserved for the purpose of the Plan;
(b) decrease the Option price of any Stock Option to less than 50% of
the Fair Market Value on the date of grant;
(c) change the employees or class of employees eligible to participate
in the Plan; or
(d) extend the maximum Option period under Section 5(b) of the Plan.
The Committee may amend the terms of any Stock Option or other award
theretofore granted, prospectively or retroactively, but, subject to Section 3
above, no such amendment shall impair the rights of any holder without the
holder's consent. The Committee may also substitute new Stock Options for
previously granted Stock Options, including previously granted Stock Options
having higher Option prices.
Subject to the above provisions, the Committee shall have broad
authority to amend the Plan to take into account changes in applicable tax laws
and accounting rules, as well as other developments.
SECTION 10. Unfunded Status of Plan
The Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. With respect to any payments not yet made to a
Participant or Optionee by the Corporation, nothing contained herein shall give
any such Participant or Optionee any rights that are greater than those of a
general creditor of the Corporation. In its sole discretion, the Board may
authorize the creation of trusts or other arrangements to meet the obligations
created under the Plan to deliver Stock or payments in lieu of or with respect
to awards hereunder, provided, however, that, unless the Board otherwise
determines with the consent of the affected Participant, the existence of such
trusts or other arrangements is consistent with the "unfunded" status of the
Plan.
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SECTION 11. General Provisions
(a) The Committee may require each person purchasing shares pursuant
to a Stock Option under the Plan to represent to and agree with
the Corporation in writing that the Optionee or Participant is
acquiring the shares without a view to distribution thereof. The
certificates for such shares may include any legend which the
Committee deems appropriate to reflect any restrictions on
transfer.
All certificates for shares of Stock or other securities delivered
under the Plan shall be subject to such stock-transfer orders and
other restrictions as the Committee may deem advisable under the
rules, regulations, and other requirements of the Exchange Act,
any stock exchange upon which the Stock is then listed, and any
applicable federal or state securities law, and the Committee may
cause a legend or legends to be put on any such certificates to
make appropriate reference to such restrictions.
(b) Nothing contained in this Plan shall prevent the Board of
Directors from adopting other or additional compensation
arrangements, subject to stockholder approval if such approval is
required; and such arrangements may be either generally applicable
or applicable only in specific cases.
(c) The adoption of the Plan shall not confer upon any employee of the
Corporation any right to continued employment with the
Corporation, as the case may be, nor shall it interfere in any way
with the right of the Corporation to terminate the employment of
any of its employees at any time.
(d) No later than the date as of which an amount first becomes
includible in the gross income of the Participant for Federal
income tax purposes with respect to any award under the Plan, the
Participant shall pay to the Corporation, or make arrangements
satisfactory to the Committee regarding the payment of, any
Federal, state, or local taxes of any kind required by law to be
withheld with respect to such amount. Unless otherwise determined
by the Committee, the minimum required withholding obligations may
be settled with Stock, including Stock that is part of the award
that gives rise to the withholding requirement. The obligations of
the Corporation under the Plan shall be conditional on such
payment or arrangements and the Corporation shall, to the extent
permitted by law, have the right to deduct any such taxes from any
payment of any kind otherwise due to the Participant.
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(e) At the time of grant, the Committee may provide in connection with
any grant made under this Plan that the shares of Stock received
as a result of such grant shall be subject to a right of first
refusal, pursuant to which the Participant shall be required to
offer to the Corporation any shares that the Participant wishes to
sell, with the price being the then Fair Market Value of the
Stock, subject to such other terms and conditions as the Committee
may specify at the time of grant.
(f) Shares may be subject to a repurchase right by the Corporation
which the Corporation shall have the right to exercise from time
to time as may be set forth in a grant agreement for an award
granted under this Plan.
(g) The reinvestment of dividends in additional Restricted Stock (or
in other types of Plan awards) at the time of any dividend payment
shall only be permissible if sufficient shares of Stock are
available under Section 3 for such reinvestment (taking into
account then outstanding Stock Options and other Plan awards).
(h) The Committee shall establish such procedures as it deems
appropriate for a Participant to designate a beneficiary to whom
any amounts payable in the event of the Participant's death are to
be paid.
(i) The Plan and all awards made and actions taken thereunder shall be
governed by and construed in accordance with the laws of the
Commonwealth of Massachusetts.
SECTION 12. Effective Date of Plan
The Plan shall be effective on the date it is approved by a vote of the
holders of a majority of the total outstanding Stock.
SECTION 13. Term of Plan
No Stock Option, Stock Appreciation Right, Restricted Stock or Long Term
Performance Award shall be granted pursuant to the Plan on or after the tenth
anniversary of the date of stockholder approval, but awards granted prior to
such tenth anniversary may extend beyond that date.
ds1-263101
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Pegasystems Inc. Page 23 Confidential
PEGASYSTEMS INC.
1996 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
1. Purpose. This 1996 Non-Employee Director Stock Option Plan
(hereinafter, the "Plan") is intended to promote the interests of Pegasystems
Inc., a Massachusetts corporation (the "Company"), by providing an inducement to
obtain and retain the services of qualified persons who are not employees or
officers of the Company to serve as members of its Board of Directors (the
"Board").
2. Available Shares. The total number of shares of Common Stock, $.01
par value per share, of the Company (the "Common Stock") for which options may
be granted under the Plan shall not exceed shares, subject to adjustment in
accordance with paragraph 10 of the Plan. Shares subject to the Plan are
authorized but unissued shares or shares that were once issued and subsequently
reacquired by the Company. If any options granted under the Plan are surrendered
before exercise or lapse without exercise, in whole or in part, the shares
reserved therefor shall continue to be available under the Plan.
3. Administration. The Plan shall be administered by the Board or by a
committee appointed by the Board (the "Committee"). In the event the Board fails
to appoint or refrains from appointing a Committee, the Board shall have all
power and authority to administer the Plan. In such event, the word "Committee"
wherever used herein shall be deemed to mean the Board. The Committee shall,
subject to the provisions of the Plan, have the power to construe the Plan, to
determine all questions hereunder, and to adopt and amend such rules and
regulations for the administration of the Plan as it may deem desirable. No
member of the Board or the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any option granted
under it.
4. Granting of Options.
During the term of the Plan and subject to the availability of shares
under the Plan, each person who is first elected as a member of the Board (the
"Optionee") after May 13, 1996 and during the term of this Plan, and who is not
on the date of such election a current or former employee or officer of the
Company, shall be granted, contingent on stockholder approval of this Plan, an
option to purchase 30,000 shares of Common Stock on the date of such grant, such
option to vest pursuant to Section 7 below.
Except for the specific options referred to above, no other options
shall be granted under the Plan.
5. Option Price. The purchase price of the stock covered by an option
granted pursuant to this Plan shall be 100% of the fair market value of such
shares on the day the option is granted. The option price will be subject to
adjustment in accordance with the provisions of Section 10 below. For purposes
of this Plan, if, at the time an option is granted under the Plan, the Company's
Common Stock is publicly traded, "fair market value" shall be determined as of
the last business day for which the prices or quotes discussed in this sentence
<PAGE>
are available prior to the date such option is granted and shall mean (i) the
average (on that date) of the high and low prices of the Common Stock on the
principal national securities exchange on which the Common Stock is traded, if
the Common Stock is then traded on a national securities exchange; (ii) the last
reported sale price (on that date) of the Common Stock on the Nasdaq National
Market, if the Common Stock is not then traded on a national securities
exchange; or (iii) the closing bid price (or average of bid prices) last quoted
(on that date) by an established quotation service for over-the-counter
securities, if the Common Stock is not reported on the Nasdaq National Market or
on a national securities exchange. If, at the time an option is granted under
this Plan, the Company's stock is not publicly traded, "fair market value" shall
be the fair market value on the date the option is granted as determined by the
Board in good faith.
6. Period of Option. Unless sooner terminated in accordance with the
provisions of Section 8 below, an option granted hereunder shall expire on the
date which is ten (10) years after the date of grant of the option.
7. Vesting of Shares and Non-transferability of Options.
(a) Vesting. Options granted under this Plan shall not be
exercisable until they become vested. Options granted under this Plan shall vest
in the Optionee and thus become exercisable by the Optionee in five equal annual
installments commencing on the first anniversary of the date of grant.
(b) Legend on Certificates. The certificates representing such
shares shall carry such appropriate legend and such written instructions shall
be given to the Company's transfer agent as may be deemed necessary or advisable
by counsel to the Company in order to comply with the requirements of the
Securities Act of 1933 or any state securities laws.
(c) Non-transferability. Any option granted pursuant to this Plan
shall not be assignable or transferable other than by will or the laws of
descent and distribution or pursuant to a qualified domestic relations order and
shall be exercisable during the Optionee's lifetime only by him or her.
8. Termination of Option Rights.
(a) In the event an Optionee ceases to be a member of the Board
for any reason other than death or permanent disability, any then unexercised
portion of options granted to such Optionee shall, to the extent not then
vested, immediately terminate and become void; any portion of an option which is
then vested but has not been exercised at the time the Optionee so ceases to be
a member of the Board may be exercised, to the extent it is then vested, by the
Optionee until the earlier of the scheduled expiration date of the option and
90 days after the date the Optionee ceased to be a member of the Board.
2
<PAGE>
(b) In the event that an Optionee ceases to be a member of the
Board by reason of his or her death or permanent disability, any option granted
to such Optionee shall be immediately and automatically accelerated and become
fully vested and all unexercised options shall be exercisable by the Optionee
(or by the optionee's personal representative, heir or legatee, in the event of
death) until the earlier of the scheduled expiration date of the option or one
year after the death or disability of the Optionee.
(c) Notwithstanding the provisions in this Section 8, the
Committee may, in its sole discretion, establish different terms and conditions
pertaining to the effect of a participant's ceasing to be a member of the Board.
9. Exercise of Option. An option granted hereunder shall, to the extent
then exercisable, be exercisable in whole or in part by giving written notice to
the Company at its principal office address, stating the number of shares with
respect to which the option is being exercised, accompanied by payment in full
for such shares. Payment may be (a) in United States dollars in cash or by
check, (b) in whole or in part in shares of Common Stock of the Company already
owned by the person or persons exercising the option or shares subject to the
option being exercised (subject to such restrictions and guidelines as the Board
may adopt from time to time), valued at fair market value determined in
accordance with the provisions of Section 5 or (c) consistent with applicable
law, through the delivery of an assignment to the Company of a sufficient amount
of the proceeds from the sale of the Common Stock acquired upon exercise of the
option and an authorization to the broker or selling agent to pay that amount to
the Company, which sale shall be at the participant's direction at the time of
exercise. There shall be no such exercise at any one time as to fewer than one
hundred (100) shares or all of the remaining shares then purchasable by the
person or persons exercising the option, if fewer than one hundred (100) shares.
The Company's transfer agent shall, on behalf of the Company, prepare a
certificate or certificates representing such shares acquired pursuant to
exercise of the option, shall register the optionee as the owner of such shares
on the books of the Company and shall cause the fully executed certificates(s)
representing such shares to be delivered to the optionee as soon as practicable
after payment of the option price in full. The holder of an option shall not
have any rights of a stockholder with respect to the shares covered by the
option except to the extent that one or more certificates for such shares shall
be delivered to him or her upon the due exercise of the option.
10. Adjustments Upon Changes in Capitalization and Other Matters. Upon
the occurrence of any of the following events, an Optionee's rights with respect
to options granted to him or her hereunder shall be adjusted as hereinafter
provided:
(a) Stock Dividends. In the event the Company shall issue any of
its shares as a stock dividend upon or with respect to the shares of stock of
the class which shall at the time be subject to option hereunder, each Optionee
upon exercising an option shall be entitled to receive (for the purchase price
paid upon such exercise) the shares as to which he is exercising his option and,
in addition thereto (at no additional cost), such number of shares of the class
or classes in which such stock dividend or dividends were declared or paid, and
such
3
<PAGE>
amount of cash in lieu of fractional shares, as he would have received if
he had been the holder of the shares as to which he is exercising his option at
all times between the date of grant of such option and the date of its exercise.
(b) Merger; Consolidation; Liquidation; Sale of Assets. In the
event the Company is merged into or consolidated with another corporation under
circumstances where the Company is not the surviving corporation or if the
Company is liquidated or sells or otherwise disposes of all or substantially all
of its assets to another corporation while unexercised options remain
outstanding under this Plan, (i) subject to the provisions of clauses (iii),
(iv) and (v) below, after the effective date of such merger, consolidation or
sale, as the case may be, each holder of an outstanding option shall be
entitled, upon exercise of such option, to receive in lieu of shares of Common
Stock, shares of such stock or other securities as the holders of shares of
Common Stock received pursuant to the terms of the merger, consolidation or
sale; or (ii) the Board may waive any discretionary limitations imposed with
respect to the exercise of the option so that all options from and after a date
prior to the effective date of such merger, consolidation, liquidation or sale,
as the case may be, specified by the Board, shall be exercisable in full; or
(iii) all outstanding options may be cancelled by the Board as of the effective
date of any such merger, consolidation, liquidation or sale, provided that
notice of such cancellation shall be given to each holder of an option, and each
such holder thereof shall have the right to exercise such option in full
(without regard to any discretionary limitations imposed with respect to the
option) during a 30-day period preceding the effective date of such merger,
consolidation, liquidation or sale; or (iv) all outstanding options may be
cancelled by the Board as of the date of any such merger, consolidation,
liquidation or sale, provided that notice of such cancellation shall be given to
each holder of an option and each such holder thereof shall have the right to
exercise such option but only to the extent exercisable in accordance with any
discretionary limitations imposed with respect to the option prior to the
effective date of such merger, consolidation, liquidation or sale; or (v) the
Board may provide for the cancellation of all outstanding options and for the
payment to the holders thereof of some part or all of the amount by which the
value thereof exceeds the payment, if any, which the holder would have been
required to make to exercise such option.
(c) Issuance of Securities. Except as expressly provided herein,
no issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
subject to options. No adjustments shall be made for dividends paid in cash or
in property other than securities of the Company.
(d) No Fractional Shares. No fractional shares shall actually be
issued under the Plan. Any fractional shares which, but for this subparagraph
(d), would have been issued to an Optionee pursuant to an option, shall be
deemed to have been issued and immediately sold to the Company for their fair
market value, and the Optionee shall receive from the Company cash in lieu of
such fractional shares.
4
<PAGE>
(e) Adjustments. Upon the happening of any of the foregoing
events, the class and aggregate number of shares set forth in Section 2 above
that are subject to options which previously have been or subsequently may be
granted under the Plan shall also be appropriately adjusted to reflect such
events. The Board shall determine the specific adjustments to be made under this
Section 10 and its determination shall be conclusive.
11. Restrictions on Issuance of Shares. Notwithstanding the provisions
of Sections 4 and 9 above, the Company shall have no obligation to deliver any
certificate or certificates upon exercise of an option until one of the
following conditions shall be satisfied:
(i) The shares with respect to which the option has been exercised
are at the time of the issue of such shares effectively registered under
applicable federal and state securities laws as now in force or
hereafter amended; or
(ii) Counsel for the Company shall have given an opinion that such
shares are exempt from registration under federal and state securities
laws as now in force or hereafter amended; and the Company has complied
with all applicable laws and regulations with respect thereto, including
without limitation all regulations required by any stock exchange upon
which the Company's outstanding Common Stock is then listed.
12. Representation of Optionee. If requested by the Company, the
Optionee shall deliver to the Company written representations and warranties
upon exercise of the option that are necessary to show compliance with federal
and state securities laws, including representations and warranties to the
effect that a purchase of shares under the option is made for investment and not
with a view to their distribution (as that term is used in the Securities Act of
1933).
13. Option Agreement. Each option granted under the provisions of this
Plan shall be evidenced by an option agreement, which agreement shall be duly
executed and delivered on behalf of the Company and by the Optionee to whom such
option is granted. The option agreement shall contain such terms, provisions and
conditions not inconsistent with this Plan as may be determined by the officer
executing it.
14. Term and Amendment of Plan. This Plan was adopted by the Board
effective as of May 13, 1996, subject to approval by the stockholders of the
Company. Options may no longer be granted under the Plan after May 13, 2006, and
the Plan shall terminate when all options granted or to be granted hereunder are
no longer outstanding. Subject to the provisions of Section 4 above, options may
be granted under the Plan prior to the date of stockholder approval of the Plan.
If the approval of stockholders is not obtained by May 13, 1997, any grants of
options under the Plan made prior to that date will be rescinded. The Board may
at any time terminate the Plan or make such modification or amendment thereof as
it deems advisable; provided, however, that the Board may not, without approval
by the stockholders, (a) increase the maximum number of shares for which options
may be granted under the Plan
5
<PAGE>
(except by adjustment pursuant to Section 10), (b) materially modify the
requirements as to eligibility to participate in the Plan, (c) materially
increase benefits accruing to option holders under the Plan or (d) amend the
Plan in any manner which would cause Rule 16b-3 to become inapplicable to the
Plan; and provided further that the provisions of this Plan specified in Rule
16b-3(c)(2)(ii)(A) (or any successor or amended provision thereof) under the
Securities Exchange Act of 1934 (including without limitation, provisions as to
eligibility, amount, price and timing of awards) may not be amended more than
once every six months, other than to comport with changes in the Internal
Revenue Code, the Employee Retirement Income Security Act or the rules
thereunder. Termination or any modification or amendment of the Plan shall not,
without consent of a participant, affect his or her rights under an option
previously granted to him or her.
15. Compliance with Regulations. It is the Company's intent that this
Plan comply in all respects with Rule 16b-3 under the Securities Exchange Act of
1934 (or any successor or amended version thereof) and any applicable Securities
and Exchange Commission interpretations thereof. If any provision of the Plan is
deemed not to be in compliance with Rule 16b-3, the provision shall be null and
void.
16. Governing Law. The validity and construction of this Plan and the
instruments evidencing options shall be governed by the laws of The Commonwealth
of Massachusetts, without giving effect to the principles of conflicts of law
thereof.
ds1B256710.1
6
PEGASYSTEMS INC.
1996 EMPLOYEE STOCK PURCHASE PLAN
l. PURPOSE. The purpose of this Employee Stock Purchase Plan (the "Plan")
is to provide employees of Pegasystems Inc., a Massachusetts corporation
(the "Company"), and its subsidiaries, who wish to become stockholders
of the Company an opportunity to purchase shares of the Common Stock,
$.01 par value per share, of the Company (the "Shares"). The Plan is
intended to qualify as an "employee stock purchase plan" within the
meaning of Section 423 of the Internal Revenue Code of 1986, as amended
(the "Code").
2. ELIGIBLE EMPLOYEES. Subject to provisions of Sections 7, 8 and 9 below,
any individual who is in the full-time employment (as defined below) of
the Company, or any of its subsidiaries (as defined in Section 424(f) of
the Code) the employees of which are designated by the Board of
Directors of the Company (the "Board") as eligible to participate in the
Plan, is eligible to participate in any Offering of Shares (as defined
in Section 3 below) made by the Company hereunder. Full-time employment
shall include all employees whose customary employment is:
(a) in excess of 20 hours per week; and
(b) more than five months in the relevant calendar year.
3. OFFERING DATES. From time to time the Company, by action of the Board,
will grant rights to purchase Shares to employees eligible to
participate in the Plan pursuant to one or more offerings (each of which
is an "Offering") on a date or series of dates (each of which is an
"Offering Date") designated for this purpose by the Board.
4. PRICES. The Price per share for each grant of rights hereunder shall be
the lesser of:
(a) eighty-five percent (85%) of the fair market value of a Share on
the Offering Date on which such right was granted; or
(b) eighty-five percent (85%) of the fair market value of a Share on
the date such right is exercised.
At its discretion, the Board of Directors may determine a higher price
for a grant of rights.
For purposes of this Plan, the term "fair market value" on any date
means (i) the average (on that date) of the high and low prices of the
Company's Common Stock on the principal national securities exchange on
which the Common Stock is traded, if the Common Stock is then traded on
a national securities exchange; or (ii) the last reported sale price (on
that date) of the Common Stock on the Nasdaq National Market System, if
the Common Stock is not then traded on a national securities exchange;
or (iii) the average of the closing bid and asked prices last quoted (on
that date) by an established quotation service for over-the-counter
securities, if the Common Sock is not reported on the Nasdaq National
Market
<PAGE>
System or on a national securities exchange. If the Company's
Common Stock is not publicly traded at the time a right is granted under
this Plan, "fair market value" shall mean the fair market value of the
Common Stock as determined by the Board after taking into consideration
all factors which it deems appropriate, including, without limitation,
recent sale and offer prices of the Common Stock in private transactions
negotiated at arm's length.
5. EXERCISE OF RIGHTS AND METHOD OF PAYMENT.
(a) Rights granted under the Plan will be exercisable periodically on
specified dates as determined by the Board.
(b) The method of payment for Shares purchased upon exercise of
rights granted hereunder shall be through regular payroll
deductions or by lump sum cash payment, or both, as determined by
the Board. No interest shall be paid upon payroll deductions
unless specifically provided for by the Board.
(c) Any payments received by the Company from a participating
employee and not utilized for the purchase of Shares upon
exercise of a right granted hereunder shall be promptly returned
to such employee by the Company after termination of the right to
which the payment relates.
6. TERM OF RIGHTS. Rights granted on any Offering Date shall be exercisable
upon the expiration of such period ("Offering Period") as shall be
determined by the Board when it authorizes the Offering, provided that
such Offering Period shall in no event be longer than twenty-seven (27)
months.
7. SHARES SUBJECT TO THE PLAN. No more than 500,000 Shares may be sold
pursuant to rights granted under the Plan; provided, however, that
appropriate adjustment shall be made in such number, in the number of
Shares covered by outstanding rights granted hereunder, in the exercise
price of the rights and in the maximum number of Shares which an
employee may purchase (pursuant to Section 9 below) to give effect to
any mergers, consolidations, reorganizations, recapitalizations, stock
splits, stock dividends or other relevant changes in the capitalization
of the Company occurring after the effective date of the Plan, provided
that no fractional Shares shall be subject to a right and each right
shall be adjusted downward to the nearest full Share. Any agreement of
merger or consolidation will include provisions for protection of the
then existing rights of participating employees under the Plan. Either
authorized and unissued Shares or issued Shares heretofore or hereafter
reacquired by the Company may be made subject to rights under the Plan.
If for any reason any right under the Plan terminates in whole or in
part, Shares subject to such terminated right may again be subjected to
a right under the Plan.
8. LIMITATIONS ON GRANTS.
2
<PAGE>
(a) No employee shall be granted a right hereunder if such employee,
immediately after the right is granted, would own stock or rights
to purchase stock possessing five percent (5%) or more of the
total combined voting power or value of all classes of stock of
the Company, or of any subsidiary, computed in accordance with
Sections 423(b)(3) and 424(d) of the Code.
(b) No employee shall be granted a right which permits his right to
purchase shares under all employee stock purchase plans of the
Company and its subsidiaries to accrue at a rate which exceeds
twenty-five thousand dollars ($25,000) (or such other maximum as
may be prescribed from time to time by the Code) of the fair
market value of such Shares (determined at the time such right is
granted) for each calendar year in which such right is
outstanding at any time in accordance with the provisions of
Section 423(b)(8) of the Code.
(c) No right granted to any participating employee under a single
Offering shall cover more shares than may be purchased at an
exercise price equal to 10% of the base salary payable to the
employee during the Offering not taking into consideration any
changes in the employee's rate of compensation after the date the
employee elects to participate in the Offering, or such other
percentage as determined by the Board from time to time. This
provision shall be construed to meet the requirements set forth
in Section 423(b)(5) of the Code.
9. LIMIT ON PARTICIPATION. Participation in an Offering shall be limited to
eligible employees who elect to participate in such Offering in the
manner, and within the time limitation, established by the Board when it
authorizes the offering.
10. CANCELLATION OF ELECTION TO PARTICIPATE. An employee who has elected to
participate in an Offering may, unless the employee has waived this
cancellation right at the time of such election in a manner established
by the Board, cancel such election as to all (but not part) of the
rights granted under such Offering by giving written notice of such
cancellation to the Company before the expiration of the Offering
Period. Any amounts paid by the employee for the Shares or withheld for
the purchase of Shares from the employee's compensation through payroll
deductions shall be paid to the employee, without interest, upon such
cancellation.
11. TERMINATION OF EMPLOYMENT. Upon termination of employment for any
reason, including the death of the employee, before the date on which
any rights granted under the Plan are exercisable, all such rights shall
immediately terminate and amounts paid by the employee for the Shares or
withheld for the purchase of Shares from the employee's compensation
through payroll deductions shall be paid to the employee or to the
employee's estate, without interest.
12. EMPLOYEE'S RIGHTS AS STOCKHOLDER. No participating employee shall have
any rights as a stockholder in the Shares covered by a right granted
hereunder until such right
3
<PAGE>
has been exercised, full payment has been made for the corresponding
Shares and a certificate for the Shares is actually issued.
13. RIGHTS NOT TRANSFERABLE. Rights under the Plan are not assignable or
transferable by a participating employee and are exercisable only by the
employee.
14. LIMITS ON SALE OF STOCK PURCHASED UNDER THE PLAN. The Plan is intended
to provide shares of Common Stock for investment and not for resale. The
Company does not, however, intend to restrict or influence any employee
in the conduct of his or her own affairs. An employee may, therefore,
sell stock purchased under the Plan at any time the employee chooses,
subject to compliance with any applicable federal or state securities
laws; provided, however, that because of certain federal tax
requirements, each employee agrees by entering the Plan, promptly to
give the Company notice of any such stock disposed of within two years
after the date of grant or within one year of the date of exercise of
the applicable right, such notice to set forth the number of such shares
disposed of. THE EMPLOYEE ASSUMES THE RISK OF ANY MARKET FLUCTUATIONS IN
THE PRICE OF THE STOCK.
15. AMENDMENTS TO OR DISCONTINUANCE OF THE PLAN. The Board may at any time
terminate or amend the Plan without notice and without further action on
the part of stockholders of the Company, provided:
(a) that no such termination or amendment shall adversely affect the
then existing rights of any participating employee; and
(b) that any such amendment which:
(i) increases the number of Shares subject to the Plan
(subject to the provisions of Section 7);
(ii) changes the class of persons eligible to participate under
the Plan; or
(iii) materially increases the benefits accruing to participants
under the Plan
shall be subject to approval of the stockholders of the Company.
16. EFFECTIVE DATE AND APPROVALS. The Plan was adopted by the Board on May
13, 1996 to become effective as of said date. The Company's obligation
to offer, sell and deliver its Shares under the Plan is subject to the
approval of its stockholders not later than May 13, 1997 and of any
governmental authority required in connection with the authorized
issuance or sale of such Shares and is further subject to the Company
receiving the opinion of its counsel that all applicable securities laws
have been complied with.
17. TERM OF PLAN. No rights shall be granted under the Plan after May 13,
2006.
4
<PAGE>
18. ADMINISTRATION OF THE PLAN. The Board or any committee or persons to
whom it delegates its authority (the "Administrator") shall administer,
interpret and apply all provisions of the Plan. The Administrator may
waive such provisions of the Plan as it deems necessary to meet special
circumstances not anticipated or covered expressly by the Plan. Nothing
contained in this Section shall be deemed to authorize the Administrator
to alter or administer the provisions of the Plan in a manner
inconsistent with the provisions of Section 423 of the Code. No member
of the Administrator shall be liable for any action or determination
made in good faith with respect to the Plan or any right granted under
it.
Date approved by the Board
of Directors of the Company: May 13, 1996
Date approved by the
Stockholders of the Company: [__________], 1996
ds1-256712.1
5
PEGASYSTEMS INC.
101 Main Street
Cambridge, MA 02142
December 16, 1993
Fleet Bank of Massachusetts, N.A.
75 State Street
Boston, MA 02109
Gentlemen:
This letter agreement will set forth certain understandings between
Pegasystems Inc., a Massachusetts corporation (the "Borrower") and Fleet Bank of
Massachusetts, N.A. (the "Bank") with respect to Revolving Loans and Term Loans
(each as hereinafter defined) which may be made by the Bank to the Borrower and
with respect to letters of credit which may hereafter be issued by the Bank for
the account of the Borrower. In consideration of the mutual promises contained
herein and in the other documents referred to below, and for other good and
valuable consideration, receipt and sufficiency of which are hereby
acknowledged, the Borrower and the Bank agree as follows:
I. AMOUNTS AND TERMS
-----------------
1.1. Reference to Documents. Reference is made to (i) that certain
$2,500,000 principal amount promissory note (the "Revolving Note") of even date
herewith made by the Borrower and payable to the order of the Bank, (ii) certain
term notes (the "Term Notes") in an aggregate principal amount up to $1,000,000
which are to be made by the Borrower and payable to the order of the Bank, and
(iii) that certain Security Agreement of even date herewith from the Borrower to
the Bank (the "Security Agreement").
1.2. The Borrowing; Revolving Note. Subject to the terms and
conditions hereinafter set forth, the Bank will make loans ("Revolving Loans")
to the Borrower, in such amounts as the Borrower may request, at the Principal
Office of the Bank on any Business Day prior to the first to occur of (i) the
Expiration Date, or (ii) the earlier termination of the within-described
revolving financing arrangements pursuant to ss.5.2 or ss.6.7; provided,
however, that (1) the aggregate principal amount of Revolving Loans outstanding
shall at no time exceed the Maximum Revolving Amount (hereinafter defined) and
(2) the Aggregate Bank Liabilities (hereinafter defined) shall at no time exceed
the Borrowing Base (hereinafter defined). Within such amount, and subject to the
terms and conditions hereof, the Borrower may
<PAGE>
obtain Revolving Loans, repay Revolving Loans and obtain Revolving Loans again
on one or more occasions. The Revolving Loans shall be evidenced by the
Revolving Note and interest thereon shall be payable at the times and at the
rate provided in the Revolving Note. Overdue principal of the Revolving Loans
and, to the extent permitted by law, overdue interest shall bear interest at a
fluctuating rate per annum which at all times shall be equal to the sum of (i)
two (2%) percent plus (ii) the per annum rate otherwise payable under the
Revolving Note (but in no event in excess of the maximum rate from time to time
permitted by then applicable law), compounded monthly and payable on demand. The
Borrower hereby irrevocably authorizes the Bank to make or cause to be made, on
a schedule attached to the Revolving Note or on the books of the Bank, at or
following the time of making each Revolving Loan and of receiving any payment of
principal, an appropriate notation reflecting such transaction and the then
aggregate unpaid principal balance of the Revolving Loans. The amount so noted
shall constitute prima facie evidence as to the amount owed by the Borrower with
respect to principal of the Revolving Loans. Failure of the Bank to make any
such notation shall not, however, affect any obligation of the Borrower or any
right of the Bank hereunder or under the Revolving Note.
1.3. Repayment; Renewal of Revolving Loan Facility. The Borrower
shall repay in full all Revolving Loans and all interest thereon upon the first
to occur of: (i) the Expiration Date, or (ii) an acceleration under ss.5.2(a)
following an Event of Default. The Borrower may repay, at any time, without
penalty or premium, the whole or any portion of any Revolving Loan. In addition,
if at any time the Borrowing Base is in an amount which is less than the then
outstanding Aggregate Bank Liabilities will not exceed the Borrowing Base. The
Bank may, at its sole discretion, renew the revolving financing arrangements
described in this letter agreement by extending the Expiration Date in a writing
signed by the Bank and accepted by the Borrower. Neither the inclusion in this
letter agreement or elsewhere of covenants relating to periods of time after the
Expiration Date, nor any other provision hereof, nor any action (except a
written extension pursuant to the immediately preceding sentence), non-action or
course of dealing on the part of the Bank will be deemed an extension of, or
agreement on the part of the Bank to extend, the Expiration Date.
1.4. Term Loans; Term Notes. In addition to the foregoing, the Bank
may make one or more loans (the "Term Loans") to the Borrower in an aggregate
principal amount up to $1,000,000. A Term Loan shall be made, no more than once
per calendar quarter (except that a Term Loan may be made more frequently in
order to finance not less than $100,000 in Qualifying Equipment acquired by the
Borrower within the 90 days preceding the request for such Term Loan), in such
amount as may be requested by the Borrower;
2
<PAGE>
provided that (i) no Term Loan will be made after June 30, 1994; (ii) the
aggregate original principal amounts of all Term Loans will not exceed
$1,000,000; and (iii) no Term Loan will be in an amount more than 80% of the
total of (x) invoiced actual costs of the tangible property constituting the
items of Qualifying Equipment with respect to which such Term Loan is made
(excluding taxes, shipping, installation charges and other "soft costs") plus
(y) the actual costs of software relating to such items of Qualifying Equipment,
provided that such software costs will not exceed 35% of the total amount of
each such Term Loan. Notwithstanding the requirement of clause (iii) of the
immediately preceding sentence, the Term Loan or Term Loans made as at the date
hereof may include the amount (not in excess of $117,500.15) necessary to repay
loans heretofore made by Shawmut Bank, N.A. to the Borrower, which loans were to
become due in December 1993, September 1994 and December 1995. Prior to the
making of each Term Loan, and as a precondition thereto, the Borrower will
provide the Bank with: (i) invoices supporting the costs of the relevant
Qualifying Equipment; (ii) such evidence as the Bank may require showing that
the Qualifying Equipment has been installed at the Premises, has become fully
operational, has been paid for by the Borrower and is owned by the Borrower free
of all liens and interests of any other Person (other than the security interest
of the Bank pursuant to the Security Agreement); (iii) evidence satisfactory to
the Bank that the Qualifying Equipment is fully insured against casualty loss,
with insurance naming the Bank as secured party and first loss payee and (iv) a
duly executed Term Note in the amount of the relevant Term Loan. Each Term Loan
will be evidenced by a Term Note, substantially in the form of item 1.4 of the
attached Disclosure Schedule; except that the Term Note representing that Term
Loan (in the principal amount of $90,000) which is to be made for the purpose of
refunding the loan by Shawmut Bank, N.A. due December 1995 will be amortized in
24 principal installments of $3,750 each. Interest on each Term Loan shall be
payable at the times and at the rate provided for in the Term Note evidencing
same. Overdue principal of any Term Loan and, to the extent permitted by law,
overdue interest shall bear interest at a fluctuating rate per annum which at
all times shall be equal to the sum of (i) two (2%) percent plus (ii) the per
annum rate otherwise payable under the related Term Note (but in no event in
excess of the maximum rate from time to time permitted by then applicable law),
compounded monthly and payable on demand. The Borrower hereby irrevocably
authorizes the Bank to make or cause to be made, on a schedule attached to the
relevant Term Note or on the books of the Bank, at or following the time of
making each Term Loan and of receiving any payment of principal, an appropriate
notation reflecting such transaction and the then aggregate unpaid principal
balance of such Term Loan. The amount so noted shall constitute prima facie
evidence as to the amount owed by the Borrower with respect to principal of such
Term Loan. Failure of the Bank to make any such notation shall not, however,
3
<PAGE>
affect any obligation of the Borrower or any right of the Bank
hereunder or under any Term Note.
1.5. Principal Repayment of Term Loans. The Borrower shall repay
principal of each Term Loan in 36 equal consecutive monthly installments,
commencing on the first day of the month next following the month in which such
Term Loan is made and continuing on the first day of each month thereafter. Each
such monthly installment of principal shall be in an amount equal to 1/36th of
the outstanding principal balance of such Term Loan. In any event, the then
outstanding principal balance of each Term Loan and all interest then accrued
but unpaid thereon shall be due and payable in full on the first day of the 36th
month next following the month in which such Term Loan is made. (Notwithstanding
the foregoing, the Term Loan made as at the date hereof in order to refund the
aforesaid loan from Shawmut Bank, N.A. due December 1995 will be amortized in 24
equal monthly installments commencing January 15, 1994 and ending December 15,
1995.) The Borrower may prepay, at any time or from time to time, without
premium or penalty, the whole or any portion of any Term Loan; provided that
each such principal prepayment shall be accompanied by payment of all interest
under the related Term Note accrued but unpaid to the date of payment. Any
partial prepayment of principal of a Term Loan will be applied to installments
of principal of such Term Loan thereafter coming due in inverse order of normal
maturity.
1.6. Advances and Payments. The proceeds of all Loans shall be
credited by the Bank to a general deposit account maintained by the Borrower
with the Bank. The proceeds of each Revolving Loan will be used by the Borrower
solely for working capital purposes. The proceeds of each Term Loan will be used
by the Borrower solely to pay or reimburse acquisition costs of Qualifying
Equipment.
The Bank may charge any general deposit account of the Borrower at the
Bank with the amount of all payments of interest, principal and other sums when
same are due, from time to time, under this letter agreement and/or any Note
and/or with respect to any letter of credit; and will thereafter notify the
Borrower of the amount so charged. The failure of the Bank so to charge any
account or to give any such notice shall not affect the obligation of the
Borrower to pay interest, principal or other sums ad provided herein or in any
Note or with respect to any letter of credit.
Whenever any payment to be made to the Bank hereunder or under any Note
or with respect to any letter of credit shall be stated to be due on a day which
is not a Business Day, such payment may be made on the next succeeding Business
Day, and interest payable on each such date shall include the amount thereof
which shall accrue during the period of such extension of
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time. All payments by the Borrower hereunder and/or in respect of any Note
and/or with respect to any letter of credit shall be made net of any impositions
or taxes and without deduction, set-off or counterclaim, notwithstanding any
claim which the Borrower may now or at any time hereafter have against the Bank.
All payments of interest, principal and any other sum payable hereunder and/or
under any Note and/or with respect to any letter of credit shall be made to the
Bank at its Principal Office, in immediately available funds. All payments
received by the Bank after 2:00 p.m. on any day shall be deemed received as of
the next succeeding Business Day. All monies received by the Bank shall be
applied as specified by the Borrower at the time of payment if no Event of
Default has occurred and is then continuing. If no such specification is made or
if an Event of Default has occurred and is then continuing, all monies received
hereunder will be applied first to fees, charges, costs and expenses payable to
the Bank under this letter agreement, any Note and/or any of the other Loan
Documents and/or with respect to any letter of credit, next to interest then
accrued on account of any Loans or letter of credit reimbursement obligations
and only thereafter to principal of the Loans and letter of credit reimbursement
obligations (being applied first against the letter of credit reimbursement
obligations, next against the Revolving Loans and thereafter against
installments of the Term Loans in inverse order of normal maturity). All
interest and fees payable hereunder and/or under any Note shall be calculated on
the basis of a 360-day year for the actual number of days elapsed.
1.7. Letters of Credit. The Bank may, from time to time, in its sole
discretion issue one or more letters of credit for the account of the Borrower;
provided that at the time of such issuance and after given effect thereto the
Aggregate Bank Liabilities will in no event exceed the lesser of (i) $2,500,000
or (ii) the then effective Borrowing Base. Any such letter of credit will be
issued for such fee and upon such terms and conditions as may be agreed to by
the Bank and the Borrower at the time of issuance. The Borrower hereby
authorizes the Bank, without further request from the Borrower, to cause the
Borrower's liability to the Bank for reimbursement of funds drawn under any such
letter of credit to be repaid from the proceeds of a Revolving Loan to be made
hereunder. The Borrower hereby irrevocably requests that such Revolving Loans be
made.
1.8. Conditions to Advance. Prior to the making of the initial Loan
hereunder or the issuance of any letter of credit hereunder, the Borrower shall
deliver to the Bank duly executed copies of this letter agreement, the Security
Agreement, the Revolving Note, the initial Term Note or Term Notes (if such
initial Loan is to be a Term Loan) and the documents and other items listed on
the Closing Agenda delivered herewith by the Bank to the Borrower, all of which,
as well as all legal matters
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incident to the transactions contemplated hereby, shall be satisfactory in form
and substance to the Bank and its counsel.
Without limiting the foregoing, any Loan or letter of credit issuance
(including the initial Loan or letter of credit issuance) is subject to the
further conditions precedent that on the date on which such Loan is made or such
letter of credit is issued (and after giving effect thereto):
(a) All statements, representations and warranties of the Borrower made
in this letter agreement and/or the Security Agreement shall continue to be
correct in all material respects as of the date of such Loan or issuance of such
letter of credit, as the case may be.
(b) All covenants and agreements of the Borrower contained herein
and/or in any of the other Loan Documents shall have been complied with in all
material respects on and as of the date of such Loan or issuance of such letter
of credit, as the case may be.
(c) No event which constitutes, or which with notice or lapse of time
or both would constitute, an Event of Default shall have occurred and be
continuing.
(d) No material adverse change shall have occurred in the financial
condition of the Borrower from that disclosed in the financial statements then
most recently furnished to the Bank.
Each request by the Borrower for any Loan or for the issuance of a
letter of credit, and each acceptance by the Borrower of the proceeds of any
Loan or delivery of a letter of credit, will be deemed a representation and
warranty by the Borrower that at the date of such Loan or letter of credit
issuance, as the case may be, and after giving effect thereto all of the
conditions set forth in the foregoing clauses (a)-(d) of this ss.1.8 will be
satisfied. Each request for a Revolving Loan or letter of credit issuance will
be accompanied by a borrowing base certificate on a form satisfactory to the
Bank, executed by the chief financial officer of the Borrower, unless such a
certificate shall have been previously furnished setting forth the Borrowing
Base as at a date not more than 15 days prior to the date of the requested
borrowing.
II. REPRESENTATIONS AND WARRANTIES
------------------------------
2.1. Representations and Warranties. In order to induce the
Bank to enter into this letter agreement and to make Loans
hereunder and/or issue letters of credit hereunder, the Borrower
warrants and represents to the Bank as follows:
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(a) The Borrower is a corporation duly organized, validly existing and
in good standing under the laws of The Commonwealth of Massachusetts. The
Borrower has full corporate power to own its property and conduct its business
as now conducted and as contemplated to be conducted, to grant the security
interests contemplated by the Security Agreement and to enter into and perform
this letter agreement and the other Loan Documents. The Borrower is duly
qualified to do business and in good standing in each jurisdiction in which the
Borrower maintains any facility, sales office or warehouse and in each other
jurisdiction where the failure so to qualify could (singly or in the aggregate
with all other such failures) have a material adverse effect on the financial
condition, business or prospects of the Borrower, all such jurisdictions being
listed on item 2.1(a) of the attached Disclosure Schedule. At the date hereof,
the Borrower has no Subsidiaries. The Borrower is in the process of forming an
English Subsidiary, which will be wholly-owned by the Borrower. The Borrower is
not a member of any partnership or joint venture.
(b) At the date of this letter agreement, all of the outstanding
capital stock of the Borrower is owned, of record and beneficially, as set forth
on item 2.1(b) of the attached Disclosure Schedule.
(c) The execution, delivery and performance by the Borrower of this
letter agreement and each of the other Loan Documents have been duly authorized
by all necessary corporate and other action and do not and will not:
(i) violate any provision of, or require any filings,
registration, consent or approval under, any law, rule, regulation,
order, writ, judgment, injunction, decree, determination or award
presently in effect having applicability to the Borrower;
(ii) violate any provision of the charter or By-laws of the
Borrower, or result in a breach of or constitute a default or require
any waiver or consent under any material indenture or loan or credit
agreement or any other agreement, lease or instrument to which the
Borrower is a party or by which the Borrower or any of its properties
may be bound or affected or require any other consent of any Person; or
(iii) result in, or require, the creation or imposition of any
lien, security interest or other encumbrance (other than in favor of
the Bank), upon or with respect to any of the properties now owned or
hereafter acquired by the Borrower.
(d) This letter agreement and each of the other Loan Documents has been
duly executed and delivered by the Borrower
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and is a legal, valid and binding obligation of the Borrower, enforceable
against the Borrower in accordance with their respective terms.
(e) Except as described in item 2.1(e) of the attached Disclosure
Schedule, there are no actions, suits, proceedings or investigations pending or,
to the knowledge of the Borrower, threatened by or against the Borrower before
any court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, which could prevent the consummation of
the transactions contemplated hereby or call into question the validity of this
letter agreement or any of the other Loan Documents or any other instrument
provided for or contemplated by this letter agreement or any of the other Loan
Documents or any action taken or to be taken in connection with the transactions
contemplated hereby or thereby or which in any single case or in the aggregate
might result in any material adverse change in the business, prospects,
condition, affairs or operations of the Borrower.
(f) The Borrower is not in violation of any term of its charter or
By-laws as now in effect. The Borrower is not in material violation of any term
of any mortgage, indenture or judgment, decree or order, or any other
instrument, contract or agreement to which it is a party or by which any of its
property is bound.
(g) The Borrower has filed all federal, state and local tax returns,
reports and estimates required to be filed by the Borrower. All such filed
returns, reports and estimates are proper and accurate and the Borrower has paid
all taxes, assessments, impositions, fees and other governmental charges
required to be paid in respect of the periods covered by such returns, reports
or estimates. No deficiencies for any tax, assessment or governmental charge
have been asserted or assessed, and the Borrower knows of no material tax
liability or basis therefor.
(h) The Borrower is in compliance with all requirements of law,
federal, state and local, and all requirements of all governmental bodies or
agencies having jurisdiction over it, the conduct of its business, the use of
its properties and assets, and all premises occupied by it, failure to comply
with which could (singly or in the aggregate with all other such failures) have
a material adverse effect upon the assets, business, financial condition or
prospects of the Borrower. Without limiting the foregoing, the Borrower has all
the franchises, licenses, leases, permits, certificates and authorizations
needed for the conduct of its business and the use of its properties and all
premises occupied by it, as now conducted, owned and used and as proposed to be
conducted, owned and used.
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<PAGE>
(i) The audited financial statements of the Borrower as at December 31,
1992 and the management-generated financial statements of the Borrower as at
September 30, 1993, each heretofore delivered to the Bank, are (and all
financial statements of the Borrower hereafter delivered pursuant to this letter
agreement will be) complete and accurate and fairly present the financial
condition of the Borrower as at the date thereof and for the periods covered
thereby, except that interim management-generated statements do not and will not
have footnotes. The Borrower has no liability, contingent or otherwise, not
disclosed in the aforesaid December 31, 1992 financial statements or in any
notes thereto that could materially affect the financial condition of the
Borrower. Since December 31, 1992, there has been no material adverse
development in the business or condition of the Borrower and the Borrower has
not entered into any transaction other than in the ordinary course.
(j) The principal place of business and chief executive offices of the
Borrower are located at 101 Main Street, Cambridge, MA 02142 (the "Premises").
Except as described in item 2.1(j) of the attached Disclosure Schedule, no
assets of the Borrower are located at any other address. Said item 2.1(j) of the
attached Disclosure Schedule sets forth the names and addresses of all record
owners of the Premises.
(k) To the best of the Borrower's knowledge, the Borrower owns or has a
valid right to use the patents, licenses, copyrights, trademarks, trademark
applications, trademark rights and trade names or trade name rights or
franchises now being used or necessary to conduct its business. To the best of
the Borrower's knowledge, the conduct of the Borrower's business as now operated
does not conflict with valid patents, licenses, copyrights, trademarks,
trademark rights and trade names and trade name rights or franchises of others
in any manner that could materially adversely affect in any manner the business
or assets or condition, financial or otherwise, of the Borrower.
(l) None of the executive officers or key employees of the Borrower is
subject to any agreement in favor of anyone other than the Borrower which limits
or restricts that person's right to engage in the type of business activity
conducted or proposed to be conducted by the Borrower or which grants to anyone
other than the Borrower any rights in any inventions or other ideas susceptible
to legal protection developed or conceived by any such officer or key employee.
III. AFFIRMATIVE COVENANTS AND REPORTING REQUIREMENTS
------------------------------------------------
Without limitation of any covenants and agreements contained in the
Security Agreement or elsewhere, the Borrower agrees that so long as the
financing arrangements contemplated hereby are in
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<PAGE>
effect or any Revolving Loan or any Term Loan or any of the other obligations
shall be outstanding or any letter of credit issued hereunder shall be
outstanding;
3.1. Legal Existence; Qualification; Compliance. The Borrower will
maintain (and will cause each Subsidiary of the Borrower to maintain) its
corporate existence and good standing in the jurisdiction of its incorporation.
The Borrower will qualify to do business and remain qualified and in good
standing (and will cause each Subsidiary of the Borrower to qualify and remain
qualified and in good standing) in each jurisdiction where it maintains any
facility, sales office or warehouse and in each other jurisdiction in which the
failure so to qualify could (singly or in the aggregate with all other such
failures) have a material adverse effect on the financial condition, business or
prospects of the Borrower or any such Subsidiary. The Borrower will comply (and
will cause each Subsidiary of the Borrower to comply) with its charter documents
and by-laws and, in all material respects, with all contractual requirements by
which it or any of its properties may be bound. The Borrower will comply with
(and will cause each Subsidiary of the Borrower to comply with) all applicable
laws, rules and regulations (including, without limitation, ERISA and those
relating to environmental protection) other than (i) laws, rules or regulations
the validity or applicability of which the Borrower or such Subsidiary shall be
contesting in good faith by proceedings which serve as a matter of law to stay
the enforcement thereof and (ii) those laws, rules and regulations the failure
to comply with any of which could not (singly or in the aggregate) reasonably be
expected to materially adversely affect the financial condition, business or
prospects of the Borrower or any such Subsidiary.
3.2. Maintenance of Property; Insurance. The Borrower will maintain
and preserve (and cause each Subsidiary of the Borrower to maintain and
preserve) all of its properties in good working order and condition, ordinary
year and tear excepted, making all necessary repairs thereto and replacements
thereof. The Borrower will maintain all such insurance as may be required under
the Security Agreement and will also maintain, with financially sound and
reputable insurers, insurance with respect to its property and business against
such liabilities, casualties and contingencies and of such types and in such
amountsas shall be satisfactory to the Bank from time to time and in any event
all such insurance as may from time to time be customary for companies
conducting a business similar to that of the Borrower in similar locales.
3.3. Payment of Taxes and Charges. The Borrower will pay
and discharge (and will cause each Subsidiary of the Borrower to
pay and discharge) all taxes, assessments and governmental
charges or levies imposed upon it or upon its income or property,
including, without limitation, taxes, assessments, charges or
10
<PAGE>
levies relating to real and personal property, the Collateral, franchises,
income, unemployment, old age benefits, withholding, or sales or use, prior to
the date on which penalties would attach thereto, and all lawful claims (whether
for any of the foregoing or otherwise) which, if unpaid, might give rise to a
lien upon any property of the Borrower or any such Subsidiary, except any of the
foregoing which is being contested in good faith and by appropriate proceedings
which serve as a matter of law to stay the enforcement thereof and for which the
Borrower has established and is maintaining adequate reserves. The Borrower will
pay, and will cause each of its Subsidiaries to pay, in a timely manner, all
lease obligations, all trade debt, purchase money obligations, equipment lease
obligations and all of its other Indebtedness. The Borrower will perform and
fulfill all covenants and agreements under any leases of real estate, agreements
relating to purchase money debt, equipment leases and other material contracts.
The Borrower will maintain in full force and effect, and comply with the terms
and conditions of, all permits, permissions and licenses necessary or desirable
for its business.
3.4. Accounts. The Borrower will maintain its principal
depository and operating accounts with the Bank.
3.5. Conduct of Business. The Borrower will conduct, in the
ordinary course, the business in which it is presently engaged.
The Borrower will not, without the prior written consent of the
Bank, directly or indirectly enter into any other lines of
business, businesses or ventures.
3.6. Reporting Requirements. The Borrower will furnish to
the Bank:
(i) Within 120 days after the end of each fiscal year of the
Borrower, a copy of the annual audit report for such fiscal year for
the Borrower, including therein consolidated and consolidating balance
sheets of the Borrower and Subsidiaries as at the end of such fiscal
year and related consolidated and consolidating statements of income,
stockholders' equity and cash flow for the fiscal year then ended. The
annual consolidated financial statements shall be certified by Ernst &
Young or by other independent public accountants selected by the
Borrower and reasonably acceptable to the Bank, such certification to
be in such form as is generally recognized as "unqualified".
(ii) Within 45 days after the end of each fiscal quarter of
the Borrower, consolidated and consolidating balance sheets of the
Borrower and its Subsidiaries and related consolidated and
consolidating statements of income and stockholders, equity and cash
flow, unaudited but complete and accurate and prepared in accordance
with
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<PAGE>
generally accepted accounting principles fairly presenting the
financial condition of the Borrower as at the date thereof and for the
periods covered thereby (except that such quarterly statements need not
contain footnotes) and certified as accurate (subject to normal
year-end audit adjustments, which shall not be material) by the chief
financial officer of the Borrower, such balance sheets to be as at the
end of such fiscal quarter and such statements of income and
stockholders, equity and cash flow ta be for such fiscal quarter and
for the year to date, in each case together with a comparison to
budget.
(iii) At the time of delivery of each annual or quarterly
statement of the Borrower, a certificate executed by the chief
financial officer of the Borrower stating that he or she has reviewed
this letter agreement and the other Loan Documents and has no
knowledge of any default by the Borrower in the performance or
observance of any of the provisions of this letter agreement or of any
of the other Loan Documents or, if he or she has such knowledge,
specifying each such default and the nature thereof. Each such
certificate shall also set forth the calculations necessary to
evidence compliance with ss.ss.3.7-3.10.
(iv) Monthly, within 15 days after the end of each month, (A)
an aging report in form satisfactory to the Bank covering all
Receivables of the Borrower outstanding as at the end of such month and
setting forth the schedule of all installment payments scheduled to be
paid within the next 12 months under long-term contracts, and (B) a
certificate of the chief financial officer of the Borrower setting
forth the Borrowing Base as at the end of such month, all in form
reasonably satisfactory to the Bank. Notwithstanding the foregoing, the
Borrower may omit to furnish the aging report and Borrowing Base
certificate otherwise due with respect to any month-end if at such
month-end there are outstanding no Revolving Loans nor any letters of
credit issued hereunder; provided that prior to any subsequent
borrowing of a Revolving Loan or issuance of a letter of credit
hereunder the Borrower will furnish such report and Borrowing Base
certificate.
(v) Promptly after receipt, a copy of all audits or reports
submitted to the Borrower by independent public accountants in
connection with any annual, special or interim audits of the books of
the Borrower and any letter of comments directed by such accountants to
the management of the Borrower.
(vi) As soon as possible and in any event within five days
after the Borrower knows or reasonably should know of the occurrence of
any Event of Default or any event which,
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with the giving of notice or passage of time or both, would constitute
an Event of Default, the statement of the Borrower setting forth
details of such Event of Default or event and the action which the
Borrower proposes to take with respect thereto.
(vii) Promptly after the commencement thereof, notice of all
actions, suits and proceedings before any court or governmental
department, commission, board, bureau, agency or instrumentality,
domestic or foreign, to which the Borrower or any Subsidiary of the
Borrower is a party.
(viii) Promptly after the Borrower has knowledge thereof,
written notice of any development or circumstance which may have a
material adverse effect on the Borrower or its business, properties,
assets, Subsidiaries or condition, financial or otherwise.
(ix) Promptly upon request, such other information respecting
the financial condition, operations, Receivables, inventory, machinery
or equipment of the Borrower or any Subsidiary as the Bank may from
time to time reasonably request.
3.7. Debt to Worth. The Borrower will maintain as at the end of each
fiscal quarter of the Borrower on a consolidated basis a Leverage Ratio of not
more than 1.25 to 1. As used herein, "Leverage Ratio" means the ratio of (x)
total Indebtedness of the Borrower and Subsidiaries to (y) Tangible Net Worth of
the Borrower.
3.8. Net Worth. The Borrower will maintain as at the end of each
fiscal quarter of the Borrower a consolidated Tangible Net Worth which shall not
be less than the then-effective TNW Requirement. As used herein, the "TNW
Requirement" will be deemed to have been $5,500,000 as at December 31, 1992; and
as at the last day of each fiscal quarter thereafter (beginning with March 31,
1993) the TNW Requirement will be deemed to become an amount equal to the sum
of: (i) the TNW Requirement in effect on the last day of the immediately
preceding fiscal quarter, plus (ii) 90% of the net proceeds of any equity
securities sold by the Borrower during the fiscal quarter then ended, plus (iii)
90% of the consolidated Adjusted Net Income of the Borrower and Subsidiaries
during said fiscal quarter then ended (but without giving effect to any Adjusted
Net Income which is less than zero for any fiscal quarter).
3.9. Quick Ratio. The Borrower will maintain as at the end
of each fiscal quarter of the Borrower a ratio of Net Quick
Assets to Current Liabilities, which ratio shall be not less than
1.5 to 1.
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3.10. Profitability. The BorroWer will not incur a quarterly Net Loss
in excess of $250,000 for any fiscal quarter (commencing with the results for
the fiscal quarter ended September 30, 1993). The Borrower will not incur a
quarterly Net Loss in any two consecutive fiscal quarters. The Borrower will
achieve Net Income of at least $750,000 for each fiscal year, beginning with its
fiscal year ending December 31, 1993.
3.11. Books and Records. The Borrower will maintain (and cause each
of its Subsidiaries to maintain) complete and accurate books, records and
accounts which will at all times accurately and fairly reflect all of its
transactions in accordance with generally accepted accounting principles
consistently applied. The Borrower will, at any reasonable time and from time
to time upon reasonable notice and during normal business hours (and at any time
and without any necessity for notice following the occurrence and during the
continuance of an Event of Default), permit the Bank, and any agents or
representatives thereof, to examine and make copies of and take abstracts from
the records and books of account of, and visit the properties of the Borrower
and any of its Subsidiaries, and to discuss its affairs, finances and accounts
with its managers, officers or directors and independent accountants, all of
whom are hereby authorized and directed to cooperate with the Bank in carrying
out the intent of this ss.3.11.
Except as otherwise provided below, the Bank will not at any time use
(for any purpose other than in connection with monitoring the within-described
loan facilities and/or enforcing its rights hereunder and/or under the Security
Agreement) any information of any kind to which the Bank is given access or
which is provided to the Bank by the Borrower pursuant to this ss.3.11 or
pursuant to the Security Agreement (such information being hereinafter referred
to, subject to the last sentence of this ss.3.11, as the "Confidential
Information"). The Bank agrees that it will use reasonable efforts to ensure
that Confidential Information will not be disclosed to any other Person without
the Borrower's consent; provided, however, that nothing contained herein will be
deemed to preclude any such disclosure: (1) to employees, officers, directors
and/or agents of the Bank in connection with the approval of Loans, letters of
credit or other facilities or in connection with the administration of this
letter agreement, any such Loans, letters of credit and/or other facilities; (2)
to internal or independent auditors; (3) to any examiners or other officials,
employees or agents of any federal or state governmental regulatory agency,
board, commission, public corporation or similar entity; (4) if ordered by any
court or governmental agency having or claiming jurisdiction; (5) to any actual
or proposed assignee of or participant in any Loan; and/or (6) in connection
with any suit, action or other proceeding to collect any Loans or enforce any
other right under this letter agreement, the Security Agreement and/or any of
the
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Notes. Notwithstanding the foregoing, it is agreed that "Confidential
Information" expressly excludes: (1) any information filed with a public agency
or otherwise within the public domain, (2) any information supplied to the Bank
by a third party under circumstances in which the recipient of such information
does not know of (and should not reasonably have known of) any confidential
relationship between such third party and the Borrower which would restrict
dissemination of such information, and (3) any information supplied by or on
behalf of the Borrower which is not labelled "confidential" or as to which the
Borrower has not otherwise indicated that disclosure is prohibited.
IV. NEGATIVE COVENANTS.
-------------------
Without limitation of any covenants and agreements contained in the
Security Agreement or elsewhere, the Borrower agrees that so long as the
financing arrangements contemplated hereby are in effect or any Revolving Loan
or any Term Loan or any of the other Obligations shall be outstanding or any
letter of credit issued hereunder shall be outstanding:
4.1. Indebtedness. The Borrower will not create, incur,
assume or suffer to exist any Indebtedness (nor allow any of its
Subsidiaries to create, incur, assume or suffer to exist any
Indebtedness), except for:
(i) Indebtedness owed to the Bank, including, without
limitation, the Indebtedness represented by the Notes and any
Indebtedness in respect of letters of credit issued by the Bank;
(ii) Indebtedness of the Borrower or any Subsidiary for taxes,
assessments and governmental charges or levies not yet due and
payable;
(iii) unsecured current liabilities of the Borrower or any
Subsidiary (other than for money borrowed or the deferred purchase
price of property) incurred upon customary terms in the ordinary course
of business;
(iv) purchase money Indebtedness (including, without
limitation, Indebtedness in respect of capitalized equipment leases)
owed to equipment vendors and/or lessors for equipment purchased or
leased by the Borrower for use in the Borrower's business, provided
that the total of Indebtedness permitted under this clause (iv) plus
presently-existing equipment financing permitted under clause (v) of
this ss.4.1 will not exceed $1,000,000 in the aggregate outstanding at
any one time; and
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(v) other Indebtedness existing at the date hereof, but only
to the extent set forth on item 4.1 of the attached Disclosure
Schedule.
Real estate leases will not be deemed included in "Indebtedness" for
the purposes of this ss.4.1.
4.2. Liens. The Borrower will not create, incur, assume or suffer to
exist (nor allow any of its Subsidiaries to create, incur, assume or suffer to
exist) any mortgage, deed of trust, pledge, lien, security interest, or other
charge or encumbrance (including the lien or retained security title of a
conditional vendor) of any nature (collectively, "Liens") upon or with respect
to any of its property or assets, now owned or hereafter acquired, except:
(i) Liens for taxes, assessments or governmental charges or
levies on property of the Borrower or any of its Subsidiaries if the
same shall not at the time be delinquent or thereafter can be paid
without interest or penalty;
(ii) Liens imposed by law, such as carriers', warehousemen's
and mechanics' liens and other similar Liens arising in the ordinary
course of business for sums not yet due or which are being contested in
good faith and by appropriate proceedings which serve as a matter of
law to stay the enforcement thereof and as to which adequate reserves
have been made;
(iii) pledges or deposits under workmen's compensation laws,
unemployment insurance, social security, retirement benefits or
similar legislation;
(iv) Liens in favor of the Bank;
(v) Liens in favor of equipment vendors and/or lessors
securing purchase money Indebtedness to the extent permitted by clause
(iv) of ss.4.1; provided that no such Lien will extend to any property
of the Borrower other than the specific items of equipment financed; or
(vi) other Liens existing at the date hereof, but only to the
extent and with the relative priorities set forth on item 4.2 of the
attached Disclosure Schedule.
The Bank agrees that it will execute and deliver such subordinations as
may from time to time be reasonably necessary to permit the purchase money
financing described in clause (v) above.
4.3. Guaranties. The Borrower will not, without the prior
written consent of the Bank, assume, guarantee, endorse or
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otherwise become directly or contingently liable (including, without limitation,
liable by way of agreement, contingent or otherwise, to purchase, to provide
funds for payment, to supply funds to or otherwise invest in any debtor or
otherwise to assure any creditor against loss) in connection with any
indebtedness of any other Person, except (i) guaranties by endorsement for
deposit or collection in the ordinary course of business, (ii) currently
existing guaranties described on item 4.3 of the attached Disclosure Schedule,
and (iii) guaranties of Indebtedness of Subsidiaries (or of employees of
Subsidiaries) in an aggregate amount not to exceed $100,000 outstanding at any
one time.
4.4. Dividends. The Borrower will not, without the prior written
consent of the Bank, make any distributions to its shareholders, pay any
dividends (other than dividends payable solely in capital stock of the Borrower)
or redeem, purchase or otherwise acquire, directly or indirectly any of its
capital stock.
4.5. Loans and Advances. The Borrower will not make any loans or
advances to any Person, including, without limitation, the Borrower's directors,
officers and employees, except that the Borrower may make (A) advances to
directors, officers or employees with respect to expenses incurred by them in
the ordinary course of their duties and advances against salary, all of which
will not exceed, in the aggregate, $250,000 outstanding at any one time, and (B)
loans or advances to any Person for any purpose in an aggregate amount not to
exceed $100,000 outstanding at any one time.
4.6. Investments. The Borrower will not, without the Bank's prior
written consent (such consent not be unreasonably withheld), invest in, hold or
purchase any stock or securities of any Person (nor will the Borrower permit any
of its Subsidiaries to invest in, purchase or hold any such stock or securities)
except (i) readily marketable direct obligations of, or obligations guarantied
by, the United States of America or any agency thereof, (ii) other investment
grade debt securities, (iii) mutual funds, the assets of which are primarily
invested in items of the kind described in the foregoing clauses (i) and (ii) of
this ss.4.6, (iv) time deposits with or certificates of deposit issued by the
Bank and any other obligations of the Bank or the Bank's parent, (v) time
deposits with or certificates of deposit issued by any United States commercial
bank having more than $100,000,000 in capital, (vi) investments in any
Subsidiaries created by the Borrower pursuant to ss.4.7 below; provided that in
any event the Tangible Net Worth of the Borrower alone (exclusive of its
investment in Subsidiaries and any debt owned by any Subsidiary to the Borrower)
will not be less than 90% of the consolidated Tangible Net Worth of the Borrower
and Subsidiaries, and (vii) any other investments approved by the Borrower's
Board
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of Directors, provided that the aggregate amount of all such other investments
does not exceed $100,000.
4.7. Subsidiaries; Acquisitions. The Borrower will not, without the
prior written consent of the Bank (such consent not to be unreasonably
withheld), form or acquire any new Subsidiary. The Bank hereby consents to the
formation by the Borrower of a Subsidiary under the laws of England. Except with
respect to Subsidiaries formed pursuant to the first two sentences of this
ss.4.7, the Borrower will not, without the prior written consent of the Bank,
make any other acquisition of the stock of any other Person or of all or
substantially all or the assets to any other Person. The Borrower will not
become a partner in any partnership.
4.8. Merger. The Borrower will not, without the prior written
consent of the Bank, merge or consolidate with any Person, or sell, lease,
transfer or otherwise dispose of any material portion of its assets (whether in
one or more transactions).
4.9. Affiliate Transactions. The Borrower will not, without the
prior written consent of the Bank, enter into any transaction, including,
without limitation, the purchase, sale or exchange of any property or the
rendering of any service, with any affiliate of the Borrower,
except in the ordinary course of and pursuant to the reasonable
requirements of the Borrower's business and upon fair and reasonable terms no
less favorable to the Borrower than would be obtained in a comparable
arms'-length transaction with any Person not an affiliate; provided that nothing
in this ss.4.9 shall be deemed to prohibit the payment of salary or other
similar payments to any officer or director of the Borrower at a level
consistent with the salary and other payments being paid at
the date of this letter agreement and heretofore disclosed in writing to the
Bank, nor to prevent the hiring of additional officers at a salary level
consistent with industry practice, nor to prevent reasonable periodic increases
in salary. For the purposes hereof, affiliate" means any Person which, directly
or indirectly, controls or is controlled by or is under common control with the
Borrower; any officer or director or former officer or director of the Borrower;
any Person owning of record or beneficially, directly or indirectly, 5% or more
of any class of capital stock of the Borrower or 5% or more of any class of
capital stock or other equity interest having voting power (under ordinary
circumstances) of any of the other Persons described above; and any member of
the immediate family of any of the foregoing. "Control" means possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of any Person, whether through ownership of voting
equity, by contract or otherwise.
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4.10. Change of Address, etc. The Borrower will not change its name
or legal structure, nor will the Borrower move its chief executive office or
principal place of business from the address described in the first sentence of
ss.2.1(j) above, nor will the Borrower keep any Collateral at any location other
than the Premises without, in each instance, giving the Bank at least 30 days'
prior written notice and providing all such financing statements, certificates
and other documentation as the Bank may request in order to maintain the
perfection and priority of the security interests granted or intended to be
granted pursuant to the Security Agreement. The Borrower will not change its
fiscal year or methods of financial reporting unless, in each instance, prior
written notice of such change is given to the Bank and prior to such change the
Borrower enters into amendments to this letter agreement in form and substance
satisfactory to the Bank in order to preserve unimpaired the rights of the Bank
and the obligations of the Borrower hereunder.
4.11. Hazardous Waste. Except as provided below, the Borrower will
not dispose of or suffer or permit to exist any hazardous material or oil on any
site or vessel owned, occupied or operated by the Borrower or any Subsidiary of
the Borrower, nor shall the Borrower store (or permit any Subsidiary to store)
on any site or vessel owned, occupied or operated by the Borrower or any such
Subsidiary, or transport or arrange the transport of, any hazardous material or
oil (the terms "hazardous material" "oil", "site" and "vessel", respectively,
being used herein with the meanings given those terms in Mass. Gen. Laws, Ch.
21E or any comparable terms in any comparable statute in effect in any other
relevant jurisdiction). The Borrower shall provide the Bank with written notice
of (i) the intended storage or transport of any hazardous material or oil by the
Borrower or any Subsidiary of the Borrower, (ii) any potential or known release
or threat of release of any hazardous material or oil at or from any site or
vessel owned, occupied or operated by the Borrower or any Subsidiary of the
Borrower, and (iii) any incurrence of any expense or loss by any government or
governmental authority in connection with the assessment, containment or removal
of any hazardous material or oil for which expense or loss the Borrower or any
Subsidiary of the Borrower may be liable. Notwithstanding the foregoing, the
Borrower and its Subsidiaries may use, store and transport, and need not notify
the Bank of the use, storage or transportation of, (x) oil in reasonable
quantities, as fuel for heating of their respective facilities or for vehicles
or machinery used in the ordinary course of their respective businesses and (y)
hazardous materials that are solvents, cleaning agents or other materials used
in the ordinary course of the respective business operations of the Borrower and
its Subsidiaries, in reasonable quantities, as long as in any case the Borrower
or the Subsidiary concerned (as the case may be) has obtained and maintains in
effect any necessary governmental permits, licenses and approvals, complies with
all requirements
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of applicable federal, state and local law relating to such use, storage or
transportation, follows the protective and safety procedures that a prudent
businessperson conducting a business the same as or similar to that of the
Borrower or such Subsidiary (as the case may be) would follow, and disposes of
such materials (not consumed in the ordinary course) only through licensed
providers of hazardous waste removal services.
4.12. No Margin Stock. No proceeds of any Loan shall be
used directly or indirectly to purchase or carry any margin
security.
V. DEFAULT AND REMEDIES
--------------------
5.1. Events of Default. The occurrence of any one of
the following events shall constitute an Event of Default
hereunder:
(a) The Borrower shall fail to make any payment of principal of or
interest on the Revolving Note or any Term Note on or before the date when due;
or the Borrower shall fail to pay when due any amount owed to the Bank with
respect to any letter of credit now or hereafter issued by the Bank; or
(b) Any representation or warranty of the Borrower contained herein
shall at any time prove to have been incorrect in any material respect when made
or any representation or warranty made by the Borrower in connection with the
execution and delivery of this letter agreement or any other instrument,
document, certificate or statement executed and delivered in connection with any
Loan or letter of credit shall at any time prove to have been incorrect in any
material respect when made; or
(c) The Borrower shall default in the performance or observance of any
agreement or obligation under any of ss.ss.3.6, 3.7, 3.8, 3.9 or 3.10 or Article
IV; or
(d) The Borrower shall default in the performance or observance of any
agreement or obligation contained in ss.3.1 and/or ss.3.3 and such default shall
continue unremedied for 15 days after the commencement thereof; or
(e) The Borrower shall default in the performance of any other term,
covenant or agreement Contained in this letter agreement and such default shall
continue unremedied for 30 days after notice thereof shall have been given to
the Borrower; or
(f) Any default on the part of the Borrower or any Subsidiary of the
Borrower shall exist, and shall remain unwaived or uncured beyond the expiration
of any applicable notice and/or grace period, under any other contract,
agreement or
20
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understanding now existing or hereafter entered into with or for
the benefit of the Bank (or any affiliate of the Bank); or
(g) Any default shall exist and remain unwaived or uncured with respect
to any Indebtedness of the Borrower or any Subsidiary of the Borrower in excess
of $250,000 in aggregate principal amount or with respect to any instrument
evidencing, guaranteeing, securing or otherwise relating to any such
Indebtedness, or any such Indebtedness in excess of $250,000 in aggregate
principal amount shall not have been paid when due, whether by acceleration or
otherwise, or shall have been declared to be due and payable prior to its stated
maturity, or any event or circumstance shall occur which permits, or with the
lapse of time or giving of notice or both would permit, the acceleration of the
maturity of any such Indebtedness by the holder or holders thereof; or
(h) The Borrower shall be dissolved, or the Borrower or any Subsidiary
of the Borrower shall become insolvent or bankrupt or shall cease paying its
debts as they mature or shall make an assignment for the benefit of creditors,
or a trustee, receiver or liquidator shall be appointed for the Borrower or any
Subsidiary of the Borrower or for a substantial part of the property of the
Borrower or any such Subsidiary, or bankruptcy, reorganization, arrangement,
insolvency or similar proceedings shall be instituted by or against the Borrower
or any such Subsidiary under the laws of any jurisdiction (except for an
involuntary proceeding filed against the Borrower or any Subsidiary of the
Borrower which is dismissed within sixty (60) days following the institution
thereof); or
(i) Any attachment, execution or similar process shall be issued or
levied against any of the property of the Borrower or any Subsidiary and such
attachment, execution or similar process shall not be paid, stayed, released,
vacated or fully bonded within 10 days after its issue or levy; or
(j) Any final uninsured judgment in excess of $250,000 shall be entered
against the Borrower or any Subsidiary of the Borrower by any court of competent
jurisdiction; or
(k) The Borrower or any Subsidiary of the Borrower shall fail to meet
its minimum funding requirements under ERISA with respect to any employee
benefit plan (or other class of benefit which the PBGC has elected to insure) or
any such plan shall be the subject of termination proceedings (whether voluntary
or involuntary) and there shall result from such termination proceedings a
liability of the Borrower or any Subsidiary of the Borrower to the PBGC which in
the reasonable opinion of the Bank may have a material adverse effect upon the
financial condition of the Borrower or any such Subsidiary; or
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(1) The Security Agreement or any other Loan Document shall for any
reason (other than due to payment in full of all amounts secured or evidenced
thereby or due to discharge in writing by the Bank) not remain in full force and
effect; or
(m) The security interests and liens of the Bank in and on any of the
Collateral covered or intended to be covered by the Security Agreement shall for
any reason (other than written release by the Bank) not be fully perfected first
priority liens and security interests; or
(n) The sole stockholder of the Borrower at the date hereof shall for
any reason not hold, of record and beneficially, at least 51% of each class of
voting stock of the Borrower.
5.2. Rights and Remedies on Default. Upon the occurrence of
any Event of Default, in addition to any other rights and remedies available to
the Bank hereunder or otherwise, the Bank may exercise any one or more of the
following rights and remedies (all of which shall be cumulative):
(a) Declare the entire unpaid principal amounts of the Revolving Note
and each Term Note then outstanding, all interest accrued and unpaid thereon and
all other amounts payable under this letter agreement, and all other
Indebtedness of the Borrower to the Bank, to be forthwith due and payable,
whereupon the same shall become forthwith due and payable, without presentment,
demand, protest or notice of any kind, all of which are hereby expressly waived
by the Borrower.
(b) Terminate the revolving financing arrangements and Term Loan
facility provided for by this letter agreement.
(c) Exercise all rights and remedies hereunder, under the Revolving
Note, under each Term Note, under the Security Agreement and under each and any
other agreement with the Bank; and exercise all other rights and remedies which
the Bank may have under applicable law.
5.3. Set-off. in addition to any rights now or hereafter granted
under applicable law and not by way of limitation of any such rights, upon the
occurrence and during the continuance of any Event of Default, the Bank is
hereby authorized at any time or from time to time, without presentment, demand,
protest or other notice of any kind to the Borrower or to any other Person, all
of which are hereby expressly waived, to set off and to appropriate and apply
any and all deposits and any other Indebtedness at any time held or owing by the
Bank or any affiliate thereof to or for the credit or the account of the
Borrower against and on account of the obligations and liabilities of the
Borrower to the Bank under this letter agreement or otherwise, irrespective of
whether or not the Bank
22
<PAGE>
shall have made any demand hereunder and although said obligations, liabilities
or claims, or any of them, may then be contingent or unmatured and without
regard for the availability or adequacy of other collateral. As further security
for the Obligations, the Borrower also grants to the Bank a security interest
with respect to all its deposits and all securities or other property in the
possession of the Bank or any affiliate of the Bank from time to time, and, upon
the occurrence and during the continuance of any Event of Default, the Bank may
exercise all rights and remedies of a secured party under the Uniform Commercial
Code.
5.4. Letters of Credit. Without limitation of any other right or
remedy of the Bank, (i) if an Event of Default shall have occurred and the Bank
shall have accelerated the Revolving Loans or (ii) if this letter agreement
and/or the revolving financing arrangements described herein shall have expired
or shall have been earlier terminated by either the Bank or the Borrower for any
reason, the Borrower will forthwith deposit with the Bank in cash a sum equal to
the total of all then undrawn amounts of all outstanding letters of credit
issued by the Bank for the account of the Borrower.
VI. MISCELLANEOUS
-------------
6.1. Costs and Expenses. The Borrower agrees to pay on demand all
costs and expenses (including, without limitation, reasonable legal fees) of the
Bank in connection with the preparation, execution and delivery of this letter
agreement, the Security Agreement, the Revolving Note, any Term Note and all
other instruments and documents to be delivered in connection with any Loan or
letter of credit issued hereunder and any amendments or modifications of any of
the foregoing, as well as the costs and expenses (including, without limitation,
the reasonable fees and expenses of legal counsel) incurred by the Bank in
connection with preserving, enforcing or exercising, upon default, any rights or
remedies under this letter agreement, the Security Agreement, the Revolving
Note, any Term Note and all other instruments and documents delivered or to be
delivered hereunder or in connection herewith, all whether or not legal action
is instituted. In addition, the Borrower shall be obligated to pay any and all
stamp and other taxes payable or determined to be payable in connection with the
execution and delivery of this letter agreement, the Security Agreement, the
Revolving Note, any Term Note and all other instruments and documents to be
delivered in connection with any obligation. Any fees, expenses or other charges
which the Bank is entitled to receive from the Borrower under this Section shall
bear interest from that date which is 30 days after the date of any demand
therefor until the date when paid at a rate per annum equal to the sum of (i)
two (2%) percent plus (ii) the per annum rate
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<PAGE>
otherwise payable under the Revolving Note (but in no event in excess of the
maximum rate permitted by then applicable law).
6.2. Capital Adequacy. If the Bank shall have determined that the
adoption or phase-in after the date hereof of any applicable law, rule or
regulation regarding capital requirements for banks or bank holding companies,
or any change therein after the date hereof, or any change in the interpretation
or administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
compliance by the Bank with any request or directive of such entity regarding
capital adequacy (whether or not having the force of law) has or would have the
effect of reducing the return on the Bank's capital with respect to the
Revolving Loans, the Term Loans and/or the within-described revolving and term
loan facilities and/or letters of credit issued for the account of the Borrower
to a level below that which the Bank could have achieved (taking into
consideration the Bank's policies with respect to capital adequacy immediately
before such adoption, phase-in, change or compliance and assuming that the
Bank's capital was then fully utilized) but for such adoption, phase-in, change
or compliance by any amount deemed by the Bank to be material: (i) the Bank
shall promptly after its determination of such occurrence give notice thereof to
the Borrower; and (ii) the Borrower shall within 30 days following such notice
either (A) pay to the Bank as an additional fee such amount as the Bank
certifies to be the amount that will compensate it for such reduction with
respect to the Revolving Loans, the Term Loans, the within-described revolving
and term loan facilities and/or such letters of credit, or (B) terminate this
letter agreement and repay all Loans and pay all other sums due hereunder.
A certificate of the Bank claiming compensation under this Section
shall be conclusive in the absence of manifest error. Such certificate shall set
forth the nature of the occurrence giving rise to such compensation, the
additional amount or amounts to be paid to it hereunder and the method by which
such amounts were determined. In determining such amounts, the Bank may use any
reasonable averaging and attribution methods. No failure on the part of the Bank
to demand compensation on any one occasion shall constitute a waiver of its
right to demand such compensation on any other occasion and no failure on the
part of the Bank to deliver any certificate in a timely manner shall in any way
reduce any obligation of the Borrower to the Bank under this Section.
6.3. Facility Fees. With respect to the Term Loan, the
Borrower will pay to the Bank a facility fee in the amount of
$10,000, payable in four non-refundable installments of $2,500
each, the first such installment being payable on the date of
execution of this letter agreement and subsequent installments of
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<PAGE>
$2,500 each being due on each of December 31, 1993, March 31, 1994 and June 30,
1994. The Borrower will also pay to the Bank, on the date of execution of this
letter agreement and on the first day of each calendar quarter thereafter as
long as the within-described revolving loan arrangements are in effect, a
non-refundable quarterly facility fee payable in advance in the amount of
$2,343.75 per quarter (appropriately pro-rated for any partial calendar
quarter). In addition, if the financing arrangements established by this letter
agreement are terminated by the Borrower at any time or by the Bank as the
result of the Borrower's default, the Borrower shall forthwith upon such
termination pay to the Bank a sum equal to all of the fees which would have
become due pursuant to the immediately preceding two sentences from the date of
such termination through the Expiration Date. Fees described in this Section are
in addition to any balances and fees required by the Bank or any of its
affiliates in connection with any other services made available to the Borrower.
6.4. Other Agreements. The provisions of this letter agreement are
not in derogation or limitation of any obligations, liabilities or duties of the
Borrower under any of the other Loan Documents or any other agreement with or
for the benefit of the Bank. No inconsistency in default provisions between this
letter agreement and any of the other Loan Documents or any such other agreement
will be deemed to create any additional grace period or otherwise derogate from
the express terms of each such default provision. No covenant, agreement or
obligation of the Borrower contained herein, nor any right or remedy of the Bank
contained herein, shall in any respect be limited by or be deemed in limitation
of any inconsistent or additional provisions contained in any of the other Loan
Documents or any such other agreement.
6.5 Governing Law. This letter agreement and the Notes shall be
governed by, and construed and enforced in accordance with, the laws of The
Commonwealth of Massachusetts.
6.6. Addresses for Notices, etc. All notices, requests, demands and
other communications provided for hereunder shall be in writing and shall be
mailed or delivered to the applicable party at the address indicated below:
If to the Borrower:
Pegasystems Inc.
101 Main Street
Cambridge, MA 02142
Attention: Ira Vishner,
Vice President, Corporate Services
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If to the Bank:
Fleet Bank of Massachusetts, N.A.
High Technology Group
75 State Street
Boston, MA 02109
Attention: Thomas W. Davies, Vice President
or, as to each of the foregoing, at such other address as shall be designated by
such Person in a written notice to the other party complying as to delivery with
the terms of this Section. All such notices, requests, demands and other
communications shall be effective two (2) days after deposit in the United
States mails, if sent postage prepaid, certified or registered mail, return
receipt requested, addressed as aforesaid. If any such notice, request, demand
or other communication is hand delivered, same shall be effective upon receipted
delivery.
6.7. Binding Effect; Assignment; Termination. This letter agreement
shall be binding upon the Borrower, its successors and assigns and shall inure
to the benefit of the Borrower and the Bank and their respective permitted
successors and assigns. The Borrower may not assign this letter agreement or any
rights hereunder without the express written consent of the Bank. The Bank may,
in accordance with applicable law, from time to time assign or grant
participations in this letter agreement, the Loans, the Notes and/or any letters
of credit issued hereunder; provided that the Bank will not assign this letter
agreement, the Loans, the Notes or its rights with respect to any such letters
of credit nor grant any participations in any of the foregoing without at least
30 days, prior written notice to the Borrower, except that no such notice will
be required in the case of an assignment or participation to an affiliate of the
Bank or an assignment to a Federal Reserve Bank as security. The Borrower may
terminate this Letter Agreement and the financing arrangements made herein by
giving written notice of such termination to the Bank, together with payment of
the sum described in the third sentence of ss.6-3; provided that no such
termination will release or waive any of the Bank's rights or remedies or any of
the Borrower's obligations under this letter agreement or any of the other Loan
Documents unless and until the Borrower has paid in full all Loans and all
interest thereon and all fees and charges payable in connection therewith and
all letters of credit issued hereunder have been terminated.
6.8. Consent to Jurisdiction. The Borrower irrevocably submits to
the non-exclusive jurisdiction of any Massachusetts court or any federal court
sitting within The Commonwealth of Massachusetts over any suit, action or
proceeding arising out of or relating to this letter agreement and/or any Note.
The Borrower irrevocably waives, to the fullest extent permitted by law, any
objection which it may now or hereafter have to the laying of venue of any such
suit, action or proceeding brought in
26
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such a court and any claim that any such suit, action or proceeding has been
brought in an inconvenient forum. The Borrower agrees that final judgment in any
such suit, action or proceeding brought in such a court shall be enforced in any
court of proper jurisdiction by a suit upon such judgment, provided that service
of process in such action, suit or proceeding shall have been effected upon the
Borrower in one of the manners specified in the following paragraph of this
ss.6.8 or as otherwise permitted by law.
The Borrower hereby consents to process being served in any suit,
action or proceeding of the nature referred to in the preceding paragraph of
this ss.6.8 either (i) by mailing a copy thereof by registered or certified
mail, postage prepaid, return receipt requested, to it at its address set forth
in ss.6.6 or (ii) by serving a copy thereof upon it at its address set forth in
ss.6.6.
6.9. Severability. In the event that any provision of this letter
agreement or the application thereof to any Person, property or circumstances
shall be held to any extent to be invalid or unenforceable, the remainder of
this letter agreement, and the application of such provision to Persons,
properties or circumstances other than those as to which it has been held
invalid and unenforceable, shall not be affected thereby, and each provision of
this letter agreement shall be valid and enforced to the fullest extent
permitted by law.
VII. DEFINED TERMS
-------------
7.1. Definitions. In addition to terms defined elsewhere in this
letter agreement, as used in this letter agreement, the following terms have the
following respective meanings:
"Adjusted Net Income" - For any period, that amount (but not
less than zero in any event) which represents the Net Income of the
Borrower for such period minus the increase (or plus the decrease, as
the case may be) in the Borrower's Net Capitalized Software Costs
during such period. As used herein, "Net Capitalized Software Costs"
means the number properly shown for the item entitled "Software
development costs, net" on financial statements of the Borrower
prepared consistently with the Borrower's December 31, 1992 financial
statements heretofore furnished to the Bank.
"Aggregate Bank Liabilities" - At any time, the sum of (i) the
principal amount of all Revolving Loans then outstanding, plus (ii) all
then undrawn amounts of letters of credit issued by the Bank for the
account of the Borrower, plus (iii) all amounts then drawn on any such
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letter of credit which at said date shall not have been reimbursed to
the Bank by the Borrower.
"Borrowing Base" - At any time, 80% of the aggregate principal
amount of the Qualified Receivables of the Borrower then outstanding.
"Business Day" - Any day which is not a Saturday, nor a Sunday
nor a public holiday under the laws of the United States of America or
The Commonwealth of Massachusetts
applicable to a national bank.
"Collateral" - All property now or hereafter owned by the
Borrower or in which the Borrower now or hereafter has any interest
which is described as "Collateral" in the Security Agreement.
"Current Assets" - All assets of any corporation or other
entity which would, in accordance with generally accepted accounting
principles, be classified as current assets of an entity conducting a
business the same as or similar to that of such entity; excluding,
however, (i) assets which have been pledged, assigned, mortgaged,
hypothecated or otherwise encumbered to secure any Indebtedness which
is not included in Current Liabilities and (ii) any and all amounts due
from affiliated entities.
"Current Liabilities" - All liabilities of any corporation or
other entity which would, in accordance with generally accepted
accounting principles, be classified as current liabilities of an
entity conducting a business the same as or similar to that of such
entity, including, without limitation, all capitalized lease payments
and other payments under capitalized leases and fixed prepayments of,
and sinking fund payments with respect to, Indebtedness required to be
made within one year from the date of determination. "Current
Liabilities" shall also and in any event be deemed to include the
Revolving Loans.
"ERISA" - The Employee Retirement Income Security Act of 1974,
as amended.
"Expiration Date" - June 1, 1995, unless extended by the Bank,
which extension may be given or withheld by the Bank in its sole
discretion.
"Indebtedness" - The total of all obligations of a Person,
whether current or long-term, senior or subordinated, which in
accordance with generally accepted accounting principles would be
included as liabilities upon such Person's balance sheet at the date as
of which Indebtedness is to be determined, and shall also include
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guaranties, endorsements (other than for collection in the ordinary
course of business) or other arrangements whereby responsibility is
assumed for the obligations of others, whether by agreement to purchase
or otherwise acquire the obligations of others, including any
agreement, contingent or otherwise, to furnish funds through the
purchase of goods, supplies or services for the purpose of payment of
the obligations of others.
"Loan" - Any Revolving Loan or any Term Loan.
"Loan Documents" - Each of this letter agreement, the
Revolving Note, the Term Notes, the Security Agreement and each other
instrument, document or agreement evidencing, securing, guaranteeing or
relating in any way to any of the Loans or to any of the letters of
credit issued hereunder, all whether now existing or hereafter arising
or entered into.
"Maximum Revolving Amount" - At any date as of which same is
to be determined, the amount by which (x) $2,500,000 exceeds (y) the
sum of (i) all then undrawn amounts of letters of credit issued by the
Bank for the account of the Borrower plus (ii) all amounts then drawn
on any such letter of credit which at said date shall not have been
reimbursed to the Bank by the Borrower.
"Net Income" (or "Net Loss") - The book net income (or net
loss, as the case may be) of a Person for any period, after all taxes
actually paid or accrued and all expenses and other charges determined
in accordance with generally accepted accounting principles
consistently applied.
"Net Quick Assets" - Such Current Assets of the Borrower as
consist of cash, cash-equivalents and Receivables (less an allowance
for bad debt consistent with the Borrower's prior experience).
"Notes" - Collectively, the Revolving Note and each of
the Term Notes.
"Obligation" - All Indebtedness, covenants, agreements,
liabilities and obligations, now existing or hereafter arising, made by
the Borrower with or for the benefit of the Bank or owed by the
Borrower to the Bank in any capacity.
"PBGC" - The Pension Benefit Guaranty Corporation or
any successor thereto.
29
<PAGE>
"Person" - An individual, corporation, partnership, joint
venture, trust, or unincorporated organization, or a government or any
agency or political subdivision thereof.
"Premises" - As defined in ss.2.1(j) above.
"Principal Offices" - The principal place of business of the
Bank, now located at 75 State Street, Boston, MA 02109.
"Qualified Receivables" - Only those Receivables of the
Borrower which arise out of bona fide sales made to customers of the
Borrower (which customers are unrelated to the Borrower) in the
ordinary course of the Borrower's business and which remain unpaid no
more than 90 days past the due date of such Receivable, the payment of
which is not in dispute; provided, however, that in the case of
long-term contracts between the Borrower and customers unrelated to the
Borrower, "Qualified Receivables" will also include all installment
payments scheduled to be paid under such contracts within the 12 months
following the date as of which Qualified Receivables are being
measured, so long as all of the other conditions of this definition are
met. Unless the Bank in its sole discretion otherwise determines with
respect to any Receivable, a Receivable which would otherwise be a
Qualified Receivable shall be deemed not to be a Qualified Receivable
(i) if such Receivable is not free and clear of all adverse interests
in favor of any other Person; (ii) if such Receivable is subject to any
deduction, off-set, contra account, counterclaim or condition; (iii) if
a field examination made by the Bank fails to confirm that such
Receivable exists and satisfies all of the criteria set forth herein to
be a Qualified Receivable; (iv) if such Receivable (other than an
installment payment described above which is not yet due and payable)
is not invoiced within such period of time as is consistent with the
Borrower's normal practices at the date hereof or if the relevant
invoice contains dating terms which are materially longer than the
dating terms customarily given by the Borrower at the date hereof; (v)
if the customer or account debtor has disputed liability or made any
claim with respect to the Receivable or the merchandise covered thereby
or with respect to any other Receivable due from said customer to the
Borrower; (vi) if the customer or account debtor has filed a petition
for bankruptcy or any other application for relief under the Bankruptcy
Code or effected an assignment for the benefit of creditors, or if any
petition or any other application for relief under the Bankruptcy Code
has been filed against said customer or account debtor, or if the
customer or account debtor has suspended business, become insolvent,
ceased to pay its debts as they become due, or had or suffered a
receiver or trustee to be
30
<PAGE>
appointed for any of its assets or affairs; or (vii) if the customer or
account debtor has failed to pay other Receivables so that an aggregate
of 25% of the total Receivables owing to the Borrower by such customer
or account debtor has been outstanding for more than 90 days. Without
limitation of the foregoing, if any payment on an installment contract
is more than 90 days past due, such payment will not be deemed a
Qualified Receivable; and if such payment is more than 120 days past
due, none of the remaining installment payments on that contract will
be deemed Qualified Receivables.
"Qualifying Equipment" - Equipment purchased by the Borrower
after the date of this letter agreement (or, in the case of the initial
Term Loan, equipment purchased by the Borrower not earlier than January
1, 1993) for use in the Borrower's business which meets all of the
following criteria: (i) such equipment consists of one of the items
shown on the Equipment List heretofore delivered by the Borrower to the
Bank or has otherwise been approved by the Bank for use in supporting a
Term Loan, (ii) each item of such equipment has been delivered to and
installed at the Premises and has become fully operational, and (iii)
the Borrower has paid in full for each item of such equipment and holds
title to same, free of all interests and claims of any other Person
(other than the security interest of the Bank).
"Receivables" - All of the Borrower's present and future
accounts, accounts receivable and notes, drafts, acceptances and other
instruments representing or evidencing a right to payment for goods
sold or for services rendered.
"Subsidiary" - Any corporation or other entity of which the
Borrower and/or any of its Subsidiaries, directly or indirectly, owns,
or has the right to control or direct the voting of, fifty (50%)
percent or more of the outstanding capital stock or other ownership
interest having general voting power (under ordinary circumstances).
"Tangible Net Worth" - An amount equal to the total assets of
any Person (excluding (i) the total intangible assets of such Person
and (ii) any assets representing amounts due from any affiliate) minus
the total liabilities of such Person. Total intangible assets shall be
deemed to include, but shall not be limited to, the excess of cost over
book value of acquired businesses accounted for by the purchase method,
formulae, trademarks, trade names, patents, patent rights and deferred
expenses (including, but not limited to, unamortized debt discount and
expense, organizational expense, capitalized software costs and
experimental and development expenses).
31
<PAGE>
Any defined term used in the plural preceded by the definite article
shall be taken to encompass all members of the relevant class. Any defined term
used in the singular preceded by "any" shall be taken to indicate any number of
the members of the relevant class.
This letter agreement is executed, as an instrument under seal, as of
the day and year first above written.
Very truly yours,
PEGASYSTEMS INC.
By [Signature of Ira Vishner]
----------------------------
Its Treasurer
Accepted and agreed:
FLEET BANK OF MASSACHUSETTS, N.A.
By [Signature of Thomas M. Davies]
-------------------------------------
Its VP
By [Signature of William E. Reaves Jr.]
------------------------------------
Its First Vice President
32
<PAGE>
DISCLOSURE SCHEDULE
Item 1.4 Form of Term Note
Item 2.1(a) Jurisdictions in which Borrower is qualified
Item 2.1(b) Stock ownership
Item 2.1(e) Litigation
Item 2.1(j) Location of Assets
Item 4.1 Existing Indebtedness
Item 4.2 Existing Liens
Item 4.3 Existing Guaranties
<PAGE>
Item 1.4
--------
PROMISSORY NOTE
---------------
$
- ----------- Boston, Massachusetts
, 1993
-----------
FOR VALUE RECEIVED, the undersigned Pegasytems Inc., a Massachusetts
corporation (the "Borrower") hereby promises to pay to the order of FLEET BANK
OF MASSACHUSETTS, N.A. (the "Bank") the principal amount of [ ]
($__________) Dollars ("Principal"), with interest, at the rate hereinafter set
forth, on the daily balance of all unpaid Principal, from the date hereof until
payment in full of all Principal and interest hereunder. As used herein,
"Letter Agreement" means that certain letter agreement dated December 16, 1993
between the Borrower and the Bank.
Interest on all unpaid Principal shall be due and payable monthly in
arrears, on the first day of each month commencing on the first such date after
the advance of any Principal and continuing on the first day of each month
thereafter and on the date of payment of this note in full, at a fluctuating
rate per annum (computed on the basis of a year of three hundred sixty [360]
days for the actual number of days elapsed) which shall at all times be equal to
the sum of (i) one-half of one (0.5%) percent per annum plus (ii) the Prime
Rate, as in effect from time to time (but in no event in excess of the maximum
rate permitted by then applicable law). A change in the aforesaid rate of
interest will become effective on the same day on which any change in the Prime
Rate is effective. Overdue Principal and, to the extent permitted by law,
overdue interest shall bear interest at a fluctuating rate per annum which at
all times shall be equal to the sum of (i) two (2%) percent plus (ii) the per
annum rate otherwise payable under this note (but in no event in excess of the
maximum rate permitted by then applicable law), compounded monthly and payable
on demand. As used herein, "Prime Rate" means that the rate of interest per
annum announced by the Bank from time to time as its prime rate, it being
understood that such rate is merely a reference rate, not necessarily the
lowest, which serves as the basis upon which effective rates of interest are
calculated for obligations making reference thereto.
Principal shall be repaid in thirty-five (35) equal consecutive monthly
installments (each in an amount equal to $____________ [1/36th of Principal])
commencing on [first day of month following date of note] and continuing on the
first day of each month thereafter through and including [first day of 35th
month following month in which note is executed] plus a thirty- sixty (36th) and
final payment due on [first day of 36th month following month in which note is
executed] in an amount equal to all then remaining Principal and all interest
accrued but unpaid
<PAGE>
thereon. The Borrower may at any time and from time to time, without premium or
penalty, prepay all or any portion of said Principal, each such prepayment to be
applied against Principal installments in inverse order of normal maturity.
Payments of both Principal and interest shall be made, in immediately
available funds, at the principal office of the Bank (now located at 75 State
Street, Boston, Massachusetts 02109), or at such other address as the Bank may
from time to time designate.
The undersigned Borrower irrevocably authorizes the Bank to make or
cause to be made, on a schedule attached to this note or on the books of the
Bank, at or following the time of making the Term Loan (as defined in the Letter
Agreement) evidenced by this note and of receiving any payment of Principal, an
appropriate notation reflecting such transaction and the then aggregate unpaid
balance of Principal. Failure of the Bank to make any such notation shall not,
however, affect any obligation of the Borrower hereunder or under the Letter
Agreement. The aggregate unpaid principal amount of the Term Loan evidenced by
this note, as recorded by the Bank from time to time on such schedule or on such
books, shall constitute prima facie evidence of such amount.
The Borrower hereby (a) waives notice of and consents to any and all
advances, settlements, compromises, favors and indulgences (including, without
limitation, any extension or postponement of the time for payment), any and all
receipts, substitutions, additions, exchanges and releases of collateral, and
any and all additions, substitutions and releases of any person primarily or
secondarily liable, (b) waives presentment, demand, notice, protest and all
other demands and notices generally in connection with the delivery, acceptance,
performance, default or enforcement of or under this note, and (c) agrees to
pay, to the extent permitted by law, all costs and expenses, including, without
limitation, reasonable attorneys' fees, incurred or paid by the Bank in
enforcing this note and any collateral or security therefor, all whether or not
litigation is commenced.
This note is one of the Term Notes referred to in, and is secured by
and entitled to the benefits of, the Letter Agreement and the Security Agreement
(as defined in the Letter Agreement). This note is subject to prepayment as set
forth in the Letter Agreement. The maturity of this note may be accelerated upon
the occurrence of an Event of Default, as provided in the Letter Agreement.
2
<PAGE>
Executed, as an instrument under seal, as of the day and year first
above written.
CORPORATE
SEAL
ATTEST:
PEGASYSTEMS INC.
- ------------------------ By:
Clerk ---------------------------
Its
3
<PAGE>
DISCLOSURE SCHEDULE
Item 2.1(a): Jurisdictions in which Borrower is qualified
- ----------------------------------------------------------
Massachusetts
New York
California
Item 2.1(b): Stock ownership
- -----------------------------
At the date of this letter agreement, all of the outstanding capital
stock of the Borrower is owned by Alan Trefler.
Item 2.1(e): Litigation
- ------------------------
None
Item 2.1(j): Location of Assets
- --------------------------------
With the exception of small amounts of computer equipment located in
the homes of several employees of Borrower, all assets are located in Borrower's
offices in Massachusetts, New York, and California. Addresses and landlords
follow:
101 Main Street, Cambridge, MA 02142
Landlord: Riverfront Office Park Joint Venture
c/o Codman Management Company, Inc.
One Main Street
Cambridge, MA 02142
3 New York Plaza, New York, NY 10004
Landlord: Pamela Equities Corp.
475 Park Avenue South
New York, NY 10016
One Montgomery Street, San Francisco, CA 94104
Landlord: Goldfarb & Lipman
One Montgomery Street
Telesis Tower, 23rd Floor
San Francisco, CA 94104
Item 4.1: Existing Indebtedness
- --------------------------------
Loan in the amount of $230,000 payable to Alan Trefler
Furniture and equipment leases with Eaton Financial Corporation, First
& Main Corporation, IBM Credit Corporation, PacifiCorp Capital Inc., Phoenix
Leasing Inc., and Phoenix Leasing Cash Distribution Fund V., L.P. Aggregate
amount outstanding is less than $250,000.
Item 4.2: Existing Liens
- -------------------------
Liens in favor of the equipment vendors identified above.
Item 4.3: Existing Guaranties
- ------------------------------
None
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement ("this Agreement") is made as of May
5, 1995 between Pegasystems Inc., a Massachusetts corporation (the "Borrower")
and Fleet Bank of Massachusetts, N.A. (the "Bank"). For good and valuable
consideration, receipt and sufficiency of which are hereby acknowledged, the
Borrower and the Bank act and agree as follows:
1. Reference is made to (i) that certain letter agreement dated
December 16, 1993 between the Borrower and the Bank, as amended (as so amended,
the "Letter Agreement"), (ii) that certain $2,500,000 face amount promissory
note dated December 16, 1993 (the "1993 Revolving Note") made by the Borrower
and payable to the order of the Bank, (iii) three promissory notes in aggregate
original principal amount of $1,090,000 (collectively, the "Facility One Term
Notes") made by the Borrower, payable to the order of the Bank and dated as
follows: $90,000 note dated December 16, 1993, $620,000 note dated December 16,
1993 and $380,000 note dated November 17, 1994, (iv) that certain Security
Agreement dated December 16, 1993 (the "Security Agreement") given by the
Borrower to the Bank, (v) certain promissory notes of the Borrower (the
"Facility Two Term Notes") which may now or hereafter be issued by the Borrower
to the Bank in an aggregate principal amount of up to $2,000,000 and (vi) that
certain $2,500,000 face amount promissory note of even date herewith (the "1995
Revolving Note"). The Letter Agreement, the 1995 Revolving Note, the Facility
One Term Notes, the Security Agreement and the Facility Two Term Notes (when
executed and delivered) are hereinafter collectively referred to as the
"Financing Documents".
2. The Letter Agreement is hereby amended, effective as of
the date hereof:
a. By deleting in its entirety Section 1.1 of the
Letter Agreement and by substituting in its stead the following:
"1.1 Reference to Documents. Reference is made to (i) that
certain $2,500,000 face principal amount promissory note (the
'Revolving Note') dated May 5, 1995 made by the Borrower and
payable to the order of the Bank, (ii) certain term notes
(collectively, the 'Facility One Term Notes') made by the
Borrower, payable to the order of the Bank and dated as
follows: $90,000 note dated December 16, 1993, $620,000 note
dated December 16, 1993 and $380,000 note dated November 17,
1994, (iii) additional term notes (the 'Facility Two Term
Notes') in an aggregate principal amount of up to $2,000,000
which may now or hereafter be made by the Borrower and payable
to the order of
<PAGE>
the Bank pursuant to ss.1.6 below, and (iv) that certain
Security Agreement dated December 16, 1993, as amended (as so
amended, the 'Security Agreement') from the Borrower to the
Bank."
b. By deleting from the caption of Section 1.4 of the Letter
Agreement the words "Term Loans; Term Notes" and by substituting in their stead
the following:
"Facility One Term Loans; Facility One Term
Notes"
c. By deleting from the first sentence of Section 1.4 of the
Letter Agreement the parenthetical expression "(the 'Term Loans')" and by
substituting in its stead the following:
"(the 'Facility One Term Loans')"
d. By acknowledging and agreeing that the amount of
"$1,000,000" contained in each of the first and second sentences of Section 1.4
of the Letter Agreement has been replaced by the amount "$1,090,000".
e. By acknowledging and agreeing that the date "June 30, 1994"
contained in the second sentence of Section 1.4 of the Letter Agreement has been
replaced by the date "December 31, 1994".
f. By deleting from the caption of Section 1.5 of the Letter
Agreement the words "Term Loans" and by substituting in their stead the
following:
"Facility One Term Loans"
g. By deleting from the second sentence of Section 1.5 of the
Letter Agreement the words "the outstanding principal balance of such Term Loan"
and by substituting in their stead the following:
"the original principal amount of the
relevant Facility One Term Loan"
h. By providing generally that all references in Section 1.4
and Section 1.5 of the Letter Agreement to any "Term Loan" or to the "Term
Loans" will be deemed to refer to any Facility One Term Loan or to the Facility
One Term Loans, respectively.
i. By providing generally that all references in Section 1.4
and Section 1.5 of the Letter Agreement to any "Term Note" or to the "Term
Notes" will be deemed to refer to any
2
<PAGE>
Facility One Term Note or to the Facility One Term Notes,
respectively.
j. By renumbering Section 1.6 of the Letter Agreement so that
same will be known as "Section 1.8".
k. By renumbering Section 1.7 of the Letter Agreement so that
same will be known as "Section 1.9".
l. By renumbering Section 1.8 of the Letter Agreement so that
same will be known as "Section 1.10".
m. By inserting into the Letter Agreement, immediately after
Section 1.5 thereof, the following:
"1.6. Facility Two Term Loans; Facility Two Term Notes. In
addition to the foregoing, the Bank is hereby establishing a
facility for one or more additional term loans (the "Facility
Two Term Loans") to the Borrower in an aggregate original
principal amount up to $2,000,000. Subject to the conditions
contained in this letter agreement, a Facility Two Term Loan
shall be made, no more than once per calendar quarter (except
that a Facility Two term Loan may be made more frequently in
order to finance not less than $100,000 in Qualifying
Equipment acquired by the Borrower within the 90 days
preceding the request for such Facility Two Term Loan), in
such amount as may be requested by the Borrower; subject,
however, to the following limitations: (i) no Facility Two
Term Loan will be made after June 1, 1996; (ii) the aggregate
original principal amounts of all Facility Two Term Loans will
not exceed $2,000,000; and (iii) no Facility Two Term Loan
will be in an amount more than 100% of the total of (x) the
invoiced actual costs of the tangible property constituting
the items of Qualifying Equipment with respect to which such
Facility Two Term Loan is made (excluding taxes, installation
charges, software, shipping and other 'soft' costs) plus (y)
the actual costs of software then purchased or licensed by the
Borrower relating to such items of Qualifying Equipment,
provided that such software costs will not exceed 35% of the
total amount of any such Facility Two Term Loan. Prior to the
making of each Facility Two Term Loan, and as a precondition
thereto, the Borrower
3
<PAGE>
will provide the Bank with: (i) invoices supporting the costs
of the relevant Qualifying Equipment and software; (ii) such
evidence as the Bank may require showing that the Qualifying
Equipment has been installed at the Premises, has become fully
operational, has been paid for by the Borrower and is owned by
the Borrower free of all liens and interests of any other
Person (other than the security interest of the Bank pursuant
to the Security Agreement); (iii) evidence satisfactory to the
Bank that the Qualifying Equipment is fully insured against
casualty loss, with insurance naming the Bank as secured party
and first loss payee; (iv) all such Uniform Commercial Code
financing statements and other documentation as may be
necessary or desirable in order to perfect and/or confirm the
Bank's security interests in the Qualifying Equipment; and (v)
a duly executed Facility Two Term Note in the amount of the
relevant Facility Two Term Loan. Each Facility Two Term Loan
will be evidenced by a Facility Two Term Note substantially in
the form of item 1.6 of the attached Disclosure Schedule.
Interest on each Facility Two Term Loan shall be payable at
the times and at the rate provided for in the Facility Two
Term Note evidencing same. Overdue principal of any Facility
Two Term Loan and, to the extent permitted by law, overdue
interest on any Facility Two Term Loan shall bear interest at
a fluctuating rate per annum which at all times shall equal to
the sum of (i) two (2%) percent per annum plus (ii) the per
annum rate otherwise payable under the related Facility Two
Term Note (but in no event in excess of the maximum rate from
time to time permitted by then applicable law), compounded
monthly and payable on demand. The Borrower hereby irrevocably
authorizes the Bank to make or cause to be made, on a schedule
attached to the relevant Facility Two Term Note or on the
books of the Bank, at or following the time of making each
Facility Two Term Loan and of receiving any payment of
principal, an appropriate notation reflecting such transaction
and the then aggregate unpaid principal balance of such
Facility Two Term Loan. The amount so noted shall constitute
prima facie evidence as to the amount owed by the Borrower
with respect to
4
<PAGE>
principal of such Facility Two Term Loan. Failure of the Bank
to make any such notation shall not, however, affect any
obligation of the Borrower or any right of the Bank hereunder
or under such Facility Two Term Note.
1.7. Principal Repayment of Facility Two Term Loans. The
Borrower shall repay principal of each Facility Two Term Loan
in 36 equal consecutive monthly installments, commencing on
the first day of the month next following the month in which
such Facility Two Term Loan is made and continuing on the
first day of each month thereafter. Each such monthly
installment of principal payable with respect to a Facility
Two Term Loan shall be in an amount equal to 1/36th of the
original principal amount of such Facility Two Term Loan. In
any event the then outstanding principal balance of each
Facility Two Term Loan and all interest then accrued but
unpaid thereon will be due and payable in full on the first
day of the 36th month next following the month in which such
Facility Two Term Loan is made. The Borrower may prepay, at
any time or from time to time, without premium or penalty, the
whole or any portion of any Facility Two Term Loan; provided
that each such principal prepayment shall be accompanied by
payment of all interest under the related Facility Two Term
Note accrued but unpaid to the date of payment. Any partial
prepayment of principal of a Facility Two Term Loan will be
applied to installments of principal of such Facility Two Term
Loan thereafter coming due in inverse order or normal
maturity. Amounts paid or repaid with respect to Term Loans
will not be available for reborrowing."
n. By deleting from the first sentence of the last paragraph
of renumbered Section 1.10 of the Letter Agreement the words "this ss.1.8" and
by substituting in their stead the following:
"this ss.1.10"
o. By deleting in their entireties the fourth and fifth
sentences of Subsection 2.1(a) of the Letter Agreement and by inserting in their
stead the following:
5
<PAGE>
"The Borrower has no Subsidiaries, other than
an English Subsidiary which is wholly-owned
by the Borrower."
p. By deleting from clause (iii) of Section 3.6 of the Letter
Agreement the words "compliance with ss.ss.3.7-3.10" and by substituting in
their stead the following:
"compliance with ss.ss.3.7-3.11"
q. By deleting in its entirety the last sentence of Section
3.10 of the Letter Agreement and by substituting in its stead the following:
"The Borrower will achieve Net Income of at least $1,000,000
for each fiscal year, commencing with its results for the
fiscal year ended December 31, 1994."
r. By renumbering Section 3.11 of the Letter Agreement so that
it will be known as "Section 3.12".
s. By inserting into the Letter Agreement, immediately
following Section 3.10 thereof, the following:
"3.11 Debt Service Coverage Ratio. The Borrower will maintain,
for the rolling 12- month period ending on each Determination
Date, a Debt Service Coverage Ratio of not less than 1.75 to
1. As used herein, the following terms have the following
respective meanings: 'Determination Date' means the last day
of each fiscal quarter of the Borrower, commencing with March
31, 1995. 'Debt Service Coverage Ratio' means the ratio of (x)
Adjusted EBITDA of the Borrower for the 12-month period ending
on any Determination Date to (y) the sum or (i) all interest
on Indebtedness paid or accrued by the Borrower during or in
respect of such 12- month period ending on such Determination
Date, plus (ii) all taxes paid or payable by the Borrower
during or in respect of such 12- month period (not including
for this purpose any deferred taxes accrued but not actually
currently paid or payable), plus (iii) all current maturities
of long-term debt of the Borrower outstanding as at such
Determination Date. 'Adjusted EBITDA' for any period means the
Borrower's EBITDA for such period minus the amount
representing software capitalized by the Borrower during such
period. As used
6
<PAGE>
herein, the Borrower's 'EBITDA' for any period shall be equal
to the sum of: (i) the Net Income (or Net Loss, as the case
may be, with any such Net Loss being expressed as a negative
number) of the Borrower for such period, plus (ii) the amount
of the provision for depreciation and/or amortization actually
deducted on the books of the Borrower for the purpose of
computing such Net Income (or Net Loss, as the case may be)
for the period involved, plus (iii) all federal and state
income taxes (but not ad valorem property taxes, sales taxes
or taxes in the nature of an excise) expensed by the Borrower
on its income statement with respect to such period, plus (iv)
all interest on any Indebtedness paid or accrued during such
period and actually deducted on the books of the Borrower for
the purposes of computing such Net Income (or Net Loss, as the
case may be) for the period involved."
t. By deleting from renumbered Section 3.12 of the Letter
Agreement, in each of the three places where same appear, the words "this
ss.3.11" and by substituting in their stead, in each such place, the following:
"this ss.3.12"
u. By inserting into clause (c) of Section 5.1 of the Letter
Agreement, immediately after the words "3.9 or 3.10" the following:
"or 3.11"
v. By deleting from clause (b) of Section 5.2 of the Letter
Agreement the word "facility" and by substituting in its stead the following:
"facilities"
w. By deleting from Section 6.2 of the Letter Agreement, in
each place where same appear, the words "the Term Loans" and by substituting in
their stead, in each such place, the following:
"any Term Loan"
x. By deleting in its entirety Section 6.3 of the Letter
Agreement and by substituting in its stead the following:
7
<PAGE>
"6.3. Facility Fees. With respect to the Facility One Term
Loans the Borrower has paid to the Bank non-refundable
facility fees in an aggregate amount of $10,000. With respect
to the Facility Two Term Loans, the Borrower will pay to the
Bank a facility fee in the amount of $20,000, payable in four
non-refundable installments of $5,000 each, the first such
installment being payable on May 5, 1995 and the three
subsequent installments of $5,000 each being due on each of
June 30, 1995, September 30, 1995 and December 31, 1995. If
the within-described facility for Facility Two Term Loans is
terminated prior to December 31, 1995 for any reason (whether
a termination by the Bank under ss.5.2 due to the Borrower's
default or a voluntary termination by the Borrower under
ss.6.7), the Borrower will forthwith upon such termination pay
to the Bank an amount equal to the sum of each of the
aforesaid $5,000 installments which has not been paid as at
the date of such termination. The Borrower will also pay to
the Bank, in respect of the revolving loan facility
established by this letter agreement, a non-refundable
quarterly facility fee equal to $2,343.75 per calendar
quarter, such fee being payable in advance on the first day of
each calendar quarter and being appropriately prorated for any
partial calendar quarter. If the within-described revolving
loan facility is terminated prior to the Expiration Date for
any reason (whether a termination by the Bank under ss.5.2 due
to the Borrower's default or a voluntary termination by the
Borrower under ss.6.7), the Borrower will forthwith upon such
termination pay to the Bank all facility fees which would have
become payable pursuant to the immediately preceding sentence
through and including the Expiration Date had no such
termination occurred. The fees described in this Section are
in addition to any balances and fees required by the Bank or
any of its affiliates in connection with any other services
made available to the Borrower."
y. By deleting from the last sentence of ss.6.7 of the Letter
Agreement the words "the sum described in the third sentence of ss.6.3" and by
substituting in their stead the following:
8
<PAGE>
"each of the amounts described in the third
sentence and the fifth sentence of ss.6.3"
z. By deleting in its entirety the definition of "Expiration
Date" appearing in Section 7.1 of the Letter Agreement and by substituting in
its stead the following:
"'Expiration Date' - June 1, 1996, unless extended by the
Bank, which extension may be given or withheld by the Bank in
its sole discretion."
aa. By adding to the definition of "Qualifying Equipment"
appearing in Section 7.1 of the Letter Agreement, at the end of such definition,
the following:
"In addition, for the purposes of the Facility Two Term Loans,
no item of equipment will be deemed 'Qualifying Equipment'
unless purchased by the Borrower within the 90 days preceding
the making of the Facility Two Term Loan which funds such item
of equipment, except that any Facility Two Term Loan made
prior to June 30, 1995 may include equipment purchased at any
time after September 30, 1994."
bb. By inserting into Section 7.1 of the Letter Agreement,
immediately after the definition of "Tangible Net Worth", the following:
"'Term Loans' - Collectively, each of the
Facility One Term Loans and Facility Two Term
Loans.
'Term Notes' - Collectively, each of the
Facility One Term Notes and the Facility Two
Term Notes."
cc. By adding to the Letter Agreement, as an exhibit thereto,
Item 1.6 of the Disclosure Schedule attached to the Letter Agreement in the form
attached hereto as Item 1.6.
3. Each of the Facility One Term Notes is hereby amended:
a. By deleting from the fifth grammatical paragraph of each
Facility One Term Note, in both places where same appear, the words "the Term
Loan" and by substituting in their stead, in both such places, the following:
"the Facility One Term Loan"
9
<PAGE>
b. By deleting from the seventh grammatical paragraph of each
Facility One Term Note the words "the Term Notes" and by substituting in their
stead the following:
"the Facility One Term Notes"
4. The Security Agreement is hereby amended, effective as
of the date hereof:
a. By providing that the terms "Term Note" and "Term Notes",
as used in the Security Agreement, will be deemed to refer, collectively, to the
Facility One Term Notes and the Facility Two Term Notes (each as defined in the
Letter Agreement, as amended by this Agreement).
b. By providing that the terms "Term Loan" and "Term Loans",
as used in the Security Agreement, will be deemed to refer, collectively, to the
Facility One Term Loans and the Facility Two Term Loans (each as defined in the
Letter Agreement, as amended by this Agreement). As a result, the "Obligations"
secured by the Security Agreement include both the Facility One Term Loans and
the Facility Two Term Loans.
5. Wherever in any Financing Document, or in any certificate or
opinion to be delivered in connection therewith, reference is made to a "letter
agreement" or to the "Letter Agreement", from and after the date hereof same
will be deemed to refer to the Letter Agreement, as hereby amended.
6. Simultaneously with the execution and delivery of this
Agreement, the Borrower is executing and delivering to the Bank the 1995
Revolving Note, in substitution for the 1993 Revolving Note. The 1995 Revolving
Note is a $2,500,000 promissory note of the Borrower, substantially in the form
attached hereto as Exhibit 1. Wherever in any Financing Document, or in any
certificate or opinion to be delivered in connection therewith, reference is
made to the "Revolving Note", from and after the date hereof same will be deemed
to refer to the 1995 Revolving Note.
7. In order to induce the Bank to enter into this Agreement,
the Borrower further represents and warrants to the Bank as follows:
a. The Execution, delivery and performance of this Agreement
and the 1995 Revolving Note have been duly authorized by the Borrower by all
necessary corporate and other action, will not require the consent of any third
party and will not conflict with, violate the provisions of, or cause a default
or constitute an event which, with the passage of time or giving of notice or
both, could cause a default on the part of the Borrower under its charter
documents or by-laws or under any contract, agreement,
10
<PAGE>
law, rule, order, ordinance, franchise, instrument or other document, or result
in the imposition of any lien or encumbrance on any property or assets of the
Borrower (except liens in favor of the Bank). Further, the Facility Two Term
Notes to be delivered hereafter under Section 1.6 of the Letter Agreement (as
amended hereby) have been duly authorized by the Borrower by all necessary
corporate and other action, will not require the consent of any third party and
(when issued) will not conflict with, violate the provisions of, or cause a
default or constitute an event which, with the passage of time or giving of
notice or both, could cause a default on the part of the Borrower under its
charter documents or by-laws or under any contract, agreement, law, rule, order,
ordinance, franchise, instrument or other document, or result in the imposition
of any lien or encumbrance on any property or assets of the Borrower (except
liens in favor of the Bank).
b. The Borrower has duly executed and delivered to the Bank
each of this Agreement and the 1995 Revolving Note.
c. Each of this Agreement and the 1995 Revolving Note is the
legal, valid and binding obligation of the Borrower, enforceable against the
Borrower in accordance with its respective terms. When executed and delivered in
accordance with Section 1.6 of the Letter Agreement (as amended hereby), each of
the Facility Two Term Notes will be the legal, valid and binding obligation of
the Borrower, enforceable against the Borrower in accordance with its terms.
d. The statements, representations and warranties made in the
Letter Agreement continue to be correct as of the date hereof, except as
supplemented and/or modified on the attached supplemental disclosure schedule.
e. The covenants and agreements of the Borrower contained in
the Letter Agreement (as amended hereby) and/or in the Security Agreement have
been complied with on and as of the date hereof.
f. No event which constitutes or which, with notice or lapse
of time, or both, could constitute, an Event of Default (as defined in the
Letter Agreement) has occurred and is continuing.
g. No material adverse change has occurred in the financial
condition of the Borrower from that disclosed in the financial statements of the
Borrower as at December 31, 1994.
8. Except as expressly affected hereby, the Letter
Agreement and each of the other Financing Documents remains in
full force and effect as heretofore.
11
<PAGE>
9. Except as expressly set forth above, nothing contained herein
will be deemed to constitute a waiver or a release of any provision of any of
the Financing Documents. Nothing contained herein will in any event be deemed to
constitute an agreement to give a waiver or release or to agree to any amendment
or modification of any provision of any of the Financing Documents on any other
or future occasion.
Executed, as an instrument under seal, as of the day and year first
above written.
PEGASYSTEMS INC.
By Ira Vishner
------------------------------
Its Treasurer
FLEET BANK OF MASSACHUSETTS, N.A.
By Thomas M. Davis
------------------------------
Its Vice President
12
<PAGE>
SUPPLEMENTAL DISCLOSURE SCHEDULE
Item 2.1(a): Additional United States jurisdictions in which Borrower
is qualified
Texas
Illinois
Item 2.1(b): Stock ownership
The outstanding capital stock of the Borrower is owned by the
shareholders identified below:
Joseph Friscia 18,000 shares
Kenneth Olson 150,000 shares
Richard Smith 12,000 shares
Alan Trefler 7,500,000 shares
Ira Vishner 150,000 shares
Item 2.1(e): Litigation
No litigation of the nature described in Item 2.1(e)
Item 2.1(i): Location of Assets
With the exception of small amounts of computer equipment located in
the homes of several employees of Borrower, all assets are located in Borrower's
offices in Massachusetts, New York, California, Texas and Illinois, and in the
offices of Borrower's wholly-owned subsidiary in Reading, England. Addresses and
landlords follow:
101 Main Street, Cambridge, MA 02142
Landlord: Riverfront Office Park Joint Venture
c/o Codman Management Company, Inc.
One Main Street
Cambridge, MA 02142
3 New York Plaza, New York, NY 10004
Landlord: Pamela Equities Corp.
475 Park Avenue South
New York, NY 10016
50 Fremont Street, San Francisco, CA 94105
Landlord: The Shorenstein Company
555 California Street
San Francisco, CA 94104
9003 Airport Freeway, Ft. Worth, TX 76180
Landlord: Execusuites
9003 Airport Freeway
Ft. Worth, TX 76180
Three First National Plaza, Chicago, IL 60602
Landlord: HQ Rolling Meadows
1600 Golf Road
Rolling Meadows, IL 60008
The Atrium Court, Apex Plaza, Reading, Bershire RG1 1AX, England
Landlord: Harvard (Total Office Facilities) plc
Richard House, Bath Road
Speen, Newbury, Bershire, RG13 1QY England
13
PROMISSORY NOTE
---------------
$620,000.00 Boston, Massachusetts
December 16, 1993
FOR VALUE RECEIVED, the undersigned Pegasystems Inc., a Massachusetts
corporation (the "Borrower") hereby promises to pay to the order of FLEET BANK
OF MASSACHUSETTS, N.A. (the "Bank") the principal amount of Six Hundred Twenty
Thousand and 00/100 ($620,000.00) Dollars ("Principal"), with interest, at the
rate hereinafter set forth, on the daily balance of all unpaid Principal, from
the date hereof until payment in full of all Principal and interest hereunder.
As used herein, "Letter Agreement" means that certain letter agreement dated
December 16, 1993 between the Borrower and the Bank, as amended.
Interest on all unpaid Principal shall be due and payable monthly in
arrears, on the first day of each month commencing on the first such date after
the advance of any Principal and continuing on the first day of each month
thereafter and on the date of payment of this note in full, at fluctuating rate
per annum (computed on the basis of a year of three hundred sixty (360) days for
the actual number of days elapsed) which shall at all times be equal to the sum
of (i) one-half of one (0.5%) percent per annum plus (ii) the Prime Rate, as in
effect from time to time (but in no event in excess of the maximum rate
permitted by then applicable law). A change in the aforesaid rate of interest
will become effective on the same day on which any change in the Prime Rate is
effective. Overdue Principal and, to the extent permitted by law, overdue
interest shall bear interest at a fluctuating rate per annum which at all times
shall be equal to the sum of (i) two (2%) percent per annum plus (ii) the per
annum rate otherwise payable under this note (but in no event in excess of the
maximum rate permitted by then applicable law), compounded monthly and payable
on demand. As used herein, "Prime Rate" means that rate of interest per annum
announced by the Bank from time to time as its prime rate, it being understood
that such rate is merely a reference rate, not necessarily the lowest, which
serves as the basis upon which effective rates of interest are calculated for
obligations making reference thereto.
Principal shall be repaid in thirty-five (35) equal consecutive monthly
installments (each in an amount equal to $17,222.22) commencing on January 1,
1994 and continuing on the first day of each month thereafter through and
including November 1, 1996 plus a thirty-sixty (36th) and final payment due on
December 1, 1996 in an amount equal to all then remaining Principal and all
interest accrued but unpaid thereon. The Borrower may at any time and from time
to time, without premium or penalty, prepay all or any portion of said
Principal, each such prepayment to be applied against Principal installments in
inverse order of normal maturity.
<PAGE>
Payments of both Principal and interest shall be made, in immediately
available funds, at the principal office of the Bank (now located at 75 State
Street, Boston, Massachusetts 02109), or at such other address as the Bank may
from time to time designate.
The undersigned Borrower irrevocably authorizes the Bank to make or
cause to be made, on a schedule attached to this note or on the books of the
Bank, at or following the time of making the Term Loan (as defined in the Letter
Agreement) evidenced by this note and of receiving any payment of Principal, an
appropriate notation reflecting such transaction and the then aggregate unpaid
balance of Principal. Failure of the Bank to make any such notation shall not,
however, affect any obligation of the Borrower hereunder or under the Letter
Agreement. The aggregate unpaid principal amount of the Term Loan evidenced by
this note, as recorded by the Bank from time to time on such schedule or on such
books, shall constitute prima facie evidence of such amount.
The Borrower hereby (a) waives notice of and consents to any and all
advances, settlements, compromises, favors and indulgences (including, without
limitation, any extension or postponement of the time for payment), any and all
receipts, substitutions, additions, exchanges and releases of collateral, and
any and all additions, substitutions and releases of any person primarily or
secondarily liable, (b) waives presentment, demand, notice, protest and all
other demands and notices generally in connection with the delivery, acceptance,
performance, default or enforcement of or under this note, and (c) agrees to pay
all costs and expenses, including, without limitation, reasonable attorneys'
fees, incurred or paid by the Bank in enforcing this note and any collateral or
security therefor, all whether or not litigation is commenced.
This note is one of the Term Notes referred to in, and is secured by
and entitled to the benefits of, the Letter Agreement. This note is subject to
prepayment as set forth in the Letter Agreement. The maturity of this note may
be accelerated upon the occurrence of an Event of Default, as provided in the
Letter Agreement.
2
<PAGE>
Executed, as an instrument under seal, as of the day and year first
above written.
CORPORATE
SEAL
ATTEST:
PEGASYSTEMS, INC.
- ------------------------------ By: [Signature of Ira Vishner]
Clerk -------------------------
Its Treasurer
3
Item 1.4
PROMISSORY NOTE
---------------
$380,000.00
- ----------- Boston, Massachusetts
November 17, 1994
-----------
FOR VALUE RECEIVED, the undersigned Pegasystems Inc., a Massachusetts
corporation (the "Borrower") hereby promises to pay to the order of FLEET BANK
OF MASSACHUSETTS, N.A. (the "Bank") the principal amount of Three Hundred Eighty
Thousand ($380,000) Dollars ("Principal"), with interest, at the rate
hereinafter set forth, on the daily balance of all unpaid Principal, from the
date hereof until payment in full of all Principal and interest hereunder. As
used herein, "Letter Agreement" means that certain letter agreement dated
December 16, 1993 between the Borrower and the Bank.
Interest on all unpaid Principal shall be due and payable monthly in
arrears, on the first day of each month commencing on the first such date after
the advance of any Principal and continuing on the first day of each month
thereafter and on the date of payment of this note in full, at fluctuating rate
per annum (computed on the basis of a year of three hundred sixty (360) days for
the actual number of days elapsed) which shall at all times be equal to the sum
of (i) one-half of one (0.5%) percent per annum plus (ii) the Prime Rate, as in
effect from time to time (but in no event in excess of the maximum rate
permitted by then applicable law). A change in the aforesaid rate of interest
will become effective on the same day on which any change in the Prime Rate is
effective. Overdue Principal and, to the extent permitted by law, overdue
interest shall bear interest at a fluctuating rate per annum which at all times
shall be equal to the sum of (i) two (2%) percent per annum plus (ii) the per
annum rate otherwise payable under this note (but in no event in excess of the
maximum rate permitted by then applicable law), compounded monthly and payable
on demand. As used herein, "Prime Rate" means that rate of interest per annum
announced by the Bank from time to time as its prime rate, it being understood
that such rate is merely a reference rate, not necessarily the lowest, which
serves as the basis upon which effective rates of interest are calculated for
obligations making reference thereto.
Principal shall be repaid in thirty-five (35) equal consecutive monthly
installments (each in an amount equal to $10,555.55 [1/36th of Principal])
commencing on [first day of month following date of note] and continuing on the
first day of each month thereafter through and including [first day of 35th
month following month in which note is executed] plus a thirty-sixth (36th) and
final payment due on [first day of 36th month following month in which note is
executed] in an amount equal to all then remaining Principal and all interest
accrued but unpaid thereon. The Borrower may at any time and from time to time,
<PAGE>
without premium or penalty, prepay all or any portion of said Principal, each
such prepayment to be applied against Principal installments in inverse order of
normal maturity.
Payments of both Principal and interest shall be made, in immediately
available funds, at the principal office of the Bank (now located at 75 State
Street, Boston, Massachusetts 02109), or at such other address as the Bank may
from time to time designate.
The undersigned Borrower irrevocably authorizes the Bank to make or
cause to be made, on a schedule attached to this note or on the books of the
Bank, at or following the time of making the Term Loan (as defined in the Letter
Agreement) evidenced by this note and of receiving any payment of Principal, an
appropriate notation reflecting such transaction and the then aggregate unpaid
balance of Principal. Failure of the Bank to make any such notation shall not,
however, affect any obligation of the Borrower hereunder or under the Letter
Agreement. The aggregate unpaid principal amount of the Term Loan evidenced by
this note, as recorded by the Bank from time to time on such schedule or on such
books, shall continue prima facie evidence of such amount.
The Borrower hereby (a) waives notice of and consents to any and all
advances, settlements, compromises, favors and indulgences (including, without
limitation, any extension or postponement of the time for payment), any and all
receipts, substitutions, additions, exchanges and releases of collateral, and
any and all additions, substitutions and releases of any person primarily or
secondarily liable, (b) waives presentment, demand, notice, protest and all
other demands and notices generally in connection with the delivery, acceptance,
performance, default or enforcement of or under this note, and (c) agrees to
pay, to the extent permitted by law, all costs and expenses, including, without
limitation, reasonable attorneys' fees, incurred or paid by the Bank in
enforcing this note and any collateral or security therefor, all whether or not
litigation is commenced.
This note is one of the Term Notes referred to in, and is secured by
and entitled to the benefits of, the Letter Agreement and the Security Agreement
(as defined in the Letter Agreement). This note is subject to prepayment as set
forth in the Letter Agreement. The maturity of this note may be accelerated upon
the occurrence of an Event of Default, as provided in the Letter Agreement.
2
<PAGE>
Executed, as an instrument under seal, as of the day and year first
above written.
CORPORATE
SEAL
ATTEST:
PEGASYSTEMS, INC.
By: [Signature of Ira Vishner]
- --------------------------- -----------------------------
Clerk Its Treasurer
3
Item 1.6
--------
PROMISSORY NOTE
---------------
$1,180,000.00
- -------------
Boston, Massachusetts
June 28, 1995
-------
FOR VALUE RECEIVED, the undersigned Pegasystems Inc., a Massachusetts
corporation (the "Borrower") hereby promises to pay to the order of FLEET BANK
OF MASSACHUSETTS, N.A. (the "Bank") the principal amount of One Million One
Hundred Eighty Thousand and 00/100 ($1,180,000) Dollars ("Principal"), with
interest, at the rate hereinafter set forth, on the daily balance of all unpaid
Principal, from the date hereof until payment in full of all Principal and
interest hereunder. As used herein, "Letter Agreement" means that certain letter
agreement dated December 16, 1993 between the Borrower and the Bank, as amended.
Interest on all unpaid Principal shall be due and payable monthly in
arrears, on the first day of each month commencing on the first such date after
the date hereof and continuing on the first day of each month thereafter and on
the date of payment of this note in full, at fluctuating rate per annum
(computed on the basis of a year of three hundred sixty (360) days for the
actual number of days elapsed) which shall at all times be equal to the sum of
(i) one-half of one (0.5%) percent per annum plus (ii) the Prime Rate, as in
effect from time to time (but in no event in excess of the maximum rate
permitted by then applicable law). A change in the aforesaid rate of interest
will become effective on the same day on which any change in the Prime Rate is
effective. Overdue Principal and, to the extent permitted by law, overdue
interest shall bear interest at a fluctuating rate per annum which at all times
shall be equal to the sum of (i) two (2%) percent per annum plus (ii) the per
annum rate otherwise payable under this note (but in no event in excess of the
maximum rate permitted by then applicable law), compounded monthly and payable
on demand. As used herein, "Prime Rate" means that rate of interest per annum
announced by the Bank from time to time as its prime rate, it being understood
that such rate is merely a reference rate, not necessarily the lowest, which
serves as the basis upon which effective rates of interest are calculated for
obligations making reference thereto. If the entire amount of any required
Principal and/or interest is not paid within ten (10) days after the same is
due, the Borrower shall pay to the Bank a late fee equal to five percent (5%) of
the required payment, provided that such late fee shall be reduced to three
percent (3%) of any required principal and interest that is not paid within
fifteen (15) days of the date it is due if this note is secured by a mortgage on
an owner-occupied residence of 1-4 units.
Principal shall be repaid in thirty-five (35) equal consecutive monthly
installments (each in an amount equal to
<PAGE>
$32,777.78 commencing on [first day of month following date of note] and
continuing on the first day of each month thereafter through and including
[first day of 35th month following month in which note is executed] plus a
thirty-sixty (36th) and final payment due on [first day of 36th month following
month in which note is executed] in an amount equal to all then remaining
Principal and all interest accrued but unpaid thereon. The Borrower may at any
time and from time to time, without premium or penalty, prepay all or any
portion of said Principal, each such prepayment to be applied against Principal
installments in inverse order of normal maturity.
Payments of both Principal and interest shall be made, in immediately
available funds, at the principal office of the Bank (now located at 75 State
Street, Boston, Massachusetts 02109), or at such other address as the Bank may
from time to time designate.
The undersigned Borrower irrevocably authorizes the Bank to make or
cause to be made, on a schedule attached to this note or on the books of the
Bank, at or following the time of making the Facility Two Term Loan (as defined
in the Letter Agreement) evidenced by this note and of receiving any payment of
Principal, an appropriate notation reflecting such transaction and the then
aggregate unpaid balance of Principal. Failure of the Bank to make any such
notation shall not, however, affect any obligation of the Borrower hereunder or
under the Letter Agreement. The aggregate unpaid principal amount of the
Facility Two Term Loan evidenced by this note, as recorded by the Bank from time
to time on such schedule or on such books, shall constitute prima facie evidence
of such amount.
The Borrower hereby (a) waives notice of and consents to any and all
advances, settlements, compromises, favors and indulgences (including, without
limitation, any extension or postponement of the time for payment), any and all
receipts, substitutions, additions, exchanges and releases of collateral, and
any and all additions, substitutions and releases of any person primarily or
secondarily liable, (b) waives presentment, demand, notice, protest and all
other demands and notices generally in connection with the delivery, acceptance,
performance, default or enforcement of or under this note, and (c) agrees to pay
all costs and expenses, including, without limitation, reasonable attorneys'
fees, incurred or paid by the Bank in enforcing this note and any collateral or
security therefor, all whether or not litigation is commenced.
This note is one of the Facility Two Term Notes referred to in the
Letter Agreement. This note is secured by, and is entitled to the benefits of,
the Security Agreement (as defined in the Letter Agreement). This note is
subject to prepayment as set forth in the Letter Agreement. The maturity of this
note may
2
<PAGE>
be accelerated upon the occurrence of an Event of Default, as
provided in the Letter Agreement.
Executed, as an instrument under seal, as of the day and year first
above written.
CORPORATE
SEAL
ATTEST:
PEGASYSTEMS, INC.
[Signature or Alan Trefler]
- ------------------------------ By: [Signature of Ira Vishner]
Clerk --------------------------
Its Treasurer
3
Item 1.6
PROMISSORY NOTE
$165,000.00
- -----------
Boston, Massachusetts
December 28, 1995
------------
FOR VALUE RECEIVED, the undersigned Pegasystems Inc., a Massachusetts
corporation (the "Borrower") hereby promises to pay to the order of FLEET BANK
OF MASSACHUSETTS, N.A. (the "Bank") the principal amount of One Hundred Sixty
Five Thousand and 00/100 ($165,000.00) Dollars ("Principal"), with interest, at
the rate hereinafter set forth, on the daily balance of all unpaid Principal,
from the date hereof until payment in full of all Principal and interest
hereunder. As used herein, "Letter Agreement" means that certain letter
agreement dated December 16, 1993 between the Borrower and the Bank, as amended.
Interest on all unpaid Principal shall be due and payable monthly in
arrears, on the first day of each month commencing on the first such date after
the date hereof and continuing on the first day of each month thereafter and on
the date of payment of this note in full, at fluctuating rate per annum
(computed on the basis of a year of three hundred sixty (360) days for the
actual number of days elapsed) which shall at all times be equal to the sum of
(i) one-half of one (0.5%) percent per annum plus (ii) the Prime Rate, as in
effect from time to time (but in no event in excess of the maximum rate
permitted by then applicable law). A change in the aforesaid rate of interest
will become effective on the same day on which any change in the Prime Rate is
effective. Overdue Principal and, to the extent permitted by law, overdue
interest shall bear interest at a fluctuating rate per annum which at all times
shall be equal to the sum of (i) two (2%) percent per annum plus (ii) the per
annum rate otherwise payable under this note (but in no event in excess of the
maximum rate permitted by then applicable law), compounded monthly and payable
on demand. As used herein, "Prime Rate" means that rate of interest per annum
announced by the Bank from time to time as its prime rate, it being understood
that such rate is merely a reference rate, not necessarily the lowest, which
serves as the basis upon which effective rates of interest are calculated for
obligations making reference thereto. If the entire amount of any required
Principal and/or interest is not paid within ten (10) days after the same is
due, the Borrower shall pay to the Bank a late fee equal to five percent (5%) of
the required payment, provided that such late fee shall be reduced to three
percent (3%) of any required principal and interest that is not paid within
fifteen (15) days of the date it is due if this note is secured by a mortgage on
an owner-occupied residence of 1-4 units.
Principal shall be repaid in thirty-five (35) equal consecutive monthly
installments (each in an amount equal to
<PAGE>
$4,583.33) commencing on [first day of month following date of note] and
continuing on the first day of each month thereafter through and including
[first day of 35th month following month in which note is executed] plus a
thirty-sixty (36th) and final payment due on [first day of 36th month following
month in which note is executed] in an amount equal to all then remaining
Principal and all interest accrued but unpaid thereon. The Borrower may at any
time and from time to time, without premium or penalty, prepay all or any
portion of said Principal, each such prepayment to be applied against Principal
installments in inverse order of normal maturity.
Payments of both Principal and interest shall be made, in immediately
available funds, at the principal office of the Bank (now located at 75 State
Street, Boston, Massachusetts 02109), or at such other address as the Bank may
from time to time designate.
The undersigned Borrower irrevocably authorizes the Bank to make or
cause to be made, on a schedule attached to this note or on the books of the
Bank, at or following the time of making the Facility Two Term Loan (as defined
in the Letter Agreement) evidenced by this note and of receiving any payment of
Principal, an appropriate notation reflecting such transaction and the then
aggregate unpaid balance of Principal. Failure of the Bank to make any such
notation shall not, however, affect any obligation of the Borrower hereunder or
under the Letter Agreement. The aggregate unpaid principal amount of the
Facility Two Term Loan evidenced by this note, as recorded by the Bank from time
to time on such schedule or on such books, shall constitute prima facie evidence
of such amount.
The Borrower hereby (a) waives notice of and consents to any and all
advances, settlements, compromises, favors and indulgences (including, without
limitation, any extension or postponement of the time for payment), any and all
receipts, substitutions, additions, exchanges and releases of collateral, and
any and all additions, substitutions and releases of any person primarily or
secondarily liable, (b) waives presentment, demand, notice, protest and all
other demands and notices generally in connection with the delivery, acceptance,
performance, default or enforcement of or under this note, and (c) agrees to pay
all costs and expenses, including, without limitation, reasonable attorneys'
fees, incurred or paid by the Bank in enforcing this note and any collateral or
security therefor, all whether or not litigation is commenced.
This note is one of the Facility Two Term Notes referred to in the
Letter Agreement. This note is secured by, and is entitled to the benefits of,
the Security Agreement (as defined in the Letter Agreement). This note is
subject to prepayment as set forth in the Letter Agreement. The maturity of this
note may
2
<PAGE>
be accelerated upon the occurrence of an Event of Default, as
provided in the Letter Agreement.
Executed, as an instrument under seal, as of the day and year first
above written.
CORPORATE
SEAL
ATTEST:
PEGASYSTEMS, INC.
- --------------------------- By: [Signature of Ira Vishner]
Clerk --------------------------
Its Treasurer
3
SECURITY AGREEMENT
SECURITY AGREEMENT dated as of December 16, 1993 by and between
Pegasystems Inc., a Massachusetts corporation (the "Debtor") and Fleet Bank of
Massachusetts, N.A. (the "Secured Party").
WHEREAS, the Debtor has today executed and delivered to the Secured
Party a letter agreement (the "Letter Agreement") of even date herewith between
the Debtor and the Secured Party, which Letter Agreement provides inter alia for
the making of Term Loans (as defined therein) up to an aggregate principal
amount of $1,000,000; and
WHEREAS, the Debtor has executed and delivered to the Secured Party and
may in the future execute and deliver to the Secured Party one or more
promissory notes in an aggregate original principal amount not to exceed
$1,000,000 (the "Term Notes") in order to evidence the Term Loans; and
WHEREAS, as a condition to making any Term Loan, the Secured Party
requires that the Debtor grant to the Secured Party a security interest in the
Collateral (as defined in Section 1);
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby act and agree
as follows:
1. Definitions. As used in this Security Agreement, the
following terms have the following meanings:
"Collateral" - All of the following now or hereafter existing or owned
by the Debtor or in which the Debtor shall now or hereafter have any interest:
(a) all Equipment;
(b) all Related Collateral; and
(c) all liens, guaranties, securities, rights, remedies and privileges
pertaining to, and all products and proceeds (including, without
limitation, insurance proceeds) of and all accessions to, any of the
foregoing items of Collateral.
"Equipment" - All of the Debtor's machinery, equipment, motor vehicles,
tools, furniture, furnishings and fixtures and all accessions, additions,
substitutions or replacements to or for any of the foregoing and all
attachments, components, accessories, parts and supplies relating thereto; all
whether now owned or hereafter arising or acquired and wherever located. The
Equipment includes, Without limitation, the items of Equipment described on
Exhibit A hereto.
<PAGE>
"Event of Default" - The occurrence of any one or more of the
following: (i) any "Event of Default" as defined in any Loan Document, (ii) any
failure to pay when due any of the Obligations relating to the payment of money
or (iii) any failure by the Debtor to perform or observe any of its obligations
or agreements under this Security Agreement.
"Lien" - Any lien, charge, encumbrance or security interest, whether
voluntary or involuntary.
"Loan Documents" - This Security Agreement, the Letter Agreement, the
Term Notes and any other instruments or documents, letters of credit or other
agreements made by the Debtor with or in favor of the Secured Party, all whether
now existing or hereafter entered into or delivered.
"Obligations" - The Term Notes and any and all indebtedness,
liabilities and obligations of the Debtor relating to the Term Loans or any of
same, whether for principal, interest, fees, charges or otherwise, now existing
or hereafter arising, such term to include obligations to perform acts and
refrain from taking action as well as obligations to pay money. For the purposes
of this Security Agreement, "Obligations" shall not be deemed to include the
"Revolving Note" or the "Revolving Loans" described in the Letter Agreement.
"Person" - As defined in the Letter Agreement.
"Premises" - All locations owned, leased, operated or used by the
Debtor, all of which are listed on Exhibit B hereto together with the record
owner of each such location.
"Qualifying Equipment" - As defined in the Letter Agreement.
"Related Collateral" - All of the following property of the Debtor: all
of the Debtor's rights under judgments relating to any loss or damage to any
Equipment; warranties, insurance claims, tort claims and chooses in action
relating to any loss or damage to any Equipment; and information, data, files,
writings, correspondence, books and records (including, without limitation, all
electronically recorded data) relating to any Equipment. For the purposes of
this Security Agreement, "Related Collateral" does not include patents,
trademarks, copyrights, Debtor's proprietary software or other intellectual
property of the Debtor.
"UCC" - The Uniform Commercial Code as in effect from time to time in
Massachusetts, except that with respect to Collateral located or deemed located
in any other jurisdiction, such term shall refer to the Uniform Commercial Code
as in effect in each such other jurisdiction.
2
<PAGE>
Any defined term used in the plural preceded by the definite article
shall be taken to encompass all members of the relevant class. Any defined term
used in the singular preceded by "any" shall be taken to indicate any number of
the members of the relevant class.
2. Grant of Security Interest. As security for the full and timely
satisfaction of the Obligations, the Debtor hereby grants to the Secured Party a
continuing security interest in the Collateral, and in each item thereof, all to
the maximum extent that the Debtor has an interest therein or at any time in the
future obtains such an interest.
3. Representations and Warranties. The Debtor represents
and warrants to the Secured Party that:
(a) The execution, delivery and performance by the Debtor of this
Security Agreement, including the security interests herein granted or intended
to be granted, has been duly authorized by all necessary corporate and other
action and does not and will not:
(i) require any consent or approval of its stockholders, any
governmental authority or any other Person;
(ii) contravene its charter or by-laws;
(iii) violate any provision of, or require any filing (other
than the filing of financing statements with respect to the security
interests herein granted), registration, consent or approval under, any
law, rule, regulation (including, without limitation, Regulation U),
order, writ, judgment, injunction, decree, determination or award
presently in effect having applicability to the Debtor;
(iv) result in a breach of or constitute a default or require
any consent under any indenture or loan or credit agreement or any
other agreement, lease or instrument to which the Debtor is party or by
which it or any of its properties may be bound or affected; or
(v) result in, or require, the creation or imposition of any
Lien (other than as created hereunder) upon or with respect to any of
the properties now owned or hereafter acquired by the Debtor.
(b) This Security Agreement has been duly executed and delivered on
behalf of the Debtor and is a legal, valid and binding obligation of the Debtor
enforceable in accordance with its terms.
3
<PAGE>
(c) No Obligation has been or will hereafter be incurred
(d) The principal place of business and chief executive offices of the
Debtor are located at 101 Main Street, Cambridge, MA 02142. Except as described
on Exhibit B hereto, none of the Collateral and no other assets of the Debtor
are located at any other address. The Debtor is a tenant in its Premises and the
record owners of the Debtor's Premises are as set forth on Exhibit B hereto.
(e) Except as set forth on Exhibit C hereto, the Debtor conducts
business (and in the last five years has conducted business) under no trade name
or style other than its corporate name.
(f) The Debtor owns the Collateral free and clear of all Liens except
(a) Liens in favor of the Secured Party, and (b) Liens, if any, listed on
Exhibit D hereto.
(g) The Equipment now owned by Debtor (including, without limitation,
those items of Equipment listed on Exhibit A hereto) has been accepted by the
Debtor and is in good repair, working order and condition, and the Debtor has
not asserted, and knows of no basis for, any material warranty or other claim
against any seller or manufacturer thereof.
(h) This Agreement, coupled with the filing of appropriate UCC
financing statements with the Secretary of The Commonwealth of Massachusetts,
the City Clerk of Cambridge, MA and Middlesex South Registry of Deeds (these
being the only locations in which such filing is required by the UCC in order to
perfect the security interest granted herein), creates a valid and perfected
security interest (of first priority, except as shown on Exhibit D) in favor of
the Secured Party in all of the Collateral.
4. Covenants. (a) Payment and Performance. The Debtor
shall unconditionally pay when due (or on demand if so payable)
each Obligation and shall duly and punctually perform each
Obligation.
(b) Further Assurances. The Debtor will from time to time, at its
expense, promptly execute and deliver all such further instruments and
documents, and take all such further action, as may be necessary or that the
Secured Party may reasonably request in order to perfect and protect the
security interests granted or intended to be granted hereby or to enable the
Secured Party to enforce its rights and remedies hereunder with respect to any
Collateral, including, without limitation: marking or otherwise identifying
Equipment; furnishing the originals of all bills of jading, trust receipts and
warehousemen's receipts, with such endorsements as may be required by the
Secured Party; and executing and filing financing
4
<PAGE>
statements. Further, the Debtor hereby authorizes the Secured Party to file
financing or continuation statements and amendments thereto relating to
Collateral without the signature of the Debtor where permitted by law.
(c) Information. The Debtor shall maintain accurate and complete
records of all Collateral and its dealings with respect thereto in accordance
with generally accepted accounting principles applied on a consistent basis.
Upon reasonable notice from time to time (and at any time and without notice
after the occurrence and during the continuance of an Event of Default), the
Debtor shall permit the Secured Party and its employees, representatives and
agents to conduct field audits (at the Debtor's expense) and to inspect and/or
make copies of such records and/or the Collateral. The Debtor shall from time to
time furnish to the Secured Party such information concerning Collateral as the
Secured Party may reasonably request and will promptly notify the Secured Party
if any representation or warranty of the Debtor in Section 3 hereof or in the
Letter Agreement becomes inaccurate, incomplete or misleading in any material
respect. Without limiting the generality of the foregoing, the Debtor will upon
the Secured Party's request, with reasonable promptness, provide the Secured
Party with a written listing of all Collateral, and will provide the Secured
Party with such a listing immediately upon the occurrence of any Event of
Default.
(d) Insurance. The Debtor shall at its expense maintain fire and
extended coverage insurance policies insuring the Equipment, with responsible
and reputable insurance companies or associations, in amounts sufficient to
provide for full replacement cost coverage (with agreed amount endorsement) and
in any event not less than the amount necessary to avoid co-insurance. All such
insurance shall name the Secured Party as secured party and loss payee. All
policies of such insurance shall contain a provision forbidding cancellation of
such insurance either by the carrier or by the insured without at least 15 days'
prior written notice to the Secured Party. The Debtor shall, as often as the
Secured Party shall reasonably request, deliver to the Secured Party duplicate
policies of such insurance and/or binders, certificates or other evidence
thereof (with evidence of premiums having been paid) from the insurer or a
reputable insurance broker. in case of any casualty, loss or damage to which the
following sentence is not applicable, the Debtor shall make the necessary
repairs or replacements and shall be entitled to be reimbursed therefor from and
to the extent of the proceeds of such insurance. After the occurrence of any
Event of Default, all insurance payments in respect of Equipment shall be paid
and applied as specified in Subsection 8(c) below.
(e) Title; Sale or Removal of Collateral. The Debtor shall not create
or suffer to exist any Lien in or on any of the
5
<PAGE>
Collateral, except as otherwise expressly permitted by ss.4.2 of the Letter
Agreement. The Debtor shall not, without the Secured Party's prior written
approval, sell, transfer or remove from the Premises or otherwise dispose of any
of the Collateral, except that the Debtor may remove and dispose of obsolete and
worn out equipment (other than any item of Equipment which is listed on Exhibit
A hereto or which is now or hereafter an item of Qualifying Equipment). Except
as provided in the immediately preceding sentence, no Collateral of the Debtor
will be located at any premises other than the Premises described in Subsection
3(d) above. The Debtor will not (i) move its chief executive office or principal
place of business from the location described in Subsection 3(d) above, (ii)
change its name or identity (or use any trade name or style except as described
in Subsection 3(e) above), (iii) make or suffer to be made any change in its
corporate structure, or (iv) have or acquire any office or facility in any other
location (other than one or more foreign offices for its non-United States
subsidiaries) until, in each case, after receipt of a certificate from the
Secured Party, signed by an officer thereof, stating that the Secured Party has,
to its satisfaction, obtained all documentation that it deems necessary or
desirable to obtain, maintain, perfect and/or confirm the first priority
security interests granted or intended to be granted herein.
(f) Maintenance and Use of Collateral. The Debtor will maintain all
Equipment in good order and condition, Making all necessary repairs thereto. The
Debtor will not use any Equipment in violation of any applicable law or any
insurance thereon. Nothing contained herein shall require the Debtor to maintain
or repair any Equipment (other than any item of Equipment listed on Exhibit A
hereto or other item which is now or hereafter part of the Qualifying Equipment)
which is obsolete or worn out.
(g) Access. The Debtor shall accord the Secured Party and the Secured
Party's representatives with such access from time to time, upon reasonable
notice, during normal business hours as the Secured Party and its
representatives may reasonably require to all properties owned by or over which
the Debtor has control, and in connection with such access, will permit the
Secured Party and such representatives, from time to time as may be requested,
to examine and inspect any and all of the Collateral and any and all of the
Debtor's books, records, electronically stored data, papers and files related to
the Collateral. The Debtor shall provide the Secured Party with such information
concerning the Debtor, the Collateral, the operation of the Debtor's business
and the Debtor's financial condition as the Secured Party may reasonably request
from time to time.
(h) Taxes. The Debtor promptly shall pay, as they become due and
payable, all taxes, unemployment contributions and all other charges of any kind
or nature levied, assessed or claimed
6
<PAGE>
against the Collateral by any Person whose claim could result in a Lien, except
any of the foregoing which is being contested in good faith and by appropriate
proceedings which serve as a matter of law to stay the enforcement of any such
Lien and as to which the Debtor has established and is maintaining adequate
reserves. At its option, the Secured Party may, but shall not be obligated to,
pay all taxes, unemployment contributions and any and all other charges levied,
assessed or claimed against the Collateral by any Person as the Secured Party
may, in its discretion, deem necessary or desirable to protect, maintain,
preserve, collect or realize upon any or all of the Collateral or the value
thereof or any right or remedy pertaining thereto.
5. Secured Party Appointed Attorney-in-Fact. (a) The Debtor hereby
irrevocably appoints the Secured Party as the Debtor's attorney-in-fact, with
full authority in the name, place and stead of the Debtor, from time to time in
the Secured Party's discretion, after the occurrence and during the continuance
of an Event of Default to take any action and to execute any instrument which
the Secured Party may deem necessary or advisable to accomplish the purposes of
this Security Agreement, including, without limitation:
(i) to obtain and adjust any insurance required pursuant to
this Security Agreement and/or the Letter Agreement;
(ii) to ask, demand, collect, sue for, recover, compromise,
receive and give acquittance for monies due and to become due under or
in respect of any of the Collateral;
(iii) to receive, endorse and collect any notes, drafts or
other instruments, documents and chattel paper;
(iv) to file any claims or take any action or institute any
proceedings which the Secured Party may deem necessary or desirable for
the collection of any of the Collateral or otherwise to enforce the
rights of the Secured Party with respect to any of the Collateral;
(v) to defend any suit, action or proceeding brought against
the Debtor in respect of any Collateral, to settle, compromise or
adjust any suit, action or proceeding hereinbefore described and, in
connection therewith, to give such discharges or releases as the
Secured Party may deem appropriate; and generally,
(vi) to do all things necessary to carry out the intent
of this Security Agreement.
(b) The power of attorney granted pursuant to this Section 5 is a power
coupled with an interest and shall be irrevocable
7
<PAGE>
until the Obligations are paid indefeasibly in full and no commitment on the
part of the Secured Party to make loans remains outstanding under the Letter
Agreement.
6. Secured Party May Perform. if the Debtor fails to perform any
agreement contained herein, the Secured Party may itself perform, or cause
performance of, such agreement, and the reasonable expenses of the Secured Party
incurred in connection therewith shall be payable by the Debtor as provided
under Section 9 hereof, with interest at the rate provided in the Term Notes for
overdue payments.
7. Secured Party's Duties. The powers conferred on the Secured
Party hereunder are solely to protect its interests in the Collateral and shall
not impose any duty upon it to exercise any such powers. Except for the safe
custody of any Collateral actually in its possession and the accounting for
monies actually received by it hereunder, the Secured Party shall have no duty
as to any Collateral. The Secured Party shall not be liable for any acts,
omissions, errors of judgment or mistakes of fact or law including, without
limitation, acts, omissions, errors or mistakes with respect to the Collateral,
except for those arising out of or in connection with the Secured Party's gross
negligence or willful misconduct. The Secured Party shall be deemed to have
exercised reasonable care in the custody and preservation of the Collateral in
its possession if the Collateral is accorded treatment substantially equal to
that which the Secured Party accords its own like property, it being understood
that the Secured Party shall be under no obligation to take any necessary steps
to collect any Collateral or preserve rights against prior parties or any other
rights pertaining to any Collateral, but may do so at its option, and all
reasonable expenses incurred in connection therewith shall be for the sole
account of the Debtor and shall be added to the Obligations.
8. Remedies. If any Event of Default shall have occurred and be
continuing:
(a) The Secured Party may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein or otherwise available
to it, all the rights and remedies of a secured party under the UCC and also may
without limitation:
(i) require the Debtor to, and the Debtor hereby agrees that
it will at its expense and upon request of the Secured Party forthwith,
assemble all or any part of the Collateral as directed by the Secured
Party and make it available to the Secured Party at a place or places
to be designated by the Secured Party which is or are reasonably
convenient to the respective parties;
8
<PAGE>
(ii) itself or through agents, without notice to any Person
and without judicial process of any kind, enter any of the Debtor's
offices and facilities (or any other premises or location where any
Collateral may be) and take physical possession of any Collateral or
disassemble, render unusable and/or repossess any of the same, and the
Debtor shall peacefully and quietly yield up and surrender the same;
and
(iii) without notice except as specified below, sell, lease,
assign, grant an option or options to purchase or otherwise dispose of
the Collateral or any part thereof in one or more parcels at public or
private sale, at any exchange, broker's board or at the Secured Party's
offices or elsewhere, for cash, on credit or for future delivery, and
upon such other terms as are commercially reasonable.
(b) The Secured Party may maintain possession of Collateral at the
Premises or remove the same or any part thereof to such places as the Secured
Party may elect. The Debtor waives all rights which it would otherwise have
under any applicable law to prohibit entry to any premises or to require notice
of any such action, to the extent permitted by law. The Debtor agrees that, to
the extent notice of sale shall be required by law, 10 days, prior written
notice to the Debtor shall constitute reasonable notification. Notice of any
public sale shall be sufficient if it describes the Collateral to be sold in
general terms, stating the items or amounts thereof and the location and nature
thereof, and is published at least once in any newspaper selected by the Secured
Party and of general circulation in the locale of such sale, not less than 10
days prior to the sale. The Secured Party shall not be obligated to make any
sale of Collateral regardless of notice of sale-having been given and may be the
purchaser at any such sale, if public, to the extent permitted by applicable
law, free from any right of redemption. The Debtor shall be fully liable for any
deficiency. The Secured Party may adjourn any public or private sale from time
to time by announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was so
adjourned. All sales made by the Secured Party under this Subsection 8(b) must
be conducted in a manner which is commercially reasonable.
(c) Any cash held by the Secured Party as Collateral and all cash or
other proceeds received by the Secured Party in respect of any sale of,
collection from, or other realization upon all or any part of the Collateral,
shall be applied by the Secured Party in the following order of priorities:
First, to the payment of the costs and expenses of
any sale or other reasonable expenses (including, without
limitation, any reasonable legal fees and
9
<PAGE>
expenses), liabilities and advances made or incurred by the
Secured Party in connection therewith or referred to in
Section 9 or provided for by the Letter Agreement;
Next, to payment of interest on and principal of the
Term Notes (in such order as may be provided for in the Letter
Agreement or as otherwise determined by the Secured Party);
Next, to the payment of any other Obligations; and
Finally, after payment in full of all Obligations, to
the payment to the Debtor or its successors or assigns, or to
whomsoever may be lawfully entitled to receive the same or as
a court of competent jurisdiction may direct, of any surplus
then remaining of such cash.
9. Expenses and Indemnification. The Debtor agrees to reimburse
the Secured Party for and indemnify and hold harmless the Secured Party from and
against any and all liability, loss, damage, cost or expense (including, without
limitation, reasonable fees and disbursements of counsel, experts and agents)
imposed on, incurred by or asserted against the Secured Party arising out of or
in connection with: preparation of this Security Agreement, the documents
relating hereto, or amendments, modifications or waivers hereof; taxes
(excluding any corporate excise or income taxes payable by the Secured Party by
reason hereof or otherwise) and other governmental charges in connection with
this Security Agreement and the Collateral; exercise of the Secured Party's
rights with respect to this Security Agreement and the Collateral; any
enforcement, collection or other proceedings resulting therefrom or any
negotiations or other measures to preserve the Secured Party's rights hereunder;
the custody or preservation of, or the sale of or other realization upon, any of
the Collateral; any failure by the Debtor to perform or observe any of the
provisions of this Security Agreement; any investigative, administrative or
judicial proceeding (whether or not the Secured Party is designated a party
thereto) relating to or arising out of this Security Agreement; or any
bankruptcy, insolvency or other similar proceeding relating to the Debtor,
unless the Secured Party was at fault with respect to such liability, loss,
damage, cost or expense or acted in bad faith with respect thereto. The Debtor's
obligations under the preceding sentence shall constitute Obligations and shall
survive the termination of this Security Agreement.
10. Termination. This Security Agreement shall remain in full
force and effect so long as any Obligations remain outstanding or any commitment
remains in effect under the Letter Agreement or otherwise. Upon the satisfaction
in full of all of
10
<PAGE>
the obligations and termination of all credit facilities established under the
Letter Agreement or otherwise, the Secured Party shall, at the Debtor's expense,
execute and deliver to the Debtor all instruments of assignment or otherwise as
may be necessary to establish full title of the Debtors to any of the
Collateral, subject to any prior sale or other disposition thereof pursuant to
Section 8. Until then, this Security Agreement shall itself constitute
conclusive evidence of the validity, effectiveness and continuing force hereof,
and any Person may rely hereon.
11. Waiver; Rights Cumulative. No failure to exercise and no delay
in exercising, on the part of the Secured Party, any right or remedy hereunder
or otherwise shall operate as a waiver thereof, nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right or remedy. Waiver by the Secured Party of any right or remedy
on any one occasion shall not be construed as a bar to or waiver thereof or of
any other right or remedy on any future occasion. The Secured Party's rights and
remedies hereunder and under the Loan Documents shall be cumulative, may be
exercised singly or concurrently and are not exclusive of any rights or remedies
provided by law.
The provisions of this Security Agreement are not in derogation or
limitation of any obligations, liabilities or duties of the Debtor under any of
the other Loan Documents or any other agreement with or for the benefit of the
Secured Party. No inconsistency in default provisions between this Agreement and
any of the other Loan Documents or any such other agreement will be deemed to
create any additional grace period or otherwise derogate from the express terms
of each such default provision. No covenant, agreement or obligation of the
Debtor contained herein, nor any right or remedy of the Secured Party contained
herein, shall in any respect be limited by or be deemed in limitation of any
inconsistent or additional provisions contained in any of the other Loan
Documents or any such other agreement.
12. Severability. In the event that any provision of this Agreement
or the application thereof to any Person, property or circumstance shall be held
to any extent to be invalid or unenforceable, the remainder of this Security
Agreement and the application of such provision to Persons, properties and
circumstances other than those as to which it has been held invalid or
unenforceable shall not be affected thereby, and each provision of this Security
Agreement shall be valid and enforceable to the fullest extent permitted by law.
13. Binding Effect; Assignment. This Security Agreement
shall be binding upon the Debtor and its successors and assigns and shall inure
to the benefit of the Debtor and the Secured Party and their respective
successors and assigns.
11
<PAGE>
14. Notices. All notices and other communications under or
relating to this Security Agreement shall be given in the manner
and to the addresses of the parties provided for in ss.6.6 of the
Letter Agreement.
15. Headings. Section headings in this Security Agreement
are included herein for convenience of reference only and shall
not constitute a part of this Agreement for any other purpose.
16. Governing Law. This Security Agreement shall be governed by,
and construed and enforced in accordance with, the laws of The Commonwealth of
Massachusetts, except that the creation, perfection and enforcement of security
interests in Collateral located in jurisdictions other than Massachusetts will
be governed by the laws of the respective jurisdictions in which such
Collateral is located.
IN WITNESS WHEREOF, the Debtor and the Secured Party have caused this
Security Agreement to be executed, as an instrument under seal, by their
respective officers thereunto duly authorized, as of the date first above
written.
PEGASYSTEMS INC.
By [Signature of Ira Vishner]
-------------------------------
Its Treasurer
FLEET BANK OF MASSACHUSETTS, N.A.
By [Signature of Thomas M. Davies]
-----------------------------
Its Vice President
12
<PAGE>
EXHIBIT A - Equipment List
EXHIBIT B - Debtor's offices and other locations, including
owners of real estate
EXHIBIT C - Trade names
EXHIBIT D - Other existing encumbrances
13
<PAGE>
Exhibit A: Equipment List
- --------------------------
Computer Equipment
Furniture and Fixtures
Exhibit B: Debtor's offices and other locations, including owners of real estate
- --------------------------------------------------------------------------------
101 Main Street, Cambridge, MA 02141
Landlord: Riverfront Office Park Joint Venture
c/o Codman Management Company, Inc.
One Main Street
Cambridge, MA 02141
3 New York Plaza, New York, NY 10004
Landlord: Pamela Equities Corp.
475 Park Avenue South
New York, NY 10016
One Montgomery Street, San Francisco, CA 94104
Landlord: Goldfarb & Lipman
One Montgomery Street
Telesis Tower, 23rd Floor
San Francisco, CA 94104
Exhibit C: Trade names
- -----------------------
None
Exhibit D: Other existing encumbrances
- ---------------------------------------
Liens in favor of furniture and equipment vendors Eaton Financial
Corporation, First & Main Corporation, IBM Credit Corporation, PacificCorp
Capital Inc., Phoenix Leasing Inc., and Phoenix Leasing Cash Distribution Fund
V, L.P.
<PAGE>
[Pegasystems, Inc. Logo] December 15, 1993
EXHIBIT A (continued)
Mr. Thomas W. Davies
Vice President
High Technology Group
Fleet Bank
Fleet Center
Mail Stop: MA BOFO4M
75 State Street
Boston, MA 02109-1810
Dear Tom:
Enclosed are copies of invoices covering assets we have purchased in
1993. For your convenience, the software portion has been listed separately,
allowing you to verify that it does not exceed the limits specified in our
agreement. The assets to be financed are broken down as follows:
<TABLE>
<CAPTION>
EQUIPMENT AND FURNITURE
<S> <C> <C>
====================================================================================================================
1/5/93 2 Laser printers $2,837.40
- --------------------------------------------------------------------------------------------------------------------
1/6/93 Color desktop printer $709.50
- --------------------------------------------------------------------------------------------------------------------
1/8/93 3 Optical disks $2,175.00
- --------------------------------------------------------------------------------------------------------------------
1/22/93 5 tape drives and controllers $2,455.50
- --------------------------------------------------------------------------------------------------------------------
1/29/93 3 Computer systems $7,300.00
- --------------------------------------------------------------------------------------------------------------------
1/29/93 5 monitors, 2 computer systems $6,510.00
- --------------------------------------------------------------------------------------------------------------------
2/2/93 Ethernet board $207.25
- --------------------------------------------------------------------------------------------------------------------
2/4/93 Trakker port tape $452.00
- --------------------------------------------------------------------------------------------------------------------
2/10/93 12 modems $3,586.20
- --------------------------------------------------------------------------------------------------------------------
2/16/93 4 printers $366.50
- --------------------------------------------------------------------------------------------------------------------
2/25/93 NI Adapter for BA2XX $3,605.76
- --------------------------------------------------------------------------------------------------------------------
2/25/93 TeleToolkit and EuroPak $214.28
- --------------------------------------------------------------------------------------------------------------------
2/26/93 DEC 4100 VAX and associated disks $41,373.25
- --------------------------------------------------------------------------------------------------------------------
3/2/93 2 Post script HP4 $611.70
- --------------------------------------------------------------------------------------------------------------------
3/10/93 IRMA 3 Convtblbrd $429.85
- --------------------------------------------------------------------------------------------------------------------
3/10/93 2 MicroMUM units $3,007.00
- --------------------------------------------------------------------------------------------------------------------
3/10/93 3 Western Digital disks $1,048.50
- --------------------------------------------------------------------------------------------------------------------
3/11/93 Cabinets, disks, memory $25,640.00
- --------------------------------------------------------------------------------------------------------------------
3/11/93 COAX/TP convtr $819.30
<PAGE>
Fleet Bank
December 15, 1993
Page 2
- --------------------------------------------------------------------------------------------------------------------
3/11/93 Computer card upgrade $1,280.00
- --------------------------------------------------------------------------------------------------------------------
3/12/93 16-Port Terminal Server and rack maintenance kit $2,457.00
- --------------------------------------------------------------------------------------------------------------------
3/17/93 20 PC Ethernet controllers $3,933.00
- --------------------------------------------------------------------------------------------------------------------
3/18/93 Network card $131.50
- --------------------------------------------------------------------------------------------------------------------
3/19/93 Cabinets $6,585.00
- --------------------------------------------------------------------------------------------------------------------
3/30/93 2 controllors, 1 rack mount $976.70
- --------------------------------------------------------------------------------------------------------------------
4/7/93 50 Computer monitors $23,500.00
- --------------------------------------------------------------------------------------------------------------------
4/7/93 5 keyboards $300.00
- --------------------------------------------------------------------------------------------------------------------
4/7/93 Gateway pc order $106,880.00
- --------------------------------------------------------------------------------------------------------------------
4/16/93 2 adapters, 10 modems $3,375.00
- --------------------------------------------------------------------------------------------------------------------
4/28/93 2 ethernet adapters $789.00
- --------------------------------------------------------------------------------------------------------------------
4/30/93 12 drives, 15 controllors $2,613.00
- --------------------------------------------------------------------------------------------------------------------
4/30/93 1 printer, feeder, cabinet $4,300.00
- --------------------------------------------------------------------------------------------------------------------
5/7/93 2 laser jet printers $8,600.00
- --------------------------------------------------------------------------------------------------------------------
5/11/93 2 HP 1500 sheet feed $860.00
- --------------------------------------------------------------------------------------------------------------------
5/11/93 1 HP 1500 sheet feed $430.00
- --------------------------------------------------------------------------------------------------------------------
5/14/93 6 PC's with monitors $14,100.00
- --------------------------------------------------------------------------------------------------------------------
5/19/93 tape drive-Microsolutions $404.80
- --------------------------------------------------------------------------------------------------------------------
5/25/93 2 Ethernet Link III $427.10
- --------------------------------------------------------------------------------------------------------------------
5/25/93 1 PC and carrying case $2,768.95
- --------------------------------------------------------------------------------------------------------------------
5/26/93 DPT controllor $388.70
- --------------------------------------------------------------------------------------------------------------------
5/26/93 4000 DAT tape drive $1,688.75
- --------------------------------------------------------------------------------------------------------------------
5/26/93 8 MB upgrade $1,376.20
- --------------------------------------------------------------------------------------------------------------------
5/26/93 1 DCA Irmaprint $749.40
- --------------------------------------------------------------------------------------------------------------------
5/28/93 2 GB INTNL DAT $2,445.90
- --------------------------------------------------------------------------------------------------------------------
5/28/93 Modem $799.40
- --------------------------------------------------------------------------------------------------------------------
5/28/93 2 cabinets $570.00
- --------------------------------------------------------------------------------------------------------------------
5/28/93 HP 4SI cabinet $285.00
- --------------------------------------------------------------------------------------------------------------------
6/7/93 HP Vectra PC 1GB $5,607.88
- --------------------------------------------------------------------------------------------------------------------
6/7/93 HP Vectra PC 430 MB $4,672.90
- --------------------------------------------------------------------------------------------------------------------
6/7/93 2 mono VGA monitors $385.50
<PAGE>
Fleet Bank
December 15, 1993
Page 3
- --------------------------------------------------------------------------------------------------------------------
6/7/93 internal fax/modem and carrying case $544.94
- --------------------------------------------------------------------------------------------------------------------
6/10/93 4 8MB memory $1,376.20
- --------------------------------------------------------------------------------------------------------------------
6/10/93 Irma print $749.40
- --------------------------------------------------------------------------------------------------------------------
6/11/93 Multimedia sound system $165.97
- --------------------------------------------------------------------------------------------------------------------
6/23/93 3 print server $1,785.00
- --------------------------------------------------------------------------------------------------------------------
6/29/93 6 PC's and 10 monitors $15,602.00
- --------------------------------------------------------------------------------------------------------------------
7/21/93 Token ring $610.30
- --------------------------------------------------------------------------------------------------------------------
8/3/93 Laser Jet printer $1,418.70
- --------------------------------------------------------------------------------------------------------------------
8/17/93 Postscript printer $305.85
- --------------------------------------------------------------------------------------------------------------------
8/18/93 2 Gig SCSI disk $2,240.00
- --------------------------------------------------------------------------------------------------------------------
8/23/93 1 4mb memory expansion $183.25
- --------------------------------------------------------------------------------------------------------------------
8/26/93 printer equipment $2,655.00
- --------------------------------------------------------------------------------------------------------------------
8/31/93 Blazer modem $315.75
- --------------------------------------------------------------------------------------------------------------------
8/31/93 1 HP laster jet printer $4,330.00
- --------------------------------------------------------------------------------------------------------------------
9/3/93 modem $955.00
- --------------------------------------------------------------------------------------------------------------------
9/9/93 ESP1 print controllor $625.00
- --------------------------------------------------------------------------------------------------------------------
9/17/93 Desk Porte Modem $339.00
- --------------------------------------------------------------------------------------------------------------------
9/21/93 Seagate Disk Drive $1,945.00
- --------------------------------------------------------------------------------------------------------------------
9/22/93 7 PC's with tower cases $17,843.00
- --------------------------------------------------------------------------------------------------------------------
9/23/93 Desk Porte Modem $339.00
- --------------------------------------------------------------------------------------------------------------------
9/30/93 2 4MB 72pin SIMMS $420.00
- --------------------------------------------------------------------------------------------------------------------
10/11/93 Laser Printer Cabinet $304.00
- --------------------------------------------------------------------------------------------------------------------
10/27/93 Notebook Executive Traveller $239.98
- --------------------------------------------------------------------------------------------------------------------
11/1/93 Display monitors and controller cards $190.00
- --------------------------------------------------------------------------------------------------------------------
11/9/93 Seagate disk drive $1,945.00
- --------------------------------------------------------------------------------------------------------------------
11/10/93 7 Desktop modems $2,303.00
- --------------------------------------------------------------------------------------------------------------------
11/12/93 Laser jet printer $1,370.00
<PAGE>
Fleet Bank
December 15, 1993
Page 4
- --------------------------------------------------------------------------------------------------------------------
11/23/93 Postscript simm and memory for laser jet printer $384.50
- --------------------------------------------------------------------------------------------------------------------
2/12/93 Configuration equipment $21,725.00
- --------------------------------------------------------------------------------------------------------------------
2/17/93 Configuration equipment $22,590.00
- --------------------------------------------------------------------------------------------------------------------
3/8/93 1 sign and dir. strip $398.02
- --------------------------------------------------------------------------------------------------------------------
3/30/93 Lobby signage light $5,000.00
- --------------------------------------------------------------------------------------------------------------------
3/31/93 Configuration equipment $20,083.00
- --------------------------------------------------------------------------------------------------------------------
3/31/93 Security system $12,946.40
- --------------------------------------------------------------------------------------------------------------------
5/7/93 Marble for lobby $1,928.00
- --------------------------------------------------------------------------------------------------------------------
6/30/93 24 Baluns $480.00
- --------------------------------------------------------------------------------------------------------------------
1/28/93 FAX machine for SF $2,523.00
- --------------------------------------------------------------------------------------------------------------------
2/23/93 VMX 200 $27,500.00
- --------------------------------------------------------------------------------------------------------------------
2/25/93 Copier $15,353.10
- --------------------------------------------------------------------------------------------------------------------
3/30/93 Telephone system $64,800.00
- --------------------------------------------------------------------------------------------------------------------
3/31/93 42 bulletin boards $1,627.50
- --------------------------------------------------------------------------------------------------------------------
4/3/93 Shelving $419.00
- --------------------------------------------------------------------------------------------------------------------
5/19/93 Cubicles $47,599.32
- --------------------------------------------------------------------------------------------------------------------
6/14/93 Thermobinder $995.00
- --------------------------------------------------------------------------------------------------------------------
6/28/93 4 Pictures $3,605.00
- --------------------------------------------------------------------------------------------------------------------
7/1/93 Art posters $2,510.00
- --------------------------------------------------------------------------------------------------------------------
7/6/93 Shelving $455.80
- --------------------------------------------------------------------------------------------------------------------
7/29/93 Multiplex slide storage system $665.00
- --------------------------------------------------------------------------------------------------------------------
8/10/93 4 vases $425.00
- --------------------------------------------------------------------------------------------------------------------
8/19/93 Literature rack $235.00
- --------------------------------------------------------------------------------------------------------------------
9/10/93 NY Voice Mail $13,301.08
- --------------------------------------------------------------------------------------------------------------------
9/19/93 Slide projector and zoom lens for SF $518.99
- --------------------------------------------------------------------------------------------------------------------
10/7/93 Audio Equipment for the video camera $258.01
<PAGE>
Fleet Bank
December 15, 1993
Page 5
- --------------------------------------------------------------------------------------------------------------------
10/13/93 Six desks $1,878.00
- --------------------------------------------------------------------------------------------------------------------
10/19/93 Six desks $1,878.00
- --------------------------------------------------------------------------------------------------------------------
10/28/93 Overhead projector $363.30
- --------------------------------------------------------------------------------------------------------------------
12/8/93 145 office chairs $18,580.00
- --------------------------------------------------------------------------------------------------------------------
TOTAL EQUIPMENT AND FURNITURE $659,154.58
- --------------------------------------------------------------------------------------------------------------------
SOFTWARE
- --------------------------------------------------------------------------------------------------------------------
1/4/93 1C++ software $396.80
- --------------------------------------------------------------------------------------------------------------------
1/5/93 1C++ VMS Personal License $1,280.00
- --------------------------------------------------------------------------------------------------------------------
1/7/93 MS Video/Windows $127.65
- --------------------------------------------------------------------------------------------------------------------
1/11/93 Microsoft software $525.00
- --------------------------------------------------------------------------------------------------------------------
1/12/93 Software upgrade $299.00
- --------------------------------------------------------------------------------------------------------------------
1/15/93 DCA Remote LAN Node $477.00
- --------------------------------------------------------------------------------------------------------------------
1/15/93 BTRIEVE for Windows $402.00
- --------------------------------------------------------------------------------------------------------------------
1/15/93 Misc. software $741.60
- --------------------------------------------------------------------------------------------------------------------
1/15/93 Windows for workgroups $207.00
- --------------------------------------------------------------------------------------------------------------------
1/15/93 Misc. software $111.45
- --------------------------------------------------------------------------------------------------------------------
1/15/93 Software upgrade $129.00
- --------------------------------------------------------------------------------------------------------------------
1/26/93 Config. Admin. Base & License $1,734.00
- --------------------------------------------------------------------------------------------------------------------
1/28/93 Software disc $372.50
- --------------------------------------------------------------------------------------------------------------------
1/29/93 100 Combined site license $3,250.00
- --------------------------------------------------------------------------------------------------------------------
1/31/93 5 software packages $875.00
- --------------------------------------------------------------------------------------------------------------------
2/8/93 Browse software $69.95
- --------------------------------------------------------------------------------------------------------------------
2/8/93 Perf. monitor license $3,592.00
- --------------------------------------------------------------------------------------------------------------------
2/19/93 M/S office license $398.00
- --------------------------------------------------------------------------------------------------------------------
2/19/93 Appl. Fram (software) $565.00
- --------------------------------------------------------------------------------------------------------------------
2/23/93 100 licenses for software (After Dark) $1,195.00
- --------------------------------------------------------------------------------------------------------------------
2/25/93 1 SNA 3270 $3,148.80
<PAGE>
Fleet Bank
December 15, 1993
Page 6
- --------------------------------------------------------------------------------------------------------------------
2/26/93 86 Font licenses $3,341.50
- --------------------------------------------------------------------------------------------------------------------
2/26/93 11 software packages $8,930.10
- --------------------------------------------------------------------------------------------------------------------
3/10/93 Windows Hijack $118.35
- --------------------------------------------------------------------------------------------------------------------
3/10/93 10 modems & 6 VGA Graphics $5,495.00
- --------------------------------------------------------------------------------------------------------------------
3/10/93 4 True type font licenses $153.40
- --------------------------------------------------------------------------------------------------------------------
3/17/93 Pathworks DOS license $131.20
- --------------------------------------------------------------------------------------------------------------------
3/25/93 1 DSSI disk $3,358.23
- --------------------------------------------------------------------------------------------------------------------
4/7/93 35 software packages $6,125.00
- --------------------------------------------------------------------------------------------------------------------
4/7/93 One Time Charge Programs $406.00
- --------------------------------------------------------------------------------------------------------------------
4/14/93 1 DSSI disk $3,114.88
- --------------------------------------------------------------------------------------------------------------------
4/30/93 Misc. software $497.00
- --------------------------------------------------------------------------------------------------------------------
5/11/93 Univel software $204.00
- --------------------------------------------------------------------------------------------------------------------
5/12/93 Netware Client SDK software $295.00
- --------------------------------------------------------------------------------------------------------------------
5/12/93 LAN Workplace for DOS toolkit $399.00
- --------------------------------------------------------------------------------------------------------------------
5/12/93 Netware NFS software $500.00
- --------------------------------------------------------------------------------------------------------------------
5/12/93 NetWare 250 User software $500.00
- --------------------------------------------------------------------------------------------------------------------
5/12/93 Asynch. Com 16 port $200.00
- --------------------------------------------------------------------------------------------------------------------
5/12/93 Access Server $200.00
- --------------------------------------------------------------------------------------------------------------------
5/12/93 LAN Workstation for Windows $200.00
- --------------------------------------------------------------------------------------------------------------------
5/12/93 Netware for SAA v. 1.3 $200.00
- --------------------------------------------------------------------------------------------------------------------
5/18/93 C++ V/V license $7,206.40
- --------------------------------------------------------------------------------------------------------------------
5/24/93 Archserv software $431.60
- --------------------------------------------------------------------------------------------------------------------
5/25/93 Novell 3.11 software $1,277.90
- --------------------------------------------------------------------------------------------------------------------
5/25/93 10-User LAN for DOS Software $1,261.00
- --------------------------------------------------------------------------------------------------------------------
5/25/93 1 FTP PC/TCP software $377.80
- --------------------------------------------------------------------------------------------------------------------
5/25/93 10-User NFS Client software $882.00
- --------------------------------------------------------------------------------------------------------------------
5/26/93 Misc. software $2,666.10
<PAGE>
Fleet Bank
December 15, 1993
Page 7
- --------------------------------------------------------------------------------------------------------------------
5/26/93 6 Windows for Workgroups software packages $264.00
- --------------------------------------------------------------------------------------------------------------------
5/28/93 2 HP MS-DOS $174.00
- --------------------------------------------------------------------------------------------------------------------
5/28/93 FTP Development Kit $433.35
- --------------------------------------------------------------------------------------------------------------------
7/2/93 Misc. software $595.00
- --------------------------------------------------------------------------------------------------------------------
7/15/93 Arcserv software $1,454.00
- --------------------------------------------------------------------------------------------------------------------
8/3/93 Script moudule $395.00
- --------------------------------------------------------------------------------------------------------------------
8/4/93 ProComm plus for Windows $94.99
- --------------------------------------------------------------------------------------------------------------------
8/4/93 C software $487.50
- --------------------------------------------------------------------------------------------------------------------
8/6/93 PL/I to C software translator $875.00
- --------------------------------------------------------------------------------------------------------------------
10/1/93 Windows v. 3.1 software $89.99
- --------------------------------------------------------------------------------------------------------------------
10/7/93 VMS source code license $1,995.00
- --------------------------------------------------------------------------------------------------------------------
10/12/93 CD Rom software $60.00
- --------------------------------------------------------------------------------------------------------------------
10/20/93 Net Census License $315.00
- --------------------------------------------------------------------------------------------------------------------
10/29/93 Windows Department Kit $1,950.00
- --------------------------------------------------------------------------------------------------------------------
11/8/93 Clear software $229.00
- --------------------------------------------------------------------------------------------------------------------
11/9/93 Misc. software $694.00
- --------------------------------------------------------------------------------------------------------------------
11/5/93 Power++ software $495.00
- --------------------------------------------------------------------------------------------------------------------
11/11/93 VMS 16 user license $2,757.60
- --------------------------------------------------------------------------------------------------------------------
TOTAL SOFTWARE $81,726.64
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
TOTAL $740,881.22
====================================================================================================================
</TABLE>
Please prepare the appropriate documents for a term loan amount of
$620,000, which is based on 80% of the total assets listed in this letter plus
the outstanding balance of $27,500 on our Shawmut note due September 1994.
Thanks very much for your help.
Sincerely,
[Signature of Ira Vishner]
Ira Vishner
Vice President
Corporate Services
IV:jc
Enclosures
LEASE
BETWEEN
RIVERFRONT OFFICE PARK JOINT VENTURE
Landlord
AND
PEGASYSTEMS INC.
Tenant
101 MAIN STREET,
CAMBRIDGE, MASSACHUSETTS
2/12/93
<PAGE>
INDEX
-----
<TABLE>
<S> <C> <C>
ARTICLE 1. REFERENCE DATA ................................................................................ 1
ARTICLE 2. DESCRIPTION OF DEMISED PREMISES ................................................................3
2.1 Demised Premises .............................................................................. 3
2.2 Appurtenant Rights ............................................................................ 3
2.3 Reservations .................................................................................. 3
ARTICLE 3. TERM OF LEASE; OPTION TO EXTEND TERM .......................................................... 3
3.1 Habendum .......................................................................................3
3.2 Term Commencement Date ........................................................................ 4
3.3 Option To Extend .............................................................................. 4
3.4 Right of First Offer .......................................................................... 4
ARTICLE 4. WORK BY LANDLORD; TENANT'S ACCESS ..............................................................5
4.1 Completion Date - Delays ...................................................................... 5
4.2 Conclusiveness of Tenant's Performance ........................................................ 6
4.3 Entry by Tenant; Interference with
Construction ........................................................................ 7
ARTICLE 5. USE OF PREMISES ............................................................................... 7
5.1 Permitted Use ................................................................................. 7
5.2 Prohibited Uses ............................................................................... 7
5.3 Licenses and Permits .......................................................................... 8
ARTICLE 6. RENT .......................................................................................... 8
6.1 Yearly Fixed Rent ............................................................................. 8
6.2 Payment to Mortgagee .......................................................................... 8
6.3 Operating Expenses ............................................................................ 9
6.4 Tenant's Proportionate Share .................................................................. 9
6.5 Payment to Mortgagee ..........................................................................10
ARTICLE 7. UTILITIES AND LANDLORD'S SERVICES .............................................................10
7.1 Electricity ...................................................................................10
7.2 Water Charges .................................................................................11
7.3 Heat and Air Conditioning......................................................................11
7.4 Additional Heat, Cleaning and
Air Conditioning Services ...........................................................12
7.5 Repairs and Other Services ....................................................................12
7.6 Interruption or Curtailment of Services .......................................................12
ARTICLE 8. CHANGES OR ALTERATIONS BY LANDLORD ............................................................13
2/12/93
i
<PAGE>
ARTICLE 9. FIXTURES, EQUIPMENT AND IMPROVEMENTS -
REMOVAL BY TENANT ...................................................................13
ARTICLE 10. ALTERATIONS AND IMPROVEMENTS BY TENANT ........................................................14
ARTICLE 11. TENANT'S CONTRACTORS - MECHANICS' AND
OTHER LIENS - STANDARD OF TENANT'S
PERFORMANCE - COMPLIANCE WITH LAWS ..................................................14
ARTICLE 12. REPAIRS AND SECURITY BY TENANT ................................................................15
ARTICLE 13. INSURANCE, INDEMNIFICATION, EXONERATION
AND EXCULPATION .....................................................................15
13.1 Insurance .....................................................................................15
13.2 Certificates of Insurance .....................................................................16
13.3 General .......................................................................................16
13.4 Landlord's Indemnity ..........................................................................17
13.5 Property of Tenant ............................................................................17
13.6 Bursting of Pipes, etc. .......................................................................18
13.7 Repairs and Alterations .......................................................................18
ARTICLE 14. ASSIGNMENT, MORTGAGING, SUBLETTING, ETC. ......................................................18
14.1 Restrictions ..................................................................................18
14.2 Requests to Assign or Sublet ..................................................................19
14.3 Exceptions ....................................................................................19
14.4 Excess Rent ...................................................................................20
14.5 Recapture .....................................................................................20
14.6 Further Documentation .........................................................................21
14.7 General .......................................................................................21
ARTICLE 15. MISCELLANEOUS COVENANTS .......................................................................22
15.1 Rules and Regulations .........................................................................22
15.2 Access to Premises - Shoring ..................................................................23
15.3 Accidents to Sanitary and Other Systems .......................................................24
15.4 Signs, Blinds and Drapes ......................................................................24
15.5 Estoppel Certificate ..........................................................................24
15.6 Prohibited Items ..............................................................................25
15.7 Requirements of Law; Fines and Penalties ......................................................25
15.8 Tenant's Acts - Effect on Insurance ...........................................................25
15.9 Miscellaneous .................................................................................26
ARTICLE 16. DAMAGE BY FIRE, ETC. ..........................................................................26
ARTICLE 17. WAIVER OF SUBROGATION .........................................................................27
2/12/93
ii
<PAGE>
ARTICLE 18. CONDEMNATION - EMINENT DOMAIN .................................................................28
ARTICLE 19. DEFAULT .......................................................................................30
19.1 Conditions of Limitation - Re-entry -
Termination .........................................................................30
19.2 Damages - Assignment for Benefit
of Creditors ........................................................................30
19.3 Damages - Termination .........................................................................31
19.4 Fees and Expenses .............................................................................32
19.5 Landlord's Remedies Not Exclusive .............................................................32
19.6 Grace Period ..................................................................................33
ARTICLE 20. END OF TERM - ABANDONED PROPERTY ..............................................................33
ARTICLE 21. RIGHTS OF MORTGAGEES ..........................................................................34
21.1 Superiority of Lease ..........................................................................34
21.2 Entry and Possession ..........................................................................34
21.3 Right to Cure .................................................................................35
21.4 Duty to Construct .............................................................................35
21.5 Prepaid Rent ..................................................................................35
21.6 Continuing Offer ..............................................................................35
21.7 Subordination .................................................................................35
21.8 Limitations on Liability ......................................................................36
ARTICLE 22. QUIET ENJOYMENT ...............................................................................36
ARTICLE 23. ENTIRE AGREEMENT - WAIVER - SURRENDER .........................................................37
23.1 Entire Agreement ..............................................................................37
23.2 Waiver by landlord ............................................................................37
23.3 Surrender .....................................................................................37
ARTICLE 24. INABILITY TO PERFORM - EXCULPATORY CLAUSE .....................................................38
ARTICLE 25. BILLS AND NOTICES .............................................................................39
ARTICLE 26. PARTIES BOUND - SEISIN OF TITLE ...............................................................39
ARTICLE 27. MISCELLANEOUS .................................................................................40
27.1 Separability ..................................................................................40
27.2 Captions ......................................................................................40
27.3 Broker ........................................................................................40
27.4 Governing Law .................................................................................40
27.5 Assignment of Rents ...........................................................................40
27.6 Parking .......................................................................................41
2/12/93
iii
<PAGE>
27.7 Notice of Lease ...............................................................................41
27.8 Financial Statements ..........................................................................41
27.9 Letter of Credit ..............................................................................42
</TABLE>
EXHIBIT A Description of Demised Premises
EXHIBIT B Description of Land
EXHIBIT C Tenant Improvements
EXHIBIT D Cleaning Specifications
EXHIBIT E Tenant Trade Fixtures
EXHIBIT F Rules and Regulations
EXHIBIT G Form of Agreement of Subordination,
Non-Disturbance and Attornment
EXHIBIT H Form of Letter of Credit
2/12/93
iv
<PAGE>
AGREEMENT OF LEASE
AGREEMENT OF LEASE made as of the 26th day of February, 1993,
by and between RIVERFRONT OFFICE PARK JOINT VENTURE, a Massachusetts joint
venture (hereinafter referred to as "Landlord") and PEGASYSTEMS INC., a
Massachusetts corporation (hereinafter referred to as "Tenant").
W I T N E S S E T H:
Landlord hereby leases to Tenant and Tenant hereby hires from
Landlord that portion of the seventh (7th) floor, as shown on the plan attached
hereto as Exhibit A and made a part hereof (hereinafter referred to as the
"Premises" or the "Demised Premises") contained in the building known and
numbered as 101 Main Street, Cambridge, Massachusetts (hereinafter referred to
as the "Building").
1. REFERENCE DATA
Each reference in this Lease to any of the terms and titles contained
in this Article shall be deemed and construed to incorporate the data stated
following that term or title in this Article.
<TABLE>
<S> <C> <C>
(1) Additional Rent: Sums or other charges payable by Tenant to Landlord
under this Lease, other than Yearly Fixed Rent.
(2) Approved Final
Plans Date: December 16, 1992.
(3) Broker: Lynch Murphy Walsh & Partners
(4) Business Day: All days except Saturdays, Sundays, and days defined as
"Legal Holidays" for the entire state under the laws of the
Commonwealth of Massachusetts.
(5) Land: The parcel of land described. on Exhibit B attached hereto
and made a part hereof.
(6) Landlord's Address: c/o Codman Management Company, Inc.,
One Main Street,
Cambridge, Massachusetts 02142.
(7) Landlord's Architect: Bryer Associates.
2/12/93
<PAGE>
(8) Mortgage: A mortgage, deed of trust, trust indenture, or other security
instrument of record creating an interest in or affecting title
to the Land or Building or any part thereof, including the
leasehold mortgage, and any and all renewals,
modifications, consolidations or extensions of any such
instrument. For such time as Teachers Insurance and
Annuity Association ("TIAA") is the holder of a first
mortgage on the Property, the term "Mortgage" shall mean
only said first mortgage, and such other mortgages, if any,
which TIAA shall approve.
(9) Mortgagee: The holder of any Mortgage.
(10) Parking Spaces: Seventy (70), provided, however, that Tenant at its option
may elect to increase such number upon not less than thirty
(30) days prior written notice thereof to Landlord to a
maximum aggregate number of ninety-three (93).
(11) Property: The Land and Building.
(12) Rent: Yearly Fixed Rent and Additional Rent.
(13) Rentable Area of
the Demised Premises: 23,350 square feet.
(14) Tenant's Address: Until the Term Commencement Date, 840 Memorial Drive,
Cambridge, MA 02138, and thereafter 101 Main Street,
Cambridge, MA 02142.
(15) Term Commencement
Date: As defined in Section 3.2.
(16) Term of This Lease: As defined in Section 3.1.
(17) Termination Date: As defined in Section 3.1.
(18) Use of Demised
Premises: General office purposes including, but not limited, to
software development.
2/12/93
2
<PAGE>
(19) Yearly Fixed Rent: (a) Year one (1) of the Term of this Lease:
--------------------------------------
$364,260
(b) Year two (2) of the Term of this Lease:
$409,792.50
(c) Each of years three (3) through six (6) of the Term
of this Lease:
$455,325
</TABLE>
2. DESCRIPTION OF DEMISED PREMISES
2.1 Demised Premises. The Demised Premises are that portion of the
Building as described above (as the same may from time to time be constituted
after changes therein, additions thereto and eliminations therefrom pursuant
hereto).
2.2 Appurtenant Rights. Tenant shall have, as appurtenant to the
Demised Premises, rights to use in common, subject to reasonable rules from time
to time made by Landlord of which Tenant is given notice, those common roadways,
walkways, elevators, hallways and stairways necessary for access to that portion
of the Building occupied by the Demised Premises.
2.3 Reservations. All the perimeter walls of the Demised Premises
except the inner surfaces thereof, any balconies, terraces or roofs adjacent to
the Demised Premises, and any space in or adjacent to the Demised Premises used
for shafts, stacks, pipes, conduits, wires and appurtenant fixtures, fan rooms,
ducts, electric or other utilities, sinks or other building facilities, and the
use thereof, as well as the right of access through the Demised Premises for the
purpose of operation, maintenance, decoration and repair as hereinafter
provided, are expressly reserved to Landlord.
3. TERM OF LEASE; OPTIONS TO EXTEND TERM
3.1 Habendum. TO HAVE AND TO HOLD the Demised Premises for a term of
six (6) years commencing on the Term Commencement Date and ending on the day
immediately prior to the sixth (6th) anniversary thereof (the "Term of This
Lease"), or on such earlier date upon which said Term may expire or be
terminated pursuant to any of the conditions of limitation or other provisions
of this Lease or pursuant to law (which date for the termination of the term
hereof shall hereafter be called the "Termination Date"). The Term of this Lease
may be extended by Tenant in accordance with the provisions of Section 3.3.
2/12/93
3
<PAGE>
3.2 Term Commencement Date. The Term Commencement Date shall be the
earlier of (a) the date on which, pursuant to permission therefor duly given by
Landlord, Tenant undertakes Use of the Demised Premises for the purpose set
forth in Article 1, or (b) the date on which the Tenant Improvements are
substantially completed in accordance with the provisions of Section 4.1 or (c)
as otherwise provided in Section 4.1.
3.3 Option to Extend. On the conditions (which conditions Landlord may
at its election waive) (i) that Tenant is not then in default of its covenants
and obligations under this Lease, and (ii) that Tenant is then itself occupying
the entirety of the Demised Premises, Tenant may extend the Term of this Lease
for up to two (2) successive additional periods of four (4) years each by giving
notice to Landlord of its election to extend at least twelve (12) months prior
to the end of the original Term or the initial extension period, as the case may
be. The Yearly Fixed Rent payable by Tenant with respect to each such extension
period shall be equal to ninety (90%) percent of the then fair market rental
value of the Demised Premises (taking into account comparable first-class office
space in the East Cambridge area) (1) as the same may be mutually agreed by
Landlord and Tenant; provided, however that (2) if they have not so agreed in
writing within two (2) months following the exercise of the option then said
fair market value shall be determined by appraisers, one to be chosen by
Landlord, one to be chosen by Tenant, and a third to be selected by the two
first chosen. The unanimous written decision of the two first chosen, without
selection and participation of a third appraiser, or otherwise the written
decision of a majority of three appraisers chosen and selected as aforesaid,
shall be conclusive and binding upon Landlord and Tenant. Landlord and Tenant
shall each notify the other of its chosen appraiser within thirty (30) days
following expiration of the aforesaid two (2) month period and, unless such two
appraisers shall have reached a unanimous decision within thirty (30) days from
said expiration, they shall within a further fifteen (15) days elect a third
appraiser and notify Landlord and Tenant thereof. Landlord and Tenant shall
instruct the appraiser to make their decisions in thirty (30) days. Landlord and
Tenant shall each bear the expense of the appraiser chosen by it and shall
equally bear the expense of the third appraiser (if any). Notwithstanding the
foregoing, in the event the fair market value is so determined by appraisers,
Tenant, at its option, may revoke its election to extend the Term of this Lease
by written notice thereof to Landlord given within ten (10) Business Days of
Tenant's receipt of notification of said determination of the appraisers.
3.4 Right of First Offer. In the event that, at any time during the
Term of this Lease, any rentable office space on the sixth (6th) or eighth (8th)
floors of in the Building becomes available for rental and Landlord wishes to
lease such space to any person other than the then current occupant thereof (if
any), Landlord shall first offer to Tenant the option to add such space
2/12/93
4
<PAGE>
to the Demised Premises on the following terms and conditions. Tenant
shall have the right to add all or any portion of such space to the Demised
Premises by giving notice to Landlord to such effect within thirty (30) days
after receipt by Tenant of written notice from Landlord of such offer. If such
notice of acceptance by Tenant is not so given, then Landlord shall be free to
enter into a lease for such space with any third party or parties within one
year after Landlord's said notice to Tenant. As to any such space that Tenant
shall so elect to add to the Demised Premises during the first year of the Term
of this Lease, the Yearly Fixed Rent with respect to such additional space so
added to the Demised Premises shall be $19.50 per square foot per annum. As to
any such space that Tenant shall so elect to add to the Demised Premises during
any year subsequent to the first year of the Term of this Lease, the Yearly
Fixed Rent with respect to such additional space so added to the Demised
Premises shall be ninety percent (90%) of the then fair market value of such
space determined in accordance with the procedures set forth in Section 3.3. As
to any such space that Tenant shall so elect to add to the Demised Premises,
Landlord will provide to Tenant the following allowance for fit-up of such
additional space:
Space to be Added During Year Fit-up Allowance per
of Term of this Lease Square Foot of Added Space
-------------------- ---------------------------
First $25
Second 21
Third 17
Fourth 13
Fifth 9
Sixth 5
For the purposes of determining the applicable fit-up allowance pursuant to this
Section 3.4, the year in which Tenant makes its election to add additional space
shall be deemed the year of the Term of this Lease in which such space is added.
In each instance where Tenant shall so elect to add such additional space to the
Demised Premises, Landlord and Tenant shall promptly execute an amendment to
this Lease to reflect the changes occasioned thereby.
4. WORK BY LANDLORD; TENANT'S ACCESS
4.1 Completion Date; Delivery of Possession. (a) Subject to delay by
causes beyond the reasonable control of Landlord or caused by the action or
inaction by Tenant, Landlord shall, on or before April 1, 1993 (the "Original
Term Commencement Date") substantially complete the Tenant's Improvements (as
defined in Exhibit C, which Exhibit is attached hereto and incorporated by
reference), insofar as is practicable in view of Tenant's Acts (as hereinafter
defined) or Tenant defaults, if any. For purposes hereof, the terms substantial
completion or substantially complete shall mean (i) that the said Tenant's
Improvements have been completed in compliance with the Approved
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Final Plans (as defined in Exhibit C) with the exception of minor punch
list items so that the Demised Premises may be used for their intended purpose,
excluding, however, any special items or long-lead items designated in the
Approved Final Plans and identified as such by Landlord, and (ii) that a
certificate of occupancy or other permission for Tenant to occupy the Demised
Premises for their permitted use hereunder shall have been obtained; and (iii)
that the date of substantial completion shall have been established and
confirmed by a Certificate of Substantial Completion signed by Landlord's
Architect, subject to Tenant's Architect's reasonable concurrence. In the event
that any delay in delivery of possession of the Demised Premises to Tenant past
the date set forth in this Section 4.1(a) as the "Original Term Commencement
Date" is caused by or is attributable to the act or neglect of Tenant, its
servants, agents, employees or independent contractors, including without
limitation, as a consequence of any change orders to the Approved Final Plans
requested by Tenant and consented to by Landlord (provided that notice of such
anticipated delay shall be given by Landlord to Tenant) (collectively "Tenant's
Acts"), the Term Commencement Date shall be the later of the Original Term
Commencement Date or the date on which possession of the Demised Premises would
have been delivered to Tenant but for the delay caused by Tenant's Acts and
Tenant shall be liable for Rent and other obligations under this Lease from said
Term Commencement Date. Landlord shall notify Tenant as soon as reasonably
practical following Landlord's awareness of the occurrence of any Tenant's Act
which Landlord believes is likely to cause a delay in the delivery of possession
of the Demised Premises to Tenant. Each day of delay caused by Tenant's Acts
shall postpone by one (1) day the Original Term Commencement Date.
(b) On or before three (3) weeks prior to the Term
Commencement Date, Landlord shall notify Tenant that Tenant and its contractor
may have access to the Demised Premises for the purpose of preparing the same
for Tenant's occupancy. Such access shall be deemed to be pursuant to a license
pursuant to Section 4.3 and shall not be deemed to advance the Term Commencement
Date. Notwithstanding the fact that the Term Commencement Date shall not have
occurred, it is understood and agreed that the provisions of Article 13 of this
Lease shall become effective immediately upon the commencement of such access to
Tenant, and, Tenant on or before the commencement date of such access shall
furnish to Landlord a certificate of insurance pursuant to Section 13.2.
4.2 Conclusiveness of Landlord's Performance. Tenant shall be
conclusively deemed to have agreed that Landlord has performed all of its
obligations under this Article 4 unless not later than sixty (60) days after the
Term Commencement Date Tenant shall give Landlord written notice specifying the
respects in which Landlord has not performed such obligations.
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4.3 Entry by Tenant; Interference with Construction. In the event that
Tenant is permitted by Landlord to enter the Demised Premises prior to the Term
Commencement Date to undertake such work as is to be performed by Tenant
pursuant to this Lease in order to prepare the Demised Premises for Tenant's
occupancy, such entry shall be deemed to be pursuant to a license from Landlord
to Tenant and shall be at the risk of Tenant. In no event shall Tenant interfere
with any construction work being performed by or on behalf of Landlord in or
around the Building; without limiting the generality of the foregoing, Tenant
shall comply with all instructions issued by Landlord's contractors relative to
the moving of Tenant's equipment and other property into the Demised Premises
and shall pay any reasonable fees or costs imposed in connection therewith.
5. USE OF PREMISES
5.1 Permitted Use. Except as otherwise agreed by Landlord, Tenant,
during the Term of this Lease, shall occupy and use the Demised Premises for the
Permitted Use set forth in Article 1 and for no other purpose. Service and
utility areas (whether or not a part of the Premises) shall be used only for the
particular purpose for which they are designated.
5.2 Prohibited Uses. Tenant shall not use, or suffer or permit the use
of, or suffer or permit anything to be done in or anything to be brought into or
kept in, the Demised Premises or any part thereof (i) which would violate any of
the covenants, agreements, terms, provisions and conditions of this Lease, (ii)
for any unlawful purposes or in any unlawful manner, or (iii) which, in the
reasonable judgment of Landlord shall in any way (a) impair or tend to impair
the appearance or reputation of the Building, (b) impair or interfere with or
tend to impair or interfere with any of the Building services or the proper and
economic heating, cleaning, air conditioning or other servicing of the Building
or Demised Premises, or with the use of any of the other areas of the Building,
or (c) occasion discomfort, inconvenience or annoyance to any of the other
tenants or occupants of the Building, whether through the transmission of noise
or odors or otherwise. Without limiting the generality of the foregoing, no food
or beverages shall be prepared or served for consumption on or about the Demised
Premises, excepting only for consumption on the Demised Premises by Tenant's
employees and invitees; no intoxicating liquors or alcoholic beverages shall be
sold on or about the Demised Premises; no lottery tickets (even where the sale
of such tickets is not illegal) shall be sold and no gambling, betting or
wagering shall otherwise be permitted on or about the Demised Premises; no
loitering shall be permitted in or about the Demised Premises; and no loading or
unloading of supplies or other material to or from the Demised Premises shall be
permitted on the Land except at times and in locations to be designated by
Landlord. The Demised Premises shall be maintained in a sanitary condition, and
all kept free of rodents and vermin. All trash and rubbish shall be suitably
stored in the Demised
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Premises or other locations designated by Landlord from time to time.
5.3 Licenses and Permits. If any governmental license or permit shall
be required for the proper and lawful conduct of Tenant's business, and if the
failure to secure such license or permit would in any way affect Landlord,
Tenant, at Tenant's expense, shall duly procure and thereafter maintain such
license or permit and submit the same to inspection by Landlord. Tenant, at
Tenant's expense, shall at all times comply with the terms and conditions of
each such license or permit. This Section 5.3 shall not be construed as limiting
Landlord's obligation(s), if any, to obtain and maintain licenses and permits to
operate the Building.
6. RENT
6.1 Yearly Fixed Rent. Tenant shall pay to Landlord, without any
set-off or deduction, at Landlord's office, or to such other person or at such
other place as Landlord may designate by notice to Tenant, the Yearly Fixed Rent
set forth in Article 1. All Yearly Fixed Rent shall be paid in equal monthly
installments in advance on or before the first business day of each calendar
month during the Term of this Lease and shall be apportioned for any fraction of
a month in which the Term Commencement Date or the last day of the Term of this
Lease may fall.
6.2 Taxes. Tenant shall pay to Landlord as Additional Rent a
proportionate share (as defined in Section 6.4) of all real estate taxes
(including without limitation all betterment assessments and charges in lieu of
such taxes and any tax on any fixture (other than a Tenant fixture) installed in
the Building, even if taxed as personal property) imposed against the Building
and the Land, in excess of the amount of said real estate taxes imposed against
the Building and the Land for the fiscal tax year ending June 30, 1993, prorated
with respect to any portion of a fiscal year in which the term of this Lease
begins or ends. Such payments shall be due and payable within thirty (30) days
after Tenant shall have received a copy of the relevant tax bills. If Landlord
shall receive any refund of real estate taxes of which Tenant has paid a portion
pursuant to this Section, then, out of any balance remaining after deducting
Landlord's expenses incurred in obtaining such refund, Landlord shall pay to
Tenant the same proportionate share of said balance, prorated as set forth
above. Tenant shall, if, as and when demanded by Landlord and with each monthly
installment of Fixed Rent, make tax fund payments to Landlord. "Tax Fund
Payments" refer to such payments as Landlord shall determine to be sufficient to
provide in the aggregate a fund adequate to pay, when they become due and
payable, all payments required from Tenant under this Section. In the event that
said tax fund payments are not adequate to pay Tenant's share of such taxes,
Tenant shall pay to Landlord the amount by which such aggregate is less than the
amount of said
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share, such payment to be due and payable at the time set forth
above. Any surplus tax fund payments shall be accounted for to Tenant after
payment by Landlord of the taxes on account of which they were made, and shall
be promptly refunded to Tenant.
6.3 Operating Expenses. Tenant shall pay to Landlord as Additional Rent
a proportionate share (as defined in Section 6.4) of all costs and expenses
incurred by Landlord in the operation and maintenance of the Building and the
Land in accordance with generally accepted operational and maintenance
procedures, in excess of the amount of said costs and expenses incurred by
Landlord in the operation and maintenance of the Building and the land during
the calendar year ending December 31, 1993, including, without limiting the
generality of the foregoing, all such costs and expenses in connection with (1)
insurance, license fees, janitorial service, landscaping, and snow removal, (2)
wages, salaries, management fees, employee benefits, payroll taxes, on-site
office expenses, administrative and auditing expenses, and equipment and
materials for the operation, management, and maintenance of said Property, (3)
any capital expenditure (amortized, with interest, on such reasonable basis as
Landlord shall determine) made by Landlord primarily for the purpose of reducing
other operating expenses (4) the furnishing of heat, air conditioning,
utilities, and any other service to the common areas of the Building (i.e.,
areas not constituting a part of the demised premises of any tenant in the
Building), (5) the operation and servicing of any computer system installed to
regulate Building equipment, and (6) the furnishing of the repairs and services
referred to in Section 7.5 (the foregoing being hereinafter referred to as
"operating expenses"). As soon as Tenant's share of operating expenses with
respect to any calendar year can be determined, the same will be certified by
Landlord to Tenant and will become payable to Landlord within thirty (30) days
following such certification, subject to proration with respect to any portion
of a calendar year in which the Term of this Lease begins or ends. Tenant shall,
if, as and when demanded by Landlord and with each monthly installment of Yearly
Fixed Rent, make operating fund payments to Landlord. "Operating Fund Payments"
refer to such payments as Landlord shall reasonably determine to be sufficient
to provide in the aggregate a fund adequate to pay, when they become due and
payable, all payments required from Tenant under this Section. In the event that
operating fund payments are so demanded, and if the aggregate of said operating
fund payments is not adequate to pay Tenant's share of operating expenses,
Tenant shall pay to Landlord the amount by which such aggregate is less than the
amount of said share, such payment to be due and payable at the time set forth
above. Any surplus operating fund payments shall be accounted for to Tenant
after such surplus has been determined, and shall be refunded to Tenant
promptly.
6.4 Tenant's Proportionate Share. Tenant's proportionate share of
taxes pursuant to Section 6.2 and operating expenses pursuant to Section 6.3,
respectively, shall be computed
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according to the ratio, as of the last day of the relevant fiscal year, between
the Rentable Area of the Demised Premises (as defined in Article 1) and the
total rentable area of all space in the Building. Computations of rentable area
other than in the Demised Premises shall be made by Landlord's Architect whose
good faith determination shall be conclusive and binding on Tenant.
6.5 Payment to Mortgagee. Landlord reserves the right to provide in any
Mortgage given by it of the Property that some or all rents, issues, and profits
and all other amounts of every kind payable to the Landlord under this Lease
shall be paid directly to the Mortgagee for Landlord's account and Tenant
covenants and agrees that it will, after receipt by it of notice from Landlord
or Mortgagee designating such Mortgagee to whom payments are to be made by
Tenant, pay such amounts thereafter becoming due directly to such Mortgagee
until excused therefrom by notice from such Mortgagee.
7. UTILITIES AND LANDLORD'S SERVICES
7.1 Electricity. Tenant shall purchase the electrical energy that
Tenant requires for operation of the lighting fixtures, appliances and equipment
in the Demised Premises. The costs of initially installing any required meter
shall be paid by Landlord, but Tenant shall keep said meter and installation
equipment in good working order and repair. Landlord shall not be liable in any
way to Tenant for any failure or defect in the supply or character of electrical
energy furnished to the Demised Premises by reason of any requirement, act or
omission of the public utility serving the Building with electricity unless due
to the act or omission of Landlord. Tenant's use of electrical energy in the
Demised Premises shall not at any time exceed the capacity of any of the
electrical conductors and equipment in or otherwise serving the Demised Premises
(Electrical capacity: (i) lighting equal to 2 watts per square foot with an
allowance of 1/2 watts for additional lights; (ii) power equal to 9 watts per
square foot, plus 5 watts per square foot for computer loads; and (iii) both
277/480 volts and 120/208 volts are available). In order to insure that such
capacity is not exceeded and to avert possible adverse affect upon the Building
electrical services, Tenant shall give notice to Landlord and obtain Landlord's
prior written consent whenever Tenant shall connect to the Building electrical
distribution system any fixtures, appliances or equipment other than office
electronic equipment and small appliances customarily used generally in
commercial offices. Any additional feeders or risers to supply Tenant's
electrical requirements in addition to those originally installed and all other
equipment proper and necessary in connection with such feeders or risers, shall
be installed by Landlord upon Tenant's request, at the sole cost and expense of
Tenant, provided that such additional feeders and risers are permissible under
applicable laws and insurance regulations and the installation of such feeders
or risers will not cause permanent damage or injury to the Building or cause or
create a dangerous condition or
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unreasonably interfere with other tenants of the Building. Tenant
agrees that it will not make any alteration or material addition to the existing
electrical equipment and/or appliances in the Demised Premises without the prior
written consent of Landlord in each instance first obtained, which consent will
not be unreasonably withheld. Landlord, at Landlord's expense, shall purchase,
install and replace all light fixtures, bulbs, tubes, lamps, lenses, globes,
ballasts and switches reasonably required for ordinary use in the Demised
Premises (including, without limitation, any such items specified in the
Approved Final Plans), provided, however, that Tenant, at Tenant's expense,
shall purchase, install and replace all light fixtures, bulbs, tubes, lamps,
lenses, globes, ballasts and switches which are not required to be provided for
by Landlord hereunder and which Tenant is permited to and does install in the
Demised Premises.
7.2 Water Charges. Landlord shall furnish commercially reasonable
quantities of hot and cold water for ordinary cleaning, toilet, lavatory and
drinking purposes to the extent required to service facilities shown on the
Approved Final Plans. If Tenant requires, uses or consumes water for any purpose
other than for such purposes, Landlord may (i) assess a reasonable charge for
the additional water so used or consumed by Tenant or (ii) install a water meter
and thereby measure Tenant's water consumption for all purposes. In the latter
event, Landlord shall pay the cost of the meter and the cost of installing any
equipment required in connection therewith, and Tenant shall keep said meter and
installation equipment in good working order and repair, and shall pay for water
consumed, as shown on said meter, together with the sewer charge based on said
meter charges, as and when bills are rendered; provided, however, that Landlord
shall remain liable to pay for commercially reasonable quantities of hot and
cold water as provided above. On Tenant's default in making such payment
Landlord may pay such charges and collect the same from Tenant.
7.3. Heat and Air Conditioning. Landlord shall, through the equipment
of the Building furnish to and distribute in the Demised Premises heat and air
conditioning as normal seasonal changes may require on Business Days from 8:00
a.m. to 6:00 p.m. and on Saturdays (other than legal or recognized holidays as
defined in Article 1) from 8:00 a.m. to 12:00 noon when reasonably required for
the comfortable occupancy of the Demised Premises by Tenant. Tenant agrees to
lower and close the blinds or drapes when necessary because of the sun's
position, whenever the air conditioning system is in operation, and to cooperate
fully with Landlord with regard to, and to abide by all the regulations and
requirements which Landlord may prescribe for the proper functioning and
protection of the heating and air conditioning system.
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7.4 Additional Heat, Cleaning and Air Conditioning Services.
(a) The heating and air conditioning equipment serving the
Demised Premises shall be designed so as to permit Tenant to obtain heat and air
conditioning on days and at times other than as set forth in Section 7.3.
Tenant's use of such additional heat and air conditioning shall be determined by
a separate energy management meter or device installed by Landlord and all
charges in connection therewith shall be payable directly by Tenant; provided,
however, that Landlord shall provide such additional heat and air conditioning
to Tenant at no charge to Tenant during the first three (3) years of the Term of
this Lease.
(b) Tenant will pay to Landlord a reasonable charge for any
extra cleaning of the Premises required because of the carelessness or
indifference of Tenant or because of the nature of Tenant's business, or
furnished by Landlord at Tenant's request. Landlord will endeavor to furnish
such requested extra cleaning service upon reasonable advance written notice
from Tenant of its requirements in that regard.
7.5 Repairs and Other Services. Except as otherwise provided in
Articles 16 and 18, subject to Tenant's obligations in Article 12 and elsewhere
in this Lease, Landlord shall (a) keep and maintain the roof, exterior walls,
structural floor slabs and columns, windows (exclusive of glass components), and
common areas of the Building in good operating condition and repair, (b) keep
and maintain in workable condition the Building's sanitary, electrical, heating,
air conditioning and other systems, (c) provide cleaning services to the Demised
Premises and the common areas of the Building on Business Days according to the
cleaning standards generally prevailing in first class office buildings in the
City of Cambridge, in accordance with Exhibit D, attached hereto, (d) provide
maintenance and snow removal for all roadways, walkways and parking areas on the
Property, (e) provide grounds maintenance to all landscaped areas, and (f)
employ a uniformed guard to be stationed at the main entrance of the Building on
an around-the-clock basis. All expenses (excluding capital expenditures other
than those made primarily for the purpose of reducing operating expenses)
incurred by Landlord in connection with the foregoing repairs and other services
shall be included as part of operating expenses pursuant to Section 6.3.
7.6 Interruption or Curtailment of Services. Landlord reserves the
right to interrupt, curtail, stop or suspend the furnishing of services and the
operation of any Building system, when necessary by reason of accident or
emergency, or of repairs, alterations, replacements or improvements in the
reasonable judgment of Landlord desirable or necessary to be made, or of
difficulty or inability in securing supplies or labor, or of strikes, or of any
other cause beyond the reasonable control of
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Landlord, whether such other cause be similar or dissimilar to those
hereinabove specifically mentioned, until said cause has been removed. Landlord
shall have no responsibility or liability for any such interruption,
curtailment, stoppage, or suspension of services or systems, except that
Landlord shall exercise reasonable diligence to minimize inconvenience to Tenant
and to eliminate the cause of same and except that Landlord shall give
reasonable notice of such interruption, curtailment, stoppage or suspension
except when due to accident or emergency.
8. CHANGES OR ALTERATIONS BY LANDLORD
Landlord reserves the right, exercisable by itself or its nominee, at
any time and from time to time without the same constituting an actual or
constructive eviction and without incurring any liability to Tenant therefor or
otherwise affecting Tenant's obligations under this Lease, to make such changes,
alterations, additions, improvements, repairs or replacements in or to the
Building (including the Demised Premises) and the fixtures and equipment
thereof, as well as in or to the street entrances, halls, passages, elevators,
and stairways thereof, as it may deem necessary or desirable, and to change the
arrangement and/or location of entrances or passageways, doors and doorways, and
corridors, elevators, stairs, toilets, or other public parts of the Building,
provided, however, that there be no unreasonable obstruction of the right of
access to, or unreasonable interference with the use and enjoyment of, the
Demised Premises by Tenant, except that Landlord shall not be obligated to
employ labor at so-called "overtime" or other premium pay rates. Nothing
contained in this Article shall be deemed to relieve Tenant of any duty,
obligation or liability of Tenant with respect to making or causing to be made
any repair, replacement or improvement or complying with any law, order or
requirement of any governmental or other authority. Landlord reserves the right
to from time to time change the address of the Building. Neither this Lease nor
any use by Tenant shall give Tenant any right or easement or the use of any door
or any passage or any concourse connecting with any other building or to any
public convenience, and the use of such doors, passages and concourses and of
such conveniences may be regulated or discontinued at any time and from time to
time by Landlord and without affecting the obligation of Tenant hereunder or
incurring any liability to Tenant therefor.
9. FIXTURES, EQUIPMENT AND IMPROVEMENTS - REMOVAL BY TENANT
All fixtures, equipment, improvements and appurtenances attached to or
built into the Demised Premises prior to or during the term, whether by Landlord
at its expense or at the expense of Tenant (either or both) or by Tenant shall
be and remain part of the Demised Premises and shall not be removed by Tenant at
the end of the Term unless otherwise expressly provided in this Lease or
identified in Exhibit E, hereto. Where not built into the Demised Premise and if
furnished and installed by and at the sole
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expense of Tenant, all removable electric fixtures, signs, furniture, or trade
fixtures or business equipment shall not be deemed to be included in such
fixtures, equipment, improvements and appurtenances and may be, and upon the
request of Landlord will be, removed by Tenant upon the condition that such
removal shall not materially damage the Demised Premises or the Building and
that the cost of repairing any damage to the Demised Premises or the Building
arising from such removal shall be paid by Tenant.
10. ALTERATIONS AND IMPROVEMENTS BY TENANT
Tenant shall make no alterations, installations, removals, additions or
improvements in or to the Demised Premises without Landlord's prior written
consent and then only by contractors or mechanics approved by Landlord. No
installations or other such work shall be undertaken or begun by Tenant until
Landlord has approved written plans and specifications therefor; and no
amendments or additions to such plans and specifications shall be made without
prior written consent of Landlord. Any such work, alterations, decorations,
installations, removals, additions and improvements shall be done at the sole
expense of Tenant and at such times and in such manner as Landlord may from time
to time designate. If Tenant shall make any alterations, decorations,
installations, additions or improvements, then Landlord may elect at the time of
its consent to such alterations or other work to require Tenant at the
expiration of this Lease to restore the Demised Premises to substantially the
same condition as existed at the Term Commencement Date.
11. TENANT'S CONTRACTORS - MECHANICS' AND OTHER LIENS - STANDARD
OF TENANT'S PERFORMANCE - COMPLIANCE WITH LAWS
Whenever Tenant shall make any alterations, decoration, installations,
removals, additions or improvements or do any other work in or to the Demised
Premises, Tenant will strictly observe the following covenants and agreements:
(a) In no event shall any material or equipment be
incorporated in or added to the Demised Premises in connection with any such
alteration, decoration, installation, addition or improvement which is subject
to any lien, charge, mortgage or other encumbrance of any kind whatsoever or is
subject to any security interest or any form of title retention agreement. Any
mechanic's lien filed against the Demised Premises or the Building for work
claimed to have been done for, or materials claimed to have been furnished to
Tenant shall be discharged by Tenant within thirty (30) days thereafter, at the
expense of Tenant, by filing the bond required by law or otherwise. If Tenant
fails so to discharge any lien, Landlord may do so at Tenant's expense and
Tenant shall reimburse Landlord for any expense or cost incurred by Landlord in
so doing within fifteen (15) days after rendition of a bill therefor.
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(b) All installations or work done by Tenant under this or any
other Article of this Lease shall be at its own expense (unless expressly
otherwise provided) and shall at all times comply with (i) laws, rules, orders
and regulations of governmental authorities having jurisdiction thereof; (ii)
orders, rules and regulations of any Board of Fire Underwriters, or any other
body hereafter constituted exercising similar functions, and governing insurance
rating bureaus; (iii) plans and specifications prepared by and at the expense of
Tenant theretofore submitted to Landlord for its prior written approval.
(c) Tenant shall procure all necessary permits before undertaking any
work in the Demised Premises; do all such work in a good and workmanlike manner,
employing materials of good quality and complying with all governmental
requirements and defend, save harmless, exonerate and indemnify Landlord from
all injury, loss or damage to any person or property occasioned by or growing
out of such work.
12. REPAIRS AND SECURITY BY TENANT
Tenant shall keep or cause to be kept all and singular the Demised
Premises neat and clean and in such repair, order and condition as the same are
in on the Term Commencement Date or may be put in during the term hereof,
reasonable use and wear thereof, damage by fire or by other insured casualty and
repairs required to be made hereunder by Landlord excepted. Without limiting the
generality of the foregoing, Tenant shall keep all windows and other glass
whole, and shall replace the same whenever broken with glass of the same
quality.
Tenant shall make, as and when needed as a result of misuse by, or
neglect or improper conduct (including without limitation the placement of any
weight exceeding the floor load) of Tenant or Tenant's servants, employees,
agents, invitees or licensees or otherwise, all repairs in and about the Demised
Premises necessary to preserve them in such repair, order and condition, which
repairs shall be in quality and class equal to the original work. Landlord may
elect, at the expense of Tenant, either pursuant to Section 15.3 or otherwise,
to make any such repairs or to repair any damage or injury to the Building or
the Demised Premises caused by moving property of Tenant in or out of the
Building, or by installation or removal of furniture or other property, or by
misuse by, or neglect or improper conduct of, Tenant or Tenant's servants,
employees, agents or licensees.
13. INSURANCE, INDEMNIFICATION, EXONERATION AND EXCULPATION
13.1 Insurance. Tenant shall procure, keep in force and pay for (a)
Comprehensive Commercial Liability Insurance indemnifying Landlord, Landlord's
managing agent, Tenant and (whenever Landlord shall so request) any Mortgagee
against all claims and demands for injury to or death of persons or damage to
property (subject to customary exclusions contained in standard form
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insurance policies customarily procured by other responsible office tenants in
the Greater Boston area), which may be claimed to have occurred upon the Demised
Premises in the amounts which shall at the time Tenant and/or contractors enter
the Premises in accordance with Article 4 of this Lease be not less than Two
Hundred Thousand Dollars ($200,000) for property damage, One Million Dollars
($1,000,000) for injury or death of one person, and Two Million Dollars
($2,000,000) for injury or death of more than one person in a single accident,
and from time to time thereafter shall be not less than such higher amounts, if
procurable, as may be reasonably required by Landlord (each such change to be
effective on the next annual renewal date of such insurance) and are then
customarily carried by responsible office tenants in the Greater Boston area,
(b) insurance covering any damage to the plate glass windows in or immediately
about the Demised Premises, in reasonable amounts to be established from time to
time by Landlord, and (c) so-called contents and improvements insurance
adequately insuring all property belonging to or removable by Tenant and
situated in the Demised Premises.
13.2 Certificates of Insurance. Such insurance shall be effected with
insurers authorized to do business in Massachusetts under valid and enforceable
policies, and such policies shall name Landlord, each Mortgagee, Tenant and the
parties specified in Section 13.1 as the insureds, as their respective interests
appear. Such insurance shall provide that it shall not be cancelled without at
least ten (10) days' prior written notice to each insured named therein. On or
before the Term Commencement Date and thereafter not less than fifteen (15) days
prior to the expiration date of each expiring policy, certificates of the
policies provided for in Section 13.1 issued by the respective insurers, setting
forth in full the provisions thereof and issued by such insurers together with
evidence satisfactory to Landlord of the payment of all premiums for such
policies, shall be delivered by Tenant to Landlord and certificates as aforesaid
of such policies shall, upon request of Landlord, be delivered by Tenant to the
holder of any mortgage affecting the Demised Premises.
13.3 General. Tenant will save Landlord harmless, and will exonerate
and indemnify Landlord, from and against any and all claims, liabilities or
penalties asserted by or on behalf of any person, firm, corporation or public
authority:
(a) On account of or based upon any injury to person, or loss
of or damage to property sustained or occurring on the Demised Premises on
account of or based upon the act, omission, fault, negligence or misconduct of
any person whomsoever (other than Landlord or its agents, contractors or
employees);
(b) On account of or based upon any injury to person or loss
of or damage to property, sustained or occurring elsewhere (other than on the
Demised Premises) in or about the Building (and, in particular, without limiting
the generality of the
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foregoing on or about the elevators, stairways, public corridors, sidewalks,
concourses, arcades, malls, galleries, vehicular tunnels, approaches, areaways,
roof, or other appurtenances and facilities used in connection with the Building
or Demised Premises) arising out of the negligent act or omission of Tenant, its
agents or employees;
(c) On account of or based upon (including monies due on
account of) any work or thing whatsoever done (other than by Landlord or its
contractors, or agents or employees of either) in the Demised Premises during
the Term of this Lease and during the period of time, if any, prior to the Term
Commencement Date that Tenant may have been given access to the Demised
Premises, excepting as a consequence of the negligent act or omission of
Landlord, its agents or employees; and
(d) On account of or resulting from the failure of Tenant to
perform and discharge any of its covenants and obligations under this Lease;
and, in respect of any of the foregoing items (a) - (d), from and against all
costs, expenses (including reasonable attorneys' fees), and liabilities incurred
in or in connection with any such claim, or any action or proceeding brought
thereon; and in case any action or proceeding be brought against Landlord by
reason of any such claim, Tenant upon notice from Landlord shall at Tenant's
expense resist or defend such action or proceeding and employ counsel therefor
reasonably satisfactory to Landlord, it being agreed that such counsel as may
act for insurance underwriters of Tenant engaged in such defense shall be deemed
satisfactory.
13.4 Landlord's Indemnity. Landlord will save Tenant harmless, and will
exonerate and indemnify Tenant, from and against any and all claims, liabilities
or penalties asserted by or on behalf of any person, firm, corporation or public
authority:
(a) On account of or based upon any injury to person, or loss
of or damage to property sustained or occurring on the Property on account of or
based upon the act, omission, fault, negligence or misconduct of Landlord, its
agents or employees; and
(b) On account of or resulting from the failure of Landlord to
perform and discharge any of its covenants and obligations under this Lease.
13.5 Property of Tenant. In addition to and not in limitation of the
foregoing, Tenant covenants and agrees that all merchandise, furniture, fixtures
and property of every kind, nature and description which may be in or upon the
Demised Premises or Building, in the public corridors, or on the sidewalks,
areaways and approaches adjacent thereto, during the
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term hereof, shall be at the sole risk and hazard of Tenant, and that
if the whole or any part thereof shall be damaged, destroyed, stolen or removed
from any cause or reason whatsoever no part of said damage or loss shall be
charged to, or borne by Landlord.
13.6 Bursting of Pipes, etc. Landlord shall not be liable for any
injury or damage to persons or property resulting from fire, explosion, falling
plaster, steam, gas, electricity, electrical disturbance, water, rain or snow or
leaks from any part of the Building or from the pipes, appliances or plumbing
works or from the roof, street or sub-surface or from any other place or caused
by dampness or by any other cause of whatever nature, unless caused by or due to
the negligence of Landlord, its agents, servants or employees, and then only
after (i) notice to Landlord of the condition claimed to constitute negligence
an (ii) the expiration of a reasonable time after such notice has been received
by Landlord without such condition having been cured or corrected; and in no
event shall Landlord be liable for any loss, the risk of which is compensated by
Tenant's insurance; nor shall Landlord or its agents be liable for any such
damage caused by other tenants or persons in the Building or caused by
operations in construction of any private, public or quasi-public work.
13.7 Repairs and Alterations - No Diminution of Rental Value. Except as
otherwise provided in Articles 16 or 18, there shall be no allowance to Tenant
for diminution of rental value and no liability on the part of Landlord by
reason of inconvenience, annoyance or injury to Tenant arising from any repairs,
alterations, additions, replacements or improvements made by Landlord, Tenant or
others in or to any portion of the Building or Demised Premises, or in or to
fixtures, appurtenances, or equipment thereof, or for failure by Landlord or
others to make any repairs, alterations, additions or improvements in or to any
portion of the Building or of the Demised Premises, or in or to the fixtures,
appurtenances or equipment thereof, provided, however, that any such work
performed by or on behalf of Landlord shall be subject to the provisions of
Section 15.2
14. ASSIGNMENT, MORTGAGING, SUBLETTING, ETC.
14.1 Restrictions. Tenant covenants and agrees that neither this Lease
nor the term and estate hereby granted nor any interest herein or therein, will
be assigned, sublet, mortgaged, pledged, encumbered or otherwise transferred
(whether voluntarily or by operation of law) and that neither the Demised
Premises, nor any part thereof, will be encumbered in any manner by reason of
any act or omission on the part of Tenant, or used or occupied, or permitted to
be used or occupied, or utilized for any reason whatsoever, by anyone other than
Tenant, or for any use or purpose other than a stated in Article 1 without the
prior
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written consent of Landlord in every case, which written consent shall not
be unreasonably withheld or delayed.
14.2 Requests to Assign or Sublet. In connection with any request by
Tenant for such consent to assign or sublet, Tenant shall submit to Landlord, in
writing, a statement containing the name of the proposed assignee or subtenant,
such information as to its financial responsibility and standing as Landlord may
reasonably require, and all of the terms and provisions upon which the proposed
assignment or subletting is to be made, and, unless the proposed area to be
assigned or sublet shall constitute an entire floor or floors, such statement
shall be accompanied by a floor plan delineating the proposed area to be
assigned or sublet. As long as Tenant is not in material default under any of
the terms, covenants and conditions of this Lease on Tenant's part to be
observed and performed, Landlord shall not unreasonably withhold, condition or
delay Landlord's prior consent to the assignment or subletting(s) by Tenant of
all or parts of the Demised Premises. Each such subletting shall be for
undivided occupancy by the subtenant of that part of the Demised Premises
affected thereby for the use permitted under this Lease and at no time shall
there be more than three (3) occupants, including Tenant, within the Demised
Premises. Landlord may, however, withhold such consent if, in Landlord's
reasonable judgment, the proposed assignee or subtenant is not engaged in a
business consistent with the character and dignity of the Building, or will
impose any additional material burden upon Landlord in the operation of the
Building (to an extent greater than the burden to which Landlord would have been
put if Tenant continued to use, or used, such part of the Demised Premises for
its own purposes), or if Landlord has any other reasonable objections to the
proposed assignment or subletting.
14.3 Exceptions. Notwithstanding the foregoing, Tenant may, without the
requirement of obtaining Landlord's consent, assign this Lease or sublease any
portion of the Demised Premises to any entity which is the parent, a
majority-owned subsidiary of Tenant, an entity under common control with Tenant
or to any entity with which Tenant may merge or consolidate or to which Tenant
may sell all or substantially all of its assets as a going concern (such entity
with which Tenant may merge, consolidate or to which Tenant may sell all or
substantially all of its assets as aforesaid being hereinafter referred to as a
"Successor"), provided that, simultaneously with any such assignment, Tenant
shall deliver to Landlord an agreement in form and substance reasonably
satisfactory to Landlord which contains an appropriate covenant of assumption by
such assignee; and provided further that in the case of any such assignment or
sublease to a Successor, Tenant shall have submitted to Landlord prior thereto
financial statements or other materials reasonably satisfactory to Landlord
evidencing that such Successor has financial resources comparable to that of
Tenant as of the time of such assignment or sublease.
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14.4 Excess Rent. If the rent received by Tenant on account of a
sublease of all or any portion of the Demised Premises exceeds the Yearly Fixed
Rent and Additional Rent, allocated to the space subject to the sublease in the
proportion of the area of such space to the area of the entire Demised Premises,
Tenant shall pay to Landlord fifty percent (50%) of such excess, monthly as
received by Tenant.
14.5 Recapture. Notwithstanding the foregoing provisions of this
Article: (1) in the event Tenant proposes to assign or sublet all of the Demised
Premises, other than to a Successor, Landlord, at Landlord's option, may give to
Tenant, within thirty (30) days after the submission by Tenant to Landlord of
the statement required to be submitted in connection with such assignment or
subletting, or, if Tenant so requests, within thirty (30) days after Tenant
notifies Landlord that Tenant wishes to undertake such assignment or subletting,
but has not yet procured a proposed assignee or subtenant, a notice terminating
this Lease on the date (referred to as the "Earlier Termination Date")
immediately prior to the proposed commencement date of the term of the proposed
assignment or subletting, as set forth in such statement, and, in the event such
notice is given, this Lease and the Term shall come to an end and expire on the
Earlier Termination Date with the same effect as if it were the date originally
fixed in this Lease for the end of the Term of this Lease, and the Rent shall be
apportioned as of said Earlier Termination Date and any prepaid portion of Rent
for any period after such date shall be refunded by Landlord to Tenant,
provided, however, that in the event Landlord shall so elect to terminate this
Lease, Tenant, upon written notice to Landlord given within ten (10) days of
receipt by Tenant of Landlord's notice of termination, may elect to negate such
termination by declaring its intent not to proceed with such assignment or
subletting; or (2) in the event Tenant proposes to assign or sublet in excess of
fifty percent (50%) of the Demised Premises, other than to a Successor,
Landlord, at Landlord's option, may give to Tenant, within thirty (30) days
after the submission by Tenant to Landlord of the statement required to be
submitted in connection with such proposed assignment or subletting, a notice
electing to eliminate such portion of the Demised Premises (said portion is
referred to as the "Eliminated Space") from the Demised Premises effective on
the date (referred to as the "Elimination Date") immediately prior to the
proposed commencement date of the term of the proposed assignment or subletting,
as set forth in such statement, and in the event such notice is given, unless
Tenant, upon written notice to Landlord given within ten (10) days of receipt by
Tenant of Landlord's notice to eliminate such space shall elect to negate such
elimination by declaring Tenant's intent not to proceed with such assignment or
subletting, (i) the Eliminated Space shall be eliminated from the Demised
Premises effective on the Elimination Date; (ii) Tenant shall surrender the
Eliminated Space to Landlord on or prior to the Elimination Date in the same
manner as if said Date were the date originally fixed in this Lease for
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the end of the Term of this Lease; (iii) if the Eliminated Space shall
constitute less than an entire floor, Landlord, at Landlord's expense, shall
have the right to make any alterations and installations in the Demised Premises
required, in Landlord's judgment, reasonably exercised, to make the Eliminated
Space a self-contained rental unit with access through corridors to the
elevators and core toilets serving the Eliminated Space, and if the Demised
Premises shall contain any core toilets or any corridors (including any
corridors proposed to be constructed by Landlord pursuant to this subdivision
(iii) providing access from the Eliminated Space to the core area), Landlord and
any tenant or other occupant of the Eliminated Space shall have the right to use
such toilets and corridors in common with Tenant and any other permitted
occupants of the Demised Premises, and the right to install signs and
directional indicators in or about such corridors indicating the name and
location of such tenant or other occupant; (iv) the Yearly Fixed Rent shall be
reduced in the proportion which the area of the Eliminated Space bears to the
total area of the Demised Premises immediately prior to the Elimination Date
(including an equitable portion of the area of any corridors referred to in
subdivision (iii) of this sentence as part of the area of the Eliminated Space
for the purpose of computing such reduction), and any prepaid Rent for any
period after the Elimination Date allocable to the Eliminated Space shall be
refunded by Landlord to Tenant; and (v) there shall be an equitable
apportionment of any Additional Rent Payable pursuant to Article 6 for the
relevant fiscal and calendar years in which said Elimination Date shall occur.
14.6 Further Documentation. At the request of Landlord, Tenant shall
execute and deliver an instrument or instruments, in form satisfactory to
Landlord, setting forth any modifications to this Lease contemplated in or
resulting from the operation of the foregoing provisions of this paragraph;
however, neither Landlord's failure to request any such instrument nor Tenant's
failure to execute or deliver any such instrument shall vitiate the effect of
the foregoing provisions of this Article.
14.7 General.
(a) The failure by Landlord to exercise its option under this
paragraph with respect to any subletting shall not be deemed a waiver of such
option with respect to any extension or any subsequent subletting of the
premises affected thereby. Tenant shall reimburse Landlord promptly, as
Additional Rent, for reasonable legal and other expense incurred by Landlord in
connection with any request by Tenant for any consent required under the
provisions of this Article.
(b) It is specifically understood and agreed that neither
Tenant nor any other person having an interest in the possession, use, occupancy
or utilization of the Demised Premises shall enter into any sublease, license,
concession or other agreement (or renewals of any of the foregoing) for use,
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occupancy or utilization of space in the Demised Premises which provides for
rental or other payment for such use, occupancy or utilization based, in whole
or in part, on the net income or profits derived by any person or entity from
the space leased, used, occupied or utilized (other than an amount based on a
fixed percentage or percentages of receipts or sales). Any such purported
sublease or other agreement shall be absolutely void and ineffective as a
conveyance of any right or interest in the possession, use, occupancy, or
utilization of any part of the Demised Premises,
(c) The listing of any name other than that of Tenant, whether
on the doors of the Demised Premises or on the Building directory, or otherwise,
shall not operate to vest any right or interest in this Lease or in the Demised
Premises or be deemed to be the written consent of Landlord mentioned in this
Article, it being expressly understood that any such listing is a privilege
extended by Landlord revocable at will by written notice to Tenant.
(d) If this Lease be assigned, or if the Demised Premises or
any part thereof shall be sublet or occupied by anybody other than Tenant,
Landlord may at any time and from time to time, collect rent and other charges
from the assignee, subtenant or occupant and apply the aggregate amount
collected to the Rent and other charges herein reserved, but no such assignment
or collection shall be deemed a waiver of this covenant, or the acceptance of
the assignee, subtenant or occupant as a tenant, or a release of Tenant from the
further performance by Tenant of covenants on the part of Tenant herein
contained. Landlord shall notify Tenant of any amounts so collected by Landlord
directly from such subtenant or assignee. The consent by Landlord to an
assignment or subletting or occupancy shall not in any way be construed to
relieve Tenant from obtaining the express consent in writing of Landlord to any
further assignment or subletting or occupancy.
15. MISCELLANEOUS COVENANTS
15.1 Rules and Regulations. Tenant and Tenant's servants, employees,
and agents will faithfully observe such Rules and Regulations as are attached
hereto as Exhibit F and made a part hereof or as Landlord hereafter at any time
or from time to time may make and may communicate in writing to Tenant and which
in the reasonable judgment of Landlord shall be necessary for the reputation,
safety, care or appearance of the Property, or the preservation of good order
therein, or the operation or maintenance of the Property, or the equipment
thereof, or the comfort of tenants or others in the Building, provided, however,
that in the case of any conflict between the provisions of this Lease and any
such Rules and Regulations, the provisions of this Lease shall control, and
provided further that nothing contained in this Lease shall be construed to
impose upon Landlord any duty or obligation to enforce such Rules and
Regulations or the terms,
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covenants or conditions in any other lease as against any other tenant and
Landlord shall not be liable to Tenant for violation of the same by any other
tenant, its servants, employees, agents, visitors, invitees or licensees.
Notwithstanding the foregoing, (i) to the extent Landlord elects to enforce such
Rules and Regulations they shall be applied and enforced uniformly among all
tenants and (ii) Landlord shall enforce such Rules and Regulations to the extent
the failure to do so would materially interfere with Tenant's quiet enjoyment of
the Demised Premises.
15.2 Access to Premises - Shoring. Tenant shall: (i) permit Landlord to
erect, use and maintain pipes, ducts and conduits in and through the Demised
Premises, provided the same do not materially reduce the floor area or
materially adversely affect the appearance thereof; (ii) permit the Landlord and
any Mortgagee of the Building or the Building and Land or of the interest of
Landlord therein, and any lessor under any ground or underlying lease, and their
representatives, to have free and unrestricted access to and to enter upon the
Demised Premises at all reasonable hours for the purposes of inspection or of
making repairs, replacements or improvements in or to the Demised Premises or
the Building or equipment (including, without limitation, sanitary, electrical,
heating, air conditioning or other systems) or of complying with all laws,
orders and requirements of governmental or other authority or of exercising any
right reserved to Landlord by this Lease (including the right during the
progress of any such repairs, replacements or improvements or while performing
work and furnishing materials in connection with compliance with any such laws,
orders or requirements to take upon or through, or to keep and store within, the
Demised Premises all necessary materials, tools and equipment); and (iii) permit
Landlord, at reasonable times, to show the Demised Premises during ordinary
business hours to any Mortgagee, ground lessor, prospective purchaser,
prospective mortgagee, or prospective assignee of any mortgage, of the Building
or of the Building and the Land or of the interest of Landlord therein, and
during the period of twelve months next preceding the Termination Date to any
person contemplating the leasing of the Demised Premises or any part thereof. If
Tenant shall not be personally present to open and permit any entry into the
Demised Premises at any time when for any reason an entry therein shall be
necessary or permissible, Landlord or Landlord's agents must nevertheless be
able to gain such entry by contacting a responsible representative of Tenant,
whose name, address and telephone number shall be furnished by Tenant. Provided
that Landlord shall incur no unreasonable additional expense
thereby, Landlord shall exercise its rights of access to the Demised Premises
permitted under any of the terms and provisions of this Lease in such manner as
to minimize to the extent practicable interference with Tenant's use and
occupation of the Demised Premises, and upon reasonable prior notice, except in
the case of an emergency or where such notice is not reasonably practical. If an
excavation shall be made upon land adjacent to the Demised Premises or shall be
authorized to be made, Tenant shall afford,
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to the party causing or party authorized to cause such excavation,
license to enter upon the Demised Premises for the purpose of doing such work as
said person shall deem necessary to preserve the Building from injury or damage
and to support the same by proper foundations without any claim for damage or
indemnity against Landlord, or diminution or abatement of Rent.
15.3 Accidents to Sanitary and other Systems. Tenant shall give to
Landlord prompt notice of any fire or accident in the Demised Premises or in the
Building and of any damage to, or defective condition in, any part or
appurtenance of the Building's sanitary, electrical, heating and air
conditioning or other systems located in, or passing through, the Demised
Premises, and the damage or defective condition shall be remedied by Landlord
with reasonable diligence, but if such damage or defective condition was caused
by Tenant or by the employees, licensees, or invitees of Tenant, the cost to
remedy the same shall be paid by Tenant. Tenant shall not be entitled to claim
any eviction from the Demised Premises or any damages arising from any such
damage or defect unless the same (i) shall have been occasioned by the
negligence of Landlord, its agents, servants or employees and (ii) shall not,
after notice to Landlord of the condition claimed to constitute negligence, have
been cured or corrected within a reasonable time after such notice has been
received by Landlord; and in case of a claim of eviction unless such damage or
defective condition shall have rendered the Demised Premises untenantable and
they shall not have been made tenantable by Landlord within a reasonable time
not to exceed sixty (60) days unless the circumstances reasonably warrant a
longer period of time. Landlord agrees to diligently work to correct such damage
or defect, except as otherwise provided herein.
15.4 Signs, Blinds and Drapes. Tenant shall not place any signs on the
exterior of the Building or on or in any window, public corridor or door visible
from the exterior of the Demised Premises. No blinds may be put on or in any
window nor may any Building drapes or blinds be removed by Tenant. Tenant may
hang its own drapes, provided that they shall not, without the prior written
approval of Landlord, in any way interfere with any Building drapery or blinds
or be visible from the exterior of the Building.
15.5 Estoppel Certificate. Either party shall at any time and from time
to time upon not less than twenty (20) days' prior notice by Landlord to Tenant
or by a Mortgagee to Tenant, or by Tenant to Landlord, as the case may be,
execute, acknowledge and deliver to the party making such request a statement in
writing certifying that this Lease is unmodified and in full force and effect
(or if there have been modifications, that the same is in full force and effect
as modified and stating the modifications) and the dates to which Rent has been
paid in advance, if any, an stating whether or not to the best knowledge of the
signer of such certificate Landlord is in default in performance of any
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covenant, agreement, term, provisions or condition contained in this Lease and,
if so, specifying each such default of which the signer may have
knowledge, it being intended that any such statement delivered pursuant hereto
may be relied upon by any prospective purchaser of the Building or of the
Building and the Land or of the interest of Landlord therein, any Mortgagee or
prospective Mortgagee thereof, any lessor or prospective lessor thereof, any
lessee or prospective lessee thereof, or any prospective assignee of any
Mortgage. The form of any such estoppel certificate requested by a Mortgagee
shall be satisfactory to such Mortgagee. Notwithstanding anything contained in
this Lease to the contrary, the provisions of this Section 15.5 shall be
inapplicable to Teachers Insurance and Annuity Association in the event said
entity shall succeed to the rights of Landlord hereunder.
15.6 Prohibited Items. Tenant shall not bring or permit to be brought
or kept in or on the Demised Premises or elsewhere in the Building any
hazardous, inflammable, combustible or explosive fluid, material, chemical or
substance (except such as are related to Tenant's use of the Demised Premises,
provided that the same are stored and handled in a proper fashion consistent
with all applicable legal standards).
15.7 Requirements of Law Fines and Penalties. Tenant at its sole
expense shall comply with all laws, rules, orders and regulations of Federal,
State, County and Municipal Authorities and with any direction of any public
officer or officers, pursuant to law, which shall impose any duty upon Landlord
or Tenant with respect to and arising out of Tenant's use or occupancy of the
Demised Premises. Tenant shall reimburse and compensate Landlord for all
expenditures made by, or damages or fines sustained or incurred by, Landlord due
to nonperformance or noncompliance with or breach or failure to observe any
term, covenant or condition of this Lease upon Tenant's part to be kept,
observed, performed or complied with. If Tenant receives notice of any violation
of law, ordinance, order or regulation applicable to the Demised Premises, it
shall give prompt notice thereof to Landlord.
15.8 Tenant's Acts - Effect on Insurance. Except for permitted uses,
Tenant shall not do or authorize or cause to be done any act or thing upon the
Demised Premises or elsewhere in the Building which will invalidate or be in
conflict with any insurance policies covering the Building and the fixtures and
property therein and shall not do, or authorize or cause to be done, any act or
thing upon the Demised Premises which shall subject Landlord to any liability or
responsibility for injury to any person or persons or to property by reason of
any business or operation being conducted on said Demised Premises or for any
other reason. Tenant at its own expense shall comply with all rules, orders,
regulations or requirements of the Board of Fire Underwriters or any other
similar body having jurisdiction, and shall not (i) do, or permit anything to be
done, in or upon the
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Demised Premises, or bring or keep anything therein, except as now or hereafter
permitted by the Fire Department, Board of Underwriters, Fire Insurance Rating
Organization, or other authority having jurisdiction, and then only in such
quantity and manner of storage as will not increase the rate for any insurance
applicable to the Building, or (ii) use the Demised Premises in manner which
shall increase such insurance rates on the Building or on property located
therein, over that applicable when Tenant first took occupancy of the Demised
Premises hereunder. If by reason of failure of Tenant to comply with the
provisions hereof the insurance rate applicable to any policy of insurance shall
at any time thereafter be higher than it otherwise would be, then Tenant shall
reimburse Landlord for that part of any insurance premiums thereafter paid by
Landlord, which shall have been charged because of such failure by Tenant.
15.9 Miscellaneous. Tenant shall not suffer or permit the Demised
Premises or any fixtures, equipment or utilities therein or serving the same, to
be overloaded, damaged or defaced, nor permit any hole to be drilled or made in
any part thereof.
16. DAMAGE BY FIRE, ETC.
In the event of loss of, or damage to, the Demised Premises or the
Building by fire or other casualty, the rights and obligations of the parties
hereto shall be as follows:
(a) If the Demised Premises, or any part thereof, shall be
damaged by fire or other casualty, Tenant shall give prompt notice thereof to
Landlord, and Landlord, upon receiving such notice, shall proceed promptly and
with due diligence, subject to unavoidable delays, to repair, or cause to be
repaired, such damage. If the Demised Premises or any part thereof shall be
rendered untenantable by reason of such damage, whether to the Demised Premises
or to the Building, the Yearly Fixed Rent and Additional Rent shall
proportionately abate for the period from the date of such damage to the date
when such damage shall have been repaired.
(b) If, as a result of fire or other casualty, the whole or a
substantial portion of the Building, Demised Premises or necessary access
thereto is rendered untenantable, Landlord, within forty-five (45) days from the
date of such fire or other casualty, may terminate this Lease by notice to
Tenant, specifying a date not less than twenty (20) nor more than forty (40)
days after the giving of such notice on which the Term of this Lease shall
terminate. If Landlord does not so elect to terminate this Lease, then Landlord
shall proceed with diligence to repair the damage to the Demised Premises and
all facilities serving the same, if any, which shall have occurred, and the
Yearly Fixed Rent and Additional Rent shall meanwhile proportionately abate, all
as provided in Paragraph (a) of this Section. However, if, in the event of any
damage by fire or other casualty, such damage is not repaired and the Demised
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Premises and all facilities serving the same restored to substantially the same
condition as they were prior to such damage within three (3) months from the
date of such damage, Tenant within thirty (30) days from the expiration of such
three (3) month period, may terminate this Lease by notice to Landlord,
specifying a date not more than sixty (60) days after the giving of such notice
on which the term of this Lease shall terminate.
(c) If the Demised Premises shall be rendered untenantable by
fire or other casualty during the last two (2) years of the Term of this Lease,
either party may terminate this Lease effective as of the date of such fire or
other casualty upon notice to the other given within thirty (30) days after such
fire or other casualty.
(d) Landlord shall not be required to repair or replace any of
Tenant's business machinery, equipment, cabinet work, furniture, personal
property or other installations, and no damages, compensation or claim shall be
payable by Landlord for inconvenience, loss of business or annoyance arising
from any repair or restoration of any portion of the Demised Premises or of
the Building.
(e) The provisions of this Article shall be considered an
express agreement governing any instance of damage or destruction of the
Building or the Demised Premises by fire or other casualty, and any law now or
hereafter in force providing for such a contingency in the absence of express
agreement shall have no application.
(f) In the event of any termination of this Lease pursuant to
this Article, the Term of this Lease shall expire as of the effective
termination date as fully and completely as if such date were the date herein
originally scheduled as the Termination Date. Tenant shall have access to the
Demised Premises for a period of thirty (30) days after the date of termination
in order to remove Tenant's personal property.
(g) Landlord's Architect's certificate, given in good faith,
shall be deemed conclusive of the statements therein contained and binding upon
Tenant with respect to the performance and completion of any repair or
restoration work undertaken by Landlord pursuant to this Article or Article 18.
Any minor or insubstantial details of construction or mechanical adjustments
which remain to be done after the delivery of said certificate shall be handled
on a punch list basis and thereafter promptly completed by Landlord.
17. WAIVER OF SUBROGATION
In any case in which Tenant shall be obligated under any provision of
this Lease to pay to Landlord any loss, cost, damage, liability, or expense
suffered or incurred by Landlord, Landlord shall allow to Tenant as an offset
against the amount
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thereof the net proceeds of any insurance collected by Landlord for or on
account of such loss, cost, damage, liability or expense, provided that the
allowance of such offset does not invalidate or prejudice the policy or policies
under which such proceeds were payable.
In any case in which Landlord shall be obligated under any provision of
this Lease to pay to Tenant any loss, cost, damage, liability or expense
suffered or incurred by Tenant, Tenant shall allow to Landlord as an offset
against the amount thereof (i) the net proceeds of any insurance collected by
Tenant for or on account of such loss, cost, damage, liability, or expense,
provided that the allowance of such offset does not invalidate the policy or
policies under which such proceeds were payable and (ii) if such loss, cost,
damage, liability or expense shall have been caused by a peril against which
Tenant has agreed to procure insurance coverage under the terms of this Lease,
the amount of such insurance coverage, whether or not actually procured by
Tenant.
The parties hereto shall each endeavor to procure an appropriate clause
in, or endorsement on, any fire or extended coverage insurance policy covering
the Demised Premises and the Building and personal property, fixtures and
equipment located thereon or therein, pursuant to which the insurance companies
waive subrogation or consent to a waiver of right of recovery, and having
obtained such clauses and/or endorsements of waiver of subrogation or consent to
a waiver of right of recovery each party hereby agrees that it will not make any
claim against or seek to recover from the other for any loss or damage to its
property or the property of others resulting from fire or other perils covered
by such fire and extended coverage insurance; provided, however, that the
release, discharge, exoneration and covenant not to sue herein contained shall
be limited by the terms and provisions of the waiver of subrogation clauses
and/or endorsements or clauses and/or endorsements consenting to a waiver of
right of recovery and shall be co-extensive therewith. If either party may
obtain such clause or endorsement only upon payment of an additional premium,
such party shall promptly so advise the other party and shall be under no
obligation to obtain such clause or endorsement unless such other party pays the
premium.
18. CONDEMNATION - EMINENT DOMAIN
In the event that the whole or any material part of the Building shall
be taken or appropriated by eminent domain or shall be condemned for any public
or quasi-public use, or (by virtue of any such taking, appropriation or
condemnation) shall suffer any damage (direct, indirect or consequential) for
which Landlord or Tenant shall be entitled to compensation then (and in any such
event) this Lease and the Term hereof may be terminated at the election of
Landlord by a notice in writing of its election so to terminate which shall be
given by the Landlord to
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Tenant within sixty (60) days following the date on which Landlord shall have
received notice of such taking, appropriation or condemnation. In the event that
more than twenty-five percent (25%) of the floor area of the Demised Premises
shall be so taken, appropriated or condemned, then (and in any such event) this
Lease and the Term hereof may be terminated at the election of Tenant by a
notice in writing of its election so to terminate which shall be given by Tenant
to Landlord within sixty (60) days following the date on which Tenant shall have
received notice of such taking, appropriation or condemnation.
Upon the giving of any such notice of termination (either by Landlord
or Tenant) this Lease and the Term hereof shall terminate on or retroactively as
of the date on which Tenant shall be required to vacate any part of the Demised
Premises or shall be deprived of a substantial part of the means of access
thereto, provided, however, that Landlord may in Landlord's notice elect to
terminate this Lease and the Term hereof retroactively as of the date on which
such taking, appropriation or condemnation became legally effective. In the
event of any such termination, this Lease and the Term hereof shall expire as of
the effective termination date as fully and completely as if such date were the
date herein originally scheduled as the Termination Date. If neither party
(having the right so to do) elects to terminate Landlord will, with reasonable
diligence and at Landlord's expense, restore the remainder of the Demised
Premises, or the remainder of the means of access, as nearly as practicably may
be to the same condition as obtained prior to such taking, appropriation or
condemnation in which event (i) a just proportion of the Yearly Fixed Rent and
Additional Rent, according to the nature and extent of the taking, appropriation
or condemnation and the resulting permanent injury to the Demised Premises and
the means of access thereto, shall be permanently abated, and (ii) a just
proportion of the remainder of the Yearly Fixed Rent and Additional Rent,
according to the nature and extent of the taking, appropriation or condemnation
and the resultant injury sustained by the Premises and the means of access
thereto, shall be abated until what remains of the Premises and the means of
access thereto shall have been restored as fully as may be for permanent use and
occupation by Tenant hereunder. Except for any award specifically reimbursing
Tenant for moving or relocation expenses and Tenant's removable fixtures and
equipment, there are expressly reserved to Landlord all rights to compensation
and damages created, accrued or accruing by reason of any such taking,
appropriation or condemnation, in implementation and in confirmation of which
Tenant does hereby acknowledge that Landlord shall be entitled to receive and
retain all such compensation and damages, grants to Landlord all and whatever
rights (if any) Tenant may have to such compensation and damages, and agrees to
execute and deliver all and whatever further instruments of assignment as
Landlord may from time to time request. In the event of any taking of the
Demised Premises or any part thereof for temporary use, (i) this Lease shall be
and remain unaffected thereby, and (ii) Tenant shall be entitled
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to receive for itself any award made for such use, provided, that if any taking
is for a period extending beyond the Term of this Lease, such award shall be
apportioned between Landlord and Tenant as of the Termination Date.
19. DEFAULT
19.1 Conditions of Limitation - Re-entry - Termination. This Lease and
the herein term and estate are upon the condition that if (a) Tenant shall
neglect or fail to perform or observe any of the Tenant's covenants herein,
including (without limitation) the covenants with regard to the payment of Rent
on or before ten (10) days of its due date; or (b) Tenant shall make an
assignment or trust mortgage, or other conveyance or transfer of like nature, of
all or a substantial part of its property for the benefit of its creditors, or
(c) the leasehold hereby created shall be taken on execution or by other process
of law and shall not be revested in Tenant within sixty (60) days thereafter; or
(d) a receiver, sequester, trustee or similar officer shall be appointed by a
court of competent jurisdiction to take charge of all or a substantial part of
Tenant's property and such appointment shall not be vacated within sixty (60)
days or (e) any proceeding shall be instituted by or against Tenant pursuant to
any of the provisions of any Act of Congress or State law relating to
bankruptcy, reorganization, arrangements, compositions or other relief from
creditors, and, in the case of any such proceeding instituted against it, if
Tenant shall fail to have such proceeding dismissed within thirty (30) days or
Tenant shall default in the timely payment of Rent or if Tenant is adjudged
bankrupt or insolvent as a result of any such proceeding; or (f) any event shall
occur or any contingency shall arise whereby this Lease, or the term and estate
thereby created would (by operation of law or otherwise) devolve upon or pass to
any person, firm or corporation other than Tenant, except as expressly permitted
under Article 14 hereof; then, and in any such event (except as hereinafter in
Article 19.2 otherwise provided) Landlord may, in a manner consistent with
applicable law, immediately or at any time thereafter declare this Lease
terminated by notice to Tenant or, without further demand or notice, enter into
and upon the Demised Premises (or any part thereof in the name of the whole),
and in either such case (and without prejudice to any remedies which might
otherwise be available for arrears of rent or other charges due hereunder or
preceding breach of covenant and without prejudice to Tenant's liability for
damages as hereinafter stated), this Lease shall terminate. The words "re-entry"
and "re-enter" as used in this Lease are not restricted to their technical legal
meaning.
19.2 Damages - Assignment for Benefit of Creditors. For the more
effectual securing by Landlord of the rent and other charge and payments
reserved hereunder, it is agreed as a further condition of this Lease that if at
any time Tenant shall make an assignment of its property for the benefit of its
creditors under the terms of which the debts provable by its creditors shall be
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debts provable against the estate of insolvent debtors either under the laws of
the Commonwealth of Massachusetts or under some law or laws other than the
Bankruptcy Code as now or hereafter enacted, then and in any such case the same
shall constitute a breach of this Lease, and the term and estate hereby created
shall terminate ipso facto, without entry or other action by Landlord; and
notwithstanding any other provisions of this Lease Landlord shall forthwith upon
such termination, without prejudice to any remedies which might otherwise be
available for arrears of rent or other charges due hereunder or preceding breach
of this Lease, be ipso facto entitled to recover as liquidated damages the sum
of (a) the amount by which, at the time of such termination of this Lease, (i)
the aggregate of the Rent projected over the period commencing with such
termination and ending with the Termination Date stated in Article 1 exceeds
(ii) the aggregate projected rental value of the Demised Premises for such
period and (b) (in view of the uncertainty of prompt re-letting and the expense
entailed in re-letting the Demised Premises) an amount equal to the Rent payable
for and in respect of the calendar year next preceding the date of termination,
as aforesaid. Upon such termination Landlord, may immediately or at any time
thereafter, without demand or notice, enter into or upon the Demised Premises
(or any part thereof in the name of the whole), and (without being taken or
deemed to be guilty of any manner of trespass or conversion, and without being
liable to indictment, prosecution or damages thereof) may, forcibly if
necessary, expel Tenant and those claiming under Tenant from the Demised
Premises and remove therefrom the effects of Tenant and those claiming under
Tenant.
19.3 Damages - Termination. Upon the termination of this Lease under
the provisions of this Article, then except as hereinabove in Section 19.2
otherwise provided, Tenant shall pay to Landlord the Rent payable by Tenant to
Landlord up to the time of such termination, shall continue to be liable for any
preceding breach of covenant, and in addition, shall pay to Landlord as damages,
at the election of Landlord,
either:
(x) the amount by which, at the time of the termination of
this Lease (or at any time thereafter if Landlord shall have initially elected
damages under Subparagraph (y), below), (i) the aggregate of the Rent projected
over the period commencing with such time and ending on the originally scheduled
Termination Date as stated in Article 1 exceeds (ii) the aggregate projected
rental value of the Demised Premises for such period,
or,
(y) amounts equal to the Rent which would have been payable by
Tenant had this Lease not been so terminated, payable upon the due dates
therefor specified herein following such termination and until the originally
scheduled Termination Date
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as specified in Article l, provided, however, if Landlord shall re-let
the Demised Premises during such period, that Landlord shall credit Tenant with
the net rents received by Landlord from such re-letting, such net rents to be
determined by first deducting from the gross rents as and when received by
Landlord from such re-letting the expenses incurred or paid by Landlord
terminating this Lease, as well as the expenses of re-letting, including
altering and preparing the Demised Premises for new tenants, brokers'
commissions, and all other similar and dissimilar expenses properly chargeable
against the Demised Premises and the rental therefrom, it being understood that
any such re-letting may be for a period equal to or shorter or longer than the
remaining term of this Lease; and provided, further, that (i) in no event shall
Tenant be entitled to receive any excess of such net rents over the sums payable
by Tenant to Landlord hereunder and (ii) in no event shall Tenant be entitled in
any suit for the collection of damages pursuant to this Subparagraph (y) to a
credit in respect of any net rents from a re-letting except to the extent that
such net rents are actually received by Landlord prior to such determination. If
the Demised Premises or any part thereof should be re-let in combination with
other space, then proper apportionment on a square foot area basis shall be made
of the rent received from such re-letting and of the expenses of re-letting.
Landlord agrees to use reasonable efforts under the circumstances to attempt to
re-let the Demised Premises.
Suit or suits for the recovery of such damages, or any installments
thereof, may be brought by Landlord from time to time at its election, and
nothing contained herein shall be deemed to require Landlord to postpone suit
until the date when the term of this Lease would have expired if it had not been
terminated hereunder.
Nothing herein contained shall be construed as limiting or precluding
the recovery by Landlord against Tenant of any sums or damages to which, in
addition to the damages particularly provided above, Landlord may lawfully be
entitled by reason of any default hereunder on the part of Tenant.
19.4 Fees and Expenses. If Tenant shall default in the performance of
any covenant on Tenant's part to be performed as in this Lease contained,
Landlord may immediately, or at any time thereafter, following written notice
thereof to Tenant, perform the same for the account of Tenant. If Landlord at
any time is compelled to pay or elects to pay any sum of money, or do any act
which will require the payment of any sum of money, by reason of the failure of
Tenant to comply with any provision hereof, or if Landlord is compelled to or
does incur any expense, including reasonable attorneys' fees, in instituting,
prosecuting and/or defending any action or proceeding instituted by reason of
any default of Tenant hereunder, Tenant shall on demand pay to Landlord by way
of reimbursement the sum or sums so paid by Landlord with all interest, costs
and damages. Without limiting
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the generality of the foregoing, in the event that any Rent is in
arrears by more than ten (10) days after written notice thereof by Landlord to
Tenant, Tenant shall pay, as Additional Rent, a delinquency charge equal to one
percent (1%) of the arrearage for each calendar month (or fraction thereof)
during which it remains unpaid.
19.5 Landlord's Remedies Not Exclusive. The specified remedies to which
Landlord may resort hereunder are cumulative and are not intended to be
exclusive of any remedies or means of redress to which Landlord may at any time
be lawfully entitled, and Landlord may invoke any remedy (including the remedy
of specific performance) allowed at law or in equity as if specific remedies
were not herein provided for.
19.6 Grace Period. Notwithstanding anything to the contrary in this
Article contained, Landlord agrees not to take any action to terminate this
Lease (a) for default by Tenant in the payment when due of Rent, if Tenant shall
cure such default within five (5) days after written notice thereof given by
Landlord to Tenant, or (b) for default by Tenant in the performance of any other
covenant, if Tenant shall cure such default within a period of thirty (30) days
after written notice thereof given by Landlord to Tenant (except where the
nature of the default is such that remedial action should appropriately take
place sooner as indicated in such written notice), or with respect to covenants
other than to pay a sum of money within such additional period as may reasonably
be required to cure such default if (because of governmental restrictions or any
other cause beyond the reasonable control of Tenant) the default is of such a
nature that it cannot be cured within such thirty (30)-day period, provided,
however, (1) that there shall be no extension of time beyond such thirty
(30)-day period for curing of any such default unless, not more than ten (10)
days after the receipt of the notice of default, Tenant in writing (i) shall
specify the cause on account of which the default cannot be cured during such
period and shall advise Landlord of its intention duly to institute all steps
necessary to cure the default and (ii) shall as soon as may be reasonable, duly
institute and thereafter diligently prosecute to completion all steps necessary
to cure such default and, (2) that no notice of the opportunity to cure default
need be given, and no grace period whatsoever shall be allowed to Tenant, if the
default is incurable.
20. END OF TERM - ABANDONED PROPERTY
Upon the expiration or other termination of the Term of this Lease,
Tenant shall peaceably quit and surrender to Landlord the Demised Premises and
all alterations and additions thereto which Tenant is not entitled or required
to remove under the provisions of this Lease, broom clean in good order, repair
and condition excepting only reasonable use and wear and damage by fire or other
casualty for which, under other provisions of this Lease, Tenant has no
responsibility of repair or restoration. Tenant's
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obligation to observe or perform this covenant shall survive the
expiration or other termination of the term of this Lease.
Any personal property in which Tenant has an interest which shall
remain in the Building or on the Demised Premises after the expiration or
termination of the Term of this Lease shall be conclusively deemed to have been
abandoned, and may be disposed of in such manner as Landlord may see fit;
provided, however, notwithstanding the foregoing, that Tenant will, upon request
of Landlord made not later than thirty (30) days after the expiration or
termination of the term hereof, promptly remove from the Building any such
personal property or, if any part thereof shall be sold, that Landlord may
receive and retain the proceeds of such sale and apply the same, at its option,
against the expenses of the sale, the cost of moving and storage, any
arrears of Rent payable hereunder by Tenant to Landlord and any damages to which
Landlord may be entitled under Article 19 hereof or pursuant to law, with the
balance if any, to be paid to Tenant.
21. RIGHTS OF MORTGAGEES
21.1 Superiority of Lease. Except as provided in Section 21.7 hereof
and to the extent that it may be provided otherwise by written agreement between
Tenant and a Mortgagee, this Lease shall be superior, and shall not be
subordinated, to a Mortgage or to any other voluntary lien or encumbrance
affecting the Land or Building or any part thereof, provided, however, that such
Mortgage shall be superior, and shall not be subordinated, to this Lease with
respect to the following:
(a) the prior right and claim under and the prior lien of said
Mortgage in, to and upon any award or other compensation heretofore or hereafter
to be made for any taking by eminent domain of any part of the Demised Premises,
and as to the right of disposition thereof in accordance with the provisions of
the said Mortgage; or
(b) the prior right and claim under the prior lien of the said
Mortgage, in, to and upon any proceeds payable under all policies of fire and
rent insurance upon the Demised Premises and as to the right of disposition
thereof in accordance with the terms of said Mortgage; and
(c) any lien, right, power or interest, if any, which may have
arisen or intervened in the period between the recording of the said Mortgage
and the execution of this Lease.
21.2 Entry and Possession. Upon entry and taking possession of the
Property by a Mortgagee, for the purpose of foreclosure or otherwise, such
Mortgagee shall have all the rights of Landlord, and shall be liable to perform
all the obligations of Landlord arising and accruing during the period of such
possession by such Mortgagee.
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21.3 Right to Cure. No act or failure to act on the part of Landlord
which would entitle Tenant under the terms of this Lease, or by law, to be
relieved of Tenant's obligations hereunder or to terminate this Lease, shall
result in a release or termination of such obligations or a termination of this
Lease unless (i) Tenant shall have first given written notice of Landlord's act
or failure to act to first Mortgagees of record, if any, and to any other
Mortgagees of record on the Term Commencement Date of the Lease or whom Tenant
has been given written notice, specifying the act or failure to act on the part
of Landlord which could or would give basis to Tenant's rights; and (ii) such
Mortgagees, after receipt of such notice, have failed or refused to correct or
cure the condition complained of within a reasonable time thereafter, but
nothing contained in this paragraph shall be deemed to impose any obligation on
any such Mortgagees to correct or cure any such condition. "Reasonable time" as
used above means and includes a reasonable time to obtain possession of the Land
and Building if any such Mortgagee elects to do so and a reasonable time to
correct or cure the condition if such condition is determined to exist.
21.4 Duty to Construct. Notwithstanding any other provision to the
contrary contained in this Lease, if prior to substantial completion of
Landlord's obligations under Article 4 any holder of a Mortgage enters and takes
possession of the Property for the purpose of foreclosing such Mortgage, such
holder may elect, by written notice given to Tenant and Landlord at any time
within 90 days after such entry and taking possession, not to perform Landlord's
obligations under Article 4, and in such event such holder and all persons
claiming under it shall be relieved of all obligations to perform, and all
liability for failure to perform said Landlord's obligations under Article 4 and
Tenant may, without waiver of any rights which Tenant may have against Landlord,
terminate this Lease and all its obligations hereunder by written notice to
Landlord and such holder given within 30 days after the day on which such holder
shall have given its notice as aforesaid.
21.5 Prepaid Rent. No Rent shall be paid more than thirty (30) days
prior to the due dates thereof and, as to a first Mortgagee of record and any
other Mortgagees of whom Tenant has been given written notice, payments made in
violation of this provision shall (except to the extent that such rents are
actually received by such Mortgagee) be a nullity as against such Mortgagee and
Tenant shall be liable for the amount of such payments to such Mortgagee.
21.6 Continuing Offer. The covenants and agreements contained in this
Lease with respect to the rights, powers and benefits of a Mortgagee
(particularly, without limitation thereby, the covenants and agreements
contained in this Article) constitute a continuing offer to any person,
corporation or other entity, which by accepting or requiring an assignment of
this Lease or by entry or foreclosure assumes the obligations herein
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set forth with respect to such Mortgagee; every such Mortgagee is
hereby constituted a party to this Lease as an obligee hereunder to the same
extent as though its name was written hereon as such and such Mortgagee shall be
entitled to enforce such provisions in its own name.
21.7 Subordination. Notwithstanding the foregoing provisions of this
Article, Tenant agrees, at the request of Landlord or any Mortgagee, to execute
and deliver promptly any certificate or other instrument which Landlord or such
Mortgagee may request subordinating the Lease and all rights of Tenant under the
Lease to any Mortgage, and to all advances made under such mortgage, provided
that (i) the holder of any such Mortgage shall execute and deliver to Tenant a
nondisturbance agreement to the effect that, in the event of any foreclosure of
such Mortgage, such holder will not name Tenant as a party defendant to such
foreclosure nor disturb its possession under the Lease, or (ii) any such
Mortgage shall contain provisions substantially to the same effect as those
contained in such a nondisturbance agreement. In the event Landlord shall fail
to deliver to Tenant within thirty (30) days of the execution of this Lease an
Agreement of Subordination, Non-Disturbance and Attornment in the form or
substantially in the form of Exhibit G attached hereto, Tenant at its option by
written notice thereof to Landlord within ten (10) Business Days of the
expiration of said 30 day period may terminate this Lease.
21.8 Limitations on Liability. Nothing contained in the foregoing
Section 21.7 or in any such nondisturbance agreement or nondisturbance provision
shall, however, affect the prior rights of the holder of any Mortgage with
respect to the proceeds of any award in condemnation or of any fire insurance
policies affecting the Building, or impose upon any such holder any liability
(i) for the erection or completion of the Building, or (ii) in the event of
damage or destruction to the Building or the Demised Premises by fire or other
casualty, for any repairs, replacements, rebuilding or restoration except such
repairs, replacements, rebuilding or restoration as can reasonably be
accomplished from the net proceeds of insurance actually receive by, or made
available to, such holder, or (iii) for any default by Landlord under the Lease
occurring prior to any date upon which such holder shall become Tenant's
Landlord, or (iv) for any credits, offsets or claims against the rent under the
Lease as a result of any acts or omissions of Landlord committed or omitted
prior to such date, or (v) for return of any security deposit or other funds
unless the same shall have been received by such holder, and any such agreement
or provision may so state.
22. QUIET ENJOYMENT
Landlord covenants that if, and so long as, Tenant keeps and performs
each and every covenant, agreement, term, provision and condition herein
contained on the part and on behalf of Tenant to be kept and performed, Tenant
shall quietly enjoy the Demised
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Premises from and against the claims of all persons claiming by,
through or under Landlord subject, nevertheless, to the covenants, agreements,
terms, provisions and conditions of this Lease and to the mortgages, ground
leases and/or underlying leases to which this Lease is subject and subordinate.
23. ENTIRE AGREEMENT - WAIVER - SURRENDER
23.1 Entire Agreement. This Lease and the Exhibits made a part hereof
contain the entire and only agreement between the parties and any and all
statements and representations, written and oral, including previous
correspondence and agreements between the parties hereto, are merged herein.
Tenant acknowledges that all representations and statements upon which it relied
in executing this Lease are contained herein and that Tenant in no way relied
upon any other statements or representations, written or oral. Any executory
agreement hereafter made shall be ineffective to change, modify, discharge or
effect an abandonment of this Lease in whole or in part unless such executory
agreement is in writing and signed by the party against whom enforcement of the
change, modification, discharge or abandonment is sought. Nothing herein shall
prevent the parties from agreeing to amend this Lease and the Exhibits made part
hereof as long as such amendment shall be in writing and shall be duly signed by
both parties.
23.2 Waiver by Landlord. The failure of Landlord to seek redress for
violation, or to insist upon the strict performance, of any covenant or
condition of this Lease, or any of the Rules and Regulations promulgated
hereunder, shall not prevent a subsequent act, which would have originally
constituted a violation, from having all the force and effect of an original
violation. The receipt by Landlord of rent with knowledge of the breach of any
covenant of this Lease shall not be deemed a waiver of such breach. The failure
of Landlord to enforce any of such Rules and Regulations against Tenant and/or
any other tenant or subtenant in the Building shall not be deemed a waiver of
any such Rules and Regulations. No provisions of this Lease shall be deemed to
have been waived by Landlord unless such waiver be in writing signed by
Landlord. No payment by Tenant or receipt by Landlord of a lesser amount than
the monthly rent herein stipulated shall be deemed to be other than on account
of the stipulated rent, nor shall any endorsement or statement on any check or
any letter accompanying any check or payment as rent be deemed an accord and
satisfaction, and Landlord may accept such check or payment without prejudice of
Landlord's right to recover the balance of such rent or pursue any other remedy
in this Lease provided.
23.3 Surrender. No act or thing done by Landlord during the
term hereby demised shall be deemed an acceptance of a surrender of the Demised
Premises, and no agreement to accept such surrender shall be valid, unless in
writing signed by Landlord. No employee of Landlord or of Landlord's agents
shall
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have any power to accept the keys of the Demised Premises prior to the
termination of this Lease. The delivery of keys to any employee of Landlord or
of Landlord's agents shall not operate as a termination of the Lease or a
surrender of the Demised Premises. In the event that Tenant at any time desires
to have Landlord underlet the Demised Premises for Tenant's account, Landlord or
Landlord's agents are authorized to receive the keys for such purposes without
releasing Tenant from any of the obligations under this Lease, and Tenant hereby
relieves Landlord of any liability for loss of or damage to any of Tenant's
effects in connection with such underletting.
24. INABILITY TO PERFORM - EXCULPATORY CLAUSE
Except as otherwise expressly provided in this Lease, this Lease and
the obligations of Tenant to pay rent hereunder and perform all other covenants,
agreements, terms, provisions and conditions hereunder on the part of Tenant to
be performed shall in no way be affected, impaired or excused because Landlord
is unable to fulfill any of its obligations under this Lease or is unable to
supply or is delayed in supplying any service expressly or impliedly to be
supplied or is unable to make or is delayed in making any repairs, replacements,
additions, alterations, improvements or decorations or is unable to supply or is
delayed in supplying any equipment or fixtures if Landlord is prevented or
delayed from doing so by reason of strikes or labor troubles or any other
similar or dissimilar cause whatsoever beyond Landlord's reasonable control,
including but not limited to, governmental preemption in connection with a
national emergency or by reason of any rule, order or regulation of any
department or subdivision thereof of any governmental agency or by reason of the
conditions of supply and demand which have been or are affected by war,
hostilities or other similar or dissimilar emergency. In each such instance of
inability of Landlord to perform, Landlord shall exercise reasonable diligence
to eliminate the cause of such inability to perform.
Tenant shall neither assert nor seek to enforce any claim for breach of
this Lease against any of Landlord's assets other than Landlord's interest in
the Building of which the Premises are a part and in the rents, issues and
profits thereof, and Tenant agrees to look solely to such interest for the
satisfaction of any liability of Landlord under this Lease, it being
specifically agreed that in no event shall Landlord (which term shall include
without limitation any of the officers, trustees, directors, partners,
beneficiaries, joint venturers, members, stockholders or other principals or
representatives, disclosed or undisclosed of Landlord or any managing agent)
ever be personally liable for any such liability. This paragraph shall not limit
any right that Tenant might otherwise have to obtain injunctive relief against
Landlord or to take any other action which shall not involve the personal
liability of Landlord to respond in monetary damages from Landlord's assets
other than the Landlord's interest in said real estate, as aforesaid. In no
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<PAGE>
event shall Landlord or Tenant ever be liable for consequential damages.
25. BILLS AND NOTICES
Any notice, consent, request, bill, demand or statement hereunder by
either party to the other party shall be in writing and, if received at
Landlord's or Tenant's address, shall be deemed to have been duly given when
either delivered or served personally or mailed in a postpaid envelope,
deposited in the United States mails addressed to the respective party at its
address as stated in Article 1, or if any address for notices shall have been
duly changed as hereinafter provided, if mailed as aforesaid to the party at
such changed address. Either party may at any time change the address for such
notices, consents, requests, bills, demands or statements by delivering or
mailing, as aforesaid, to the other party a notice stating the change and
setting forth the changed address, provided such changed address is within the
United States.
All bills and statements for reimbursement or other payments or charges
due from Tenant to Landlord or from Landlord to Tenant hereunder shall set forth
in reasonable detail the particulars relating thereto and shall be due and
payable in full thirty (30) days, unless herein otherwise provided, after
submission thereof by Landlord to Tenant or by Tenant to Landlord, as the case
may be. Landlord shall, at Tenant's reasonable request, promptly furnish Tenant
with such additional reasonable details relating thereto as Tenant shall
reasonably request. Tenant's failure to make timely payment of any amounts
indicated by such bills and statements, whether for work done by Landlord at
Tenant's request, reimbursement provided for by this Lease or for any other sums
properly owing by Tenant to Landlord, shall be treated as a default in the
payment of Rent, in which event Landlord shall have all rights and remedies
provided in this Lease for the nonpayment of Rent.
26. PARTIES BOUND - SEISIN OF TITLE
The covenants, agreements, terms, provisions and conditions of this
Lease shall bind and benefit the successors and assigns of the parties hereto
with the same effect as if mentioned in each instance where a party hereto is
named or referred to, except that no violation of the provisions of Article 14
hereof shall operate to vest any rights in any successor or assignee of Tenant
and that the provisions of this Article shall not be construed as modifying the
conditions of limitation contained in Article 19 hereof.
If in connection with or as a consequence of the sale, transfer or
other disposition of the real estate (Land and/or Building either or both, as
the case may be) of which the Demised Premises are a part Landlord ceases to be
the owner of the reversionary interest in the Premises, Landlord shall so notify
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<PAGE>
Tenant and Landlord shall be entirely freed and relieved from the performance
and observance thereafter of all covenants and obligations hereunder accruing
thereafter on the part of Landlord to be performed and observed, it being
understood and agreed in such event (and it shall be deemed and construed as a
covenant running with the land) that the person succeeding to Landlord's
ownership of said reversionary interest shall thereupon and thereafter assume,
and perform and observe, any and all of such covenants and obligations of
Landlord.
27. MISCELLANEOUS
27.1 Separability. If any provision of this Lease or portion of such
provision or the application thereof to any person or circumstance is for any
reason held invalid or unenforceable, the remainder of the Lease (or the
remainder of such provision) and the application thereof to other persons or
circumstances shall not be affected thereby.
27.2 Captions. The captions are inserted only as a matter of
convenience and for reference, and in no way define, limit or describe the scope
of this Lease nor the intent of any provision thereof.
27.3 Broker. Each party represents and warrants that it has not
directly or indirectly dealt, with respect to the leasing of office space in the
Building, with any broker or had its attention called to the Premises or other
space to let in the Building, by any broker other than the Broker(s) (if any)
listed in Article 1 whose commission shall be the responsibility of Landlord.
Each party agrees to exonerate and save harmless and indemnify the other against
any claims for a commission by any other broker, person or firm with whom such
party has dealt in connection with the execution and delivery of this Lease or
out of negotiations between Landlord and Tenant with respect to the leasing of
other space in the Building.
27.4 Governing Law. This lease is made pursuant to, and shall be
governed by, and construed in accordance with, the laws of the Commonwealth of
Massachusetts.
27.5 Assignment of Rents. With reference to any assignment by Landlord
of its interest in this Lease, or the Rent payable hereunder, conditional in
nature or otherwise, which assignment is made to or held by a bank, trust
company, insurance company or other institutional lender holding a Mortgage on
the Building, Landlord and Tenant agree:
(a) that the execution thereof by Landlord and acceptance
thereof by such Mortgagee shall never be deemed an assumption by such Mortgagee
of any of the obligations of the Landlord thereunder, unless such Mortgagee
shall, by written notice sent to the Tenant, specifically otherwise elect; and
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<PAGE>
(b) that, except as aforesaid, such Mortgagee shall be treated
as having assumed the Landlord's obligations thereunder only upon foreclosure of
such Mortgagee's Mortgage and the taking of possession of the Demised Premises
after having given notice of its exercise of the option stated in Article 21
hereof to succeed to the interest of the Landlord under this Lease.
27.6 Parking. Landlord shall allocate to Tenant the number of
non-exclusive Parking Spaces indicated in Article 1. Landlord may, pursuant to
Section 15.1, establish Rules and Regulations relative to all parking areas
serving Building tenants and may further engage the services of an independent
contractor to administer and control access to said parking areas. Landlord or
said independent contractor shall impose separate charges for use of said
parking areas, and such charges shall be payable by Tenant as Additional Rent
with respect to Tenant's Parking Spaces. For the initial three (3) years of the
Term of this Lease, the monthly charge for each Parking Space situated in the
garage facility serving the Building shall be One Hundred Twenty-five Dollars
($125). Thereafter, the monthly charge shall be as from time to time established
by Landlord or said independent contractor as the then prevailing monthly
parking charge for the Building. Notwithstanding the foregoing, forty-seven (47)
of the initial seventy (70) Parking Spaces shall be at no cost to Tenant during
the Term of this Lease. In addition, Tenant shall have an option, to rent an
additional one (1) Parking Space per 1,000 square feet of rentable area so added
to the Demised Premises at a cost of $125.00 per month per Parking Space for the
first three years of the Term of this Lease, and thereafter at the then
prevailing monthly charge for the Building as may be from time to time
established by the Landlord or said independant contractor. In addition, it is
understood and agreed that in the event additional space shall be added to the
Demised Premises in accordance with Article 3 hereof during the Term of this
Lease, the number of Parking Spaces which shall be at no cost to Tenant shall be
increased by two (2) for each additional 1,000 square feet of rentable area so
added to the Demised Premises. Tenant acknowledges that Landlord has informed
Tenant that Landlord intends to allocate in its tenant leases up to one hundred
twenty-five percent (125%) of the actual parking spaces servicing the Building.
It is further acknowledged and agreed that as a consequence of such
over-allocation of parking spaces there may occasionally occur instances in
which the number of parking spaces actually available to Tenant shall be less
than the Parking Spaces to which Tenant is entitled under this Lease. Landlord
shall incur no liability to Tenant as a consequence of such over-allocation of
parking spaces.
27.7 Notice of Lease. Neither party shall record this Lease in any
Registry of Deeds or Registry District.
27.8 Financial Statements. If requested by Landlord, Tenant shall
furnish to Landlord promptly after they are available to
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Tenant copies of Tenant's annual financial statements (audited, if
available) and unaudited monthly financial statements and such other financial
statements as Tenant shall furnish from time to time to any lender and/or equity
holder of Tenant. It is understood and agreed that Landlord may furnish copies
of any and all of such financial statements to TIAA and any other Mortgagee and
to the principals of Riverfront Office Park Joint Venture, but that Landlord
will not disclose such information to any other party without the prior written
consent of Tenant, provided, in each case, that the recipient of such
information agrees in writing to use such information solely to evaluate
Tenant's credit worthiness.
27.9 Letter of Credit. Landlord acknowledges that it has received from
Tenant an irrevocable letter of credit in favor of Landlord issued by Shawmut
Bank, a copy of which is annexed hereto as Exhibit H to this Lease for an amount
not to exceed $300,000 (the "Letter of Credit"). In the event of any default or
defaults by Tenant in the payment of Rent or the performance or observance of
the agreements and conditions in this Lease contained on the part of Tenant to
be performed and observed continuing beyond any applicable notice and cure
periods, Landlord may present the Letter of Credit for payment, in each
instance, of an amount not greater than the amount ncecessary to cure such
default or defaults and to compensate Landlord for any loss or damage arising
from such default or defaults. One or more drawings shall be permitted under the
Letter of Credit, provided, that the aggregate of all such drawings shall not
exceed $300,000. It is understood and agreed that Landlord shall always have the
right to apply said sum, as aforesaid in the event of any such default or
defaults, without prejudice to any other remedy or remedies which Landlord may
have, or Landlord may pursue any other such remedy or remedies in lieu of
applying said sum. No interest shall be payable on said sum. The holder of any
mortgage on the Property shall never be responsible to Tenant for said sum or
its application or return unless said sum shall actually have been received in
hand by such holder.
42
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have caused this instrument to
be executed under seal, all as of the day and year first above written.
RIVERFRONT OFFICE PARK JOINT VENTURE
By: RIVERFRONT OFFICE PARK ASSOCIATES
By: DARVEL REALTY TRUST
Managing General Partner
By: [Signature of Michael P. Sullivan]
---------------------------------------
Michael P. Sullivan, Vice President
PEGASYSTEMS INC.
By: [Signature of Ira Vishner]
----------------------------------------
Ira Vishner, Vice President
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<PAGE>
[Graphic showing floorplan]
EXHIBIT A
7TH FLOOR
23,350 RSF
BRYER ARCHITECTS
1208 MASSACHUSETTS AVE
P.O. BOX 1545
CAMBRIDGE, MA 02238
617-864-8019
101 MAIN STREET
CAMBRIDGE, MA 02142
TENANT: PEGASYSTEMS, INC.
DATE: 12/03/92
FLOOR KEY PLAN
NOTE: THIS DRAWING IS FOR
DESCRIPTIVE PURPOSES
ONLY. IT HAS BEEN
REDUCED FROM ITS
ORIGINAL SCALE.
<PAGE>
EXHIBIT B
---------
DESCRIPTION OF LAND
-------------------
A certain parcel of land in the City of Cambridge, Middlesex
County, Massachusetts, bounded and described as follows:
Beginning at a point on the northerly line of Main Street at land now
or formerly of Technology Realty Trust, and thence running;
N 05(degree) 59'48"E for 105.66 feet along said Trust land to a point;
thence running
N 85(degree) 08'23"W for 90.03 feet along said Trust land to land now
or formerly of The Badger Company, Inc., thence running
N 05(degree) 59'19"E for 120.64 feet long said Badger land to a point,
and continuing
N 16' 13'43"E for 46.32 feet along said Badger land to a point; thence
running
N 72(degree) 07'10"W for 365.41 feet along said Badger land to a point
in the southeasterly line of Third Street; thence running
N 30(degree) 00'44"E for 40.91 feet along Third Street to a point at
land of Commonwealth Gas Company; thence running
S 71(degree) 46'10"E for 467.40 feet along said Commonwealth Gas
Company land to a point, thence continuing
S 73(degree) 39'44"E for 31.42 feet along said Commonwealth Gas Company
land to a corner; thence running
S 16' 20'16"W for 82.21 feet on a line across the Broad Canal to the
southerly side thereof; thence running
SOUTHEASTERLY along the Broad Canal by the following courses and
distances: S 71(degree) 26'21"E for 97.75 feet; S 72(degree) 53'13"E for 74.12
feet; and S 76(degree) 18'57"E for 50.44 feet to a point; thence running
S 05(degree)59'48"W for 154.28 feet to a point in the northerly line
of Main Street; thence running
N 84(degree) 07'40"W for 268.33 feet along Main Street to the point of
beginning.
Said parcel is shown as Lot 1 on a "Subdivision Plan of Land in
Cambridge, Mass. (Middlesex County)", dated April 24, 1981, and revised
September 4, 1981, drawn by Boston Survey Consultants, and prepared for Darvel
Realty Trust, recorded with Middlesex Southern District Registry of Deeds in
Book 14412, Page 199.
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<PAGE>
EXHIBIT C
---------
TENANT IMPROVEMENTS
-------------------
A. IMPROVEMENTS
------------
1. Landlord's Work. Landlord shall cause the fit-up work and
tenant improvements specified in the Approved Final Plans (as hereinafter
defined) (all such work being referred to as "Tenant's Improvements) to be
substantially completed as provided herein.
2. Tenant's Cash Allowance. Landlord shall provide to Tenant allowance
(the "Fit- up Allowance") equal to the product of Twenty-five Dollars ($25.00)
multiplied by the Rentable Area of the Demised Premises to pay for the cost of
Tenant's Improvements. For purposes hereof, the cost of Tenant's Improvements
shall be deemed to be the actual cost and expense charged to Landlord by
Landlord's contractor for said Tenant's Improvements. In the event that the cost
of Tenant's Improvements exceeds the Fit-up Allowance, the excess cost shall be
promptly paid by Tenant, upon written request by Landlord, accompanied by
reasonable supporting documentation establishing the amount then due and
payable. In the event that the cost of Tenant's Improvements shall be less than
the Fit-up Allowance (the difference between the cost of Tenant's Improvements
and the maximum Fit-up Allowance being referred to as the "Fit-up Allowance
Difference"), Landlord shall, credit the Fit-up Allowance Difference to Rent
payable by Tenant under this Lease.
B. PLANS AND SPECIFICATIONS
------------------------
1. Preparation of Plans and Specifications. Tenant's Architect has
prepared architectural working drawings and specifications for the build out of
the fit-up work to be done to the Demised Premises. The final architectural
working drawings and specifications, as approved by Landlord and Tenant,
together with the electrical, mechanical and plumbing working drawings and
specifications, constitute the "Approved Final Plans". Landlord shall reimburse
to Tenant the sum of $33,736.50 to pay for the architectural and engineering
costs and expenses of Tenant's Architect, Kodis Associates, in connection with
the preparation of the Approved Final Plans and Specification, within thirty
(30) days following receipt by Landlord of invoices and supporting documentation
therefor. Landlord shall be solely responsible for the fees of Landlord's
Architect.
2. Time Requirements. The parties agree to the following time schedule:
By: Date Activity
- -------- --------
January 4, 1993 General Contractor Choosen
<PAGE>
January 8, 1993 Construction Package Released
January 18, 1993 Demolition Begins
January 29, 1993 Construction Drawings Completed
February 1, 1993 Construcion Begins
March 26, 1993 Substantial Construction Completed
March 27, 1993 Occupancy
C. INSPECTION
----------
Tenant is authorized by Landlord to make periodic inspections of the
Demised Premises during construction provided that such inspections are made
during normal business hours and that Tenant is accompanied by a representative
of the Landlord or Landlord's contractor. Notwithstanding the foregoing,
Tenant's Architect shall be permitted access to the Demised Premises at all
reasonable times for the purpose of viewing construction of Tenant's
Improvements during such construction.
D. FINAL INSPECTION OF PREMISES
----------------------------
Prior to the Term Commencement Date, Tenant together with the Tenant's
Architect and contractor shall make a final inspection of the Demised Premises
to ascertain whether substantial completion has occurred. A punchlist of items
to be completed or corrected shall be prepared.
E. PAYMENT OF TENANT COSTS
-----------------------
In the event of a default by Tenant in payment of any amount payable by
Tenant under this Exhibit C, Landlord shall (in addition to all other remedies)
have the same rights as in case of default in Rent under this Lease.
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<PAGE>
EXHIBIT D
---------
CLEANING SPECIFICATIONS
-----------------------
OFFICE AREA:
- ------------
DAILY - Monday through Friday inclusive, Massachusetts legal holidays excluded.
1. Empty all waste receptacles and remove trash to designated area, wash
receptacles as necessary. Replace with new bag when soiled.
2. Empty and wipe all ashtrays.
3. Vacuum all rugs and carpets.
4. Hand dust and wipe clean with treated cloths all horizontal surfaces,
including furniture, office equipment, window wills, door ledges, chair
rails and convertor tops, within normal reach.
5. Wash and clean all water fountains.
6. Remove and dust under all desk equipment and telephones and replace
same, with no oily residue left behind.
7. Wipe clean all brass and other bright work, including conference table
pedestals.
8. Sweep and dust mop all uncarpeted areas using a dust treated mop.
9. Hand dust all grill work within normal reach.
10. Wash clean kitchen counter, sink, exterior cabinetry and wet mop floor
in kitchen. Empty coffee pots and wash. Wipe down coffee makers.
Clean underneath any appliances in the kitchen that are moveable
(i.e. on the counter).
11. Clean the glass on the display cabinets. Also clean the glass door in
the reception area.
12. Clean the conference tables and pass through surfaces.
13. Empty recycling boxes when full and put in the supply room near freight
elevator. Put new bag inside.
14. Clean marble in the elevator lobby.
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<PAGE>
Lavatories:
- -----------
1. Sweep and damp mop floor.
2. Clean all mirrors, powder shelves, dispensers and receptacles, bright
work, flushometers, piping and toilet seat hinges.
3. Wash and disinfect both sides of toilet seats.
4. Wash all basins, inside and outside of bowls, and urinals.
5. Dust clean all powder room fixtures.
6. Empty and clean paper towel and sanitary receptacles.
7. Remove waste paper and refuse to designated area.
8. Refill tissue holders, soap dispensers, towel dispensers, vending
sanitary dispensers - materials to be supplied by landlord.
9. A sanitizing solution will be used in all lavatory cleaning.
Main Lobby, Elevators, Building Exterior and Corridors:
- -------------------------------------------------------
1. Sweep and wash all floors.
2. Wash all rubber mats.
3. Clean all elevators, wash or vacuum floor, wipe down walls and doors.
Stairwells:
- -----------
1. Sweep all stairwells.
WEEKLY
- ------
1. Dust all coat racks.
2. Remove all finger marks from private entrance doors, light switches and
doorways, cubicle entrances and glass in cubicles.
3. Vacuum conference room chairs and clean up any crumbs.
4. Wash refrigerator shelves.
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<PAGE>
MONTHLY
- -------
Lavatories:
1. Machine scrub lavatory floor.
2. Wash all partitions and tile walls in lavatories.
3. Dust exhaust vents and ceiling diffusers.
Main Lobby, Elevators, Building Exterior and Corridors:
- -------------------------------------------------------
1. All resilient tile floors in public area to be treated equivalent to
spray buffing.
2. Shampoo carpeting in elevators.
QUARTERLY - Render high dusting not reached in daily cleaning to include:
1. Dusting all pictures frames, charts, graphs and similar wall hangings.
2. Dusting all vertical surfaces such as walls, partitions and doors,
interior glass surfaces, and both sides of sidelights.
(More frequently if needed).
3. Dusting of all venetian blinds.
4. Machine clean kitchen and other tile floors and clean molding.
5. Clean behind recycling bins and under refrigerator.
Main Lobby, Elevators, Building Exterior and Corridors:
- -------------------------------------------------------
1. Spot clean any metal work in lobby.
2. Spot clean any metal work surrounding building entrance doors.
3. Spot clean and polish guard desk.
4. Vacuum all corridor carpets.
TWO TIMES PER YEAR: Wash interior and exterior of perimeter windows.
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<PAGE>
EXHIBIT E
---------
TENANT TRADE FIXTURES
---------------------
All surface mounted wall sconces located in the boardroom, interview
room and elevator lobby, respectively, of the Demised Premises.
2/12/93
<PAGE>
EXHIBIT F
---------
RULES AND REGULATIONS
---------------------
1. The sidewalks, entrances, passages, courts, elevators, vestibules,
stairways, corridors or halls of the Building shall not be obstructed or
encumbered or used for any purpose other than ingress and egress to and from the
premises demised to any tenant or occupant.
2. No awnings or other projections shall be attached to the outside
walls or windows of the Building without the prior consent of Landlord. No
curtains, blinds, shades, or screens shall be attached or hung in, or used in
connection with, any window or door of the premises demised to any tenant or
occupant, without the prior consent of Landlord. Such awnings, projections,
curtains, blinds, shades, screens, or other fixtures must be of a quality type,
design and color, and attached in a manner, approved by Landlord.
3. No sign, advertisement, object, notice or other lettering shall be
exhibited, inscribed, painted or affixed on any part of the outside or inside of
the premises demised to any tenant or occupant or of the Building without the
prior written consent of Landlord. Interior signs on doors and directory tables,
if any, shall be of a size, color and style approved by Landlord.
4. The sashes, sash doors, skylights, windows, and doors that reflect
or admit light and air into the halls, passageways or other public places in the
Building shall not be covered or obstructed, nor shall any bottles, parcels, or
other articles be placed on or stored upon any window sills.
5. No show cases or other articles of any kind shall be put in front of
or affixed to any part of the exterior of the Building, nor placed in the halls,
corridors, vestibules or other parts of the Building.
6. The water and wash closets and other plumbing fixtures shall not be
used for any purposes other than those for which they were constructed, and no
sweepings, rubbish, rags, or other substances shall be thrown therein.
7. No tenant or occupant shall mark, paint, drill into, or in any way
deface any part of the Building or the premises demised to such tenant or
occupant. No boring, cutting or stringing of wires shall be permitted, except
with the prior consent of the Landlord, and as Landlord may direct. No tenant or
occupant shall install any resilient tile or similar floor covering in the
premises demised to such tenant or occupant except in manner approved by
Landlord.
2/12/93
<PAGE>
8. No bicycles, vehicles or animals of any kind shall be brought into
or kept in or about the premises demised to any tenant. Bicycles may be stored
in racks, if any, furnished for such purpose by Landlord in a common area of the
Building. No cooking shall be done or permitted in the Building by any tenant
without the approval of Landlord. No tenant shall cause or permit any unusual or
objectionable odors to emanate from the premises demised to such tenant.
9. Without the prior consent of Landlord, no space in the Building
shall be used for manufacturing, or for the sale of merchandise, goods or
property of any kind at auction.
10. No tenant shall make, or permit to be made, any unseemly or
disturbing noises or disturb or interfere with other tenants or occupants of the
Building or neighboring buildings or premises, whether by the use of any musical
instrument, radio, television set or other audio device, unmusical noise,
whistling, singing, or in any other way. Nothing shall be thrown out of any
doors or windows.
11. Each tenant must, upon the termination of its tenancy, restore to
Landlord all keys, either furnished to, or otherwise procured by, such tenant,
including without limitation, all parking pass keys, Building keys, office keys
and keys to storage areas and toilet rooms.
12. All removals from the Building, or the carrying in or out of the
Building or the premises demised to any tenant, of any safes, freight,
furniture, or bulky matter of any description must take place at such time and
in such manner as Landlord or its agents may determine, from time to time.
Landlord reserves the right to inspect all freight to be brought into the
Building and to exclude from the Building all freight which violates any of the
Building Rules or the provisions of such tenant's lease.
13. No tenant shall use or occupy, or permit any portion of the
premises demised to such tenant to be used or occupied, as an office for a
public stenographer or typist, or to a barber or manicure shop, or as an
employment bureau. No tenant or occupant shall engage or pay any employees in
the Building, except those actually working for such tenant or occupant in the
Building, nor advertise for laborers giving an address at the Building.
14. No tenant or occupant shall purchase spring water, ice, food,
beverage, lighting maintenance, cleaning towels or other like service, from any
company or person not approved by Landlord, such approval not unreasonably to be
withheld.
15. Landlord shall have the right to prohibit any advertising by any
tenant or occupant which, in Landlord's opinion, tends to impair the reputation
of the Building or its desirability as a building for offices, and upon notice
from
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<PAGE>
Landlord, such tenant or occupant shall refrain from or discontinue such
advertising.
16. Landlord reserves the right to exclude from the Building, between
the hours of 6:00 p.m. and 8:00 a.m. on Business Days and otherwise at all
hours, all persons who do not present a pass to the building signed by the
Landlord. Landlord will furnish passes to persons for whom any tenant requests
such passes. Each tenant shall be responsible for all persons for whom it
requests such passes and shall be liable to Landlord for all wrongful acts of
such persons.
17. Each tenant, before closing and leaving the premises demised to
such tenant at any time, shall see that all entrance doors are locked and
windows closed.
18. Each tenant shall, at its expense, provide artificial light in the
premises demised to such tenant for Landlord's agents, contractors, and
employees while performing janitorial or other cleaning services and making
repairs or alterations in said premises.
19. No premises shall be used, or permitted to be used, for lodging or
sleeping, or for any immoral or illegal purpose.
20. There shall not be used in the Building, either by any tenant or
occupant or by their agents or contractors, in the delivery or receipt of
merchandise, freight or other matter, any hand trucks or other means of
conveyance, except those equipped with rubber tires, rubber side guards and such
other safeguards as Landlord may require.
21. Canvassing, soliciting and peddling in the Building are prohibited
and each tenant and occupant shall cooperate in seeking their prevention.
22. If the premises demised to any tenant become infested with vermin,
such tenant, at its sole cost and expense, shall cause its premises to be
exterminated from time to time, to the satisfaction of Landlord and shall employ
such exterminators therefor as shall be approved by Landlord.
23. No premises shall be used, or permitted to be used, at any time,
without the prior approval of Landlord, as a store for the sale or display of
goods, wares or merchandise of any kind, or as a restaurant, shop, booth,
bootblack or other stand, or for the conduct of any business or occupation which
predominantly involves direct patronage of the general public in the premises
demised to such tenant, or for manufacturing or for other similar purposes.
24. No tenant shall move, or permit to be moved, into or out of the
Building or the premises demised to such tenant, any heavy or bulky matter,
without the specific prior written
2/12/93
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<PAGE>
approval of Landlord. If any such matter requires special handing, only
a person holding a Master Rigger's License shall be employed to perform such
special handling. No tenant shall place, or permit to be placed on any part of
the floor or floors of the premises demised to such tenant, a load exceeding the
floor load per square foot which such floor was designed to carry and which is
allowed by law. Landlord reserves the right to prescribe the weight and position
of safes and other heavy matter, which must be placed so as to distribute the
weight.
25. The requirements of tenants will be attended to only upon
application at the office of the Building. Building employees shall not be
required to perform, and shall not be requested by any tenant or occupant to
perform any work outside of their regular duties, unless under specific
instructions from the office of the managing agent of the Building.
2/12/93
4
<PAGE>
EXHIBIT G
---------
AGREEMENT OF SUBORDINATION,
NON-DISTURBANCE AND ATTORNMENT
------------------------------
THIS AGREEMENT made the ____ day of February, 1993, by and among DARVEL
REALTY TRUST, a Massachusetts realty trust having a principal place of business
at One Main Street, Cambridge, Massachusetts (hereinafter called "Ground
Lessor"), PEGASYSTEMS, INC., a Massachusetts corporation (hereinafter called
"Tenant") and TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA, a New York
corporation, having its principal office and post office address at 730 Third
Avenue, New York, New York 10017 (hereinafter called "Teachers");
W I T N E S S E T H:
WHEREAS, Ground Lessor is the owner in fee simple of those certain
premises situate, lying and being in the City of Cambridge, Middlesex County,
Massachusetts, as more particularly described in Exhibit A attached hereto; and
WHEREAS, under the terms of a certain lease dated September 23, 1981,
as amended (hereinafter called "Ground Lease"), notice of which has been
recorded with Middlesex Southern District Registry of Deeds at Book 14451, Page
245 and filed with the Middlesex Southern Registry District of the Land Court as
Document No. 617399, Ground Lessor did lease, let and demise the demised
premises (the "Demised Premises") to RIVERFRONT OFFICE PARK JOINT VENTURE, a
Massachusetts joint venture partnership (hereinafter called "Landlord"), upon
the terms and conditions therein more particularly set forth;
WHEREAS, Teachers is the owner and holder of a certain promissory note
secured by a Mortgage (as defined in Article I of the Sublease) constituting a
first lien upon the leasehold estate created by said Ground Lease;
WHEREAS, under the terms of a certain Agreement of Lease dated February
__, 1993 (the "Sublease"), Landlord did lease, let and demise to Tenant a
portion of the Demised Premises as therein more particularly described (the
"Subleased Premises");
WHEREAS, the parties hereto desire to establish additional rights of
quiet and peaceful possession for the benefit of Tenant under the said Sublease
and further to define the terms, covenants and conditions precedent for such
additional rights.
NOW, THEREFORE, in consideration of the respective demises and of the
sum of One ($1.00) Dollar and other good and valuable consideration, each to the
other in hand paid, it is hereby mutually agreed as follows:
2/12/93
<PAGE>
1. Ground Lessor consents to and approves the Sublease.
2. In the event of the cancellation or termination of the Ground Lease
or of the surrender thereof, whether voluntary, involuntary or by operation of
law, prior to the expiration date of the Sublease, including any extensions and
renewals of the Sublease now provided thereunder, and subject to the observance
and performance by Tenant of all of the terms, covenants and conditions of the
Sublease on the part of Tenant to be observed and performed, Ground Lessor does
hereby covenant and warrant as follows:
(a) That Tenant shall have quiet peaceful possession of the
Subleased Premises under the Sublease;
(b) That the Sublease shall continue in full force and effect
and Ground Lessor shall recognize the Sublease and the
Tenant's rights thereunder and will thereby establish
direct privity of estate and contract as between Ground
Lessor and Tenant, with the same force and effect and with
the same relative priority in time and right as though the
Sublease were originally made directly from Ground Lessor
in favor of Tenant, but not in respect of any amendment to
such Sublease not previously approved in writing by Ground
Lessor.
3. In the event of the cancellation or termination of the Ground Lease
or of the surrender thereof, whether voluntary, involuntary or by operation of
law, prior to the expiration date of the Sublease, including any extensions and
renewals of the Sublease now provided thereunder, Tenant hereby covenants and
agrees to make full and complete attornment to Ground Lessor, for the balance of
the term of the Sublease, including any extensions and renewals thereof, now
provided thereunder, upon the same terms, covenants and conditions as therein
provided, subject, however, in all events to the terms, conditions and
provisions of this Agreement, so as to establish direct privity of estate and
contract as between Ground Lessor and Tenant and with the same force and effect
and relative priority in time and right as though the Sublease were originally
made directly from Ground Lessor to Tenant, and Tenant will thereafter make all
Rent payments thereunder directly to Ground Lessor.
4. Teachers and Tenant do hereby covenant and agree that the Mortgage
shall be and the same is hereby made SUBORDINATE to the Sublease and to the
recognition and attornment agreements provided for in Paragraphs 2 and 3 hereof
with the same force and effect as if the Sublease had been executed, delivered
and recorded and the said recognition and attornment agreements aforesaid had
been effected in each case prior to the execution, delivery and recording of the
Mortgage,
EXCEPT, HOWEVER, that this Subordination shall not affect nor be
applicable to and does hereby expressly exclude:
2/12/93
2
<PAGE>
(a) The prior right and claim under and the prior lien of
the Mortgage in, to and upon any award or other
compensation heretofore or hereafter to be made for
any taking by eminent domain of any part of the
Demised Premises, and as to the right of disposition
thereof in accordance with the provisions of the
Mortgage;
(b) The prior right and claim under and the prior lien of
the Mortgage in, to and upon any proceeds payable
under all policies of fire and rent insurance upon
the Demised Premises and as to the right of
disposition thereof in accordance with the terms of
the Mortgage; and
(c) Any lien, right, power or interest, if any which may
have arisen or intervened in the period between the
recording of the Mortgage and the execution of the
Sublease or the effective date of the recognition and
attornment agreements aforesaid, whichever is later.
5. The terms, covenants and conditions hereof shall inure to the
benefit of and be binding upon the respective parties hereto, their respective
heirs, executors, administrators, successors and assigns.
IN WITNESS WHEREOF, the parties hereto have caused this writing to be
signed, sealed and delivered in their respective names and behalf, and, if a
corporation, by its officers duly authorized, the day and year first above
written.
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By:
----------------------------------------
Vice President
DARVEL REALTY TRUST
By: [Signature of Michael P. Sullivan]
----------------------------------------
Michael P. Sullivan,
Vice President
PEGASYSTEMS, INC.
By: [Signature of Ira Vishner]
---------------------------------------
Ira Vishner, Vice President
2/12/93
3
<PAGE>
EXHIBIT H
---------
LETTER OF CREDIT-PEGASYSTEMS
<PAGE>
IRREVOCABLE STANDBY LETTER OF CREDIT
RIVERFRONT OFFICE PARK JOINT VENTURE
101 Main Street
Cambridge, MA 02142
Gentlemen:
We hereby establish our Irrevocable Letter of Credit, No. S049087W, in
favor of Riverfront Office Park Joint Venture, a Massachusetts joint venture
("Landlord"), of which Darvel Realty Trust, a Massachusetts Trust ("Darvel"),
c/o Codman Management Company, One Main Street, Cambridge, MA 02142 is the
Managing General Partner (together with all successors and assigns, the
"Beneficiary") for the account of Pegasystems, Inc., 840 Memorial Drive,
Cambridge, MA 02139 a Massachusetts Corporation, ("Tenant"), for a sum or sums
not exceeding in all Three Hundred Thousand Dollars ($300,000) available by your
draft(s) drawn on us accompanied by:
1. (a) A statement executed by an officer of Darvel
certifying that (i) the amount of the draft
represents an amount due and owing pursuant to the
terms of the Agreement of Lease between Landlord and
Tenant (the "Lease"), (ii) all applicable written
notice(s) of such default have been given to Tenant
pursuant to the provisions of the Lease, (iii) any
applicable grace period has expired and (iv) the
amount of this draft does not exceed the difference
between (A) $300,000.00, and (B) the sum of (1) the
aggregate of all Rent received by Landlord under the
Lease, and (2) the sum of all previous drawings made
under this Letter of Credit; and,
(b) a copy of any applicable notice of default given to
Tenant.
This Letter of Credit shall be the absolute irrevocable and
unconditional obligation of [Bank].
Partial drawings are permitted.
2/12/93
<PAGE>
This Credit may be transferred in its entirety upon written notice to
[Bank]. Said notice shall include the name and address of the transferee.
We hereby agree that all drafts drawn under and in compliance with the
terms of this Credit will be duly honored upon presentation to [Bank] if
presented to [Bank] at its office at _____________________, Massachusetts on or
before April 30, 1994.
This Credit is subject to the Uniform Customs and Practice published by
the International Chamber of Commerce, 1983 Revision, ICC Publication No. 400.
This Letter of Credit shall be governed by Article 5 of the Uniform Commercial
Code of Massachusetts, as from time to time amended.
[BANK]
By:
----------------------------
2/12/93
AMENDMENT NO. 1 TO AGREEMENT OF LEASE
-------------------------------------
THIS AMENDMENT TO AGREEMENT OF LEASE made as of the 17th day of August,
1994, by and between RIVERFRONT OFFICE PARK JOINT VENTURE, a Massachusetts joint
venture (hereinafter referred to as "Landlord") and PEGASYSTEMS INC., a
Massachusetts corporation (hereinafter referred to as "Tenant").
WITNESSETH:
-----------
WHEREAS, the parties hereto are parties to a certain Agreement of Lease
dated as of February 26, 1993 (hereinafter referred to as the "Lease"); and
WHEREAS, the parties hereto desire to amend the Lease as hereinafter
provided;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, it is hereby agreed as follows:
1. Effective on the Sixth Floor Expansion Space Term Commencement Date
(as hereinafter defined) there shall be added to the Demised Premises a portion
of the sixth (6th) floor of the Building consisting of 11,514 rentable square
feet of space, as shown on the plan attached hereto as Exhibit A and made a part
hereof (hereinafter referred to as the "Sixth Floor Expansion Space").
2. (a) Subject to delay by causes beyond the reasonable control of
Landlord or caused by the action or inaction by Tenant, Landlord shall, on or
before November 1, 1994 (the "Original Sixth Floor Expansion Space Term
Commencement Date") substantially complete the Tenant's Improvements (as defined
in Exhibit B, which Exhibit is attached hereto and incorporated by reference),
insofar as is practicable in view of Tenant's Acts (as hereinafter defined) or
Tenant defaults, if any. For purposes hereof, the terms substantial completion
or substantially complete shall mean (i) that the said Tenant's Improvements
have been completed in compliance with the Sixth Floor Expansion Space Approved
Final Plans (as defined in Exhibit B) with the exception of minor punch list
items so that the Sixth Floor Expansion Space may be used for their intended
purpose, excluding, however, any special items or long-lead items designated in
the Sixth Floor Expansion Space Approved Final Plans and identified as such by
Landlord, and (ii) that a certificate of occupancy or other permission for
Tenant to occupy the Sixth Floor Expansion Space for their permitted use
hereunder shall have been obtained; and (iii) that the date of substantial
completion shall have been established and confirmed by a Certificate of
Substantial Completion signed by Landlord's Architect, subject to Tenant's
Architect's reasonable concurrence. In the event that any delay in delivery of
possession of the Sixth Floor Expansion Space to Tenant past the date set forth
in this Section 2(a) as the "Original Sixth Floor Expansion Space Term
Commencement Date" is caused by or is attributable to the act or neglect of
Tenant, its servants, agents, employees or independent contractors, including
without limitation, as a consequence of any change orders to the Sixth Floor
Expansion Space Approved Final Plans requested by Tenant and consented to by
Landlord (provided that notice of such
8/3/94
<PAGE>
anticipated delay shall be given by Landlord to Tenant) (collectively "Tenant's
Acts"), the Sixth Floor Expansion Space Term Commencement Date shall be the
later of the Original Sixth Floor Expansion Space Term Commencement Date or the
date on which possession of the Sixth Floor Expansion Space would have been
delivered to Tenant but for the delay caused by Tenant's Acts and Tenant shall
be liable for Rent and other obligations under this Lease relating to the Sixth
Floor Expansion Space from said Sixth Floor Expansion Space Term Commencement
Date. Landlord shall notify Tenant as soon as reasonably practical following
Landlord's awareness of the occurrence of any Tenant's Act which Landlord
believes is likely to cause a delay in the delivery of possession of the Sixth
Floor Expansion Space to Tenant. Each day of delay caused by Tenant's Acts shall
postpone by one (1) day the Original Sixth Floor Expansion Space Term
Commencement Date.
(b) On or before three (3) weeks prior to the Sixth Floor Expansion
Space Term Commencement Date, Landlord shall notify Tenant that Tenant and its
contractor may have access to the Sixth Floor Expansion Space for the purpose of
preparing the same for Tenant's occupancy. Such access shall be deemed to be
pursuant to a license pursuant to Section 4.3 of the Lease and shall not be
deemed to advance the Sixth Floor Expansion Space Term Commencement Date.
Notwithstanding the fact that the Sixth Floor Expansion Space Term Commencement
Date shall not have occurred, it is understood and agreed that the provisions of
Article 13 of the Lease shall become effective as to the Sixth Floor Expansion
Space immediately upon the commencement of such access to Tenant, and, Tenant on
or before the commencement date of such access shall furnish to Landlord a
certificate of insurance pursuant to Section 13.2 of the Lease.
3. Tenant shall be conclusively deemed to have agreed that Landlord has
performed all of its obligations under Section 2 of this Amendment unless not
later than sixty (60) days after the Sixth Floor Expansion Space Term
Commencement Date Tenant shall give Landlord written notice specifying the
respects in which Landlord has not performed such obligations.
4. To the extent that Tenant is permitted by Landlord to enter the
Sixth Floor Expansion Space the prior to the Sixth Floor Expansion Space Term
Commencement Date to undertake such work as is to be performed by Tenant in
order to prepare the Sixth Floor Expansion Space for Tenant's occupancy, such
entry shall be deemed to be pursuant to a license from Landlord to Tenant and
shall be at the risk of Tenant. In no event shall Tenant interfere with any
construction work being performed by or on behalf of Landlord in or around the
Sixth Floor Expansion Space; without limiting the generality of the foregoing,
Tenant shall comply with all instructions issued by Landlord's contractors
relative to the moving of Tenant's equipment and other property into the Sixth
Floor Expansion Space and shall pay any reasonable fees or costs imposed in
connection therewith.
5. Effective on the Sixth Floor Expansion Space Term Commencement Date,
Article 1(13) of the Lease is hereby amended to read in its entirety a follows:
"(13) Rentable Area of the Demised Premises: 34,864 square feet."
8/3/94
2
<PAGE>
6. Effective on the Sixth Floor Expansion Space Term Commencement Date,
Article 1(19) of the Lease is hereby amended to read in its entirety as follows
to reflect an increase in the Yearly Fixed Rent payable under the Lease of
$224,523 per annum (based upon a rental of $19.50 per square foot per annum):
"(19) Yearly Fixed Rent: (a) Year one (1) of the Term of this Lease:
--------------------------------------
$364,260
(b) Year two (2) of the Term of this Lease:
---------------------------------------
$409,792.50 per annum until the Sixth Floor
Expansion Space Term Commencement Date, and
thereafter at the rate of $634,315.50 per
annum.
(c) Each of years three (3) through six (6)
of the Term of this Lease:
-------------------------------------------
$679,848"
7. Except as expressly provided herein, as used herein, all capitalized
terms shall have the same meaning as set forth in the Lease.
8. Except as herein expressly modified, the provisions of the Lease are
hereby confirmed and ratified and shall continue in full force and effect.
IN WITNESS WHEREOF, Landlord and Tenant have caused this instrument to
be executed under seal, all as of the day and year first above written.
RIVERFRONT OFFICE PARK JOINT VENTURE
By: RIVERFRONT OFFICE PARK ASSOCIATES
By: DARVEL REALTY TRUST
Managing General Partner
By: [Signature of Michael P. Sullivan]
---------------------------------------
Michael P. Sullivan, Vice President
PEGASYSTEMS INC.
By: [Signature of Ira Vishner]
--------------------------------------
Vice President
8/3/94
3
<PAGE>
EXHIBIT B
---------
SIXTH FLOOR EXPANSION SPACE TENANT IMPROVEMENTS
------------------------------------------------
A. IMPROVEMENTS
------------
1. Landlord's Work. Landlord shall cause the fit-up work and tenant
improvements specified in the Sixth Floor Expansion Space Approval Final Plans
(as hereinafter defined) (all such work being referred to as "Tenant's
Improvements) to be substantially completed as provided herein.
2. Tenant's Cash Allowance. Landlord shall provide to Tenant allowance
(the "Fit- up Allowance") equal to the product of Twenty-five Dollars ($25.00)
multiplied by the Rentable Area of the Sixth Floor Expansion Space (11,514
square feet) to pay for the cost of Tenant's Improvements. For purposes hereof,
the cost of Tenant's Improvements shall be deemed to be the actual cost and
expense charged to Landlord by Landlord's contractor for said Tenant's
Improvements. In the event that the cost of Tenant's Improvements exceeds the
Fit-up Allowance, the excess cost shall be promptly paid by Tenant, upon written
request by Landlord, accompanied by reasonable supporting documentation
establishing the amount then due and payable. In the event that the cost of
Tenant's Improvements shall be less than the Fit-up Allowance (the difference
between the cost of Tenant's Improvements and the maximum Fit-up Allowance being
referred to as the "Fit-up Allowance Difference"), Landlord shall, credit the
Fit-up Allowance Difference to Rent payable by Tenant under the Lease. Landlord
will reimburse Tenant the sum of $16,635.63 to pay for the architectural and
engineering costs and expenses of Tenant's Architect, Kodis Associates, in
connection with the preparation of the Approved Final Plans and Specifications,
within thirty (30) days following receipt by Landlord of invoices and supporting
documentation thereof.
B. PLANS AND SPECIFICATIONS
------------------------
1. Preparation of Plans and Specifications. Landlord's Architect shall
prepare architectural working drawings and specifications for the build out of
the fit-up work to be done to the Sixth Floor Expansion Space. The final
architectural working drawings and specifications, as approved by Landlord and
Tenant, together with the electrical, mechanical and plumbing working drawings
and specifications, shall constitute the "Sixth Floor Expansion Space Approved
Final Plans". Landlord shall be solely responsible for the fees of Landlord's
Architect.
2. Time Requirements. The parties agree to the following time schedule:
By: Date Activity
- --------- ---------
July 15, 1994 Kodis Associates to submit preliminary
telephone/data/electrical outlet location plan to Tenant for
review and approval.
8/3/94
<PAGE>
July 18, 1994 Kodis Associates to complete design development for
review and approval by Tenant.
July 20, 1994 Landlord's Architect to send out requests for
proposals to construction managers.
July 21, 1994 Tenant to submit marked up telephone/data/electrical
outlet plans back to Kodis Associates for completion of these
drawings.
July 22, 1994 Kodis Associates to submit final
telephone/data/electrical outlet locations plans to Bryer
Architects for distribution to engineers.
July 27, 1994 Construction manager selected.
August 1, 1994 Construction manager to bid demolition work.
August 12, 1994 Construction drawings complete by Kodis Associates,
Bryer Architects, and Cosentini.
August 29, 1994 Subcontractor bids due.
August 31, 1994 Demolition completed.
September 6, 1994 Construction begins.
October 26, 1994 Construction substantially completed.
November 1, 1994 Commencement date.
C. INSPECTION
----------
Tenant is authorized by Landlord to make periodic inspections of the
Sixth Floor Expansion Space during construction provided that such inspections
are made during normal business hours and that Tenant is accompanied by a
representative of the Landlord or Landlord's contractor.
D. FINAL INSPECTION OF SIXTH FLOOR EXPANSION SPACE
-----------------------------------------------
Prior to the Sixth Floor Expansion Space Term Commencement Date, Tenant
together with the Landlord's Architect and contractor shall make a final
inspection of the Sixth Floor Expansion Space to ascertain whether substantial
completion has occurred. A punchlist of items to be completed or corrected shall
be prepared.
8/3/94
5
<PAGE>
E. PAYMENT OF TENANT COSTS
-----------------------
In the event of a default by Tenant in payment of any amount payable by
Tenant under this Exhibit B, Landlord shall (in addition to all other remedies)
have the same rights as in case of default in Rent under the Lease.
1-263292.1
8/3/94
6
<PAGE>
[Graphic showing floorplan]
EXHIBIT A - 11,514 RSF
BRYER ARCHITECTS
1208 MASSACHUSETTS AVE
P.O. BOX 1545
CAMBRIDGE, MA 02238
617-864-8019
101 MAIN STREET
CAMBRIDGE, MA 02142
TENANT: PEGASYSTEMS INC
DATE: 08/10/94
6TH FLOOR KEY PLAN
NOTE: THIS DRAWING IS FOR
DESCRIPTIVE PURPOSES
ONLY. IT HAS BEEN
REDUCED FROM ITS
ORIGINAL SCALE.
Subsidiaries of Pegasystems Inc.
--------------------------------
Name of Subsidiaries and Jurisdiction of Organization
-----------------------------------------------------
Name of Subsidiary Jurisdiction of Organization
------------------ -----------------------------
Pegasystems Limited England
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and
"Selected Consolidated Financial Data" and to the use of our report dated May
6, 1996 (except for Notes 10 and 11, as to which the date is , 1996), in
the Registration Statement on Form S-1 and the related Prospectus of
Pegasystems Inc. for the registration of 3,910,000 shares of its common
stock.
Our audits also included the financial statement schedule of Pegasystems
Inc. located at Exhibit 99.1. This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
ERNST & YOUNG LLP
Boston, Massachusetts
The foregoing consent is in the form that will be signed upon the
completion of the restatement of capital accounts described in Note 10 to the
financial statements.
ERNST & YOUNG LLP
Boston, Massachusetts
May 14, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's consolidated financial statements, and notes thereto, included in the
Company's registration statement, to which this schedule is an exhibit, and is
qualified in its entirety by reference to such consolidated financial
statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 MAR-31-1996
<CASH> 510,424 2,643,997
<SECURITIES> 0 0
<RECEIVABLES> 9,330,064 10,061,639
<ALLOWANCES> 433,887 433,887
<INVENTORY> 0 0
<CURRENT-ASSETS> 9,831,788 12,613,282
<PP&E> 3,482,849 3,703,767
<DEPRECIATION> (1,311,130) (1,561,056)
<TOTAL-ASSETS> 25,875,152 26,554,686
<CURRENT-LIABILITIES> 5,408,485 5,661,215
<BONDS> 1,597,777 1,402,361
0 0
0 0
<COMMON> 234,900 234,900
<OTHER-SE> 14,438,552 14,893,086
<TOTAL-LIABILITY-AND-EQUITY> 14,673,452 15,127,986
<SALES> 0 0
<TOTAL-REVENUES> 22,247,182 4,941,149
<CGS> 0 0
<TOTAL-COSTS> 6,796,461 1,523,083
<OTHER-EXPENSES> 12,193,382 2,962,402
<LOSS-PROVISION> 793,310 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 4,641,137 796,743
<INCOME-TAX> 1,763,632 318,697
<INCOME-CONTINUING> 2,877,505 478,046
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,877,505 478,046
<EPS-PRIMARY> .11 .02
<EPS-DILUTED> .11 .02
</TABLE>
Exhibit 99.1
PEGASYSTEMS, INC.
Schedule II
Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Additions
Charged
Balance at to
beginning costs Balance at
of and end of
Description period expenses Deductions period
- ------------------------------- ---------- -------- --------- ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1995
Allowance for doubtful
accounts $ 0 $793,310 $359,423 433,887
Year ended December 31, 1994
Allowance for doubtful
accounts 340,041 0 340,041 0
Year ended December 31, 1993
Allowance for doubtful
accounts 18,087 325,862 3,908 340,041
</TABLE>
