According to the Company’s Form 10-K for the fiscal year ended December 31, 2000, in September 2000, the parties entered into a stipulation of settlement, pursuant to which the Company agreed to pay $5.25 million in shares of its common stock or in cash for the benefit of a stipulated class defined to include all purchasers of the Company's common stock between July 29, 1997 and October 29, 1997, inclusive (the "Class"), in return for the action being dismissed in its entirety. On December 19, 2000, the Court entered a final judgement, approving the terms of the settlement as fair, reasonable, adequate and in the best interests of the Class, and dismissing the action with prejudice. Pursuant to the Court's final order, the Company issued to the Settlement Fund 1,385,000 shares of Pegasystems common stock and contributed $250,000 in cash. Certain members of the Board of Directors purchased the shares from the Settlement Fund for $5.0 million in cash. Together with cash previously advanced, the total value paid to the Class for the settlement of the Chalverus litigation was $5.25 million.

As a result of complaints filed in 1997 and 1998 in the United States District Court of Massachusetts (the "Court"), which were subsequently consolidated into a single complaint, (the "Amended Complaint" or the "Chalverus Case"), the Company has been engaged in litigating matters related to a restatement of its financial statements in 1997. The Amended Complaint alleged that the Company and two officers caused the issuance of false and misleading financial statements for the fiscal quarter ended June 30, 1997 by inappropriately including $5 million in revenue from a series of contracts with First Data Resources, Inc. The Amended Complaint alleged that as a result of the inclusion of such revenue in the Company's financial statements for that quarter, the market price of the Company's common stock was artificially inflated, causing damage to purchasers of the Company's common stock.

The original Complaint in the action charges the defendants with violations of the federal securities laws (Sections 10(b) and 20 of the Securities Exchange Act of 1934) for, among other things, misrepresenting and/or omitting material information concerning Pegasystems' reported operating results for the second quarter of fiscal year 1997 (ended June 30, 1997).