SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported): October 30, 1997
Pegasystems Inc.
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(Exact Name of Registrant as Specified in Charter)
Massachusetts 1-11859 04-2787865
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(State or Other Jurisdiction (Commission File (IRS Employer
of Incorporation) Number) Identification Number)
101 Main Street, Cambridge, MA 02142
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (617) 374-9600
Item 4. Changes in Registrant's Certifying Accountant.
(i) On October 30, 1997, the client-auditor relationship between
Pegasystems Inc. (the "Registrant") and Ernst & Young LLP ("E&Y") ceased as the
result of E&Y's resignation.
(ii) The reports of E&Y on the Registrant's financial statements for the
Registrant's two most recent fiscal years did not contain an adverse opinion or
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope, or accounting principles.
(iii) The termination of the client-auditor relationship between the
Registrant and E&Y was recommended by the board of directors of the Registrant
prior to E&Y's resignation.
(iv) (1) To the Registrant's knowledge, during the Registrant's two most
recent fiscal years ended December 31, 1996, there was no disagreement between
the Registrant and E&Y on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedures, which
disagreement, if not resolved to the satisfaction of E&Y, would have caused it
to make a reference to the subject matter of the disagreement in connection with
its report.
During the interim period subsequent to December 31, 1996 and prior to
October 30, 1997, there was no disagreement of the type described in the
immediately preceding paragraph between the Registrant and E&Y, except for a
disagreement which arose in late October 1997 concerning the Registrant's
financial statements for the quarter ended June 30, 1997. The disagreement
involves the appropriate accounting treatment for a series of transactions (the
"FDR Transactions") entered into by the Registrant with First Data Resources
Inc. ("FDR") in June 1997. Contrary to the expectations of the Registrant based
on its discussions with E&Y at the time the FDR Transactions were being
negotiated, E&Y recently advised the Registrant that $5 million of software
license revenue recognized by the Registrant in the quarter ended June 30, 1997
from one of the FDR Transactions should not have been recognized in that
quarter. Accordingly, E&Y has advised the Registrant to restate its financial
statements for the three and six month periods ended June 30, 1997.
The Registrant is in the process of reviewing E&Y's position with
respect to the FDR Transactions and the impact of that position on the
Registrant's financial statements for the quarter ended June 30, 1997.
(2) The board of directors of the Registrant discussed the subject
matter of the disagreement referenced above with E&Y.
(3) The Registrant has authorized E&Y to respond fully to the
inquiries of the successor accountant concerning the subject matter of the
disagreement referenced above. The Registrant has not yet engaged a successor
accountant.
(v) (1) The Registrant is unaware of the occurrence of any of the kinds
of events described in subparagraphs (A)-(D) of Item 304(a)(1)(v) of Regulation
S-K as promulgated by the Securities and Exchange Commission, except for the
disagreement referenced above and except that E&Y advised the Registrant that it
disagreed with the accounting approaches preliminarily proposed by the
Registrant for recognizing revenue from the FDR Transactions in the quarter
ended September 30, 1997 (the "reportable event"). The Registrant is in the
process of determining the proper accounting for the FDR Transactions in the
quarter ended September 30, 1997 and therefore does not necessarily have a
difference of opinion with E&Y with respect thereto.
(2) The board of directors of the Registrant discussed with E&Y the
reportable event.
(3) The Registrant has authorized E&Y to respond fully to the
inquiries of the successor accountant concerning the reportable event.
(vi) The Registrant has provided E&Y with a copy of this report on Form 8-K
and has requested E&Y to furnish it with a letter addressed to the Securities
and Exchange Commission stating whether it agrees with the above statements and,
if not, stating the respect in which it does not agree. A copy of such letter
will be filed by amendment to this report on Form 8-K as Exhibit 16.1.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
Exhibit No. Description
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*16.1 Letter of Ernst & Young LLP to the Securities and
Exchange Commission.
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* To be filed by amendment.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on behalf of the undersigned
thereunto duly authorized.
Date: November 5, 1997 PEGASYSTEMS INC.
By:
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Ira Vishner
Vice President, Corporate
Services, Treasurer, Chief
Financial Officer