

                           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

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<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.


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         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




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<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


