10-K405

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

For Annual and Transition Reports

Pursuant to Sections 13 or 15(d)

of the Securities Exchange Act of 1934

(Mark One)

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended October 31, 2001

or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                     to                     .

Commission File Number 0-29251

FIREPOND, INC.

(Exact name of registrant as specified in its charter)

Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
890 Winter Street,
Waltham, Massachusetts
(Address of principal executive offices) 41-1462409
(I.R.S. Employer
Identification No.)
02451
(Zip Code)

(781) 487-8400

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.01 par value

(Title of Class)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes þ    No o

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment of the Form 10-K. þ

     The aggregate market value of voting stock held by non-affiliates of the Registrant was approximately $25,433,178 as of December 31, 2001 based on the closing price of the Common Stock as reported on the Nasdaq Stock Market for that date. There were 37,348,861 shares of the Registrant’s Common Stock issued and outstanding on December 31, 2001.

Documents Incorporated by Reference

     Portions of the Registrant’s definitive proxy statement, which is expected to be filed not later than 120 days after the Registrant’s fiscal year ended October 31, 2001, to be delivered in connection with the Registrant’s Annual Meeting of Stockholders, are incorporated by reference into Part III of this Form 10-K.

TABLE OF CONTENTS

PART I
	Item 1.Business
	Item 2.Properties
	Item 3.Legal Proceedings
	Item 4.Submission of Matters to a Vote of the Security Holders
PART II
	Item 5.Market for Registrants Common Stock and Related Stockholder Matters
	Item 6.Selected Consolidated Financial Data
	Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 7A.Quantitative and Qualitative Disclosures About Market Risk
	Item 8.Financial Statements and Supplementary Data
	Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
PART III
	Item 10.Directors and Executive Officers of the Registrant
	Item 11.Executive Compensation
	Item 12.Security Ownership of Certain Beneficial Owners and Management
	Item 13.Certain Relationships and Related Transactions
PART IV
	Item 14.Exhibits, Financial Statement Schedules and Reports on Form 8-K
EX-10.3 Amended and Restated 1997 Stock Option
EX-10.4 Amended and Restated 1999 Stock Option
EX-10.5 Amended and Restated 1999 Director Plan
EX-10.7 Form of Stock Option Agreement-Directors
EX-10.8 Form of Stock Option Agreement-Others
EX-10.11 Relocation Agreement
EX-10.12 Offer Letter-Joel Radford
EX-10.13 Offer Letter-John Keighley
EX-10.14 Amendment to Offer Letter-John Keighley
EX-10.15 Offer Letter-Cem Tanyel
EX-10.17 Amendment to Lease of 890 Winter Street
EX-10.18 Lease of 1401 Los Gamos
EX-21.1 Subsidiaries
EX-23.1 Consent of Arthur Andersen LLP

TABLE OF CONTENTS

		Page No.
Part I
Item 1.	Business		2
Item 2.	Properties		18
Item 3.	Legal Proceedings		18
Item 4.	Submission of Matters to a Vote of the Security Holders		19
Part II
Item 5.	Market for Registrant’s Common Equity and Related Stockholder Matters		20
Item 6.	Selected Consolidated Financial Data		20
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		22
Item 7A	Quantitative and Qualitative Disclosures about Market Risk		35
Item 8.	Consolidated Financial Statements and Supplementary Data		35
Item 9.	Changes in Disagreements with Accountants on Accounting and Financial Disclosures		35
Part III
Item 10.	Directors and Executive Officers of the Registrant		35
Item 11.	Executive Compensation		35
Item 12.	Security Ownership of Certain Beneficial Owners and Management		35
Item 13.	Certain Relationships and Related Transactions		35
Part IV
Item 14.	Exhibits, Financial Statement Schedules and Reports on Form 8-K
	Financial Statements		36
Signatures			37

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PART I

Special Note Regarding Forward-Looking Information

      Certain statements contained in this Annual Report on Form 10-K, including information with respect to our future business plans, constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words “believes,” “plans,” “expects,” “intends” and similar expressions are intended to identify forward-looking statements. There are a number of important factors that could cause our results to differ materially from those indicated by such forward-looking statements. These factors include those set forth in the section titled “Factors that May Affect Future Results and Market Price of our Common Stock.”

      Readers are cautioned not to place undue reliance on the forward-looking statements, including statements regarding the Company’s expectations, beliefs, intentions or strategies regarding the future, which speak only as of the date of this Annual Report on Form 10-K. The Company undertakes no obligation to release publicly any updates to the forward-looking statements included herein after the date of this document.

Item 1.     Business

Firepond Solutions

      Firepond is a leading provider of intelligent guided selling and online customer assistance solutions. With our complementary guided selling and guided service software suites, today’s enterprises can accelerate acquisition of new customers, improve satisfaction of existing customers and make both new and existing customers more profitable over the long-term.

      The Company’s product lines leverage advanced intelligence engines and patented automation technology to drive new revenue streams, increase profitability, and manage customer interactions across all channels and throughout the sales and service cycle. Our SalesPerformer^TM Suite of guided selling software products help companies improve their sales performance across all selling channels, with products for web selling, field sales, channel sales, sales configuration, and sales administration. In addition, our complementary eServicePerformer^TM Suite of guided service software products delivers superior online service experiences at every eCustomer touchpoint, with web, email and live assistance products.

      Firepond’s SalesPerformer Suite provides a comprehensive spectrum of interactive selling functionality to help companies rapidly and cost-effectively acquire customers across Web, and through direct and indirect sales channels. Further, the SalesPerformer products simplify the traditionally complex sale by streamlining and accelerating the sales cycle — from customer profiling and opportunity management to needs analysis and product recommendations to highly accurate price optimization and order configuration. Sales stages that had previously taken days or weeks — such as detailed product configuration, accurate pricing application, delivering financing options, and proposal generation — are completed on the spot.

      Firepond’s eServicePerformer Suite initiates and maintains excellent customer relationships while simultaneously reducing costs to increase customer loyalty before, during and after the sale. eServicePerformer products automate and streamline customer assistance operations to provide intelligence and flexibility in managing and responding to emails, web self-service and live online customer interaction, all which reduce contact center costs.

      Firepond’s customer base includes some of the biggest names in global industry today and represents a broad range of market segments.

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Strategy

      Our mission is to be the leading provider of intelligence-driven software systems that solve the most difficult aspects of customer acquisition and retention and quantifiably improve sales and service effectiveness. To achieve this goal, key elements of our strategy include:

•  Market and sell our products and services to our “sweet spot” vertical market segments. We currently offer our SalesPerformer Suite of guided selling solutions to primarily the discrete manufacturing, insurance, and telecommunications sectors and offer our eServicePerformer Suite of guided service solutions to a broader spectrum of enterprises across a number of vertical industries. Firepond has targeted and will continue to target selected vertical industries with complex products, services or channel relationships as well as organizations with a distributed and connected customer base or dealer/broker network. Target vertical markets include insurance and financial services, manufacturing, high technology, telecommunications, and transportation. We believe that our focused pursuit of these targeted markets increases our ability to offer solutions that meet the unique needs of our target customers, which may vary greatly across industry segments.

•  Continue to develop and implement leading-edge products. We will continue to seek to provide products that deliver the most robust functionality and that provide our customers the greatest return on their investment To this end, we have assembled a world-class engineering organization and continue to invest in research and development activities. In addition, we have tremendous depth in our domain expertise with both of our product suites from a professional services standpoint. Although we will plan to work with systems integrator partners more in fiscal 2002, we will continue to maintain our own professional services organization and leverage the many years of domain expertise of these individuals to help us successfully, and more rapidly implement our software solutions.

•  Work with partners to extend our footprint. Our partner program is focused on developing four types of relationships: (1) strategic implementation relationships focused on co-selling; (2) complementary software relationships focused on pre-built integration and co-selling; (3) complementary technology relationships focused on hardware and platform standards; and (4) indirect distribution channels. Our current alliances include companies such as Accenture, Cap Gemini Ernst & Young, Intelligroup, IBM, Logica, Deutsche Telekom, Fujitsu, Hitachi, BEA, Technology Solutions Company, SilverStream, Cognos, Hyperion and Aspect Communications. These alliances help extend our market coverage from both a sales and implementation perspective, provide us with new business leads, and allow us to provide our customers with a broader solution. We will seek to strengthen our relationship with partners that support our global strategy and partners that work with our key clients.

•  Offer Packaging and Pricing Flexibility to Strategically Penetrate Global 5000 Accounts. We offer suites of products which may be purchased as separate components or as an enterprise platform for integrated e-business sales and service solutions. This has allowed us to penetrate accounts that differ greatly in their current stages of developing and implementing their e-business strategies. When we are successful in selling our independent component offerings, we create future opportunities for up-selling customers to our enterprise platform. In addition, we offer a migration path to an enterprise platform for integrated e-business sales and marketing solutions to increase the likelihood that we will successfully sell our independent components to accounts that are not yet ready for enterprise-wide solutions. We also offer innovative pricing alternatives such as annual licensing and transaction-based pricing that provide our customers with a wide variety of licensing options. We will continue to package and price our product offerings in a fashion designed to remove sales barriers and create recurring revenue streams.

•  Maintain Our International Presence. During fiscal 2001, we leveraged our investment in our global infrastructure to target leading businesses worldwide. We believe that our international presence is an asset and a competitive differentiator and are committed to maintaining our presence in the geographies in which we currently operate. In addition, we plan to use new customers and existing and new partner relationships to complement our infrastructure and grow market share in international markets.

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Firepond Products

      Firepond provides two complementary software suites — the SalesPerformer Suite of guided selling solutions and the eServicePerformer Suite of guided service solutions.

      SalesPerformer Suite: Powered by a patented sales configuration intelligence engine, Firepond’s SalesPerformer Suite unifies Web, direct and indirect sales efforts, without challenging and frustrating channel integration. By using the SalesPerformer Suite, companies with complex products or services can sell more consistently through whichever channel the customer chooses, and reap the benefit of lower sales costs, increased conversion rates, and simpler sales administration.

      SalesPerformer products make it easier for customers to buy and for sales channels to sell. These solutions also ensure that the right products are sold to the right customers at the right price points — simultaneously building customer satisfaction and boosting company profitability. The SalesPerformer Suite automates the consultative process of matching products and services to a customer’s exact specifications — from analyzing customers’ needs and comparing and recommending product features, to configuring products and presenting accurate and consistent price quotes.

      The SalesPerformer Suite makes it easy to maintain a unified, global perspective of each customer’s interactions across all sales channels. All customer and transaction data is stored in one database accessed by each selling application. This data repository continually gathers activity and preferences, so a company’s sales are always based on the most up-to-date customer information. One set of business rules, product data, and pricing powers selling through multiple channels, greatly simplifying maintenance. Additionally, the SalesPerformer Suite makes it easier to track and update valuable customer profile information across sales channels to develop more timely and effective sales and marketing strategies.

      Firepond’s SalesPerformer products provide a comprehensive spectrum of interactive selling functionality to help companies rapidly and cost-effectively acquire customers across Web, and through direct and indirect sales channels.

      eServicePerformer Suite: Firepond’s eServicePerformer Suite helps ensure that Internet interactions translate into profitable sales and exceptional customer satisfaction and retention, without increasing an organization’s customer service costs. The eServicePerformer Suite provides customers with knowledgeable, responsive help — whether they are visiting a company’s Web site, communicating by email, or seeking real-time assistance from customer service representatives. The eServicePerformer solutions engage visitors with intelligent Web self-service, deliver rapid, accurate, and consistent email responses, and provide a smooth transfer to live assistance for instant answers.

      Driven by intelligence engines and automation technologies, and leveraging natural language processing, Firepond’s eServicePerformer products enhance the quality of customer service operations by allowing companies to replicate best practices across a variety of interactions, and replicate knowledge across multiple channels. With eServicePerformer products handling routine and mundane inquiries automatically, an organization’s customer service staff is able to concentrate on more interesting challenges, increasing overall job satisfaction.

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      The table below provides a list of each component within the two complementary product suites and a brief description of the features of each such component.

Firepond Products	Description
SalesPerformer Suite Components
SalesPerformer Configurator	Industry-leading configuration engine for interactive selling of complex products and services, including needs analysis, complex product recommendation and configuration, pricing configuration and quotation, and presentation and proposal generation.
Web SalesPerformer	A complete system for interactive selling of complex products and services via the Internet.
Field SalesPerformer	A complete system for interactive selling of complex products and services via a direct sales force that applies best practices and maximizes sales force effectiveness in every selling interaction.
Channel SalesPerformer	A complete system for interactive selling of complex products and services via a channel organization, such as a dealer or broker network that ensures the delivery of a consistent and accurate selling interaction across all partner networks.
eServicePerformer Suite Components
eServicePerformer Contact Center	A knowledge-based customer service agent productivity center that provides contact center managers with the tools necessary to create satisfactory customer interactions across all online touch-points.
eServicePerformer Answer	A knowledge-based email response management system that rapidly interprets incoming customer inquiries and generates accurate responses that can be sent directly to online customers or to customer service agents for review prior to distribution.
eServicePerformer Concierge	A knowledge-based guided service solution that delivers web content or text answers to online customer inquiries, guiding the interaction through the most appropriate service channel.
eServicePerformer Converse	A knowledge-based live interaction system that enables companies to interact and collaborate with their online customers in real-time.

Firepond Product Packaging and Pricing

      Firepond offers a variety of packaging and pricing options for the SalesPerformer and eServicePerformer Suites, to achieve flexibility in aligning our technology with companies in different stages of executing their e-business strategies. Customers seeking an enterprise platform for integrated e-business sales and service may license the entire SalesPerformer Suite and the entire eServicePerformer Suite. Conversely, selected components of each suite are available as individual packaged solutions tailored to specific sales or service channels or specific vertical industry segments to meet a company’s diverse channel selling needs. With each of these channel solutions, additional functional and technology components are available as options. By offering this variety of packaging options, we allow our customers to make strategic investments in our technology, without necessarily committing to a larger enterprise platform.

      We also offer a wide variety of pricing options to our customers. We currently offer our packaged software solutions and options on a price per user or group of concurrent users basis. We also offer transaction-based

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pricing that ties the overall cost of owning our software to the value provided to the customer. To date, substantially all of our licenses have been perpetual licenses. License fees for our products typically range from approximately several hundred thousand dollars to several million dollars for our SalesPerformer product line and from approximately fifty thousand to five hundred thousand dollars for our eServicePerformer product line.

      Firepond announced major upgrades to both its SalesPerformer and eServicePerformer Suites in fiscal 2001. Firepond’s SalesPerformer Suite was originally announced in December 2000 while the eServicePerformer Suite became available in February 2001, after the Company completed its acquisition of Brightware, Inc. Prior to December 2000, our product line consisted of the Firepond Application Suite, including Firepond Commerce, Firepond Sales, Firepond Sales Manager, and Firepond Business Rule Engine. Version 1.0 of the Firepond Application Suite was released in October 1999, and Version 2.0 was released in July 2000. The SalesPerformer Suite is a renaming of the components that comprised the Firepond Application Suite and a repackaging of these components to provide an offering of different channel selling solutions and available options that closely align with the needs of our target customers.

Professional Services and Support

      We offer a range of professional services worldwide that help companies use the packaged software functionality of the SalesPerformer and eServicePerformer suites to create deployments that are highly specific to their businesses. Our worldwide professional services personnel typically have extensive experience in the deployment of enterprise-scale selling systems. When we assist companies in the implementation of our product suite, or one of its components, we help them determine how their individual selling strategies can be reflected in our packaged technology.

      We have developed an innovative approach and rigorous methodology for industry-specific implementations. Offered in specific vertical industries, our vertical implementation templates ensure rapid and successful deployment of applications. Our expert professional services team worldwide help customers and third party integrators implement products which have been licensed.

      Quality training offers the most effective way for customers to derive maximum benefit from their investment. We train users around the world, and we tailor training materials to the unique requirements of individual customers.

      We offer comprehensive support of the eService and SalesPerformer suites to our customers and partners worldwide. Support services are provided under annual software maintenance contracts. These contracts are renewable at the customer’s option and provide for online access to product documentation & FAQs, support by e-mail or telephone to report problems or request technical assistance, and notification of service pack and upgrade availability. 24x7 phone support is available for critical issues. Technical support also provides data maintenance, enhancement, and end-user support services, not covered by the maintenance agreement, on a time & materials.

      Our technical support analysts are highly trained and average over four years of experience with Firepond. Support centers are located in our offices in Fleet, United Kingdom; Mankato, Minnesota; Minneapolis, Minnesota; San Rafael, California and Tokyo, Japan.

Sales and Marketing

      We market and sell our products primarily through our direct sales force, which is located throughout North America, Europe and Japan. In North America, the Firepond sales organization is focused on our targeted vertical markets, with resources assigned to insurance and financial services, manufacturing, high technology, telecommunications and transportation. In Europe and Japan, the Firepond sales organization is

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deployed by geographic region, but focuses on the same vertical markets that we target in North America. We market and sell to other regions in Asia through a third party distributor.

      We have multi-disciplined sales teams that consist of sales, technical and sales support professionals. Our senior management also takes an active role in our sales efforts. Frequently, we use SalesPerformer Workbench to develop customer-specific demonstrations of Web SalesPerformer and Field and Channel SalesPerformers to support selling cycles which we or our partners then use as a basis for the actual full-scale implementations. We typically direct our sales efforts to the chief executive officer, the chief information officer, the vice presidents of sales and marketing and other senior executives responsible for e-business or multiple selling strategies at our customers’ organizations.

      We have sales offices in Waltham, Massachusetts; Bloomington, Minnesota; Mankato, Minnesota; San Rafael, California Naarden, The Netherlands; Fleet, England; Paris, France and Tokyo, Japan.

      A key element of our growth strategy is the formation of strategic relationships with industry leaders whose business offerings complement our own. We believe that these relationships allow us to scale our business rapidly and effectively, by enabling the expansion of our:

•  global brand exposure;

•  pipeline of qualified sales opportunities;

•  capacity to effectively implement our software offerings for new customers; and

•  ability to deliver enhanced value to our customers.

      Firepond has successfully established relationships with large, international systems integrators and consulting services companies, including Cap Gemini Ernst & Young, Intelligroup, IBM, Logica, Deutsche Telekom, Fujitsu, Hitachi and BEA. We intend to expand these relationships and add new relationships in this area to increase our capacity to sell and implement our products on a global basis. With existing partners, such as Cap Gemini Ernst & Young and Intelligroup, we align our relationships to coincide with our target vertical markets, including the healthcare/ insurance, telecommunications, and automotive market sectors. We will continue to pursue relationships that augment our vertical market strategy.

      Firepond’s marketing organization utilizes a variety of programs to support our sales efforts, including market and product research analysis, product and strategy updates with industry analysts, public relations activities and speaking engagements, internet-based and direct mail marketing programs, seminars and trade shows, brochures, data sheets and white papers and web site marketing.

      As of October 31, 2001, Firepond’s sales and marketing organization consisted of 48 employees.

Customers

      Firepond has targeted and will continue to target selected vertical industries with complex products, services or channel relationships as well as organizations with a distributed and connected customer base or dealer/broker network. Target vertical markets include insurance and financial services, manufacturing, high technology, telecommunications and transportation. The following is a list of some of our better-known customers to whom we have provided our products or services in fiscal 2001:

ABB

Abbey National

AT&T Wireless

Bank of Ireland

Bank of Scotland

BestBuy.com

Borders.com

Blue Cross and Blue Shield

  of Minnesota

BT Ignite

Compaq

Continental Airlines

Empire BlueCross BlueShield

France Telecom

Freightliner

Golden 1 Credit Union

Hitachi Construction

  Machinery

Horizon Blue Cross Blue

  Shield of New Jersey

John Deere

Nationwide Building Society

Renault V.I.

Ricoh

SBLI Mutual Life

Scania

Sikorsky Aircraft Company

Steelcase

TD Waterhouse

Telenordia

Ticketmaster.com

Virgin Mobile

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      In fiscal 2001, Freightliner accounted for more than 10% of our total revenue. In fiscal 2000, General Motors and Freightliner each accounted for more than 10% of our total revenue. In fiscal 1999, General Motors and Blue Cross Blue Shield of Minnesota each accounted for more than 10% of our total revenue.

Research and Development

      As of October 31, 2001, Firepond employed 58 people in research and development throughout its U.S. offices. This team is responsible for product planning, design and development of functionality within the SalesPerformer and eServicePerformer Suites, general release and quality assurance functions, third party integration and developing templates for target vertical industries.

      In 2001 we contracted with two third party offshore companies to provide software development and implementation services on an outsourced basis: EPAM Systems and Elbrus. EPAM Systems, based in Minsk, Belarus, provide software developers dedicated to our SalesPerformer related projects. Similarly, Elbrus, based in Moscow, Russia, provides software developers dedicated to our eServicePerformer related projects. Both of these companies assist Firepond to develop products and application functionality based on specifications provided by Firepond engineering personnel.

      As of October 31, 2001, Firepond had a total of 32 active contract engineers. Of these 32, 25 were EPAM contractors and 5 were Elbrus contractors. The number of contract engineers was reduced during the course of our 2001 fiscal year. Firepond management plans to continue to reduce the level of offshore involvement in software development and implementation from the October 31, 2001 levels.

      Firepond research and development expenses were $18.8 million for fiscal 2001, $15.3 million for fiscal 2000, and $9.6 million for fiscal 1999. We expect to continue to invest in research and development in the future.

Competition

      The market for guided selling and guided service solutions is intensely competitive, fragmented and subject to rapid technological change. The principal competitive factors in this market include:

•  adherence to emerging Internet-based technology standards;

•  comprehensiveness of applications;

•  adaptability, flexibility and scalability;

•  real-time, interactive capability with customers, partners, vendors and suppliers;

•  ability to support vertical industry requirements;

•  ease of application use and deployment;

•  speed of implementation;

•  customer service and support; and

•  initial price and total cost of ownership.

      Because we offer both independent packaged applications, as well as an enterprise platform for integrated e-business sales and service solutions, we consider a number of companies in different market categories to be our competitors. Companies focused on providing sales configuration solutions for e-commerce and traditional sales channels include Selectica and Trilogy Software. Companies focused on providing online customer interaction solutions, specifically email response management systems, included KANA Communications and eGain. Companies that offer enterprise platforms for customer relationship management include Oracle Corporation, SAP and Siebel Systems. There are a substantial number of other companies focused on providing Internet-based software applications for customer relationship management that may offer competitive products in the future. We believe that the market for guided selling and guided service solutions is still in its formative stage, and that no currently identified competitor represents a dominant presence in this market.

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      We expect competition to increase as a result of software industry consolidation. For example, a number of enterprise software companies have acquired point solution providers to expand their product offerings. Our competitors may also package their products in ways that may discourage users from purchasing our products. Current and potential competitors may establish alliances among themselves or with third parties or adopt aggressive pricing policies to gain market share. In addition, new competitors could emerge and rapidly capture market share.

      Although we believe we have advantages over our competitors in terms of the functionality and comprehensiveness of our solution, as well as our targeted vertical focus, there can be no assurance that we can maintain our competitive position against current and potential competitors, especially those with longer operating histories, greater name recognition or substantially greater financial, technical, marketing, management, service, support and other resources.

Intellectual Property

      We believe our intellectual property rights are significant and that the loss of all or a substantial portion of our intellectual property rights could seriously harm our success and ability to compete. We rely on a combination of copyright, patent, trade secret, trademark, and other intellectual property laws, nondisclosure agreements and other protective measures to protect our proprietary rights. There can be no assurance that our intellectual property protection measures will be sufficient to prevent misappropriation of our technology. Some of our contracts with our customers contain escrow arrangements with a third party escrow agent which provide these companies with access to our source code and other intellectual property upon the occurrence of specified events. Further, from time to time, we have licensed our source code to customers and other partners. This access could enable these companies to use our intellectual property and source code creating a risk of disclosure or other inappropriate use. A third-party development organization located in Minsk, Belarus has access to our source code and other intellectual property rights. Despite our contractual protections, this access could enable them to use our intellectual property and source code to wrongfully develop and manufacture competing products, which would adversely affect our performance and ability to compete. In addition, we cannot be certain that others will not independently develop substantially equivalent intellectual property, gain access to our trade secrets or intellectual property, or disclose our intellectual property or trade secrets. Furthermore, the laws of many foreign countries do not protect our intellectual property to the same extent as the laws of the United States. From time to time, we may desire or be required to renew or to obtain licenses from others to enable us to develop and market commercially viable products effectively. There can be no assurances that any necessary licenses will be available on reasonable terms, if at all.

      From time to time, third parties may assert claims or initiate litigation against us or our technology partners alleging that our existing or future products infringe their proprietary rights. We could be increasingly subject to infringement claims as the number of products and competitors in the market for our technology grows and the functionality of products overlaps. In addition, we may in the future initiate claims or litigation against third parties for infringement of our proprietary rights to determine the scope and validity of our proprietary rights. Any claims, with or without merit, could be time-consuming, result in costly litigation and diversion of technical and management personnel, or require us to develop non-infringing technology or enter into royalty or licensing agreements. Royalty or licensing agreements, if required, may not be available on acceptable terms, if at all.

Employees

      At October 31, 2001, we had a total of 271 employees, of which 58 were in research and development, 48 were in sales and marketing, 44 were in finance and administration, and 121 were in professional services and support. None of our employees is represented by a labor union. We consider our relations with our employees to be good.

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Factors That May Affect Future Results and Market Price of our Common Stock

      As defined under the safe harbor provisions of The Private Securities Litigation Reform Act of 1995, except for the historical information contained herein, some of the matters discussed in this filing contain forward-looking statements regarding future events that are subject to risks and uncertainties. The following factors, among others, could cause actual results to differ materially from those described by such statements.

A continued slowdown in information technology spending could reduce the sale of our products

      Average license fees for our SalesPerformer Suite typically range from approximately several hundred thousand dollars to several million dollars. Often this represents a significant IT capital expenditure for the companies to which we target our sales efforts. In addition, regardless of the cost of our products, many companies may elect not to pursue information technology projects which may incorporate either of our product suites, or our individual components, as a result of the global information technology spending slowdown. As a result, if the current global slowdown in IT spending should continue, whether resulting from a weakened economy or other factors, we may be unable to maintain or increase our sales volumes and achieve our targeted revenue growth.

If e-business selling and customer service solutions are not widely adopted, we may not be successful

      Our products address a new and emerging market for e-business and services solutions. The failure of this market to develop, or a delay in the development of this market, would seriously harm our business. The success of our products depends substantially upon the widespread adoption of the Internet as a primary medium for commerce and business applications. The Internet infrastructure may not be able to support the demands placed on it by the continued growth upon which our success depends. Moreover, critical issues concerning the commercial use of the Internet, such as security, reliability, cost, accessibility and quality of service, remain unresolved and may negatively affect the growth of Internet use or the attractiveness of commerce and business communication over the Internet. In addition, we expect to derive the majority of our product license revenue in the future from the Firepond Application Suite and its component products, which were released in October 1999, and renamed and repackaged as the SalesPerformer Suite in December 2000. Our business depends on the successful customer acceptance of this new suite of products and we expect that we will continue to depend on revenue from new and enhanced versions of the SalesPerformer Suite our business would be harmed if our target customers do not adopt and expand their use of the SalesPerformer Suite and its component products.

We depend on key personnel and must attract and retain qualified personnel to be successful

      Our success depends upon the continued contributions of our senior management and sales and engineering personnel, who perform important functions, and would be difficult to replace. Specifically, we believe that our future success is highly dependent on Klaus P. Besier, our chairman and chief executive officer, and other senior management, sales and engineering personnel. The loss of the services of any key personnel, particularly senior management, sales personnel and engineers, could seriously harm our business.

      All members of our senior management team have joined Firepond since May 1997, and we continue to experience turnover at the senior management level. This places a significant burden on our management and our internal resources. If we are not able to maintain adequate infrastructure to support and manage our operations effectively our business could be harmed.

      We depend on our direct sales force for nearly all of our current sales and our growth depends on the ability of our direct sales force to increase sales to a level that will allow us to reach and maintain profitability. Our ability to increase our sales will depend on our ability to train and retain top quality sales people who are able to target prospective customers’ senior management, and who can productively and efficiently generate and service large accounts. Competition for these individuals is intense, and we may not be able to attract, assimilate or retain highly qualified personnel in the future. Turnover among our sales staff has been significant and a number of our employees have left or been terminated. If we are unable to retain qualified sales

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personnel, or if newly hired personnel fail to develop the necessary skills or to reach productivity when anticipated, we may not be able to increase sales of our products and services.

      In addition, our success depends in large part upon our ability to attract, train, motivate and retain highly technical, skilled employees, particularly software engineers and professional services personnel. Our failure to attract and retain the highly trained technical personnel that are integral to our product development, professional services and support teams may limit our ability to develop new products or product enhancements, and implement our products successfully.

Our workforce reductions and financial performance may adversely affect the morale and performance of our personnel and our ability to hire new personnel.

      In connection with our effort to streamline operations, reduce costs and bring our staffing and infrastructure in line with industry standards, we restructured our organization and reduced our workforce. We terminated 81 employees and 89 consultants in April, 2001, 157 employees and one consultant in June, 2001, and 125 employees in October, 2001. We have incurred costs aggregating of $8.5 million associated with these workforce reductions related to severance and other employee-related costs, and may incur further costs. Our restructuring may also yield unanticipated consequences, such as attrition beyond our planned reduction in workforce and loss of employee morale and decreased performance. Continuity of personnel is an important factor in the successful completion of our business plan and ongoing turnover in our personnel could materially and adversely impact our sales and marketing efforts, current customer implementations, and our development projects. We believe that hiring and retaining qualified individuals at all levels is essential to our success, and there can be no assurance that we will be successful in attracting and retaining the necessary personnel.

Recent material litigation could result in substantial costs and divert management attention and resources

      On October 19, 2001, General Motors Corporation filed a complaint against us alleging certain statutory and common law claims including breach of contract, coercion, fraud, and unfair and deceptive trade practices. General Motors’ claims relate to our original 1994 agreement with General Motors, as amended, and license agreements, services agreements and a general release entered into with us in May, 2000. We may incur substantial legal fees and expenses, and the litigation may divert the attention of some of our key management. Our defense of this litigation, regardless of its outcome, may be costly and time-consuming. Should the outcome of the litigation be adverse to us, we could be required to pay significant monetary damages to the plaintiffs, which could harm our business.

      In addition, since August 1, 2001, a number of securities class action complaints were filed against us, the underwriters of our initial public offering, and certain of our executives in the United States District Court for the Southern District of New York. The complaints allege that the underwriters of our initial public offering, Firepond and the other named defendants violated federal securities laws by making material false and misleading statements in the prospectus incorporated in our registration statement on Form S-1 filed with the SEC in November 1999. The complaints allege, among other things, that FleetBoston Robertson Stephens and the other underwriters solicited and received excessive and undisclosed commissions from several investors in exchange for which FleetBoston Robertson Stephens and the other underwriters allocated to these investors material portions of the restricted number of shares of common stock issued in connection with our initial public offering. The complaints further allege that FleetBoston Robertson Stephens and the other underwriters entered into agreements with its customers in which FleetBoston Robertson Stephens and the other underwriters agreed to allocate the common stock sold in our initial public offering to certain customers in exchange for which such customers agreed to purchase additional shares of our common stock in the after-market at pre-determined prices. Securities class action litigation can result in substantial costs and divert our management’s attention and resources, which could seriously harm our business.

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Failure to expand our relationships with third party channels as well as systems integrators and consulting firms would impede acceptance of our products and delay the growth of our revenue

      Our strategy includes expanding and increasing third party channels which license and support our products, such as resellers, distributors, OEMs, system integrators and consulting firms. This often requires that these third parties recommend our products to their customers and install and support our products for their customers. To increase our revenue and implementation capabilities, we must develop and expand our relationships with these third parties. In addition, if these firms fail to implement our products successfully for their clients, we may not have the resources to implement our products on the schedule required by the client which would result in our inability to recognize revenue from the license of our products to these customers.

We depend on third parties to assist in maintaining and developing certain components and also depend upon technology licensed to us by third parties, the loss of which could adversely affect out competitive position

      Although reduced from previous year’s levels, a portion of our product development work in regard to key components as well as some implementation services continue to be performed by third party organizations, including off-shore organizations in India, Russia and Belarus. In connection with these services such organizations may from time to time control certain components of our proprietary technology. Unpredictable events in the political, economic and social conditions in India, Russia and Belarus, or our failure to effectively manage these organizations may hinder our ability to retrieve or cause us to lose certain components of our proprietary technology. If access to these services were to be unexpectedly eliminated or significantly reduced, our ability to meet development objectives vital to our ongoing strategy would be hindered, certain components of our proprietary technology could be lost or misappropriated, and our business could be seriously harmed.

      In addition, we license technology from a small number of software providers for use with our products and implementation services. We anticipate that we will continue to license and rely on technology from third parties in the future. This technology may not continue to be available on commercially reasonable terms, if at all, and some of the technology we license would be difficult to replace. The loss of the use of this technology would result in delays in the license and implementation of our products until equivalent technology, if available, is identified, licensed and integrated. In turn, this could prevent the implementation or impair the functionality of our products, delay new product introductions, or injure our reputation.

Our limited ability to protect our intellectual property may harm our ability to compete

      Our success and ability to compete is dependent in part upon our proprietary technology. Any infringement of our proprietary rights could result in significant litigation costs, and any failure to adequately protect our proprietary rights could result in our competitors offering similar products, potentially resulting in loss of a competitive advantage and decreased revenue. Existing patent, copyright, trademark and trade secret laws afford only limited protection. In addition, the laws of some foreign countries do not protect our proprietary rights to the same extent as do the laws of the United States. Therefore, we may not be able to protect our proprietary rights against unauthorized third party copying or use. Furthermore, policing the unauthorized use of our products is difficult. Some of our contractual arrangements provide third parties with access to our source code and other intellectual property upon the occurrence of specified events. This access could enable these third parties to use our intellectual property and source code to develop and manufacture competing products, which would adversely affect our performance and ability to compete. Litigation may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets or to determine the validity and scope of the proprietary rights of others. This litigation could result in substantial costs and diversion of resources and could materially adversely affect our future operating results.

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We may not achieve anticipated maintenance revenue if we do not successfully migrate our SalesPerformer customers to the latest version of our products and customers cancel their maintenance agreements

      Our business depends on the success and customer acceptance of our products and the adoption of future enhancements to those products. Customers enter into maintenance agreements for the purpose of receiving both customer support and the right to future enhancements of the product. When implementing our SalesPerformer products customers may have requirements to create customized features or functionality outside of our base product offering. Customization of our products is usually performed by writing additional software code which will make it difficult for the customer to migrate to the next version of the product. Customers who extensively customized our products may be unwilling or unable to commit additional resources to upgrade to the latest or next version of our product. If our customers do not adopt the latest version of our products, those customers may cancel their maintenance agreements and we may not achieve our anticipated maintenance revenue.

Our failure to successfully implement our products in a timely manner could result in negative publicity and reduced sales, both of which would significantly harm our business and operating results

      In the future, our customers may experience difficulties or delays in completing the implementation of our products. We have found that implementing our SalesPerformer products may be more time consuming than we or our customers anticipate. The unique configuration or integration with our customers’ legacy systems, such as existing databases and enterprise resource planning software, may be underestimated and the deployment of our products can be delayed. Failing to meet customer expectations on deployment of our products could result in a loss of customers and negative publicity regarding us and our products, which could adversely affect our ability to attract new customers. In addition, time-consuming deployments may also increase the amount of professional services we allocate to each customer, thereby increasing our costs and adversely affecting our business and operating results.

Disappointing quarterly revenue or operating results could cause the price of our common stock to fall

      We currently derive a significant portion of our license revenue in each quarter from a small number of relatively large orders, and we generally recognize revenue from our SalesPerformer Suite licenses over the related implementation period. If we are unable to recognize revenue from one or more substantial license sales planned for a particular fiscal quarter, our operating results for that quarter would be seriously harmed. In addition, the license of our SalesPerformer Suite typically involves a substantial commitment of resources by our customers or their consultants over an extended period of time. The time required to complete an implementation may vary from customer to customer and may be protracted due to unforeseen circumstances. Because our revenue from implementation, maintenance and training services are largely correlated with our license revenue, a decline in license revenue would also cause a decline in our services revenue in the same quarter and in subsequent quarters. Because our sales cycle is long, we may have difficulty predicting when we will recognize revenue. If our quarterly revenue or operating results fall below the expectations of investors or securities analysts, the price of our common stock could fall substantially and we could become subject to securities class-action litigation. Litigation, if instituted, could result in substantial costs and a diversion of management’s attention and resources, which would materially adversely affect our business, financial condition and results of operations.

We expect to continue to incur losses and may not be profitable in the future

      We have incurred quarterly and annual losses intermittently since we were formed in 1983, and regularly since fiscal 1997. We incurred net losses of $28.9 million for fiscal 1999, $16.3 million for fiscal 2000 and $70.3 million for fiscal 2001. Although we currently plan that we will stop incurring a net loss, excluding stock based compensation and amortization of intangible assets, by the end of our 2002 fiscal year, we may not achieve this goal and may continue to incur losses on a quarterly basis and not become profitable. Additionally, we may not grow or generate sufficient revenue to attain profitability.

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Our results of operations will be harmed by charges associated with stock-based compensation and charges associated with other securities issuances by us

      On June 26, 2001, we announced an offer to allow our directors and certain eligible employees to exchange outstanding stock options for new stock options. The number of options granted was equal to three-fourths of the number of options that were tendered and accepted for exchange. On July 26, 2001, we accepted 7,179,285 options for exchange and, on July 31, 2001 issued 5,384,384 new stock options with an exercise price equal to $.66 per share. For financial reporting purposes all option grants subject to the tender offer will be treated as variable awards. Accordingly, we will be required to record as a compensation expense, chargeable against our reported earnings, all increases in the value of those options, including any appreciation in the market price of the underlying option shares, which occurs between the grant date of that option and the date the option is exercised for those shares or otherwise terminates unexercised. The greater the increase in the market value of our common stock following the date of grant, the greater the compensation expense and effect on our reported earnings.

Difficulties and financial burdens associated with acquisitions could harm our business and financial results

      On February 15, 2001, we acquired all of the outstanding stock of Brightware, Inc. Our product range and customer base have increased due in part to this acquisition. There can be no assurance that the integration of all of the acquired technologies will be successful or will not result in unforeseen difficulties that may absorb significant management attention.

      In the future, we may acquire additional businesses or product lines. The recently completed acquisition, or any future acquisition, may not produce the revenue, earnings or business synergies that we anticipated, and an acquired product, service or technology might not perform as expected. Prior to completing an acquisition, however, it is difficult to determine if such benefits can actually be realized. The process of integrating acquired companies into our business may also result in unforeseen difficulties. Unforeseen operating difficulties may absorb significant management attention, which we might otherwise devote to our existing business. Also, the process may require significant financial resources that we might otherwise allocate to other activities, including the ongoing development or expansion of our existing operations.

      If we pursue a future acquisition, our management could spend a significant amount of time and effort identifying and completing the acquisition. If we make a future acquisition, we could issue equity securities which would dilute current stockholders’ percentage ownership, incur substantial debt, assume contingent liabilities or incur a one-time charge.

Because we have a limited operating history as a software company, our future success is uncertain

      Although Firepond was incorporated in 1983, we have only been focused on providing software products since 1997. Because we have only been focused on providing software products for a short time, we have a limited operating history pursuing this business model. The revenue and income potential of the market for e-business sales and services solutions is immature. As a result, our historical financial statements are not an accurate indicator of our future operating results. In addition, we have limited insight into trends that may emerge and affect our business, and we cannot forecast operating expenses based on our historical results. In evaluating Firepond, you should consider the risks and uncertainties frequently encountered by early stage companies in new and rapidly evolving markets. If we are not able to successfully address these risks, our business could be harmed.

We face possible Nasdaq delisting which would result in a limited public market for our common stock and make obtaining future equity financing more difficult for us

      In the past, our stock price has closed below $1.00 for extended periods of time. If our common stock closing bid price falls below $1.00 per share for a period of thirty consecutive business days, Nasdaq has the right to delist the stock if within ninety days thereafter the bid price for the stock is not at least $1.00 per share for a minimum of ten consecutive business days. In the event our stock price does not rise above $1.00 for the

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required ten consecutive business days, we would have the right to request a hearing to appeal a Nasdaq determination that our stock should be delisted.

      We cannot assure you that our bid price will comply with the requirements for continued listing of our common stock on the Nasdaq National Market, or that any appeal of a decision to delist our common stock will be successful. If our common stock loses its Nasdaq National Market status, shares of our common stock would likely trade in the over-the-counter market. Consequently, selling our common stock would be more difficult because smaller quantities of shares would likely be bought and sold, transactions could be delayed, and security analysts’ and news media coverage of us may be reduced. In addition, in the event our common stock is delisted, broker-dealers have certain regulatory burdens imposed upon them, which may discourage broker-dealers from effecting transactions in our common stock, further limiting the liquidity thereof. These factors could result in lower prices and larger spreads in the bid and ask prices for shares of common stock.

      Such delisting from the Nasdaq National Market or further declines in our stock price could also greatly impair our ability to raise additional necessary capital through equity or debt financing, and significantly increase the ownership dilution to stockholders caused by our issuing equity in financing or other transactions. Furthermore, our delisting from the Nasdaq National Market will likely damage our general business reputation and thus may harm our financial condition and operating results.

Our stock price may continue to be volatile which may lead to losses by investors and result in securities litigation

      The trading price of our common stock has been and may continue to be highly volatile and could be subject to wide fluctuations in price in response to various factors, many of which are beyond our control, including quarterly variations in our results of operations; changes in recommendations by the investment community or in their estimates of our revenue or operating results; speculation in the press or investment community; strategic actions by our competitors, such as product announcements or acquisitions; and general market conditions.

      In addition, the stock market in general and the Nasdaq National Market and securities of Internet and software companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to their operating performance. These broad market and industry factors may materially adversely affect the market price of our common stock, regardless of our actual operating performance. Litigation, if instituted, could result in substantial costs and a diversion of management’s attention and resources, which would materially adversely affect our business, financial condition and results of operations.

Failure to increase our international revenue could seriously harm our business

      International revenue currently accounts for a significant percentage of our total revenue. We expect international revenue to continue to account for a significant percentage of total revenue in the future and we believe that we must continue to expand our international sales activities to be successful. However, foreign markets for our products may develop more slowly than currently anticipated. International revenue as a percentage of total revenue was 11% in fiscal 1999, 28% in fiscal 2000 and 36% for fiscal 2001. Our failure to expand our international sales could have a significant negative impact on our business.

Due to our international operations we are subject to foreign exchange risk

      We serve our customers from offices throughout North America, Europe and Japan. Consequently, we are exposed to fluctuations of the dollar against the foreign currencies of those countries in which we have a substantial presence. For each of our foreign subsidiaries, the functional currency is the local currency. Accordingly, assets and liabilities are translated at period-end exchange rates, and operating statement items are translated at weighted-average rates prevailing during the periods presented. We have exchange rate exposure in the following principal currencies: the British Pound, Dutch Guilder, Euro and Japanese Yen.

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      Fluctuations against the US dollar can produce significant differences in the reported value of sales and expenses. For sales in the US which are produced outside of the US, any weakening of the US dollar against a particular country’s currency reduces the amount of net income reported in US dollars. Conversely, the same weakening of the US dollar generates an offsetting increase in the dollar value of profits arising from sales within that country. Any weakening of the US dollar that negatively impacts a foreign operation’s trading profit will similarly reduce the dollar value of any overhead expense located in that country.

      The translation of foreign denominated assets and liabilities at period-end exchange rates could materially and adversely effect our reported financial position.

Failure to effectively manage our geographically dispersed organization could have a significant negative impact on our business operations

      If we fail to manage our geographically dispersed organization, we may fail to meet or exceed our objectives and our revenue may decline. We perform research and development activities in Minnesota and California, and our executive officers and other key employees are dispersed throughout the United States, Europe and Japan. This geographic dispersion requires significant management resources that our locally based competitors do not need to devote to their operations. In addition, any future expansion of our existing international operations and entry into additional international markets will require significant management attention and financial resources.

Intense competition from other technology companies could prevent us from increasing or sustaining revenue and prevent us from achieving or sustaining profitability

      The market for integrated e-business sales and services solutions is intensely competitive and we expect that this competition will increase. Many of our current and potential competitors have longer operating histories, greater name recognition and substantially greater resources than we do. Therefore, they may be able to respond more quickly than we can to new or changing opportunities, technologies, standards or customer requirements. If we are unable to compete effectively, our revenue could significantly decline.

If we are unable to introduce new and enhanced products on a timely basis that respond effectively to changing technology, our revenue may decline

      Our market is characterized by rapid technological change, changes in customer requirements, frequent new product and service introductions and enhancements, and evolving industry standards. Advances in Internet technology or in e-commerce software applications, or the development of entirely new technologies to replace existing software, could lead to new competitive products that have better performance or lower prices than our products and could render our products obsolete and unmarketable. In addition, if a new software language or operating system becomes standard or is widely adopted in our industry, we may need to rewrite portions of our products in another computer language or for another operating system to remain competitive. If we are unable to develop new and enhanced products on a timely basis that respond to changing technology, our business could be seriously harmed.

If our new and complex products fail to perform properly, our revenue would be adversely affected

      Software products as complex as ours may contain undetected errors, or bugs, which result in product failures, or may cause our products to fail to meet our customers’ expectations. Our products may be particularly susceptible to bugs or performance degradation because of the evolving nature of Internet technologies and the stress that full deployment of our products over the Internet to thousands of end-users may cause. Product performance problems could result in loss of or delay in revenue, loss of market share, failure to achieve market acceptance, diversion of development resources or injury to our reputation.

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Product liability claims related to our customers’ critical business operations could result in substantial costs

      Our products are critical to the business operations of our customers. If one of our products fails, a customer may assert a claim for substantial damages against us, regardless of our responsibility for the failure. Our product liability insurance may not cover claims brought against us. Product liability claims could require us to spend significant time and money in litigation or to pay significant damages. Any product liability claims, whether or not successful, could seriously damage our reputation and our business.

Claims alleging infringement of a third party’s intellectual property could result in significant expense to us and result in our loss of significant rights

      The software and other Internet-related industries are characterized by the existence of frequent litigation of intellectual property rights. From time to time, third parties may assert patent, copyright, trademark and other intellectual property rights to technologies that are important to our business. Any claims, with or without merit, could be time-consuming, result in costly litigation, divert the efforts of our technical and management personnel, cause product shipment delays, disrupt our relationships with our customers or require us to enter into royalty or licensing agreements, any of which could have a material adverse effect upon our operating results. Royalty or licensing agreements, if required, may not be available on terms acceptable to us, if at all. If a claim against us is successful and we cannot obtain a license to the relevant technology on acceptable terms, license a substitute technology or redesign our products to avoid infringement, our business, financial condition and results of operations would be materially adversely affected.

Control by our executive officers, directors and associated entities may limit your ability to influence the outcome of director elections and other matters requiring stockholder approval

      As of December 31, 2001, our executive officers, directors and entities associated with them own approximately 48% of the outstanding shares of our common stock. These stockholders have significant influence over matters requiring approval by our stockholders, including the election of directors and the approval of mergers or other business combination transactions. This concentration of ownership could have the effect of delaying or preventing a change in our control or discouraging a potential acquirer from attempting to obtain control of us, which in turn could have a material adverse effect on the market price of the common stock or prevent our stockholders from realizing a premium over the market price for their shares of common stock.

Provisions of Delaware law and of our charter and by-laws may make a takeover more difficult and lower the value of our common stock

      Provisions in our certificate of incorporation and by-laws and in Delaware corporate law may make it difficult and expensive for a third party to pursue a tender offer, change in control or takeover attempt that is opposed by our management. Public stockholders who might desire to participate in such a transaction may not have an opportunity to do so, and the ability of public stockholders to change our management could be substantially impeded by these anti-takeover provisions. For example, we have a staggered board of directors and the right under our charter documents to issue preferred stock without further stockholder approval, which could adversely affect the holders of our common stock.

Future sales of our stock could cause our stock price to fall

      Sales of a substantial number of shares of our common stock in the public market could cause the market price of our common stock to decline. In addition, the sale of these shares could impair our ability to raise capital through the sale of additional equity securities.

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Claims may be brought against us if we hire former employees of our competitors, which may cause us to incur substantial costs

      Companies in the software industry, whose employees accept positions with competitors, frequently claim that those competitors have breached, or encouraged the breach of, noncompetition and nondisclosure agreements. These claims have been made against us in the past, and we may receive claims in the future as we hire additional qualified personnel. If a claim were to be made against us, it could result in material litigation. We could incur substantial costs in defending ourselves against any of these claims, regardless

Item 2. Properties

      Our corporate headquarters are located in Waltham, Massachusetts and occupy approximately 29,500 square feet. We have entered into an agreement to reduce this to 6,980 square feet in February, 2002. Our lease for this facility expires on December 31, 2004. We also lease space in San Rafael, California for 30,488 square feet. This lease expires August 31, 2010. We sublet 15,785 square feet in San Francisco, California through March 31, 2002. In addition, we have three facilities located in Minnesota. Our lease in Mankato, Minnesota of approximately 21,000 square feet expires on November 30, 2003. We are currently operating under three separate leases in Bloomington, Minnesota all located in the same building. One includes approximately 12,100 square feet with a lease expiring on January 31, 2002, the second occupies approximately 2,500 square feet and expires on March 31, 2002, and the third includes approximately 9,100 square feet and expired November 30, 2001. We also lease two suites in Burnsville, MN. We also lease offices in Naarden, The Netherlands; Duesseldorf, Germany; Fleet, England; Paris, France; Basel, Switzerland; Stockholm, Sweden; and Tokyo, Japan.

Item 3. Legal Proceedings

      On October 19, 2001, General Motors Corporation filed a complaint against us in the Superior Court of Massachusetts, Middlesex County. The complaint alleges, among other things, a breach of contract under agreements entered into in 1994, as amended; anticipatory repudiation of agreements entered into in 1994, as amended; unjust enrichment; establishment of a constructive trust; rescission and restitution based upon failure of consideration as well as extortion and coercion relating to agreements entered into in 1994, as amended; breach of the covenant of good faith and fair dealing; fraud; as well as violation of Chapter 93A of the General Laws of the Commonwealth of Massachusetts relating to unfair and deceptive trade practices. General Motors’ claims further relate to license agreements, services agreements and a general release entered into with us in May, 2000. The claims generally allege, among other things, that we coerced, extorted or otherwise caused General Motors to enter into the May 2000 agreements under duress. On the Civil Cover Sheet for the Superior Court of Massachusetts, Middlesex County, General Motors claims damages in the amount of $9,000,000 exclusive of fees, costs and multiple damages. The complaint does not demand damages in specific dollar amounts. While we believe the claims against us are without merit and intend to defend the action vigorously, the litigation is in the preliminary stage and we cannot predict the outcome with certainty. We may incur substantial legal fees and expenses, and the litigation may divert the attention of some of our key management. Our defense of this litigation, regardless of its outcome, may be costly and time-consuming. Should the outcome of the litigation be adverse to us, we could be required to pay significant monetary damages to the plaintiffs, which could harm our business.

      Beginning in August, 2001, a number of securities class action complaints were filed in the Southern District of New York seeking an unspecified amount of damages on behalf of an alleged class of persons who purchased shares of our common stock between the date of our initial public offering and December 6, 2000. The complaints name as defendants Firepond and certain of its directors and officers, and FleetBoston Robertson Stephens an underwriter of our initial public offering. The plaintiffs allege, among other things, that our prospectus, incorporated in the Registration Statement on Form S-1 filed with the Securities and Exchange Commission was materially false and misleading because it failed to disclose that the investment banks which underwrote Firepond’s initial public offering of securities received undisclosed and excessive brokerage commissions, and required investors to agree to buy shares of our securities after the initial public offering was completed at predetermined prices as a precondition to obtaining initial public offering

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allocations. The plaintiffs further allege that these actions artificially inflated the price of our common stock after the initial public offering. While we believe the claims against us are without merit and intend to defend the actions vigorously, the litigation is in the preliminary stage, and we cannot predict the outcome with certainty. We may incur substantial legal fees and expenses, and the litigation may divert the attention of some of our key management. Our defense of this litigation, regardless of its outcome, may be costly and time-consuming. Should the outcome of the litigation be adverse to us, we could be required to pay significant monetary damages to the plaintiffs, which could harm our business.

      We are also subject to various other claims and legal actions arising in the ordinary course of business. In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters is not expected to have a material effect on our business, financial condition or results of operations.

Item 4. Submission of Matters to a Vote of the Security Holders

      None

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PART II

Item 5. Market for Registrants Common Stock and Related Stockholder Matters

      (a) Common Stock Price Range

      Our common stock is traded on The NASDAQ National Market under the symbol “FIRE”. Public trading of the common stock commenced on February 4, 2000. Prior to that, there was no public market for the common stock. The following table sets forth, for the periods indicated, the high and low closing price per share of the common stock as reported by The NASDAQ National Market, during each quarter the stock has been publicly traded.

	High		Low
Second Quarter ended April 30, 2000 (beginning February 4, 2000)	$	100.25	$	15.44
Third Quarter ended July 31, 2000	$	40.69	$	15.75
Fourth Quarter ended October 31, 2000	$	21.75	$	7.86
First Quarter ended January 31, 2001	$	12.00	$	4.50
Second Quarter ended April 30, 2001	$	4.19	$	1.50
Third Quarter ended July 31, 2001	$	2.54	$	.66
Fourth Quarter ended October 31, 2001	$	.90	$	.41

      (b) Holders

      As of December 31, 2001, there were approximately 165 holders of record of our common stock. This number does not include stockholders whose shares are held in trust by other entities. We estimate that there were approximately 6,500 beneficial holders of our common stock on December 31, 2001.

      (c) Dividends

      We have never declared or paid cash dividends on our common stock. We currently intend to retain any earnings, if any, for use in our business and do not anticipate paying any cash dividends in the foreseeable future.

      (d) Recent Sales of Unregistered Securities

      In connection with our acquisition by merger of Brightware, Inc. on February 15, 2001, we issued 2,825,305 shares of our common stock to the stockholders of Brightware, of which 2,399,984 shares were placed in an escrow account to satisfy certain indemnification obligations of Brightware. As of January 14, 2002, 2,052,583 of these shares have been released to us and returned to the status of authorized but unissued shares of common stock. Our securities were issued under Section 4(2) of the Securities Act of 1933 and Regulation D promulgated thereunder as a transaction not involving a public offering.

Item 6. Selected Consolidated Financial Data

      The following selected financial data are derived from our consolidated and combined financial statements.

      When you read this selected financial data, it is important that you also read the historical consolidated financial statements and related notes included in this report. The historical results are not necessarily indicative of the operating results to be expected in the future.

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SELECTED FINANCIAL DATA

				Fiscal Years Ended October 31,
				2001			2000			1999			1998			1997
				(In thousands, except per share data)
Statement of Consolidated Operations Data:
Revenue:
	Product-related revenue:
		License(1)		$	14,848		$	23,128		$	9,777		$	1,888		$	416
		Services and maintenance			26,709			24,265			8,604			4,972			—
			Total product-related revenue		41,557			47,393			18,381			6,860			416
	Custom development services				4,532			14,579			15,904			22,142			27,747
			Total revenue		46,089			61,972			34,285			29,002			28,163
	Cost of revenue:
		License			524			499			238			192			178
		Product-related services and maintenance			29,094			16,485			5,677			3,061			—
		Custom development services			1,171			5,773			10,636			8,397			31,365
			Total cost of revenue(2)		30,789			22,757			16,551			11,650			31,543
	Gross profit (loss)				15,300			39,215			17,734			17,352			(3,380	)
Operating expenses:
	Sales and marketing(2)				25,131			27,904			23,609			13,680			8,080
	Research and development(2)				18,838			15,264			9,641			8,199			3,634
	General and administrative(2)				10,981			9,449			7,084			3,516			3,188
	Stock-based compensation				4,470			6,680			2,597			672			450
	Amortization of goodwill and other intangible assets				3,554			—			—			—			—
	Restructuring charge (credit)				18,243			(500	)		3,027			—			6,712
	Settlement of claim				1,211			—			—			—			—
	Acquired in-process research and development				6,200			—			—			—			—
			Total operating expenses		88,628			58,797			45,958			26,067			22,064
	Loss from operations				(73,328	)		(19,582	)		(28,224	)		(8,715	)		(25,444	)
	Other income (expense), net				3,047			4,677			(631	)		(326	)		(1,591	)
	Net loss before extraordinary items				(70,281	)		(14,905	)		(28,855	)		(9,041	)		(27,035	)
	Loss on extinguishment of debt				—			(1,437	)		—			—			—
	Net loss				(70,281	)		(16,342	)		(28,855	)		(9,041	)		(27,035	)
	Stock dividend to preferred stockholders				—			(65,542	)		—			—			—
	Loss applicable to common stockholders			$	(70,281	)	$	(81,884	)	$	(28,855	)	$	(9,041	)	$	(27,035	)
	Net loss per share:
		Basic and diluted net loss per share before extraordinary item		$	(1.95	)	$	(0.52	)	$	(2.88	)	$	(0.91	)	$	(2.62	)
		Extraordinary item			—			(0.05	)		—			—			—
		Stock dividend paid to preferred stockholders			—			(2.32	)		—			—			—
		Basic and diluted net loss per share applicable to common stockholders		$	(1.95	)	$	(2.89	)	$	(2.88	)	$	(0.91	)	$	(2.62	)

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	Fiscal Years Ended October 31,
	2001		2000		1999		1998		1997
	(In thousands, except per share data)
Basic weighted average common shares outstanding		36,011		28,286		10,024		9,925		10,319
Diluted weighted average common shares Outstanding		36,011		28,286		10,024		9,925		10,319

(1)	Includes related-party revenue of $350 in fiscal 1997.
(2)	Excludes charge for stock-based compensation, which is reflected in the aggregate in the caption “stock-based compensation.” See note (1) to consolidated statements of operations on page F-4.

		October 31,
		2001		2000		1999			1998			1997
Consolidated Balance Sheet Data:
Cash and cash equivalents and short-term investments		$	44,253	$	116,233	$	2,120		$	2,324		$	10,147
Working capital (deficit)			30,752		101,907		(11,380	)		(6,240	)		(7,119	)
Total assets			75,138		144,320		21,660			18,786			27,906
Long-term debt, net of current portion			—		—		702			1,727			3,991
	Total stockholders’ equity (deficit)		47,513		110,464		(5,354	)		1,031			(986	)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

      We are a leading provider of intelligent guided selling and online customer assistance solutions that help companies more profitably acquire and retain customers. Our product lines leverage advanced intelligence engines and patented automation technology to drive new revenue streams, increase profitability, and manage customer interactions across all channels and throughout the sales and service cycle. From our inception in 1983 through 1997, we generated revenue primarily through providing custom development services. These services consisted of the development of highly customized applications utilizing core software technology, and related software maintenance and data maintenance services. In early fiscal 1997, we undertook a plan to change our strategic focus from a custom development services company to a software product company providing more standardized solutions. Our first packaged software product was introduced in May 1997. We released the Firepond Application Suite in October 1999 and renamed and repackaged the FirePond Application Suite as the SalesPerformer Suite in December 2000. As a result of these efforts, product-related revenue as a percentage of total revenue increased from 1.5% in fiscal 1997 to 90.2% in fiscal 2001.

      On February 15, 2001, we acquired 100% of the issued and outstanding shares of capital stock of Brightware, Inc., located in San Rafael, California. The acquisition was accounted for as a purchase in accordance with APB No. 16 and accordingly, the results of operations of Brightware have been included in the Company’s results of operations since the date of acquisition. In addition, on September 27, 2000, the Company acquired 100% of the issued and outstanding shares of capital stock of Signature Software, Inc. (Signature). This acquisition was also accounted for using the purchase method in accordance with APB No. 16. Accordingly, the results of operations of Signature from the date of acquisition have been included in the results of operations of the Company.

      During fiscal 2001, as a result of a global slowdown in information technology spending, specifically in the Customer Relationship Management market, and the Company’s acquisition of Brightware, the Company undertook a plan to restructure its operations. These actions sought to better align the Company’s cost structure with projected operations in the future, preserve cash, and in the case of the Brightware transaction, eliminate redundant operations. The Company reduced headcount and facilities as well as wrote off excess equipment and terminated and restructured certain contractual relationships. Overall, the Company termi-

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nated 31 general and administrative, 111 sales and marketing, 159 professional services and 62 development employees, as well as 90 contractors. The restructuring charges for the year totaled $18.2 million. As a result of these actions, as we expect expenses in fiscal 2002 to decrease as compared to fiscal 2001.

      We have incurred quarterly and annual losses intermittently since we were formed, and regularly since we began transitioning to a software product business in early fiscal 1997. We incurred net losses of $28.9 million for fiscal 1999, $16.3 million for fiscal 2000, and $70.3 million for fiscal 2001. We currently plan to incur an annual net loss for fiscal 2002. However, we plan to reach break even, excluding stock based compensation and amortization of intangible assets, by the end of the fourth quarter of fiscal 2002.

      The Company generates revenue from primarily product-related license and service revenue. Product-related license revenue is generated from licensing the rights to the use of the Company’s packaged software products. Product-related service revenue is generated from sales of maintenance, consulting and training services performed for customers that license the Company’s products.

      Revenue is recognized based on the provisions of Statement of Position, No. 97-2, Software Revenue Recognition (SOP 97-2), and Statement of Position No. 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts (SOP 81-1).

      The Company has concluded that generally, for the SalesPerformer product suite and its components, the implementation services are essential to the customer’s use of the packaged software products in arrangements where the Company is responsible for implementation services. As such, the Company recognizes revenue for these arrangements following the percentage-of-completion method over the implementation period. Percentage of completion is measured by the percentage of implementation hours incurred to date compared to estimated total implementation hours. This method is used because management has determined that past experience has shown expended hours to be the best measure of progress on these engagements. When the current estimates of total contract revenue and contract cost indicate a loss, a provision for the entire loss on the contract is recorded.

      In situations where the Company is not responsible for implementation services for the SalesPerformer Suite of products, the Company recognizes revenue on delivery of the packaged software if there is persuasive evidence of an arrangement, collection is probable and the fee is fixed or determinable.

      The Company executes contracts that govern the terms and conditions of each software license, maintenance arrangement and other services arrangements. These contracts may be elements in a multiple element arrangement. Revenue under multiple element arrangements, which may include several different software products and services sold together, is allocated to each element based on the residual method in accordance with the American Institute of Certified Public Accountants (AICPA) Statement of Position 98-9, Software Revenue Recognition with Respect to Certain Arrangements.

      The Company uses the residual method when vendor-specific objective evidence of fair value does not exist for one of the delivered elements in the arrangement. Under the residual method, the fair value of the undelivered elements is deferred and subsequently recognized. The Company has established sufficient vendor specific objective evidence for professional services, training and maintenance and support services based on the price charged when these elements are sold separately. Accordingly, software license revenue is recognized under the residual method in arrangements in which software is licensed with professional services, training, and maintenance and support services.

      In situations where the Company is not responsible for implementation services for the SalesPerformer Suite of products, but, is obligated to provide unspecified additional software products in the future, the Company recognizes revenue as a subscription over the term of the commitment period.

      For separate sales of the eServicePerformer product line, which was acquired in connection with the Brightware transaction, the Company recognizes revenue on delivery of the packaged software if there is persuasive evidence of an arrangement, collection is probable and the fee is fixed or determinable. The Company has determined that implementation services are not essential to the functionality of the eServicePerformer product.

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      In situations where the Company enters into a license agreement for both its SalesPerformer Suite and its eServicePerformer product and is responsible for implementation services, it will recognize revenue for the entire arrangement under SOP 81-1.

      Revenue from maintenance services is recognized ratably over the term of the contract, typically one year. Consulting revenue is primarily related to implementation services performed on a time-and-materials basis under separate service arrangements. Revenue from consulting and training services is recognized as services are performed.

      The Company generally bills for services on a monthly basis. The Company generally bills for product license fees upon commencement of the contract, although the Company may delay billing based on the terms of the contract. The Company records deferred revenue on amounts billed or collected by the Company before satisfying the above revenue recognition criteria.

      The Company historically had provided services to develop highly customized applications utilizing core software technology. The Company no longer accepts new custom development service projects but continues to provide ongoing services related to previously completed custom development projects including software and data maintenance. Revenue from these ongoing arrangements is recognized as the services are performed.

      We are planning for product-related revenue from product licenses to grow over the long-term as result of increased market acceptance of our products, and increases in the productivity of our sales force. Therefore, we expect that a higher percentage of total revenue will be attributable to product-related revenue in the future.

      We anticipate custom development services revenue will continue to decline, as we have strategically de-emphasized that business and do not plan to accept new custom development contracts. We will continue to earn custom development services revenue until existing custom development contracts and related maintenance agreements are completed. Custom development services revenue in the future will be primarily from ongoing software maintenance and data maintenance services that we provide under custom development services contracts.

      We have invested heavily in research and development. Research and development expenses have been increasing since early fiscal 1997 when we began the development of our software products. Since the introduction of our first software product, we have determined that technological feasibility of our software products occurs late in the development cycle and close to general release of the products, and that the development costs incurred between the time technological feasibility is established and general release of the product are not material. Therefore, beginning in June 1997, we expense these costs as incurred to research and development expense. To enhance our product offering and market position, we believe it is essential for us to continue to make significant investment in research and development.

      We have granted stock options to employees and consultants that require us to record stock-based compensation expense. We have also granted stock warrants to certain customers and to strategic business partners. Stock-based compensation related to grants to employees primarily represents the amortization, over the vesting period of the option, of the difference between the exercise price of options granted to employees and the fair market value of our common stock for financial reporting purposes. Stock-based compensation related to grants to non-employees represents the fair market value of the options and warrants granted as computed using an established option valuation formula. We recorded stock-based compensation expense of approximately $2.6 million in fiscal 1999, $6.7 million in fiscal 2000 and $4.5 million in fiscal 2001. As of October 31, 2001, the deferred compensation balance was approximately $1.3 million and will be amortized over the remaining vesting period of the options and warrants.

      On June 26, 2001, we commenced a stock option exchange program in which our directors and eligible employees were offered the opportunity to exchange existing stock options for new stock options with an exercise price equal to the current market value of our common stock. Participants in the exchange program received new options to purchase seventy-five percent (75%) of the number of shares of our common stock subject to the options that were exchanged and canceled. The new options were granted on July 31, 2001, with an exercise price of $.66 per share. We accepted 7,179,285 stock options for exchange and issued 5,384,384

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stock options in exchange for such tendered options. As a result of the cancellation of the outstanding options, unamortized deferred compensation of approximately $783,000 was amortized and recorded as stock-based compensation during the third quarter of fiscal 2001. In fiscal 2001, we recorded $188,000 as stock-based compensation expense and we may continue to incur compensation expense as a result of the issuance of the new options because the new options and all options subject to the tender offer are subject to variable plan accounting in accordance with APB No. 25. Accordingly, we are required to record to compensation expense all increases and decreases in the value of those options, including any appreciation and depreciation in the market price of the underlying option shares, which occurs between the grant date of that option and the date the option is exercised for those shares or otherwise terminates unexercised. The greater the increase in the market value of our common stock following the date of grant, the greater the compensation expense we will be required to record.

      In connection with the Signature acquisition, we issued 276,266 shares of restricted common stock, valued at approximately $3.9 million, subject to vesting through September 27, 2002. Vesting of these shares is based on the retention of certain Signature employees measured on a quarterly basis, as defined. The value of these restricted shares is being recorded as stock-based compensation on a pro rata basis over the vesting period. Accordingly, we recognized approximately $162,000 of stock-based compensation for these shares in fiscal 2000 and $2,404,000 in fiscal 2001. We also recognized approximately $733,000 in stock-based compensation due to the acceleration of the vesting of certain shares of restricted common stock related to one employee termination.

      Our series A, series C and series G preferred stock, as well as shares of our common stock outstanding on May 20, 1997 other than those shares held by General Atlantic Partners, had rights that allow holders to receive a priority payment upon the completion of our initial public offering. These priority payments totaled $35.8 million for the series A, series C and series G preferred stockholders, and $10.0 million for the shares of our common stock outstanding on May 20, 1997 other than those shares held by General Atlantic Partners. These amounts were payable in cash, or, at our option, a number of shares of common stock determined by dividing the amount payable by $12.00. Our board of directors elected to make these payments in 3,812,532 shares of common stock upon consummation of our initial public offering. At the initial public offering price of $22.00 per share, the value of the stock dividend totaled $65.5 million for the series A, series C and series G preferred stockholders, and $18.3 million for the stock dividend on the shares of our common stock outstanding on May 20, 1997 other than those shares held by General Atlantic Partners. The stock dividend on the preferred stock increased the loss attributable to common stockholders by $65.5 million for fiscal 2000.

      As of October 31, 2001, the Company has available net operating losses of approximately $93 million to reduce future federal and state income taxes, if any. This carryforward expires beginning in fiscal 2012 and may be subject to review and possible adjustment by the Internal Revenue Service. Utilization of these carryforwards may be subject to substantial limitations due to the ownership change limitations provided by the Internal Revenue Service Code of 1986. The Company’s wholly-owned foreign subsidiaries have net operating loss carryforwards of approximately $31 million.

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Results of Operations

      The following table presents selected consolidated financial data as a percentage of total revenue:

				Years Ended October 31,
				1999			2000			2001
Revenue:
	Product-related revenue:
		License			28.5	%		37.3	%		32.2	%
		Services and maintenance			25.1			39.2			58.0
			Total product-related revenue		53.6			76.5			90.2
	Custom development services				46.4			23.5			9.8
			Total revenue		100.0			100.0			100.0
Cost of revenue:
	License				0.7			0.8			1.1
	Product-related services and maintenance				16.6			26.6			63.1
	Custom development services				31.0			9.3			2.5
			Total cost of revenue		48.3			36.7			66.7
Gross profit					51.7			63.3			33.3
Operating expenses:
	Sales and marketing				68.9			45.0			54.5
	Research and development				28.1			24.6			40.9
	General and administrative				20.7			15.2			23.8
	Stock-based compensation				7.6			10.8			9.7
	Amortization of goodwill and other intangible assets										7.7
	Restructuring charge (credit)				8.8			(0.8	)		39.6
	Settlement of claim				—			—			2.6
	Acquired in-process research and development				—			—			13.5
			Total operating expenses		134.1			94.8			192.3
Loss from operations					(82.4	)		(31.5	)		(159.0	)
Interest income (expense)					(1.6	)		6.5			8.0
Other income (expense), net					(0.2	)		1.0			(1.3	)
Net loss before extraordinary item					(84.2	)		(24.0	)		(152.3	)
Loss on extinguishment of debt					—			(2.3	)		—
Net loss					(84.2	)		(26.3	)		(152.3	)
Stock dividend to preferred stockholders					—			(105.8	)		—
Loss applicable to common stockholders					(84.2	)%		(132.1	)%		(152.3	)%

Comparison of Fiscal Years Ended October 31, 2001 and 2000

      Revenue. Total revenue decreased $15.9 million, or 25.6%, to $46.1 million in fiscal 2001 from $62.0 million in fiscal 2000. This decrease is primarily attributable to a 68.9% decrease in custom development revenue and a 12.3% decrease in product-related revenue.

      License. License revenue decreased $8.3 million, or 35.8%, to $14.8 million in fiscal 2001 from $23.1 million in fiscal 2000. License revenue as a percentage of total revenue decreased to 32.2% in fiscal 2001 from 37.3% in fiscal 2000. We believe the decrease in absolute dollars and as a percentage of total

26

revenue is primarily attributable to a decline in our software license sales due to a global slow down in information technology spending by companies in our target markets. Over the long-term, we are planning for license revenue growth as a result of additional license sales resulting from increased market acceptance of our products, a growing customer base, the success of our marketing efforts, and improved productivity of our sales force.

      Product service and maintenance. Product service and maintenance revenue increased $2.4 million, or 10.1%, to $26.7 million in fiscal 2001 from $24.3 million in fiscal 2000. Product services revenue as a percentage of total revenue increased to 58.0% in fiscal 2001 from 39.2% in fiscal 2000. The increase is attributable to an increased amount of services provided in connection with the license implementations in this period as compared to the prior year period. We expect product service revenue to decline in fiscal 2002 as the result of fewer post-license implementation consulting engagements and an increased use of third-party implementation partners.

      Custom development services. Custom development services revenue decreased $10.0 million, or 68.9%, to $4.5 million in fiscal 2001 from $14.6 million in fiscal 2000. Custom development services revenue as a percentage of total revenue decreased to 9.8% in fiscal 2001 from 23.5% in fiscal 2000. The decrease in absolute dollars and as a percentage of total revenue is due to the change of our strategic focus resulting in fewer custom development services engagements. We expect custom development services revenue to continue to decline in absolute dollars and as a percentage of total revenue.

      Cost of revenue. Total cost of revenue increased $8.0 million, or 35.3%, to $30.8 million in fiscal 2001 from $22.8 million in fiscal 2000. Total cost of revenue as a percentage of total revenue increased to 66.7% in fiscal 2001 from 36.7% in fiscal 2000.

      Cost of license revenue. Cost of license revenue consists primarily of costs of royalties, media, product packaging, documentation and other production cost. Cost of license revenue increased $25,000, or 5.0%, to $524,000 in fiscal 2001 from $499,000 in fiscal 2000. Cost of license revenue as a percentage of license revenue increased to 3.5% in fiscal 2001 from 2.2% in fiscal 2000. The increase in absolute dollars is primarily due to incremental royalty charges incurred by the addition of the eServices product line.

      Cost of product-related services and maintenance revenue. Cost of product-related services and maintenance revenue consists primarily of salaries and related costs for consulting, training and customer support personnel, including cost of services provided by third-party consultants engaged by us. Cost of product-related services and maintenance revenue increased $12.6 million, or 76.5%, to $29.1 million in fiscal 2001 from $16.5 million in fiscal 2000. Cost of product-related services and maintenance revenue as a percentage of product-related services and maintenance revenue increased to 108.9% in fiscal 2001 from 67.9% in fiscal 2000. The increase in absolute dollars was primarily due to increased staff and consulting resources. The increase as a percentage of revenue was due to our maintaining consulting staff in excess of the current customer demand for services as well as realizing lower average revenue per hour on certain fixed price services contracts in this period caused by the Company improving customer satisfaction and performing services outside of the scope of the original engagement for no incremental revenue. In addition, we experienced lower utilization of our consulting staff in this period. We expect costs of product-related services to decline for the next fiscal year as a result of the actions we have taken to reduce our employee base and related costs.

      Cost of custom development services revenue. Cost of custom development services revenue consists primarily of salaries and related costs for development, consulting, training and customer support personnel as it relates to our custom development projects, including cost of services provided by third-party consultants engaged by us. Cost of custom development services revenue decreased $4.6 million, or 79.7%, to $1.2 million in fiscal 2001 from $5.8 million in fiscal 2000. Cost of custom development services as a percentage of custom development services revenue decreased to 25.8% in fiscal 2001 from 39.6% in fiscal 2000. The decrease in absolute dollars is primarily due to decreased staff supporting fewer custom development services engagements.

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      Sales and marketing expenses. Sales and marketing expenses consist primarily of salaries, commissions and bonuses for sales and marketing personnel and promotional expenses. Sales and marketing expenses decreased $2.8 million, or 9.9%, to $25.1 million in fiscal 2001 from $27.9 million in fiscal 2000. Sales and marketing expenses as a percentage of total revenue increased to 54.5% in fiscal 2001 from 45.0% in fiscal 2000. Sales and marketing expenses decreased in absolute dollars primarily due to decreased commissions as a result of less sales in fiscal 2001, partially offset by incremental sales and marketing expenses incurred by the addition of the eServices product line. Sales and marketing expenses increased as a percentage of total revenue as a result of lower revenue. We expect sales and marketing expenses will decline for the next fiscal year due to the actions we have taken to reduce our workforce which will result in reduced payroll and other expenses. We plan to continue to invest in marketing programs in order to achieve planned revenue levels.

      Research and development expenses. Research and development expenses consist primarily of salaries and personnel-related costs and the costs of contractors associated with the development of new products, the enhancement of existing products, and the performance of quality assurance and documentation activities. Research and development expenses increased $3.6 million, or 23.4% to $18.8 million in fiscal 2001 from $15.2 million in fiscal 2000. Research and development expenses as a percentage of total revenue increased to 40.9% in fiscal 2001 from 24.6% in fiscal 2000. These expenses increased in absolute dollars as a result of incremental research and development expenses associated with the acquisition of the eServices product line. Research and development expenses increased as a percentage of total revenue primarily due to lower revenue. We expect research and development expenses will decline for the next fiscal year as a result of reduction of workforce. We plan to continue to make necessary investments to enhance our existing products and develop new products in order to achieve planned revenue levels.

      General and administrative expenses. General and administrative expenses consist primarily of salaries, and other personnel-related cost for executive, financial, human resource, information services, and other administrative functions, as well as legal and accounting costs. General and administrative expenses increased $1.5 million, or 16.2%, to $11.0 million in fiscal 2001 from $9.5 million in fiscal 2000. General and administrative expenses as a percentage of total revenue increased to 23.8% in fiscal 2001 from 15.2% in fiscal 2000. These expenses increased in absolute dollars primarily as a result of increased headcount from Brightware transitional staff that were performing integration tasks. The increase in general and administrative expenses as a percentage of total revenue is attributable to lower revenue. We expect that general and administrative expenses will remain approximately flat or decline for the next fiscal year.

      Stock-based compensation expense. Stock-based compensation expense decreased $2.2 million, or 33.1%, to $4.5 million in fiscal 2001 from $6.7 million in fiscal 2000. Stock-based compensation expense as a percentage of total revenue decreased to 9.7% in fiscal 2001 from 10.8% in fiscal 2000. If we had allocated our stock-based compensation to the departments for which the services were performed, the allocation would have increased cost of revenue by $568,000 in fiscal 2000 and $84,000 in fiscal 2001, sales and marketing expenses by $4,193,000 in fiscal 2000 and $181,000 in fiscal 2001, research and development expenses by $1,261,000 in fiscal 2000 and $300,000 in fiscal 2001, and general and administrative expenses by $658,000 in fiscal 2000 and $3,905,000 in fiscal 2001. The decrease in stock-based compensation expense from the prior year is primarily the result of a $3.0 million decline in charges for nonemployee stock options and warrants and a $1.1 million decline in charges for modifications of stock option terms for employees, partially offset by a $3.2 million charge from the Signature acquisition stock grants.

      Amortization of goodwill and other intangible assets. In conjunction with our acquisition of Brightware, we allocated approximately $6.3 million to goodwill which was adjusted by approximately $1.2 million in the quarter ended July 31, 2001 to $7.5 million, $4.9 million to developed technology and know-how and $2.2 million to assembled workforce. Developed technology represents patented and unpatented technology and know-how related to Brightware’s current eServices product offering founded on a combination of artificial intelligence, knowledge-manager technology and Internet enterprise applications. Assembled workforce is the presence of a skilled workforce that is knowledgeable about company procedures and possesses expertise in certain fields that are important to continued profitability and growth of a company. Intangible assets are being amortized over three years. For the fiscal 2001, we recognized $3.6 million in amortization. We adopted SFAS 142, Goodwill and Other Intangible Assets on November 1, 2001, and going

28

forward goodwill, as defined, will be adjusted periodically for impairments and no goodwill amortization expense will be recorded.

      Restructuring charge (credit). Throughout fiscal 2001, the Company announced three restructurings of its operations. In the quarter ended April 30, 2001, we recorded a restructuring charge of $3.0 million as a result of a global slowdown in information technology spending and to eliminate redundant operations that resulted from our acquisition of Brightware. In the quarter ended July 31, 2001, we recorded a restructuring charge of $8.1 million as a result of a continued slowdown of global information technology spending. In the quarter ended October 31, 2001 as a result of a continuation in the slowdown of global information technology spending we recorded a restructuring charge of $7.1 million. These actions sought to better align the Company’s cost structure with projected operations in the future, preserve cash, and in the case of the Brightware transaction, eliminate redundant operations. The Company reduced headcount and facilities as well as wrote off excess equipment and terminated and restructured certain contractual relationships. Overall, the Company terminated 31 general and administrative, 111 sales and marketing, 159 professional services and 62 development employees, as well as 90 contractors. The restructuring charges for the year totaled $18.2 million, which includes $8.5 million of employee severance costs, $3.0 million of facilities related costs, $3.9 million of impaired property and equipment costs, $2.0 million of contract termination fees and $782,000 of other costs. As a result of these actions, as we expect expenses in fiscal 2002 to decrease as compared to fiscal 2001.

      Settlement of claim. On March 2, 2001, we entered into an agreement with a customer under which we paid to the customer $1.6 million to resolve outstanding contractual matters. The expense for the settlement was partially offset by $389,000 previously paid by the customer but not yet earned by the Company. The Company recorded this transaction as a net charge of $1.2 million to operations in the quarter ended April 30, 2001.

      Acquired in-process research and development. As part of the purchase price allocation for Brightware, all intangible assets that are a part of the acquisition were identified and valued. It was determined that technology assets and assembled workforce had value. As a result of this identification and valuation process, we allocated approximately $6.2 million of the purchase price to in-process research and development projects. This allocation represented the estimated fair value based on risk-adjusted cash flows related to the incomplete research and development projects. At the date of acquisition, the development of these projects had not yet reached technological feasibility, and the research and development in progress had no alternative future uses. Accordingly, these costs were expensed as of the date of the acquisition.

      Interest income (expense), net. Interest income (expense), net decreased $370,000, or 9.2%, to $3.7 million in fiscal 2001 from $4.0 million in fiscal 2000. The decrease is primarily due to decreased levels of cash and cash equivalents and short and long-term investments.

      Other income (expense), net. Other income (expense), net primarily consists of bank fees, certain state and local taxes and foreign currency transaction gains/losses. Fiscal 2000 also includes $323,000 in net proceeds from the settlement of a lawsuit. Other income (expense), net decreased $1.3 million, or 197.5%, to $622,000 in expense in fiscal 2001 from $638,000 in income in fiscal 2000. The decline is primarily due to foreign currency transaction losses in fiscal 2001.

      Loss on extinguishments of debt. In February 2000, we repaid $6,000,000 in subordinated notes payable. In conjunction with the original issuance of the notes in November 1999, we issued the note holders warrants to purchase an aggregate of 360,000 shares of common stock at an exercise price of $5.25 per share with an estimated fair value totaling $2,789,000. We had allocated the proceeds from the subordinated notes payable of $6,000,000 in proportion to the relative fair values of both the warrants and the subordinated notes payable. As a result, we had recorded the warrants as a discount totaling $1,904,000 against the carrying value of the subordinated notes payable, with the discount amortized to interest expense over the term of the subordinated notes payable. As a result of repaying the notes in fiscal 2000, we recorded a $1,437,000 loss on extinguishment of debt as an extraordinary item for the amount of unamortized discount at the time of repayment.

29

Comparison of Fiscal Years Ended October 31, 2000 and 1999

      Revenue. Total revenue increased $27.7 million, or 80.8%, to $62.0 million in fiscal 2000 from $34.3 million in fiscal 1999. This increase is attributable to a 157.8% increase in product-related revenue, partially offset by a planned decrease in custom development services revenue, associated with our change in focus from providing custom development services to providing more standardized software products.

      License. License revenue increased $13.4 million, or 136.6%, to $23.1 million in fiscal 2000 from $9.8 million in fiscal 1999. License revenue as a percentage of total revenue increased to 37.3% in fiscal 2000 from 28.5% in fiscal 1999. The increase in license revenue in absolute dollars and as a percentage of total revenue is primarily attributable to an increase in the number of licenses implemented at higher average selling prices.

      Product service and maintenance. Product service and maintenance revenue increased $15.7 million, or 182.0%, to $24.3 million in fiscal 2000 from $8.6 million in fiscal 1999. Product services revenue as a percentage of total revenue increased to 39.2% in fiscal 2000 from 25.1% in fiscal 1999. The increase in absolute dollars and as a percentage of total revenue is attributable to the increase in the number of consulting engagements and maintenance agreements related to the increased license sales in fiscal 2000.

      Custom development services. Custom development services revenue decreased $1.3 million, or 8.3%, to $14.6 million in fiscal 2000 from $15.9 million in fiscal 1999. Custom development services revenue as a percentage of total revenue decreased to 23.5% in fiscal 2000 from 46.4% in fiscal 1999. The decrease in absolute dollars and as a percentage of total revenue is due to the change of our strategic focus.

      Cost of revenue. Total cost of revenue increased $6.2 million, or 37.5%, to $22.8 million in fiscal 2000 from $16.6 million in fiscal 1999. Total cost of revenue as a percentage of total revenue decreased to 36.7% in fiscal 2000 from 48.3% in fiscal 1999.

      Cost of license revenue. Cost of license revenue increased $261,000, or 109.7%, to $499,000 in fiscal 2000 from $238,000 in fiscal 1999. Cost of license revenue as a percentage of license revenue remained consistent at 2.2% in fiscal 2000 and 2.4% in fiscal 1999. The increase in absolute dollars is due primarily to an increase in royalty charges associated with the increase in license revenue.

      Cost of product-related services and maintenance revenue. Cost of product-related services and maintenance revenue increased $10.8 million, or 190.4%, to $16.5 million in fiscal 2000 from $5.7 million in fiscal 1999. Cost of product-related services and maintenance revenue as a percentage of product-related services and maintenance revenue increased to 67.9% in fiscal 2000 from 66.0% in fiscal 1999. The increase was primarily due to increased staff to support a higher number of product-related engagements.

      Cost of custom development services revenue. Cost of custom development services revenue decreased $4.9 million, or 45.7%, to $5.8 million in fiscal 2000 from $10.6 million in fiscal 1999. Cost of custom development services as a percentage of custom development services revenue decreased to 39.6% in fiscal 2000 from 66.9% in fiscal 1999. The decrease in absolute dollars is primarily due to decreased staff supporting fewer custom development services engagements.

      Sales and marketing expenses. Sales and marketing expenses increased $4.3 million, or 18.2%, to $27.9 million in fiscal 2000 from $23.6 million in fiscal 1999. Sales and marketing expenses as a percentage of total revenue decreased to 45.0% in fiscal 2000 from 68.9% in fiscal 1999. Sales and marketing expenses increased in absolute dollars primarily due to increased headcount in our sales operations, as well as increase in commissions on product-related sales. Sales and marketing expenses decreased as a percentage of total revenue primarily due to our revenue increasing at a greater rate than our sales and marketing expenses.

      Research and development expenses. Research and development expenses increased $5.6 million, or 58.3% to $15.3 million in fiscal 2000 from $9.6 million in fiscal 1999. Research and development expenses as a percentage of total revenue decreased to 24.6% in fiscal 2000 from 28.1% in fiscal 1999. These expenses increased in absolute dollars as a result of increased headcount in our product development operation and increased utilization of engineering and product development contractors associated with our investment in the

30

SalesPerformer Suite. Research and development expenses decreased as a percentage of total revenue primarily due to our revenue increasing at a greater rate than our research and development expenses.

      General and administrative expenses. General and administrative expenses increased $2.4 million, or 33.4%, to $9.4 million in fiscal 2000 from $7.1 million in fiscal 1999. General and administrative expenses as a percentage of total revenue decreased to 15.2% in fiscal 2000 from 20.7% in fiscal 1999. These expenses increased in absolute dollars primarily as a result of increased headcount in our general and administrative functions, increased costs of our infrastructure necessary to support our growth and costs associated with becoming a public company in fiscal 2000. The decrease in general and administrative expenses as a percentage of total revenue is attributable to our revenue increasing at a greater rate than our general and administrative expenses.

      Stock-based compensation expense. Stock-based compensation expense increased $4.1 million, or 157.2%, to $6.7 million in fiscal 2000 from $2.6 million in fiscal 1999. Stock-based compensation expense as a percentage of total revenue increased to 10.8% in fiscal 2000 from 7.6% in fiscal 1999. If we had allocated our stock-based compensation to the departments for which the services were performed, the allocation would have increased cost of revenue by $40,000 in fiscal 1999 and $568,000 in fiscal 2000, sales and marketing expenses by $1,327,000 in fiscal 1999 and $4,193,000 in fiscal 2000, research and development expenses by $913,000 in fiscal 1999 and $1,261,000 in fiscal 2000, and general and administrative expenses by $317,000 in fiscal 1999 and $658,000 in fiscal 2000. The increase in stock based compensation over the prior year is the result of a higher number of grants in fiscal 2000 to consultants and in connection with strategic business alliances, as well as the occurrence of a $1,800,000 charge in fiscal 2000 resulting from the modifications of terms of three employee stock option agreements.

      Restructuring charge (credit). During fiscal 1999, we undertook a plan to relocate our corporate offices from Minnesota to Massachusetts. In connection with this plan, we incurred $3.0 million of restructuring charges, which included $1.5 million for asset impairments, $1.0 million for idle lease space and $500,000 for employee severance costs. During fiscal 2000, we negotiated a new lease for less space, eliminating the future obligation for the idle space in our Mankato facility. As a result, we reversed $500,000 of the restructuring accrual representing the remaining obligation for the idle lease space.

      Interest income (expense), net. Interest income (expense), net improved to $4.0 million of income in fiscal 2000 from $565,000 of expense in fiscal 1999. The improvement is primarily due to interest earned on increased cash and cash equivalents and short and long-term investments as a result of the proceeds from our initial public offering partially offset by interest expense primarily related to the issuance of subordinated notes payable.

      Other income (expense), net. Other income (expense), net improved to $640,000 of income in fiscal 2000 from $66,000 of expense in fiscal 1999. This improvement is primarily attributed to foreign currency transaction net gains and $323,000 in net proceeds from the lawsuit settlement in fiscal 2000.

      Loss on extinguishments of debt. In February 2000, we repaid $6,000,000 in subordinated notes payable. In conjunction with the original issuance of the notes in November 1999, we issued the note holders warrants to purchase an aggregate of 360,000 shares of common stock at an exercise price of $5.25 per share with an estimated fair value totaling $2,789,000. We had allocated the proceeds from the subordinated notes payable of $6,000,000 in proportion to the relative fair values of both the warrants and the subordinated notes payable. As a result, we had recorded the warrants as a discount totaling $1,904,000 against the carrying value of the subordinated notes payable, with the discount amortized to interest expense over the term of the subordinated notes payable. As a result of repaying the notes in fiscal 2000, we recorded a $1,437,000 loss on extinguishment of debt as an extraordinary item for the amount of unamortized discount at the time of repayment.

Quarterly Results of Operations

      The following table presents our unaudited consolidated statement of operations data for the eight quarters in the period ended October 31, 2001, as well as the percentage of our total revenue represented by

31

each item. We have prepared this unaudited consolidated information on a basis consistent with our audited consolidated financial statements, and in the opinion of our management, this information reflects all normal recurring adjustments necessary for a fair presentation of our operating results for the quarters presented.

				Quarter Ended
				January 31,			April 30,			July 31,			October 31,			January 31,			April 30,			July 31,			October 31,
				2000			2000			2000			2000			2001			2001			2001			2001
				(In thousands)
Revenue:
	Product-related revenue:
		License		$	3,907		$	4,921		$	6,794		$	7,506		$	4,034		$	3,631		$	3,924		$	3,259
		Services and maintenance			4,458			5,058			6,492			8,257			8,273			7,907			5,329			5,200
			Total product-related revenue		8,365			9,979			13,286			15,763			12,307			11,538			9,253			8,459
		Custom development services			3,612			3,608			4,029			3,329			2,240			777			861			654
			Total revenue		11,977			13,587			17,315			19,092			14,547			12,315			10,114			9,113
Cost of revenue:
	Licenses				129			138			159			72			69			155			145			155
	Product-related services and maintenance				2,283			2,828			4,470			6,904			8,533			9,262			6,381			4,918
	Custom development services				1,599			1,407			1,366			1,402			677			145			217			132
			Total cost of revenue		4,011			4,373			5,995			8,378			9,279			9,562			6,743			5,205
Gross profit					7,966			9,214			11,320			10,714			5,268			2,753			3,371			3,908
Operating expenses:
	Sales and marketing				6,418			6,671			7,918			6,901			6,852			8,559			6,574			3,146
	Research and development				3,697			3,650			3,485			4,430			4,678			6,598			4,540			3,022
	General and administrative				1,962			2,242			2,507			2,736			2,891			3,044			2,904			2,142
	Stock-based compensation				1,167			1,767			1,731			2,014			696			672			1,472			1,630
	Amortization of goodwill and other intangible assets				—			—			—			—			—			946			1,331			1,277
	Restructuring charge (credit)				—			(500	)		—			—			—			3,021			8,129			7,093
	Settlement of claim				—			—			—			—			—			1,211			—			—
	Acquired in-process research and development				—			—			—			—			—			6,200			—			—
			Total operating expenses		13,244			13,830			15,641			16,081			15,117			30,251			24,950			18,310
Loss from operations					(5,278	)		(4,616	)		(4,321	)		(5,367	)		(9,849	)		(27,498	)		(21,579	)		(14,402	)
Interest income (expense)					(807	)		1201			1,805			1,835			1,740			1,038			605			290
Other income (expense), net					262			271			(170	)		280			(499	)		(181	)		(381	)		435
Net loss before extraordinary item					(5,823	)		(3,144	)		(2,686	)		(3,252	)		(8,608	)		(26,641	)		(21,355	)		(13,677	)
Loss on extinguishment of debt					—			(1,437	)		—			—			—			—			—			—
Net loss					(5,823	)		(4,581	)		(2,686	)		(3,252	)		(8,608	)		(26,641	)		(21,355	)		(13,677	)
Stock dividend paid to preferred stockholders					—			(65,542	)		—			—			—			—			—			—
Loss applicable to common stockholders				$	(5,823	)	$	(70,123	)	$	(2,686	)	$	(3,252	)	$	(8,608	)	$	(26,641	)	$	(21,355	)	$	(13,677	)

32

				Quarter Ended
				January 31,			April 30,			July 31,			October 31,			January 31,			April 30,			July 31,			October 31,
				2000			2000			2000			2000			2001			2001			2001			2001
				(As a percentage of total revenue)
Revenue:
	Product-related revenue:
		License			32.6	%		36.2	%		39.2	%		39.3	%		27.7	%		29.5	%		38.8	%		35.8	%
		Services and maintenance			37.2			37.2			37.5			43.3			56.9			64.2			52.7			57.0
					69.8			73.4			76.7			82.6			84.6			93.7			91.5			92.8
			Total product-related revenue		30.2			26.6			23.3			17.4			15.4			6.3			8.5			7.2
		Custom development services			100.0			100.0			100.0			100.0			100.0			100.0			100.0			100.0
			Total revenue
Cost of revenue:
	Licenses				1.1			1.0			0.9			0.4			0.5			1.3			1.4			1.7
	Product-related services and maintenance				19.1			20.8			25.8			36.2			58.6			75.2			63.2			54.0
	Custom development services				13.3			10.4			7.9			7.3			4.7			1.2			2.1			1.4
			Total cost of revenue		33.5			32.2			34.6			43.9			63.8			77.7			66.7			57.1
Gross profit					66.5			67.8			65.4			56.1			36.2			22.3			33.3			42.9
Operating expenses:
	Sales and marketing				53.6			49.1			45.7			36.1			47.0			69.5			65.0			34.5
	Research and development				30.9			26.9			20.1			23.2			32.2			53.6			44.9			33.2
	General and administrative				16.4			16.5			14.5			14.3			19.9			24.7			28.7			23.5
	Stock-based compensation				9.7			13.0			10.0			10.5			4.8			5.5			14.6			17.9
	Amortization of goodwill and other intangible assets				—			—			—			—			—			7.7			13.2			14.0
	Restructuring charge (credit)				—			(3.7	)		—			—			—			24.5			80.3			77.8
	Settlement of claim				—			—			—			—			—			9.8			—			—
	Acquired in-process research and development				—			—			—			—			—			50.3			—			—
			Total operating expenses		110.6			101.8			90.3			84.1			103.9			245.6			246.7			200.9
Loss from operations					(44.1	)		(34.0	)		(24.9	)		(28.0	)		(67.7	)		(223.3	)		(213.4	)		(158.0	)
Interest income (expense)					(6.7	)		8.9			10.4			9.6			11.9			8.3			6.0			3.2
Other income (expense), net					2.2			2.0			(1.0	)		1.5			(3.4	)		(1.4	)		(3.8	)		4.8
Net loss before extraordinary item					(48.6	)		(23.1	)		(15.5	)		(16.9	)		(59.2	)		(216.4	)		(211.2	)		(150.0	)
Loss on extinguishment of debt					—			(10.6	)		—			—			—			—			—			—
Net loss					(48.6	)%		(33.7	)%		(15.5	)%		(16.9	)%		(59.2	)%		(216.4	)%		(211.2	)%		(150.0	)%

      Our operating results have varied significantly from quarter to quarter in the past and may continue to fluctuate in the future. The quarterly fluctuations are caused by a number of factors, including demand for our products and services, size and timing of specific sales, level of product and price competition, timing and market acceptance of new product introductions and product enhancements by us and our competitors, the length of our sales cycle, personnel changes, budgeting cycles of our customers, the impact of our revenue recognition policies, changes in technology and changes caused by the rapidly evolving e-business market. Many of these factors are beyond our control. Therefore, we believe that results of operations for interim periods should not be relied upon as any indication of the results to be expected in any future period.

Liquidity and Capital Resources

      As of October 31, 2001, cash and cash equivalents were $34.7 million and short-term investments were $9.6 million as compared with $79.5 million of cash and cash equivalents and $36.7 million of short-term

33

investments as of October 31, 2000. Our working capital at October 31, 2001 was $30.8 million, compared to a working capital of $101.9 million at October 31, 2000.

      Net cash used in operating activities was $.53.0 million in the year ended October 31, 2001, compared with net cash provided by operating activities of $3.2 million in the year ended October 31, 2000 and net cash used in operating activities of $119.9 million in the year ended October 31, 1999. Cash used in operating activities in the year ended October 31, 2001 was primarily attributable to our net loss, a decrease in accounts payable, accrued liabilities and deferred revenue offset by a decrease in accounts receivable, an increase in restructuring accrual and non-cash expenses including acquired in-process research and development, non-cash restructuring charges, stock-based compensation, depreciation.

      Net cash provided by investing activities was $16.3 million in the year ended October 31, 2001, compared with net cash used in investing activities of $40.7 million in the year ended October 31, 2000 and $2.1 million in the year ended October 31, 1999. Net cash provided by investing activities in the year ended October 31, 2001 was primarily attributable to proceeds from sales and maturities of short-term investments and the return of restricted cash from escrow offset by the purchase of short-term investments, the payment for the Brightware acquisition and purchases of fixed assets.

      Net cash used in financing activities was $8.1 million in the year ended October 31, 2001, compared with net cash provided by financing activities of $114.9 million in the year ended October 31, 2000 and $21.9 million in the year ended October 31, 1999. Net cash used in financing activities for the year ended October 31, 2001 were primarily from payments of Brightware debt and issuance of loans receivable offset by the exercise of stock options.

      We anticipate continued spending on capital expenditures consistent with anticipated requirements for operations, infrastructure and personnel. We believe that our existing cash balances will be sufficient to meet our anticipated cash need for working capital and capital expenditures for at least the next 12 months. However, we may need to raise additional funds in the next 12 months or in the future to support more rapid expansion of our sales force, develop new or enhanced products or services, respond to competitive pressures, acquire complementary businesses or technologies or respond to unanticipated requirements. If we seek to raise additional funds, we may not be able to obtain funds on terms which are favorable or acceptable to us. If we raise additional funds through the issuance of equity securities, the percentage ownership of our existing stockholders would be reduced. Furthermore, these securities may have rights, preferences or privileges senior to our common stock.

Recent Accounting Pronouncements

      In July 2001, the FASB issued SFAS No, 141, Business Combinations. SFAS No. 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. This statement is effective for all business combinations initiated after June 30, 2001.

      In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible Assets. This statement applies to goodwill and intangible assets acquired after June 30, 2001, as well as goodwill and intangible assets previously acquired. Under this statement, goodwill will no longer be amortized, instead goodwill will be reviewed for impairment annually, at a minimum, by applying a fair-value-based test. We will adopt this statement, effective the first quarter in the fiscal year ending October 2002. Accordingly, we will reclassify the net book value of assembled workforce to goodwill and cease amortization. We expect this will reduce annual amortization expense by approximately $3.2 million. Management is currently evaluating the impact that this statement will have on our financial statements in reviewing goodwill for impairment when applying a fair-value-based test.

      In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. This statement supercedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and the accounting and reporting provisions of Accounting Principles Board (APB) Opinion No. 30, Reporting the Results of Operations — Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring

34

Events and Transactions. Under this statement it is required that one accounting model be used for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired, and it broadens the presentation of discontinued operations to include more disposal transactions. The provisions of this statement are effective for financial statements issued for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years, with early adoption permitted. We are currently evaluating the ultimate impact of this statement on its results of operations or financial position until such time as its provisions are applied.

Item 7A.     Quantitative and Qualitative Disclosures About Market Risk

      We develop products in the United States and sell them worldwide. As a result, our financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets. Since our sales are currently priced in U.S. dollars and are translated to local currency amounts, a strengthening of the dollar could make our products less competitive in foreign markets. Interest income and expense are sensitive to changes in the general level of U.S. interest rates, particularly since our investments are in short-term instruments. Based on the nature and current levels of our investments, however, we have concluded that there is no material market risk exposure.

Item 8.     Financial Statements and Supplementary Data

      The financial statements and supplementary data required by this Item 8 are listed in Item 14(a)(1) and begin at page F-1 of this report.

      The quarterly financial information required by this Item 8 is included in Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

      None

PART III

Item 10.     Directors and Executive Officers of the Registrant

      The response to this item is incorporated by reference to the information under the captions “Management” and “Section 16(a) Beneficial Ownership Reporting Compliance” in our Proxy Statement for the 2002 Annual Meeting of Stockholders.

Item 11.     Executive Compensation

      The response to this item is incorporated by reference to the information under the caption “Executive Compensation” in our Proxy Statement for the 2002 Annual Meeting of Stockholders.

Item 12.     Security Ownership of Certain Beneficial Owners and Management

      The response to this item is incorporated by reference to the information under the caption “Security Ownership of Certain Beneficial Owners and Management” in our Proxy Statement for the 2002 Annual Meeting of Stockholders.

Item 13.     Certain Relationships and Related Transactions

      The response to this item is incorporated by reference to the information under the caption “Certain Relationships and Related Transactions” in our Proxy Statement for the 2002 Annual Meeting of Stockholders.

35

PART IV

Item 14.     Exhibits, Financial Statement Schedules and Reports on Form 8-K

      (a) The following documents are filed as part of this report:

          1.     Financial Statements

      The following are the consolidated financial statements of the Company appearing elsewhere in this Annual Report on Form 10-K:

	Page
Report of Independent Public Accountants		F-2
Consolidated Balance Sheets as of October 31, 2000 and 2001		F-3
Consolidated Statements of Operations for the Fiscal Years Ended October 31, 1999, 2000 and 2001		F-4
Consolidated Statements of Stockholders’ Equity (Deficit) for the Fiscal Years Ended October 31, 1999, 2000 and 2001		F-5
Consolidated Statements of Cash Flows for the Fiscal Years Ended October 31, 1999, 2000 and 2001		F-6
Notes to Consolidated Financial Statements		F-8

          2.     Financial Statement Schedules

      Financial statement schedules have been omitted because the information required to be set forth therein is not applicable or is included in the Financial Statement notes thereto.

          3.     Exhibits

      The exhibits listed on the accompanying index to exhibits, immediately following the financial statement schedules are filed as part of, or incorporated by reference into this Form 10-K.

36

SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Waltham, Commonwealth of Massachusetts, on January 29, 2002.

FIREPOND, INC.

By:  /s/ PAUL K. MCDERMOTT

Paul K. McDermott

Chief Financial Officer and

Vice President of Finance and Administration

      Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/ KLAUS P. BESIER Klaus P. Besier	Chairman, Chief Executive Officer and Director (Principal Executive Officer)	January 29, 2002
/s/ PAUL K. MCDERMOTT Paul K. McDermott	Chief Financial Officer and Vice President of Finance and Administration (Principal Financial Officer and Principal Accounting Officer)	January 29, 2002
/s/ JOHN CACHIANES John Cachianes	Director	January 29, 2002
/s/ J. MICHAEL CLINE J. Michael Cline	Director	January 29, 2002
/s/ WILLIAM O. GRABE William O. Grabe	Director	January 29, 2002
Gerhard Schulmeyer	Director	January 29, 2002
/s/ VERNON LAWRENCE WEBER Vernon Lawrence Weber	Director	January 29, 2002

37

FIREPOND, INC. AND SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS

	Page
Report of Independent Public Accountants		F-2
Consolidated Balance Sheets as of October 31, 2000 and 2001.		F-3
Consolidated Statements of Operations for the Fiscal Years Ended October 31, 1999, 2000 and 2001		F-4
Consolidated Statements of Stockholders’ Equity (Deficit) for the Fiscal Years Ended October 31, 1999, 2000 and 2001.		F-5
Consolidated Statements of Cash Flows for the Fiscal Years Ended October 31, 1999, 2000 and 2001		F-6
Notes to Consolidated Financial Statements		F-8

F-1

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of

Firepond, Inc.:

      We have audited the accompanying consolidated balance sheets of Firepond, Inc. (a Delaware corporation) and subsidiaries as of October 31, 2000 and 2001, and the related consolidated statements of operations, stockholders’ equity (deficit) and cash flows for each of the three years in the period ended October 31, 2001. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

      We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 Firepond, Inc. and subsidiaries as of October 31, 2000 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended October 31, 2001, in conformity with accounting principles generally accepted in the United States.

/s/ ARTHUR ANDERSEN LLP

Boston, Massachusetts

November 21, 2001 (except with

respect to the matter discussed

in note 18, as to which the date

is January 14, 2002)

F-2

FIREPOND, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

				October 31,
				2000			2001
				(In thousands, except
				per share data)
ASSETS
Current assets:
	Cash and cash equivalents			$	79,500		$	34,660
	Short-term investments				36,733			9,593
	Accounts receivable, net of reserves of $1,115 and $1,292 in 2000 and 2001, respectively				15,418			10,310
	Unbilled services				1,676			594
	Prepaid expenses and other current assets				2,436			2,118
			Total current assets		135,763			57,275
	Property and equipment, net				6,887			5,356
	Goodwill and other intangible assets, net (see Notes 14 and 15)				389			11,114
	Restricted cash				550			550
	Other assets				731			843
				$	144,320		$	75,138
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable				4,851			1,790
	Accrued liabilities				13,656			8,874
	Restructuring accrual				142			5,057
	Deferred revenue				15,207			10,802
			Total current liabilities		33,856			26,523
Restructuring accrual, less current portion					—			1,102
Commitments and contingencies (see Note 8)
Stockholders’ equity:
	Common stock, $0.01 par value —
		Authorized — 100,000,000 shares at October 31, 2000 and 2001; Issued and outstanding — 35,596,022 shares at October 31, 2000 and 37,316,911 shares at October 31, 2001			356			373
	Additional paid-in capital				195,166			202,231
	Accumulated deficit				(78,135	)		(148,416	)
	Loans receivable				—			(4,407	)
	Deferred compensation				(6,077	)		(1,285	)
	Other comprehensive loss				(846	)		(983	)
			Total stockholders’ equity		110,464			47,513
				$	144,320		$	75,138

The accompanying notes are an integral part of these consolidated financial statements.

F-3

FIREPOND, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

				Fiscal Years Ended October 31,
				1999			2000			2001
				(In thousands, except per share data)
Revenue:
	Product-related revenue:
		License		$	9,777		$	23,128		$	14,848
		Services and maintenance			8,604			24,265			26,709
			Total product-related revenue		18,381			47,393			41,557
		Custom development services			15,904			14,579			4,532
			Total revenue		34,285			61,972			46,089
Cost of revenue:
	License				238			499			524
	Product-related services and maintenance(1)				5,677			16,485			29,094
	Custom development services				10,636			5,773			1,171
			Total cost of revenue		16,551			22,757			30,789
Gross profit					17,734			39,215			15,300
Operating expenses:
	Sales and marketing(1)				23,609			27,904			25,131
	Research and development(1)				9,641			15,264			18,838
	General and administrative(1)				7,084			9,449			10,981
	Stock-based compensation				2,597			6,680			4,470
	Amortization of goodwill and other intangible assets				—			—			3,554
	Restructuring charge (credit)				3,027			(500	)		18,243
	Settlement of claim (see Note 16)				—			—			1,211
	Acquired in-process research and development				—			—			6,200
			Total operating expenses		45,958			58,797			88,628
	Loss from operations				(28,224	)		(19,582	)		(73,328	)
	Interest income				—			5,071			3,777
	Interest expense				(850	)		(1,033	)		(104	)
	Other income (expense), net				219			639			(626	)
	Net loss before extraordinary item				(28,855	)		(14,905	)		(70,281	)
	Loss on extinguishment of debt				—			(1,437	)		—
	Net loss				(28,855	)		(16,342	)		(70,281	)
	Stock dividend paid to preferred stockholders				—			(65,542	)		—
	Loss applicable to common stockholders			$	(28,855	)	$	(81,884	)	$	(70,281	)
	Net loss per share (see Note 3(a)):
		Basic and diluted net loss per share before extraordinary item		$	(2.88	)	$	(0.52	)	$	(1.95	)
		Extraordinary item			—			(0.05	)		—
		Stock dividend paid to preferred stockholders			—			(2.32	)		—
		Basic and diluted net loss per share applicable to common stockholders		$	(2.88	)	$	(2.89	)	$	(1.95	)
		Basic and diluted weighted average common shares outstanding			10,024			28,286			36,011
	Pro forma net loss per share (see Note 3(b)):
		Pro forma net loss per share		$	(1.12	)	$	(0.50	)
		Pro forma basic and diluted weighted average common shares outstanding			25,799			32,867

(1)  The following summarizes the departmental allocation of the stock-based compensation charge:

		Fiscal Years Ended
		October 31,
		1999		2000		2001
Cost of revenue		$	40	$	568	$	84
Operating expenses:
	Sales and marketing		1,327		4,193		181
	Research and development		913		1,261		300
	General and administrative		317		658		3,905
Total stock-based compensation		$	2,597	$	6,680	$	4,470

The accompanying notes are an integral part of these consolidated financial statements.

F-4

FIREPOND, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

	Preferred Stock						Common Stock
																							Accumulated
				$0.01					$0.01		Additional												Other
				Par					Par		Paid-in			Accumulated			Loans			Deferred			Comprehensive
	Shares			Value			Shares		Value		Capital			Deficit			Receivable			Compensation			Income/(Loss)
	(In thousands, except per share data)
Balance, October 31, 1998		12,363,785		$	124			10,004,315	$	100	$	33,745		$	(32,938	)	$	—		$	—		$	—
Exercise of common stock options		—			—			35,169		—		139			—			(13	)		—			—
Issuance of common stock		—			—			33,333		1		278			—			—			(130	)		—
Issuance of warrants to purchase common stock to a customer		—			—			—		—		106			—			—			—			—
Issuance of series F preferred stock		6,734,008			67			—		—		19,774			—			—			—			—
Issuance of warrants to purchase series F preferred stock		—			—			—		—		1			—			—			—			—
Cost of exchanging series E for series G preferred stock		—			—			—		—		(23	)		—			—			—			—
Deferred stock- based compensation		—			—			—		—		8,360			—			—			(8,360	)		—
Stock-based compensation expense		—			—			—		—		—			—			—			2,597			—
Cumulative translation adjustment		—			—			—		—		—			—			—			—			(327	)
Net loss		—			—			—		—		—			(28,855	)		—			—			—
Comprehensive loss for the year ended October 31, 1999.
Balance, October 31, 1999		19,097,793			191			10,072,817		101		62,380			(61,793	)		(13	)		(5,893	)		(327	)
Exercise of common stock options and warrants		—			—			3,035,823		30		9,845			—			—			—
Payments by stockholders		—			—			—		—		—			—			13			—			—
Issuance of common stock at initial public offering		—			—			5,666,666		57		113,743			—			—			—			—
Issuance of warrants to purchase common stock to a customer		—			—			—		—		409			—			—			—			—
Issuance of warrants in connection with note payable		—			—			—		—		1,904			—			—			—			—
Conversion of preferred stock into common stock		(19,097,793	)		(191	)		12,731,862		127		64			—			—			—			—
Priority payments to stockholders		—			—			3,812,588		38		(38	)		—			—			—			—
Deferred stock- based compensation		—			—			—		—		2,965			—			—			(2,965	)		—
Stock-based compensation expense		—			—			—		—		—			—			—			6,680			—
Issuance of restricted common shares (see Note 14)		—			—			276,266		3		3,896			—			—			(3,899	)		—
Cumulative translation adjustment		—			—			—		—		—			—			—			—			(515	)
Unrealized net loss on investment		—			—			—		—		—			—			—			—			(4	)
Net loss		—			—			—		—		—			(16,342	)		—			—			—
Comprehensive loss for the year ended October 31, 2000.
Balance, October 31, 2000		—			—			35,596,022		356		195,166			(78,135	)		—			(6,077	)		(846	)
Exercise of common stock options and warrants		—			—			395,575		4		1,546			—			—			—			—
Deferred stock- based compensation reversal		—			—			—		—		(322	)		—			—			322			—
Stock-based compensation expense		—			—			—		—		—			—			—			4,470			—
Issuance of shares for acquisition of Brightware		—			—			1,325,314		13		5,841			—			—			—			—
Loans receivable		—			—			—		—		—			—			(4,407	)		—			—
Cumulative translation adjustment		—			—			—		—		—			—			—			—			(150	)
Unrealized net gain on investment		—			—			—		—		—			—			—			—			13
Net loss		—			—			—		—		—			(70,281	)		—			—			—
Comprehensive loss for the year ended October 31, 2001.
Balance, October 31, 2001.		—		$	—			37,316,911	$	373	$	202,231		$	(148,416	)	$	(4,407	)	$	(1,285	)	$	(983	)

[Additional columns below]

[Continued from above table, first column(s) repeated]

	Stockholders’			Comprehensive
	Equity			Income
	(Deficit)			(Loss)
	(In thousands, except per share data)
Balance, October 31, 1998	$	1,031
Exercise of common stock options		126
Issuance of common stock		149
Issuance of warrants to purchase common stock to a customer		106
Issuance of series F preferred stock		19,841
Issuance of warrants to purchase series F preferred stock		1
Cost of exchanging series E for series G preferred stock		(23	)
Deferred stock- based compensation		—
Stock-based compensation expense		2,597
Cumulative translation adjustment		(327	)	$	(327	)
Net loss		(28,855	)		(28,855	)
Comprehensive loss for the year ended October 31, 1999.				$	(29,182	)
Balance, October 31, 1999		(5,354	)
Exercise of common stock options and warrants		9,875
Payments by stockholders		13
Issuance of common stock at initial public offering		113,800
Issuance of warrants to purchase common stock to a customer		409
Issuance of warrants in connection with note payable		1,904
Conversion of preferred stock into common stock		—
Priority payments to stockholders		—			—
Deferred stock- based compensation		—			—
Stock-based compensation expense		6,680
Issuance of restricted common shares (see Note 14)		—			—
Cumulative translation adjustment		(515	)		(515	)
Unrealized net loss on investment		(4	)		(4	)
Net loss		(16,342	)		(16,342	)
Comprehensive loss for the year ended October 31, 2000.				$	(16,861	)
Balance, October 31, 2000		110,464
Exercise of common stock options and warrants		1,550
Deferred stock- based compensation reversal		—
Stock-based compensation expense		4,470
Issuance of shares for acquisition of Brightware		5,854
Loans receivable		(4,407	)
Cumulative translation adjustment		(150	)		(150	)
Unrealized net gain on investment		13			13
Net loss		(70,281	)		(70,281	)
Comprehensive loss for the year ended October 31, 2001.				$	(70,418	)
Balance, October 31, 2001.	$	47,513

The accompanying notes are an integral part of these consolidated financial statements.

F-5

FIREPOND, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

					Fiscal Years Ended October 31,
					1999			2000			2001
					(In thousands)
Cash flows from operating activities:
	Net loss				$	(28,855	)	$	(16,342	)	$	(70,281	)
	Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
		Acquired in-process research and development				—			—			6,200
		Non-cash restructuring charges (reversals)				1,532			(500	)		4,256
		Issuance of warrants to a customer				106			409			—
		Stock-based compensation expense				2,597			6,680			4,470
		Loss on disposal of property and equipment				49			44			—
		Depreciation and amortization				2,851			3,062			8,190
		Non-cash interest expense				—			467			—
		Loss on early extinguishment of debt				—			1,437			—
		Changes in assets and liabilities, net of acquisition:
			Accounts receivable			(4,024	)		(5,247	)		5,474
			Unbilled services			(346	)		(485	)		1,082
			Prepaid expenses and other current assets			(860	)		(1,171	)		594
			Accounts payable			2,001			858			(5,603	)
			Accrued liabilities			1,334			7,210			(6,039	)
			Deferred revenue			3,666			6,702			(5,881	)
			Restructuring accrual			—			108			4,515
				Net cash (used in) provided by operating activities		(19,949	)		3,232			(53,023	)
Cash flows from investing activities:
	Purchases of short-term investments					—			(49,628	)		(13,303	)
	Purchases of long-term investments					—			(2,558	)		—
	Proceeds from the sale and maturities of short and long-term investments					—			15,449			40,470
	Purchases of property and equipment					(3,916	)		(3,856	)		(4,115	)
	Proceeds from sale of property and equipment					2,557			—			—
	Increase in restricted cash					(550	)		—			—
	Payment for acquisition, net of cash acquired and acquisition costs paid					—			29			(6,855	)
	(Increase) decrease in other assets					(236	)		(179	)		88
				Net cash provided by (used in) investing activities		(2,145	)		(40,743	)		16,285
Cash flows from financing activities:
	Net proceeds (payments) on line of credit					6,740			(6,740	)		—
	Payments on long-term debt					(4,959	)		(2,003	)		(395	)
	Payments on Brightware debt					—			—			(4,860	)
	Issuance of loans receivable					—			—			(4,407	)
	Proceeds from preferred stock issuance					19,842			—			—

F-6

FIREPOND, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)

				Fiscal Years Ended October 31,
				1999			2000			2001
				(In thousands)
Proceeds from common stock issuance, net of offering costs					288			113,800			—
Costs associated with exchange of preferred stock					(23	)		—			—
Proceeds from stock options and warrants exercised					—			9,845			1,550
Increase (decrease) in subscription receivables					(13	)		13			—
			Net cash provided by (used in) financing activities		21,875			114,915			(8,112	)
Effect of exchange rate changes on cash and cash equivalents					15			(24	)		10
Net increase (decrease) in cash and cash equivalents					(204	)		77,380			(44,840	)
Cash and cash equivalents, beginning of period					2,324			2,120			79,500
Cash and cash equivalents, end of period				$	2,120		$	79,500		$	34,660
Supplemental cash flow information:
Interest paid				$	695		$	665		$	104
Noncash investing and financing activities:
	Series D preferred stock exchanged for series E preferred stock			$	—		$	—		$	—
	Series E preferred stock exchanged for series G preferred stock			$	19,974		$	—		$	—
	Equipment acquired under capital lease obligations			$	477		$	—		$	—
	Warrants issued in conjunction with subordinated notes payable			$	—		$	1,904		$	—
	Conversion of preferred stock into common stock			$	—		$	191		$	—
	Purchase of Brightware, net of cash acquired:
		Fair value of assets acquired		$	—		$	—		$	3,954
		Liabilities assumed			—			—			(11,034	)
		Goodwill			—			—			7,449
		In-process research and development			—			—			6,200
		Developed technology and know-how			—			—			4,900
		Assembled workforce			—			—			2,200
		Cash paid including cash paid for acquisition costs			—			—			(6,855	)
		Acquisition costs accrued			—			—			(949	)
			Fair value of stock issued	$	—		$	—		$	5,865

The accompanying notes are an integral part of these consolidated financial statements.

F-7

FIREPOND, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.     Nature of Business and Basis of Presentation

      Firepond, Inc., together with its wholly owned subsidiaries (the “Company”) is a leading provider of intelligent guided selling and online customer assistance solutions that help companies more profitably acquire and retain customers. The Company’s product lines leverage advanced intelligence engines and patented automation technology to drive new revenue streams, increase profitability, and manage customer interactions across all channels and throughout the sales and service cycle.

      On February 15, 2001, the Company acquired 100% of the issued and outstanding shares of capital stock of Brightware, Inc. (Brightware). The acquisition was accounted for as a purchase in accordance with APB No. 16. Accordingly, the results of operations of Brightware have been included in the Company’s results of operations since the date of acquisition.

      The Company is subject to a number of risks similar to those of other companies of similar size in its industry, including recurring losses, rapid technological changes, competition, customer concentration, integration of acquisitions, management of international activities and dependence on key individuals.

      The accompanying consolidated financial statements include the accounts of Firepond, Inc. and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in the accompanying financial statements.

2.     Significant Accounting Policies

     (a) Use of Estimates

      The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

     (b) Revenue Recognition

      The Company recognizes revenue based on the provisions of Statement of Position, No. 97-2, Software Revenue Recognition (SOP 97-2), as amended, and Statement of Position No. 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts (SOP 81-1).

      The Company generates revenue from two primary sources: (1) product-related license and service revenue and (2) custom development service revenue.

Product-Related Revenue

      Product-related license revenue is generated from licensing the rights to the use of the Company’s packaged software products. Product-related service revenue is generated from sales of maintenance and, consulting and training services performed for customers that license the Company’s products.

      The Company has concluded that generally, for the SalesPerformer product suite and its components, the implementation services are essential to the customer’s use of the packaged software products in arrangements where the Company is responsible for implementation services. As such, the Company recognizes revenue for these arrangements following the percentage-of-completion method over the implementation period. Percentage of completion is measured by the percentage of implementation hours incurred to date compared to estimated total implementation hours. This method is used because management has determined that past experience has shown expended hours to be the best measure of progress on these engagements. When the current estimates of total contract revenue and contract cost indicate a loss, a provision for the entire loss on the contract is recorded.

F-8

FIREPOND, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      In situations where the Company is not responsible for implementation services for the SalesPerformer Suite of products, the Company recognizes revenue on delivery of the packaged software if there is persuasive evidence of an arrangement, collection is probable and the fee is fixed or determinable.

      In situations where the Company is not responsible for implementation services for the SalesPerformer Suite of products, however, is obligated to provide unspecified additional software products in the future, the Company recognizes revenue as a subscription over the term of the commitment period.

      For separate sales of the eServicePerformer product line, which was acquired in connection with the Brightware transaction, the Company recognizes revenue on delivery of the packaged software if there is persuasive evidence of an arrangement, collection is probable, and the fee is fixed or determinable. The Company has determined that implementation services are not essential to the functionality of the eServicePerformer product.

      For product sales that are recognized on delivery, the Company will execute contracts that govern the terms and conditions of each software license, as well as maintenance arrangements and other services arrangements. These contracts may be elements in a multiple element arrangement. Revenue under multiple element arrangements, which may include several different software products and services sold together, is allocated to each element based on the residual method in accordance with the American Institute of Certified Public Accountants (AICPA) Statement of Position 98-9, Software Revenue Recognition with Respect to Certain Arrangements.

      The Company uses the residual method when vendor-specific objective evidence of fair value does not exist for one of the delivered elements in the arrangement. Under the residual method, the fair value of the undelivered elements is deferred and subsequently recognized. The Company has established sufficient vendor specific objective evidence for professional services, training and maintenance and support services based on the price charged when these elements are sold separately. Accordingly, software license revenue is recognized under the residual method in arrangements in which software is licensed with professional services, training, and maintenance and support services.

      In situations where the Company enters into a license agreement for both its SalesPerformer Suite and its eServicePerformer product and is responsible for implementation services; it will recognize revenue for the entire arrangement under SOP 81-1.

      Revenue from maintenance services is recognized ratably over the term of the contract, typically one year. Consulting revenue is primarily related to implementation services performed on a time-and-materials basis under separate service arrangements. Revenue from consulting and training services is recognized as services are performed.

      The Company generally bills for services on a monthly basis. The Company generally bills for product license fees upon commencement of the contract, however, the Company may delay billing based on the terms of the contract. The Company has recorded deferred revenue on amounts billed or collected by the Company before satisfying the above revenue recognition criteria. Deferred revenue consists of the following:

	October 31,
	2000		2001
	(In thousands)
Product license	$	8,740	$	5,073
Product-related services		1,344		1,957
Product-related maintenance		2,865		3,379
Custom development services		2,258		393
	$	15,207	$	10,802

F-9

FIREPOND, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Unbilled revenue of $1,676,000 at October 31, 2000 and $594,000 at October 31, 2001 represents amounts due to the Company under license, service and maintenance agreements for work performed that had not been billed but for which revenue was recognized as of the period end. Product license fees for which the Company has not billed based on contract terms nor has the Company recognized or deferred revenue totaled $5,923,000 at October 31, 2000 and $343,000 at October 31, 2001.

     Custom Development Services Revenue

      The Company historically had provided services to develop highly customized applications utilizing core software technology. The Company no longer accepts new custom development service projects but continues to provide ongoing services related to previously completed custom development projects including software and data maintenance. Revenue from these ongoing arrangements is recognized as the services are performed.

     (c) Cost of Revenue

      Cost of licenses includes royalties, media, product packaging, documentation, other production costs and the amortization of capitalized software development costs. See note 2(m).

      Cost of product-related services and maintenance and cost of custom development services revenue consist primarily of salaries, related costs for development, consulting, training and customer support personnel, including cost of services provided by third-party consultants engaged by the Company.

     (d) Cash and Cash Equivalents

      The Company accounts for cash equivalents based on the guidance in Statement of Financial Accounting Standards, SFAS, No. 115, Accounting for Certain Investments in Debt and Equity Securities. Cash equivalents are short-term, highly liquid investments with original maturity dates of three months or less. Cash equivalents are carried at cost, which approximates fair market value and consisted of the following:

			October 31,
			2000		2001
			(In thousands)
Cash and cash equivalents:
	Interest bearing bank deposits		$	7,186	$	2,776
	Money market accounts			4,095		10,765
	Commercial paper			68,219		19,748
	Discount notes			—		1,371
		Total cash and cash equivalents	$	79,500	$	34,660

     (e) Short-term Investments

      In accordance with SFAS No. 115 and based on the Company’s intentions regarding these instruments, the Company has classified all short-term investments as available-for-sale. These investments consist of commercial paper, corporate notes and bonds and discount notes with an original maturity of less than a year. Other comprehensive loss in stockholders’ equity included an unrealized holding loss of $4,000 for October 31, 2000 and an unrealized holding gain of $9,000 for October 31, 2001 related to these investments.

F-10

FIREPOND, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

		October 31,
		2000		2001
		(In thousands)
Short-term investments, at fair value:
Commercial paper (average 57 remaining days to maturity)		$	15,329	$	3,089
Corporate notes and bonds (average 21 remaining days to maturity)			21,404		4,512
Discount notes (average 71 remaining days to maturity)			—		1,992
	Total short-term investments	$	36,733	$	9,593

     (f) Property and Equipment

      Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally two to seven years. The cost of equipment acquired under a capital lease is amortized over the shorter of the life of the lease or the estimated useful life of the assets. Maintenance and repairs are charged to operations as incurred and major improvements are capitalized. The cost of assets retired or disposed of and the accumulated depreciation thereon are removed from the accounts with any gain or loss realized upon sale or disposal credited or charged to operations, respectively.

			October 31,
			2000			2001
			(In thousands)
Property and equipment:
	Computer equipment		$	10,584		$	7,978
	Furniture and fixtures			2,039			1,418
	Leasehold improvements			746			561
				13,369			9,957
	Less: accumulated depreciation and amortization			(6,482	)		(4,601	)
		Property and equipment, net	$	6,887		$	5,356

      Depreciation expense was approximately $2,590,000 for fiscal 1999, $3,021,000 for fiscal 2000, and $4,151,000 for fiscal 2001.

     (g) Impairment of Long-Lived Assets

      The Company evaluates the carrying value of long-lived assets, including intangible assets, based on the guidance in SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The Company’s evaluation considers nonfinancial data such as changes in the operating environment and business strategy, competitive information, market trends and operating performance. Based on this evaluation, the Company recorded an asset impairment charge of $1,532,000 during fiscal 1999 in connection with the relocation of the Company’s corporate headquarters from Minnesota to Massachusetts and $3,891,000 during fiscal 2001 in connection with a restructuring of the Company’s operations, (see note 5).

     (h) Concentration of Credit Risk

      SFAS No. 105, Disclosure of Information about Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit Risk, requires disclosure of any significant off-balance-sheet risks and credit risk concentrations. The Company has no significant off-balance-sheet risks. Financial instruments that potentially subject the Company to concentrations of credit risk are principally cash and cash

F-11

FIREPOND, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

equivalents, short-term investments, accounts receivable and unbilled services. The Company maintains its cash and cash equivalents with established financial institutions. The Company’s credit risk is managed by investing its cash in high quality money market instruments and high quality corporate issuers. Concentration of credit risk related to accounts receivable and unbilled services is limited to several customers to whom the Company makes substantial sales. The Company performs periodic credit evaluations of its customers and has recorded allowances for estimated losses. The Company has not experienced any material losses related to receivables or unbilled services from individual customers, geographic regions or groups of customers. Due to these factors, no additional credit risk beyond amounts that have been provided for, is believed by management to be inherent in the Company’s accounts receivable or unbilled services.

      The following table summarizes the number of customers that individually comprise greater than 10% of total revenue or total accounts receivable and their aggregate percentage of the Company’s total revenue and accounts receivable:

							Accounts Receivable
		Revenue
									Percent of
				Percent of					Total
		Number of		Total			Number of		Accounts
		Customers		Revenue			Customers		Receivable
Fiscal year ended:
	October 31, 1999		2		38	%		3		42	%
	October 31, 2000		2		32	%		2		27	%
	October 31, 2001		1		17	%		1		16	%

     (i) Financial Instruments

      The estimated fair values of the Company’s financial instruments, which include cash equivalents, short-term investments, accounts receivable, unbilled services, restricted cash and accounts payable, approximate their carrying value due to the short-term nature of these instruments.

     (j) Stock-Based Compensation

      SFAS No. 123, Accounting for Stock-Based Compensation, requires the measurement of the fair value of employee and director stock options or warrants to be included in the statement of operations or disclosed in the notes to the financial statements. The Company accounts for stock-based compensation for employees and directors under the Accounting Principles Board, or APB, Opinion No. 25, Accounting for Stock Issued to Employees, and follows the disclosure-only alternative under SFAS No. 123, see note 9(d). The Company accounts for options and warrants granted to non-employees using the fair-value method prescribed by SFAS No. 123 and Emerging Issues Task Force, or EITF, No. 96-18, Accounting for Equity Instruments that are Issued to other than Employees for Acquiring, or in Conjunction with Selling, Goods, or Services.

     (k) Recent Accounting Pronouncements

      In July 2001, the FASB issued SFAS No, 141, Business Combinations. SFAS No. 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. This statement is effective for all business combinations initiated after June 30, 2001.

      In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible Assets. This statement applies to goodwill and intangible assets acquired after June 30, 2001, as well as goodwill and intangible assets previously acquired. Under this statement, goodwill will no longer be amortized, instead goodwill will be reviewed for impairment annually, at a minimum, by applying a fair- value-based test. The Company will adopt this statement, effective the first quarter in the fiscal year ending October 31, 2002. Accordingly, the Company will reclassify the net book value of assembled workforce to goodwill and cease amortization of goodwill. The Company expects this will reduce annual amortization expense by approximately $3.2 million.

F-12

FIREPOND, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company is currently evaluating the impact that this statement will have on its financial statements in reviewing goodwill for impairment when applying a fair-value-based test.

      In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. This statement supercedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and the accounting and reporting provisions of Accounting Principles Board (APB) Opinion No. 30, Reporting the Results of Operations — Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. Under this statement it is required that one accounting model be used for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired, and it broadens the presentation of discontinued operations to include more disposal transactions. The provisions of this statement are effective for financial statements issued for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the ultimate impact of this statement on its results of operations or financial position until such time as its provisions are applied.

     (l) Foreign Currency Translation

      Assets and liabilities of the foreign subsidiaries are translated based on the guidance in SFAS No. 52, Foreign Currency Translation. Under SFAS No. 52, assets and liabilities of the Company’s foreign operations are translated into U.S. dollars at current exchange rates, and income and expense items are translated at average rates of exchange prevailing during the year. Gains and losses arising from translation are accumulated as a separate component of stockholders’ equity. Gains and losses arising from transactions denominated in foreign currencies are included in other income and were not material for the periods presented.

     (m) Computer Software Development Costs and Research and Development Expenses

      The Company incurs software development costs associated with its licensed products as well as new products. Since June 1997, the Company determined that technological feasibility occurs upon the successful development of a working model, which happens late in the development cycle and close to general release of the products. Because the development costs incurred between the time technological feasibility is established and general release of the product are not material, the Company expenses these costs as incurred. Through May 1997, the Company capitalized $532,000 of costs related to the development of its first software product based on the guidance of SFAS No. 86 Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed. These costs were amortized over three years through October 31, 1999. Amortization of these costs was charged to costs of product licenses and was $177,000 in fiscal 1999.

3.     Net Loss Per Share

     (a) Net Loss Per Share

      Net loss per share is computed based on the guidance of SFAS No. 128, Earnings per Share. SFAS No. 128 requires companies to report both basic loss per share, which is computed by dividing the net loss applicable to common stockholders by the weighted average number of common shares outstanding, and diluted loss per share, which is computed by dividing the net loss applicable to common stockholders by the weighted average number of common shares outstanding plus the weighted average dilutive potential common shares outstanding using the treasury stock method. As a result of the losses incurred by the Company for all fiscal periods presented, all potential common shares were antidilutive and were excluded from the diluted net loss per share calculations.

F-13

FIREPOND, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The following table summarizes securities outstanding as of each period-end which were not included in the calculation of diluted net loss per share since their inclusion would be antidilutive.

	October 31,
	1999		2000		2001
	(In thousands)
Common stock options and warrants		7,952		10,762		8,421
Convertible preferred stock		19,098		—		—
Preferred stock warrants (note 9(c))		864		—		—

     (b) Pro Forma Net Loss Per Share

      Pro forma net loss per share has been computed as described above and also gives effect to the conversion of preferred stock that converted upon the completion of the Company’s initial public offering, using the if-converted method, from the original date of issuance.

      The following table reflects the reconciliation of the shares used in the computation of pro forma loss per share.

		October 31,
		1999		2000
		(In thousands)
Pro forma basic and diluted:
	Weighted average common shares outstanding used in computing basic and diluted net loss per share		10,024		28,286
	Weighted average common shares issuable upon the conversion of preferred stock		11,792		3,516
	Weighted average common shares issuable upon settlement of the priority payments		3,812		1,000
	Weighted average common shares issuable upon exercise of series F preferred stock warrants		171		65
	Weighted average common shares outstanding used in computing pro forma basic and diluted net loss per share		25,799		32,867

4.     Accrued Liabilities

      Accrued liabilities consist of the following:

		October 31,
		2000		2001
		(In thousands)
Payroll and related costs		$	4,142	$	844
Other			9,514		8,030
	Total accrued liabilities	$	13,656	$	8,874

F-14

FIREPOND, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

5.     Restructuring Charge

     (a) Fiscal 1999 and 2000

      During fiscal 1999, the Company undertook a plan to relocate its corporate offices from Mankato, Minnesota to Waltham, Massachusetts. In connection with this plan, the Company incurred charges associated with asset impairments, idle lease space and employee severance costs.

      The significant components of the restructuring charge in fiscal 1999 were as follows:

	Amount
	(In thousands)
Impairment of property and equipment	$	1,532
Idle lease space		993
Employee severance costs		502
	$	3,027

      The Company was subject to a ten-year lease arrangement on its Mankato, Minnesota facility that permitted (1) a 50% reduction in the monthly lease obligation by providing notice one year in advance, and (2) early termination of the lease agreement at the end of the fifth year by giving notice before the fourth anniversary of the lease agreement. The Company had determined that approximately 72% of the office space in Mankato was rendered idle as part of the relocation plan. The idle lease space cost was determined in anticipation of the Company exercising its option to reduce the lease obligation within one year and terminating the remaining lease obligation at the end of the fifth year. Therefore, the present value of the portion of future lease payments for which the Company did not anticipate any future benefit was accrued for as of October 31, 1999. In March 2000, the Company negotiated a new lease for less space, eliminating the future obligation for the idle space in its Mankato facility. As a result, during fiscal 2000, the Company reversed $500,000 of the restructuring accrual representing the remaining obligation for the idle lease space.

      The impairment of property and equipment component consisted primarily of excess and obsolete office furniture and computer equipment located in the Mankato facility. The Company determined that this equipment would have no future benefit and has disposed of this equipment.

      The employee severance cost component of the restructuring charge was related to reductions in headcount. Under the plan, the Company terminated 12 general and administrative personnel. In October 1999, the Company’s chairman, who was located in the Mankato office, resigned. As part of his resignation, the Company agreed to pay severance costs of $402,000. These costs were included as part of the severance component of the restructuring reserve.

     (b) Fiscal 2001

      The Company undertook three plans to restructure its operations during fiscal 2001. During the quarter ended April 30, 2001, as a result of the global information technology spending slowdown, specifically in the Customer Relationship Management market, and the Company’s acquisition of Brightware on February 15, 2001, the Company undertook a plan to restructure its operations. During the quarters ended July 31, 2001 and October 31, 2001, as a result of a continued global slowdown in information technology spending, the Company took actions to extend the first restructuring. These actions sought to better align the Company’s cost structure with its projected operations in the future, preserve cash, and in the case of the Brightware transaction, eliminate redundant operations.

F-15

FIREPOND, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The significant components of the restructuring charges were as follows:

	Quarter Ended						Year
							Ended
	April 30,		July 31,		October 31,		October 31,
	2001		2001		2001		2001
	(In thousands)
Employee severance costs	$	2,286	$	3,296	$	2,931	$	8,513
Facilities related costs		270		1,884		862		3,016
Impairment of property and equipment		114		1,530		2,247		3,891
Excess contractual commitments and termination fees		—		1,050		991		2,041
Other		351		369		62		782
	$	3,021	$	8,129	$	7,093	$	18,243

      The employee severance cost was related to reductions in headcount. The Company terminated 31 general and administrative, 111 sales and marketing, 159 professional services, and 62 development employees, as well as, 90 contractors.

      The facilities related cost component consisted of idle lease space, lease termination fees, and the closing of our Australia and Malaysia facilities. The Company’s assumptions consider current market value of similar properties and the ability, if any, to sublease the idle space or any other future use.

      The impairment of property and equipment charges consisted of excess computer equipment and furniture and fixtures resulting from the reductions-in-force and leasehold write-offs related to office closings or downsizings.

      The excess contractual commitment and termination fees are primarily amounts resulting from the Company entering into a settlement agreement with EPAM Systems, an offshore organization which provides software development services to us, to resolve a contract dispute. Among other items, the Company agreed to pay EPAM Systems $1,000,000 in cash and granted options to purchase 100,000 shares of the Company’s common stock in return for restructuring the relationship and a release of claims including those claims previously filed against the Company by EPAM Systems. As part of this agreement, the relationship has been restructured to reduce the Company’s monthly commitment for the retention of EPAM Systems consultants in furtherance of the Company’s cost reduction measures.

      There were no other material contractual commitments terminated as a result of these restructurings.

F-16

FIREPOND, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(c) Restructuring Reserve

      A summary of the short and long-term restructuring accrual is as follows:

			Fiscal Years Ended October 31,
			1999			2000			2001
			(In thousands)
Restructuring reserve:
	Balance, beginning of period		$	304		$	1,247		$	142
		Provision		3,027			—			18,243
		Adjustment to reserve		—			(500	)		—
		Severance payments		(552	)		(605	)		(6,026	)
		Facilities related payments		—			—			(820	)
		Contract termination fees		—			—			(1,050	)
		Other payments		—			—			(592	)
		Property and equipment write-offs		(1,532	)		—			(3,738	)
	Balance, end of period		$	1,247		$	142		$	6,159

      The short-term portion of the restructuring reserve is $5,057,000 and the long-term portion is $1,102,000. The long-term portion of the restructuring accrual will be paid out through fiscal 2010.

6.     Financings

      During fiscal 1999 and 2000, the Company maintained a line of credit agreement with a financial institution for amounts up to $7,000,000. Borrowings under the agreement were limited to the lesser of $5,000,000 or 80% of qualifying accounts receivable, as defined and a $2,000,000 term loan. The line of credit and term loan bore interest at the prime rate, which was 8.25% at October 31, 1999, plus 2.0% limited to a minimum of 8.0% per year, and was payable monthly. The Company also paid a fee of 0.5% per year on any unused line of credit. Substantially all of the Company’s tangible and intangible assets were pledged as collateral. The entire arrangement was scheduled to mature on October 31, 2000, However, all amounts outstanding were paid in full during fiscal 2000 and the line of credit agreement was terminated.

      On November 12, 1999, the Company issued subordinated notes payable totaling $6,000,000 to an outside investor and two existing stockholders of the Company. The subordinated notes bore interest at 12.0% per year and were due upon the earlier of the closing of the Company’s initial public offering or November 11, 2000. The subordinated note payable was subject to conversion into preferred shares, as defined. The Company also issued to the holders of the subordinated notes payable warrants to purchase an aggregate of 360,000 shares of common stock at an exercise price of $5.25 per share. The estimated fair value of these warrants totaling $2,789,000 was determined using the Black-Scholes valuation model with the following variables: risk-free interest rate of 6.0%, dividend yield rate of 0%, term of twelve years, and volatility of 80%. The Company allocated the proceeds from the subordinated notes payable of $6,000,000 in proportion to the relative fair values of both the warrants and the subordinated notes payable. As a result, the Company recorded the warrants as a discount totaling $1,904,000 against the carrying value of the subordinated notes payable, with the discount amortized to interest expense over the term of the subordinated notes payable. In conjunction with the Company’s initial public offering in February 2000, the Company repaid the $6,000,000 of subordinated notes plus accrued interest of $180,000. As a result, in the year ended October 31, 2000, the Company recorded a $1,437,000 loss on extinguishment of debt as an extraordinary item for the amount of unamortized discount at the time of repayment.

F-17

FIREPOND, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

7.     Income Taxes

      Income taxes are accounted for based on guidance in SFAS No. 109, Accounting for Income Taxes. Under SFAS No. 109, deferred income tax liabilities and assets are determined based on the difference between the financial reporting and tax bases of assets and liabilities using currently enacted tax rates.

      The income tax provision (benefit) for the entirety of each period is as follows:

	Fiscal Years Ended October 31,
	1999			2000			2001
	(In thousands)
Federal	$	(5,882	)	$	(4,588	)	$	(18,749	)
State taxes, net of federal benefits		(1,053	)		(821	)		(2,156	)
Foreign		(3,982	)		(996	)		(5,298	)
Other		1,099			89			5,079
Net operating loss not benefited		9,818			6,316			21,124
	$	—		$	—		$	—

      Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company’s net deferred tax assets (net of deferred tax liabilities) are comprised primarily of the following:

	October 31,
	2000			2001
Net operating losses and credit carryforwards	$	23,888		$	45,012
Nondeductible reserves and accruals		3,545			3,720
Depreciation and amortization		23			(28	)
Other		139			52
Valuation allowance		(27,595	)		(48,756	)
	$	—		$	—

      As of October 31, 2001, the Company has available net operating losses of approximately $93 million to reduce future federal and state income taxes, if any. These carryforwards expire beginning in fiscal 2012 and may be subject to review and possible adjustment by the Internal Revenue Service. Utilization of these carryforwards may be subject to substantial limitations due to the ownership change limitations provided by the Internal Revenue Code of 1986. The Company’s wholly owned foreign subsidiaries have net operating loss carryforwards of approximately $31 million.

8.     Commitments and Contingencies

     (a) Litigation

      On October 19, 2001, General Motors Corporation filed a complaint against the Company in the Superior Court of Massachusetts, Middlesex County. The complaint alleges, among other things, a breach of contract under agreements entered into in 1994, as amended; anticipatory repudiation in the spring of 2000 of agreements entered into in 1994, as amended; unjust enrichment; establishment of a constructive trust; rescission and restitution based upon failure of consideration as well as extortion and coercion relating to agreements entered into in 1994, as amended; breach of the covenant of good faith and fair dealing; fraud; as well as violation of Chapter 93A of the General Laws of the Commonwealth of Massachusetts relating to unfair and deceptive trade practices. General Motors’ claims further relate to license agreements, services agreements and a general release entered into with the Company in May, 2000. The claims generally allege,

F-18

FIREPOND, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

among other things, that Firepond coerced, extorted or otherwise caused General Motors to enter into such agreements under duress. On the Civil Cover Sheet for the Superior Court of Massachusetts, Middlesex County, General Motors claims damages in the amount of $9,000,000 exclusive of fees, costs and multiple damages. The complaint does not demand damages in specific dollar amounts. While management believes the claims against the Company are without merit and intend to defend the action vigorously, the litigation is in the preliminary stage.

      Beginning in August, 2001, a number of securities class action complaints were filed in the Southern District of New York seeking an unspecified amount of damages on behalf of an alleged class of persons who purchased shares of the Company’s common stock between the date of its initial public offering and December 6, 2000. The complaints name as defendants Firepond and certain of its directors and officers, and FleetBoston Robertson Stephens an underwriter of the Company’s initial public offering. The plaintiffs allege, among other things, that the Company’s prospectus, incorporated in the Registration Statement on Form S-1 filed with the Securities and Exchange Commission was materially false and misleading because it failed to disclose that the investment banks which underwrote Firepond’s initial public offering of securities received undisclosed and excessive brokerage commissions, and required investors to agree to buy shares of the Company’s securities after the initial public offering was completed at predetermined prices as a precondition to obtaining initial public offering allocations. The plaintiffs further allege that these actions artificially inflated the price of the Company’s common stock after the initial public offering. While management believes the claims against the Company are without merit and intend to defend the actions vigorously, the litigation is in the preliminary stage.

      The Company is also subject to various other claims and legal actions arising in the ordinary course of business. In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters is not expected to have a material effect on our business, financial condition or results of operations.

     (b) Leases

      The Company leases its office space under operating leases expiring at various dates through August 2010. Rent expense under these agreements totaled approximately $2,349,000 in fiscal 1999, $2,882,000 in fiscal 2000 and $2,999,000 in fiscal 2001. The rent expense for fiscal 2001 includes $413,000 of sublease income. There was no sublease income in either fiscal 1999 or fiscal 2000.

      At October 31, 2001, the minimum future obligations under operating leases, exclusive of sublease income are as follows:

		Amount
		(In thousands)
For the Fiscal Year Ended October 31,
	2002	$	2,896
	2003		2,026
	2004		1,504
	2005		1,009
	2006		872
	Thereafter		3,324
		$	11,631

F-19

FIREPOND, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

     (c) Letter of Credit

      The Company is obligated to maintain an irrevocable standby letter of credit of approximately $550,000, which would be payable upon default of the Company’s noncancelable facility lease that was entered into in May 1999. The letter of credit has been collateralized by cash, which has been classified as restricted cash in the accompanying consolidated balance sheet.

9.     Stockholders’ Equity

     (a) Capitalization

      The Company’s certificate of incorporation as amended and restated authorizes capital stock consisting of 100,000,000 shares of $0.01 par value common stock and 5,000,000 shares of $0.01 par value preferred stock.

      On February 4, 2000, the Company completed its initial public offering of 5,000,000 shares of common stock. Additionally, on February 25, 2000, the underwriters of the initial public offering exercised their over-allotment option to purchase an additional 666,666 shares. At the offering price of $22.00 per share, the Company received $113.8 million from these transactions, net of underwriting discounts and commissions and offering expenses.

     (b) Preferred Stock

      In February 1999, the Company sold 6,734,008 shares of series F preferred stock at $2.97 per share. In addition, the Company issued warrants to purchase 673,401 shares of series F preferred stock at an exercise price of $3.56 per share. In connection with the series F preferred stock financing, the Company exchanged 7,604,563 outstanding shares of series E preferred stock for 7,604,563 shares of series G preferred stock.

      Prior to the Company’s initial public offering, the Company had outstanding 4,188,880 shares of series A preferred stock and 570,342 shares of series C preferred stock.

      Each outstanding share of series A, series C, series F and series G preferred stock automatically converted into 0.67 shares of common stock, for a total of 12,731,862 shares, upon the closing of the initial public offering of the Company’s common stock on February 4, 2000. Based on the offering price per share of the initial price range for the initial public offering, the conversion rate for the outstanding shares of series F preferred stock was adjusted to include the issuance of 404,039 additional shares of common stock.

      The Company’s series A, series C and series G preferred stock, as well as shares of the Company’s common stock held by some common stockholders, had rights that allowed holders to receive a priority payment upon the completion of the Company’s initial public offering. These priority payments totaled $35,750,000 for the series A, series C and series G preferred stockholders, and $10,000,000 to some of the holders of the Company’s common stock. These amounts were payable in cash, or, at the Company’s option, a number of shares of common stock determined by dividing the amount payable by $12.00. The Company’s board of directors elected to make these payments as a stock dividend of 3,812,588 shares of common stock upon consummation of the Company’s initial public offering. At the initial public offering price of $22.00 per share, the value of the stock dividend to preferred shareholders totaled $65,542,000 and the value of the stock dividend to some of the holders of the Company’s common stock totaled $18,334,000. As a result, during the year ended October 31, 2000, the Company recorded a stock dividend on the preferred stock of $65,542,000 increasing the loss attributable to common stockholders.

     (c) Stock Options and Warrants

     Stock Option Plans

      In May 1997, the Company adopted the 1997 Stock Option Plan for the grant of stock options to key employees, nonemployee directors and consultants. On November 8, 1999, the Board of Directors adopted and

F-20

FIREPOND, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

on January 4, 2000 the stockholders approved an increase in the number of shares of common stock reserved for issuance under this plan from 7,896,815 shares to 9,396,815 shares. The exercise price and vesting are determined by the board of directors at the date of grant. Options generally vest over three years and expire five years after the date of grant. As of October 31, 2001, 2,614,149 shares were available for future issuance under the 1997 plan.

      In September 1999, the Company adopted the 1999 Director Stock Option Plan for the grant of stock options to non-employee directors. The Company has reserved 500,000 shares of common stock for issuance under this plan. As of October 31, 2001, 263,125 shares were available for future issuance under this plan.

      On November 8, 1999, the Board of Directors adopted and on January 4, 2000 the stockholders approved the 1999 Stock Option and Grant Plan under which 3,000,000 shares of the Company’s common stock were reserved for future issuance. On February 27, 2001, the Board of Directors adopted and on March 22, 2001 the stockholders approved an increase in the number of shares of common stock reserved for issuance under this plan from 3,000,000 to 8,000,000 shares. The exercise price and vesting are determined by the Board of Directors at the date of grant. Options generally vest over three years and expire five years after the date of grant. As of October 31, 2001, 5,829,360 shares were available for future issuance under the 1999 plan.

      On January 29, 2001, the Board of Directors adopted and on March 22, 2001 the stockholders approved the Brightware Acquisition Stock Option Plan for the grant of stock options to employees of Brightware who continued to be employed by the Company after the completion of the acquisition. The Company reserved 1,000,000 shares of common stock for issuance under this plan. As of October 31, 2001, 575,944 shares were available for future issuance under this plan.

      Option activity for fiscal 1999, fiscal 2000 and fiscal 2001 was as follows:

							Weighted
							Average
		Number of					Exercise
		Shares			Price Per Share		Price
Outstanding, October 31, 1998			4,888,577		$	3.95	$	3.95
	Granted		3,717,189			3.95 –   7.22		4.41
	Exercised		(35,169	)		3.95		3.95
	Canceled		(915,476	)		3.95 –   4.46		3.98
Outstanding, October 31, 1999			7,655,121			3.95 –   7.22		4.17
	Granted		5,216,092			0.01 –  96.00		12.60
	Exercised		(1,642,502	)		3.95 –  11.00		4.09
	Canceled		(1,360,746	)		3.95 –  96.00		8.09
Outstanding, October 31, 2000			9,867,965		$	0.01 – $63.88	$	8.09
	Granted		10,965,453			0.01 –  10.56		1.90
	Exercised		(395,575	)		0.01 –   7.22		3.91
	Canceled		(12,916,511	)		0.53 –  63.88		6.85
Outstanding, October 31, 2001			7,521,332		$	0.01 – $31.75	$	1.42
Exercisable, October 31, 2001			2,267,608		$	0.01 – $31.75	$	2.10
Exercisable, October 31, 2000			3,142,928		$	0.01 – $29.75	$	5.48
Exercisable, October 31, 1999			2,547,069		$	3.95 – $ 7.22	$	4.02

F-21

FIREPOND, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The following table summarizes information relating to currently outstanding and exercisable options as of October 31, 2001.

	Outstanding						Exercisable
			Weighted Average		Weighted				Weighted
			Remaining		Average				Average
Range of	Number		Contractual		Exercise		Number		Exercise
Exercise Prices	of Shares		Life (Years)		Price		of Shares		Price
$  0.01 –  0.64		157,520		4.8	$	0.25		41,827	$	0.04
0.66		5,238,164		4.7		0.66		1,461,411		0.66
0.67 –  1.26		1,019,946		7.3		1.09		122,084		1.11
1.50 –  9.90		976,540		7.8		4.03		571,478		4.32
10.995 – 31.75		129,162		8.6		16.66		70,808		16.70
$  0.01 – 31.75		7,521,332		5.6	$	1.42		2,267,608	$	2.10

      The weighted average grant date fair value and weighted average exercise price for options granted in fiscal 2001 whose exercise price was equal to the fair market value on the date of grant was $1.17 and $1.92 per share, respectively. The weighted average grant date fair value and weighted average exercise price for options granted in fiscal 2001 whose exercise price was less than fair value on the date of grant was $1.08 and $0.01 per share, respectively.

     Employee and Director Stock Options

      The Company has granted stock options to its employees and directors that require the recognition of stock-based compensation expense. Stock-based compensation related to grants to employees resulting from the amortization, over the vesting period of the option, of the difference between the exercise price of options and the fair market value of the underlying common stock on the date of grant primarily from stock options granted prior the Company’s initial public offering was $1,210,000, $1,489,000 and $411,000 in fiscal 1999, 2000 and 2001, respectively. In addition, unamortized deferred compensation of $783,000 for these employee and director awards was expensed during fiscal 2001 in connection with the Company’s stock option exchange program discussed below.

      On June 26, 2001, the Company commenced a stock option exchange program in which its directors and eligible employees were offered the opportunity to exchange existing stock options for new stock options with an exercise price equal to the current market value of the Company’s common stock. Participants in the exchange program received new options to purchase seventy-five percent (75%) of the number of shares of the Company’s common stock subject to the options that were exchanged and canceled. The new options were granted on July 31, 2001, with an exercise price of $.66 per share. The Company accepted 7,179,285 stock options for exchange and issued 5,384,384 stock options in exchange for such tendered options. As a result of the cancellation of the outstanding options, existing unamortized deferred compensation of approximately $783,000 was amortized and recorded as stock-based compensation during fiscal 2001. All option grants subject to the stock option exchange program will be subject to variable plan accounting in accordance with APB No. 25, whereby the Company will be required to record, as compensation expense, increases and decreases in the value of these options between the grant date of the option and the date the option is exercised. The greater the increase in the market value of the Company’s common stock following the date of grant, the greater the compensation expense the Company will be required to record. In the fiscal year ended October 31, 2001, the Company recorded $188,000 of stock based compensation expense related to these options.

F-22

FIREPOND, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      During fiscal 2000, the Company modified the terms of three employee stock option agreements, including an extended period to exercise in connection with termination and net exercise with immature shares. These modifications resulted in a stock-based compensation charge of $1,804,000.

     Nonemployee Stock Options

      The Company has granted stock options to non-employees that require the recognition of stock-based compensation expense based on the fair market value of the options granted as computed using an established option valuation formula. The Company recorded stock based compensation expense of $1,388,000 and $1,825,000 in fiscal 1999 and 2000, respectively, and a reversal of $49,000 in stock based compensation expense in fiscal 2001, related to these options. As of October 31, 2001, the deferred compensation balance of $1,285,000, primarily related to non-employee awards, will be recognized as an expense as earned for non-employees in accordance with EITF 96-18.

     Warrants

      In connection with the series A preferred stock financing in May 1997, the Company issued a warrant to the investment funds affiliated with GAP to purchase 190,438 shares of series B preferred stock at an exercise price of $19.69 per share, exercisable in full, through May 2002. The price paid for this warrant was $1,000. Upon the Company’s initial public offering in February 2000, this warrant was automatically converted into a warrant to purchase 634,794 shares of common stock at an exercise price of $5.91 per share. As of October 31, 2001, this warrant remained outstanding.

      In July 1997, the Company issued a warrant to purchase 200,000 shares of common stock to a vendor at $3.95 per share, exercisable in full, through 2007. The warrant was issued in consideration for services to be received from the vendor. The estimated value of the warrant totaled $450,000 and was recorded in stock-based compensation expense in fiscal 1997. The warrant was exercised in full in February 2000. In addition, in July 1997, that vendor purchased 190,114 shares of series C preferred stock for $500,000.

      In connection with the series F preferred stock financing in February 1999, the Company sold warrants to purchase 673,401 shares of series F preferred stock at an exercise price of $3.56 per share. The price paid for this warrant was $1,000. Following the Company’s initial public offering, these warrants were exercised in February 2000 through the voluntary payment of the exercise price by the warrant holder.

      In October 1999, the Company approved the future issuance of warrants to purchase 500,000 shares of common stock to customers and strategic partners. Warrants to purchase a total of 384,567 shares have been issued from this pool of which warrants to purchase 259,481 shares remain outstanding as of October 31, 2001. In October 1999, the Company issued a warrant to a strategic partner to purchase 83,334 shares of common stock at an exercise price of $7.22 per share, vesting over three years. The estimated value of this warrant was $463,000 at the time of grant. Under EITF 96-18, the fair value of this warrant is marked to market over the vesting period. The Company recorded stock-based compensation expense of approximately $79,000 in fiscal 2000 and a $2,000 reversal of expense in fiscal 2001 related to this grant. In November 1999, in connection with a consulting arrangement the Company issued a warrant to purchase an aggregate of 207,900 shares of common stock at an exercise price of $7.22 per share, exercisable within one year of the Company’s initial public offering. The value of the consulting arrangement was $1.0 million and was recorded as stock based compensation expense in fiscal 2000. In addition, during February 2000 in connection with a strategic business alliance, the Company issued a warrant to purchase 33,333 shares of common stock at an exercise price of $14.00 per share. In accordance with EITF 96-18, the Company adjusts the value of this grant to market over its vesting period. Warrants to purchase 19,403 shares vested in fiscal 2000 and, accordingly, the Company recorded a stock-based compensation charge of $320,000 in fiscal 2000. In October 2000, the company issued fully vested warrants in connection with a license arrangement to a customer to purchase 13,333 shares of common stock at an exercise price of $7.22 per share. In January 2000, the Company issued fully vested

F-23

FIREPOND, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

warrants in connection with license arrangements to two customers to purchase a total of 36,667 shares of common stock at an exercise price of $11.00 per share. In July 2000, the Company issued a fully vested warrant to a customer to purchase 10,000 shares of common stock at an exercise price of $35.94 per share. The estimated values of these warrants totaled $523,000 at the time of grant and were recorded as reductions in the amount of deferred revenue to be recognized associated with these customers.

     (d) Pro Forma Stock-Based Compensation

      Under SFAS No. 123, Accounting for Stock-Based Compensation, the Company is required to disclose the pro forma effects on net income (loss) and net income (loss) per share as if the Company had elected to use the fair value approach to account for all of its employee stock-based compensation plans beginning in fiscal 1997.

      The Company has computed the pro forma disclosures required under SFAS No. 123 for options granted during fiscal 1999, fiscal 2000 and fiscal 2001 using the Black-Scholes option pricing model prescribed by SFAS No. 123. The weighted average assumptions used were as follows:

	Fiscal Years Ended October 31,
	1999			2000			2001
Risk-free interest rate		4.5% – 5.8	%		5.7% – 6.7	%		3.1% – 5.8	%
Expected dividend yield		—			—			—
Expected lives		5 years			5 years			2.7 years
Expected volatility		80	%		100	%		130	%
Weighted average grant date fair value		$4.75			$11.36			$1.17
Weighted average remaining contractual life of options outstanding		8.6 years			8.7 years			5.6 years

      Had compensation cost for the Company’s plan been determined consistent with the fair value approach enumerated in SFAS No. 123, the Company’s pro forma net loss and net loss per share would have been as follows:

	Fiscal Years Ended October 31,
	1999			2000			2001
	(In thousands, except per share data)
Net loss applicable to shareholders, as reported	$	(28,855	)	$	(81,884	)	$	(70,281	)
Net loss applicable to shareholders, pro forma		(37,359	)		(102,027	)		(96,704	)
Basic and diluted net loss per share, as reported	$	(2.88	)	$	(2.89	)	$	(1.95	)
Basic and diluted net loss per share, pro forma		(3.73	)		(3.61	)		(2.69	)

      The Black-Scholes option pricing model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option pricing models require the input of highly subjective assumptions including expected stock price volatility. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.

     (e) Loans Receivable

      On November 28, 2000, the Company’s Board of Directors approved a loan facility to Klaus Besier, the Company’s Chairman and Chief Executive Officer, allowing borrowings up to $3,000,000 bearing interest at the applicable federal rate in effect during the term of the note. On January 9, 2001, the Company’s Board of

F-24

FIREPOND, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Director’s approved an increase in the loan facility to $4,000,000. Originally the outstanding principal together with unpaid interest was due and payable on the earlier of October 31, 2001, an event of default, or an event of maturity, as defined. On December 11, 2001, the Board of Directors amended the facility to extend the maturity to May 1, 2006. Due to the modification of the facility, all amounts outstanding have been reclassified as a component of stockholders’ equity. The promissory note is secured by a pledge of 500,000 shares of common stock of Firepond, Inc. and is generally not a recourse obligation of the borrower, with specified exceptions. Amounts totaling $4,000,000 plus accrued interest have been advanced to Mr. Besier under this facility as of October 31, 2001.

      The Company has also issued notes to two officers of the Company in the amount of $270,000 and an employee of the Company in the amount of $125,000.

10.     Profit-Sharing Plan

      The Company sponsors a defined contribution profit-sharing plan for US employees which conforms to Internal Revenue Service provisions for 401(k) plans. Employees must be at least 21 years of age to be eligible to participate in the plan. Participants may contribute up to 15% of their earnings. The Company matches 50% of the first 2% and 25% of the next 4% of employee contributions and may make additional contributions as determined by the board of directors. Operations have been charged for cash contributions to the plan of approximately $551,000 for fiscal 1999, $463,000 for fiscal 2000 and $662,000 for fiscal 2001.

11.     Related-Party Transactions

      The Company contracts with a third party, EPAM Systems, to provide software development and implementation services on an outsourced basis. Under this arrangement, EPAM Systems provides software developers dedicated to the Company’s projects to develop products and application functionality based on specifications provided by the Company and to provide implementation services to the Company’s customers. The agreement with EPAM Systems expires in May 2002. As of October 31, 2001, approximately 25 employees and contractors of EPAM Systems were performing services for the Company. The majority owner of EPAM Systems was an employee of the Company until May 31, 2001.

      Software development and cost of product-related services costs under this contract which have been expensed in the accompanying consolidated statements of operations were $1,920,000, $4,530,000 and $5,599,000 for fiscal years ended October 31, 1999, 2000 and 2001, respectively. The Company believes that the terms of this agreement were negotiated on an arms-length basis. The Company made a payment in connection with restructuring this contract during the year ended October 31, 2001. See note 5(b).

F-25

FIREPOND, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

12.     Valuation and Qualifying Accounts

      A summary of the allowance for doubtful accounts and reserve for loss contracts is as follows:

			Fiscal Years Ended October 31,
			1999			2000		2001
			(In thousands)
Allowance for doubtful accounts:
	Balance, beginning of period		$	290		$	410	$	1,115
		Provision for doubtful accounts		120			705		271
		Write-offs		—			—		(94	)
	Balance, end of period		$	410		$	1,115	$	1,292
Reserve for loss contracts:
	Balance, beginning of period		$	1,000		$	500	$	600
		Provision (reduction) for loss contracts reserve		—			100		—
		Payments and/or costs incurred		(500	)		—		—
	Balance, end of period		$	500		$	600	$	600

      For a rollforward of the restructuring reserve see note 5(c).

13.     Segment Reporting

      The Company has adopted SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, which establishes standards for reporting information related to operating segments in annual financial statements and requires selected information for those segments to be presented in interim financial reports issued to stockholders. SFAS No. 131 also establishes standards for related disclosures about products and services and geographic areas. Operating segments are defined as components of an enterprise about which separate, discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in making decisions how to allocate resources and assess performance. The Company’s chief operating decision maker, as defined under SFAS No. 131, is its chief executive officer.

      The Company views its operations and manages its business as two segments, product-related licenses and services and custom development services. The Company’s reportable segments are strategic business units that provide distinct services to the end customer. They are managed separately because each business segment requires different marketing and management strategies. The Company’s approach is based on the way that management organizes the segments within the Company for making operating decisions and assessing performance.

      The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company does not allocate operating expenses between its two reportable segments. Therefore, the Company’s measure of performance for each reportable segment is based on total net revenue and direct costs of services, which are reported separately in the accompanying condensed consolidated statements of operations and no additional disclosure is required. The Company does not identify assets and liabilities by segment and therefore, identifiable assets, capital expenditures and depreciation and amortization are not reported by segment.

      The majority of the Company’s revenue is derived from the United States with approximately 11%, 28% and 36% coming from foreign countries for the years ended October 31, 1999, 2000 and 2001. Revenue from Switzerland contributed approximately 10% of our revenue for the year ended October 31, 2001. Revenue from no single foreign country exceeded 10% of total revenue in 2000 and 1999.

F-26

FIREPOND, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

14.     Signature Acquisition

      On September 27, 2000, pursuant to an Agreement and Plan of Merger between the Company and Signature Software, Inc. (Signature) (the Purchase agreement), the Company acquired 100% of the issued and outstanding shares of capital stock of Signature, an information technology consulting firm. The Company acquired the capital shares of Signature in exchange for $30,000 in cash and the issuance of 276,266 shares of restricted common stock to two shareholders of Signature. The Company also incurred approximately $224,000 in acquisition related fees and expenses. The acquisition was accounted for as a purchase in accordance with APB No. 16. Accordingly, the results of operations of Signature have been included in the Company’s results of operations since the date of acquisition. The prior results of Signature’s operations are not material to the accompanying consolidated financial statements.

      The 276,266 shares of restricted common stock, valued at approximately $3.9 million, are subject to vesting through September 27, 2002 based on the retention of certain Signature employees measured on a quarterly basis, as defined. The value of these restricted shares is being recorded as stock based compensation on a pro rata basis over the vesting period. Accordingly, the Company recognized approximately $162,000 of stock-based compensation for these shares in fiscal 2000 and $2,404,000 in fiscal 2001. We also recognized approximately $733,000 in stock-based compensation due to the acceleration of the vesting of certain shares of restricted common stock related to one employee termination.

      The following table summarizes the transaction:

		Amount
		(In thousands)
Acquisition of Signature Software:
	Fair value of assets acquired	$	415
	Fair value of liabilities assumed		(567	)
	Cash paid		(30	)
	Acquisition costs incurred		224
	Costs in excess of net assets acquired	$	406

      The difference between actual operating results and pro forma operating results assuming the acquisition of Signature Software occurred at the beginning of fiscal 2000 are immaterial.

15.     Brightware Acquisition

      On February 15, 2001, pursuant to an Agreement and Plan of Merger between the Company and Brightware, Inc. the Company acquired 100% of the issued and outstanding capital stock of Brightware, a supplier of eCustomer assistance software. The purchase price of the acquisition was $13,669,000, which was composed of $5,228,000 in cash, 1.3 million shares of Firepond common stock valued at $5,865,000, and $2,576,000 in acquisition related costs. The value of approximately 1.5 million shares of Firepond common stock and cash payments totaling $3,250,000 were excluded from the purchase price as this consideration was contingent on achieving financial performance objectives as measured on April 30, 2001 which subsequently were not achieved. In addition, the consideration was subject to a final accounting of Brightware’s net assets as of February 15, 2001. The acquisition was accounted for using the purchase method in accordance with APB No. 16 and accordingly, the results of operations of Brightware from the date of acquisition have been included in the results of operations of the Company.

F-27

FIREPOND, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The following table summarizes the transaction:

		Amount
		(In thousands)
Acquisition of Brightware:
	Fair value of assets acquired	$	3,954
	Fair value of liabilities assumed		(11,034	)
	In-process research and development		6,200
	Developed technology and know-how		4,900
	Assembled workforce		2,200
	Goodwill		7,449
	Total purchase price	$	13,669

      As part of the purchase price allocation, all intangible assets that are a part of the acquisition were identified and valued. As a result of this identification and valuation process, the Company allocated approximately $6,200,000 million of the purchase price to in-process research and development projects. This allocation represented the estimated fair value based on risk-adjusted cash flows related to the incomplete research and development projects. At the date of acquisition, the development of these projects had not yet reached technological feasibility, and the research and development in progress had no alternative future uses. Accordingly, these costs were expensed as of the date of the acquisition.

      In making its purchase price allocation, management considered the present value calculation of income, an analysis of project accomplishments and remaining outstanding items, an assessment of overall contributions, as well as project risks. The value assigned to purchased in-process research and development was determined by estimating the costs to develop the acquired technology into commercially viable products, estimating the resulting net cash flows from the projects, and discounting the net cash flows to their present value. The revenue projection used to value the in-process research and development was based on estimates of relevant market sizes and growth factors, expected trends in technology, and the nature and expected timing of new product introductions by the Company and its competitors. The resulting net cash flows from such projects are based on management’s estimates of cost of sales, operating expenses, and income taxes from such projects.

      As a result of the identification and valuation of intangibles acquired, the Company also allocated approximately $4,900,000 and $2,200,000 to developed technology and know-how and assembled workforce, respectively. Developed technology represents patented and unpatented technology and know-how related to Brightware’s current eService product offering founded on a combination of artificial intelligence, knowledge manager-technology and internet enterprise applications. Assembled workforce is the presence of a skilled workforce that is knowledgeable about company procedures and possesses expertise in certain fields that are important to continued profitability and growth of a company. The excess of the purchase price over the fair value of identified intangible net assets of approximately $ 4,481,000 was allocated to goodwill.

      Both developed technology and assembled workforce are amortized over a period of three years.

      Through October 31, 2001, the Company amortized goodwill over a period of three years; however, on June 30 2001, the FASB issued SFAS No. 142 Accounting for Goodwill and Other intangible Assets. SFAS 142 requires that goodwill, including amounts related to assembled workforce, no longer be amortized, rather, goodwill will be subject to an assessment of impairment by applying a fair-value based test at least annually. The Company will adopt SFAS 142 effective November 1, 2001.

      Accumulated amortization of developed technology, assembled workforce and goodwill was $1,157,000, $519,000 and $1,759,000 as of October 31, 2001, respectively.

F-28

FIREPOND, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Unaudited pro forma operating results for the Company, assuming the acquisition of Brightware occurred at the beginning of the following periods are as follows:

	Fiscal Years
	Ended October 31,
	2000			2001
	(In thousands)
Net sales	$	78,443		$	48,412
Net loss before extraordinary item		(37,725	)		(74,710	)
Net loss		(39,162	)		(74,710	)
Net loss per share — basic and diluted	$	(1.05	)	$	(2.04	)

16.     Settlement of Claim

      On March 2, 2001, the Company entered into an agreement under which the Company paid a customer $1,600,000 to resolve outstanding contractual matters. The expense for the settlement was partially offset by $389,000 previously paid by the customer but not yet earned by the Company. The Company recorded this transaction as a net charge of $1,211,000 to operations in the quarter ended April 30, 2001.

17.     Quarterly Statement of Operations Information (unaudited)

      The following table presents a summary of quarterly results of operations for 2000 and 2001:

	Quarter Ended
	January 31,			April 30,			July 31,			October 31,			January 31,			April 30,			July 31,			October 31,
	2000			2000			2000			2000			2001			2001			2001			2001
	(In thousands)
Total revenue	$	11,977		$	13,587		$	17,315		$	19,092		$	14,547		$	12,315		$	10,114		$	9,113
Gross profit	$	7,966		$	9,214		$	11,320		$	10,714		$	5,268		$	2,753		$	3,371		$	3,908
Net income(loss)	$	(5,823	)	$	(70,123	)	$	(2,686	)	$	(3,252	)	$	(8,608	)	$	(26,641	)	$	(21,355	)	$	(13,677	)
Basic and diluted net loss per share applicable to common stockholders	$	(0.58	)	$	(2.06	)	$	(0.08	)	$	(0.11	)	$	(0.24	)	$	(0.74	)	$	(0.59	)	$	(0.38	)

18.     Subsequent Event

      In connection with the Company’s acquisition of Brightware, Inc., the consideration payable was subject to a final accounting of Brightware’s net assets as of February 15, 2001. In connection therewith, on January 14, 2002, the Company received $520,000 of cash and 553,000 shares of Firepond common stock previously escrowed in resolution of this provision of the transaction. This release from escrow has the effect of reducing the purchase price recorded by the Company by approximately $2,968,000 to $10,790,000. The Company will account for this reduction in purchase price in the quarter ending January 31, 2002, by reducing goodwill and recording the value of cash and stock returned. The Company’s total stockholders’ equity will be reduced by the value of the shares returned.

F-29

EXHIBIT INDEX

Exhibit
Number			Exhibit Description
	3.1(1)	—	Third Amended and Restated Certificate of Incorporation (filed as Exhibit 3.3 to the Registrant’s Registration Statement on Form S-1, File No. 333-90911, originally filed with the Commission on November 12, 1999, as subsequently amended, and incorporated herein by reference).
	3.2(1)	—	First Amended and Restated By-laws (filed as Exhibit 3.5 to the Registrant’s Registration Statement on Form S-1, File No. 333-90911, originally filed with the Commission on November 12, 1999, as subsequently amended, and incorporated herein by reference).
	4.1(1)	—	Specimen certificate for shares of common stock, $.01 par value, of the Registrant (filed as Exhibit 4.1 to the Registrant’s Registration Statement on Form S-1, File No. 333-90911, originally filed with the Commission on November 12, 1999, as subsequently amended, and incorporated herein by reference).
	10.1(1)	—	Amended and Restated Registration Rights Agreement, dated February 23, 1999, between the Registrant and the stockholders named therein (filed as Exhibit 10.1 to the Registrant’s Registration Statement on Form S-1, File No. 333-90911, originally filed with the Commission on November 12, 1999, as subsequently amended, and incorporated herein by reference).
	10.2(2)	—	Registration Rights Agreement, dated January 30, 2001, between the Registrant and the stockholders named therein (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, dated March 2, 2001, as subsequently amended, and incorporated herein by reference).
	10.3	—	Amended and Restated 1997 Stock Option Plan.
	10.4	—	Amended and Restated 1999 Stock Option and Grant Plan.
	10.5	—	Amended and Restated 1999 Director Plan.
	10.6(3)	—	Brightware Acquisition Stock Option Plan (filed as Exhibit 4.4 to the Registrant’s Registration Statement on Form S-8, File No. 333-55926, originally filed with the Commission on February 20, 2001, and incorporated herein by reference).
	10.7	—	Form of Stock Option Agreement for directors, executive officers and key employees.
	10.8	—	Form of Stock Option Agreement for all other employees.
	10.9(1)	—	Employment Agreement dated April 2, 1998 between Registrant and Klaus P. Besier (filed as Exhibit 10.10 to the Registrant’s Registration Statement on Form S-1, File No. 333-90911, originally filed with the Commission on November 12, 1999, as subsequently amended, and incorporated herein by reference).
	10.10(1)	—	Offer Letter dated December 11, 1998 between the Registrant and Paul K. McDermott (filed as Exhibit 10.14 to the Registrant’s Registration Statement on Form S-1, File No. 333-90911, originally filed with the Commission on November 12, 1999, as subsequently amended, and incorporated herein by reference).
	10.11	—	Relocation Agreement, dated April 17, 2000 between the Registrant and Joel D. Radford.
	10.12	—	Offer Letter, dated November 21, 2000 between the Registrant and Joel D. Radford.
	10.13	—	Offer Letter, dated February 19, 1999 between Registrant and John Keighley
	10.14	—	Amendment to Offer Letter dated May 4, 2001 between Registrant and John Keighley
	10.15	—	Offer Letter, dated January 23, 2001 between the Registrant and Cem Tanyel
	10.16(1)	—	Lease of 890 Winter Street, Waltham, Massachusetts between the Registrant., as Tenant, and 890 Winter Street, L.L.C., as Landlord dated as of March 25, 1999 (filed as Exhibit 10.6 to the Registrant’s Registration Statement on Form S-1, File No. 333-90911, originally filed with the Commission on November 12, 1999, as subsequently amended, and incorporated herein by reference).
	10.17	—	Amendment to lease of 890 Winter Street, Waltham, Massachusetts between the Registrant., as Tenant, and 890 Winter Street LLC., as Landlord dated as of October 18, 2001.
	10.18	—	Lease of 1401 Los Gamos, San Rafael, California between the Registrant., as Tenant, and Richard and Denise Bergmann., as Landlord dated as of January 6, 2000.

Exhibit
Number				Exhibit Description
	10.19(1)	†	—	Software License Agreement between the Registrant and SilverStream Software Inc. dated as of March 18, 1999 (filed as Exhibit 10.8 to the Registrant’s Registration Statement on Form S-1, File No. 333-90911, originally filed with the Commission on November 12, 1999, as subsequently amended, and incorporated herein by reference).
	21.1		—	Subsidiaries
	23.1		—	Consent of Arthur Andersen LLP.

† Confidential treatment has been obtained for certain portions of this exhibit. The confidential redacted information has been filed separately with the Securities and Exchange Commission.

(1)	Originally filed as an Exhibit to the Registrant’s Registration Statement on Form S-1 as filed with the SEC on November 12, 1999, as subsequently amended.
(2)	Originally filed as an Exhibit to the Registrant’s Current Report on Form 8-K as filed with the SEC on March 2, 2001, as subsequently amended.
(3)	Originally filed as an Exhibit to the Registrant’s Registration Statement on Form S-8 as filed with the SEC on February 20, 2001.

EX-10.3 3 b41199fiex10-3.txt EX-10.3 AMENDED AND RESTATED 1997 STOCK OPTION EXHIBIT 10.3 FIREPOND, INC. AMENDED AND RESTATED 1997 STOCK PLAN FIREPOND, INC. AMENDED AND RESTATED 1997 STOCK PLAN SECTION 1. GENERAL PURPOSE OF PLAN; DEFINITIONS The name of this plan is the Firepond, Inc. 1997 Stock Plan (the "Plan"). The purpose of the Plan is to enable Firepond, Inc. (the "Company") to retain and attract executives and other key employees, directors and consultants who contribute to the Company's success by their ability, ingenuity and industry, and to enable such individuals to participate in the long-term success and growth of the Company by giving them a proprietary interest in the Company. For purposes of the Plan, the following terms shall be defined as set forth below: a. "BOARD" means the Board of Directors of the Company as it may be comprised from time to time. b. "CAUSE" means means (i) any material breach by the optionee of any agreement to which the optionee and the Company or its Subsidiaries are parties, including breach of covenants not to compete and covenants relating to the protection of confidential information and proprietary rights of the Company or its Subsidiaries which breach is not cured pursuant to the terms of such agreement, (ii) any act (other than retirement) or omission to act by the optionee which would reasonably be likely to have a material adverse effect on the business of the Company or its Subsidiaries or on the optionee's ability to perform services for the Company or its Subsidiaries, including, without limitation, the conviction or plea of guilty or nolo contendre to any crime (other than ordinary traffic violations) which impairs the optionee's ability to perform his or her duties, (iii) any material misconduct or willful and deliberate non-performance of duties by the optionee in connection with the business or affairs of the Company or its Subsidiaries, (iv) the optionee's theft, dishonesty, or falsification of the Company's or its Subsidiaries' documents or records, or (v) the optionee's improper use or disclosure of the Company's or its Subsidiaries' confidential or proprietary information. All references herein to the Company or its Subsidiaries shall include any successor entity thereof. c. "CODE" means the Internal Revenue Code of 1986, as amended from time to time, or any successor statute. d. "COMMITTEE" means the Committee referred to in Section 2 of the Plan. If at any time no Committee shall be in office, then the functions of the Committee specified in the Plan shall be exercised by the Board, unless the Plan specifically states otherwise. e. "CONSULTANT" means any person, including an advisor, engaged by the Company or a Parent Corporation or a Subsidiary of the Company to render services and who is compensated for such services and who is not an employee of the Company or any Parent Corporation or Subsidiary of the Company. A director who is not an employee may serve as a Consultant. f. "COMPANY" means Firepond, Inc., a corporation organized under the laws of the State of Delaware (or any successor corporation). g. "DEFERRED STOCK" means an award made pursuant to Section 8 below of the right to receive stock at the end of a specified deferral period. h. "DISABILITY" means permanent and total disability as determined by the Committee. i. "EARLY RETIREMENT" means retirement, with consent of the Committee at the time of retirement, from active employment with the Company and any Subsidiary or Parent Corporation of the Company. j. "FAIR MARKET VALUE" of Stock on any given date shall be determined by the Committee as follows: (a) if the Stock is listed for trading on one or more national securities exchanges, or is traded on The Nasdaq Stock Market, the last reported sales price on the principal such exchange or The Nasdaq Stock Market on the date in question, or if such Stock shall not have been traded on such principal exchange on such date, the last reported sales price on such principal exchange or The Nasdaq Stock Market on the first day prior thereto on which such Stock was so traded, or (b) if the Stock is not listed for trading on a national securities exchange or The Nasdaq Stock Market, but is traded in the over-the-counter market, including The Nasdaq Small Cap Market, the closing bid price for such Stock on the date in question, or if there is no such bid price for such Stock on such date the closing bid price on the first day prior thereto on which such price existed; or (c) if neither (a) or (b) is applicable, by any means fair and reasonable by the Committee, which determination shall be final and binding on all parties. 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. "NON-EMPLOYEE DIRECTOR" shall have the meaning set forth in Rule 16b-3(b)(3) as promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, or any successor definition adopted by the Commission. m. "NON-QUALIFIED STOCK OPTION" means any Stock Option that is not an Incentive Stock Option, and is intended to be and is designated as a "Non-Qualified Stock Option." n. "NORMAL RETIREMENT" means retirement from active employment with the Company and any Subsidiary or Parent Corporation of the Company on or after age 65. o. "OUTSIDE DIRECTOR" means a director who (a) is not a current employee of the Company or any member of an affiliated group which includes the Company, (b) is not a former employee of the Company who receives compensation for prior services (other than benefits under a tax-qualified retirement plan) during the taxable year, (c) has not been an officer of the Company; (d) does not receive remuneration from the Company, either directly or indirectly, in any capacity other than as a director, except as otherwise permitted under Code Section 162(m) and regulations thereunder. For this purpose, remuneration includes any payment in exchange for goods or services. This definition shall be further governed by the provisions of Code Sections 162(m) and regulations promulgated thereunder. p. "PARENT CORPORATION" means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company if each of the corporations (other than the Company) owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in the chain. q. "RESTRICTED STOCK" means an award of shares of Stock that are subject to restrictions under Section 7 below. r. "RETIREMENT" means Normal Retirement or Early Retirement. s. "STOCK" means the Common Stock of the Company. t. "STOCK APPRECIATION RIGHT" means the right pursuant to an award granted under Section 6 below to surrender to the Company all or a portion of a Stock Option in exchange for an amount equal to the difference between (i) Fair Market Value, 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. u. "STOCK OPTION" means any option to purchase shares of Stock granted pursuant to Section 5 below. v. "SUBSIDIARY" means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if each of the corporations (other than the last corporation in the unbroken chain) owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in the chain. w. "TRANSACTION" means the dissolution or liquidation of the Company, (ii) the sale of all or substantially all of the assets of the Company on a consolidated basis to an unrelated person or entity, (iii) a merger, reorganization or consolidation between the Company and another person or entity (other than a holding company or Subsidiary of the Company) as a result of which, the holders of the Company's outstanding voting power immediately prior to such transaction do not own a majority of the outstanding voting power of the surviving or resulting entity immediately upon completion of such transaction, (iv) the sale of all of the Stock of the Company to an unrelated person or entity or (v) any other transaction in which the owners of the Company's outstanding voting power prior to such transaction do not own at least a majority of the outstanding voting power of the relevant entity after the transaction, in each case, regardless of the form thereof SECTION 2. ADMINISTRATION. The Plan shall be administered by the Board of Directors or by a Committee of not less than two directors, all of whom shall be Non-Employee Directors upon the Company becoming subject to the insider reporting requirements of Section 16 of the Securities Exchange Act of 1934, as amended, and also Outside Directors upon the Company becoming subject to the requirements of Rule 162(m) of the Code. Committee members shall be appointed by the Board of Directors of the Company and shall serve at the pleasure of the Board. Any and all functions of the Committee specified in the Plan may be exercised by the Board, unless the Plan specifically states otherwise. The Committee shall have the power and authority to grant to eligible employees, directors or Consultants, pursuant to the terms of the Plan: (i)Stock Options, (ii) Stock Appreciation Rights, (iii) Restricted Stock, or (iv)Deferred Stock awards. In particular, the Committee shall have the authority: (i) to select the officers, directors and other key employees of the Company and its Subsidiaries and other eligible persons to whom Stock Options, Stock Appreciation Rights, Restricted Stock and Deferred Stock 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 Deferred Stock awards, or a combination of the foregoing, are to be granted hereunder, (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, any restriction on any Stock Option or other award and/or the shares of Stock relating thereto), which authority shall be exclusively vested in the Committee (and not the Board) for purposes of establishing performance criteria used with Restricted Stock and Deferred Stock awards provided, however, in the event of a merger or asset sale, the applicable provisions of Sections 5(c) and 7(c) of the Plan shall govern. the acceleration of the vesting of any Stock option or awards; (v) 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, form time to time, deem advisable; to interpret the terms and provisions of 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. The Committee may delegate to executive officers of the Company the authority to exercise the powers specified in (i), (ii), (iii), (iv) and (v) above with respect to persons who are not executive officers of the Company. All decisions made by the Committee pursuant to the provisions of the Plan shall be final and binding on all persons, including the Company and Plan participants. SECTION 3. STOCK SUBJECT TO PLAN. The total number of shares of Stock reserved and available for distribution under the Plan shall be 14,095,222. Such shares may consist, in whole or in part, of authorized and unissued shares. Subject to paragraph (b)(iv) of Section 6 below, if any shares that have been optioned cease to be subject to Stock Options or if any shares subject to any Restricted Stock or Deferred Stock award granted hereunder are forfeited or such award otherwise terminates without a payment being made to the participant, such shares shall again be available for distribution in connection with future awards under the Plan. In the event of any merger; reorganization, consolidation, recapitalization, stock dividend, other change in corporate structure affecting the Stock, or spin-off or other distribution of assets to shareholders, 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 of shares subject to Restricted Stock or Deferred Stock awards granted under the Plan as may be determined 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 Company upon the exercise of any Stock Appreciation Right associated with any Option. SECTION 4. ELIGIBILITY Officers, directors, other key employees of the Company and Subsidiaries, and Consultants who are responsible for or contribute to the management, growth and profitability of the business of the Company and its Subsidiaries are eligible to be granted Stock Options, Stock Appreciation Rights, Restricted Stock or Deferred Stock awards under the Plan. The optionees and participants under the Plan shall be selected from time to time by the Committee, in its sole discretion, from among those eligible, and the Committee shall determine, in its sole discretion, the number of shares covered by each award. Notwithstanding the foregoing, upon the Company becoming subject to the requirements of Section 162(m) of the Code, no person shall receive grants or awards under this Plan which exceed 1,500,000 shares during any fiscal year of the Company. SECTION 5. STOCK OPTIONS. Any Stock Option granted under the Plan shall be in such form as the Committee may from time to time approve. The Stock Options granted under the Plan may be of two types: (i)Incentive Stock Options and (ii) Non-Qualified Stock Options. No Incentive Stock Options shall be granted under the Plan after May 7, 2007. The Committee shall have the authority to grant any optionee Incentive Stock Options, Non-Qualified Stock Options, or both types of options (in each case with or without Stock Appreciation Rights). To the extent that any option does not qualify its 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 either the Plan or any Incentive Stock Option under Section 422 of the Code. The preceding sentence shall not preclude any modification or amendment to an outstanding Incentive Stock Option, whether or not such modification or amendment results in disqualification of such Stock Option as an Incentive Stock Option provided the optionee consents in writing to the modification or amendment. 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 desirable. (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. In no event shall the option price per share of Stock purchasable under an Incentive Stock Option be less than 100% of Fair Market Value on the date the option is granted. If an employee owns or is deemed to own (by reason of the attribution rules applicable under Section 424(d) of the Code) more than 10% of the combined voting power of all classes of stock of the Company or any Parent Corporation or Subsidiary and an Incentive Stock Option is granted to such employee, the option price shall be no less than 110% of the Fair Market Value of the Stock on the date the option is granted. (b) OPTION TERM. The term of each Stock Option shall be fixed by the Committee, but no Incentive Stock Option shall be exercisable more than ten years after the date the option is granted. If an employee owns or is deemed to own (by reason of the attribution rules of Section 424(d) of the Code) more than10% of the combined voting power of all classes of stock of the Company or any Parent Corporation or Subsidiary and an Incentive Stock Option is granted to such employee, the term of such option shall be no more than five years from the date of grant. (c) EXERCISABILITY. Stock Options shall be exercisable at such time or times as determined by the Committee at or after grant. If the Committee provides, in its discretion, that any option is exercisable only in installments, the Committee may waive such installment exercise provisions at any time, provided, however, that upon the Company becoming subject to the requirements of Section 16 of the Securities Exchange Act of 1934, as amended, a Stock Option granted to an officer, director or 10% shareholder of the Company shall not be exercisable for a period of six (6) months after the date of grant UNLESS the Stock Option has been approved by the Board, the ------ Committee or shareholders of the Company. Notwithstanding anything contained in the Plan to the contrary, the Committee may, in its discretion, accelerate, extend or vary the term of any Stock Option or any installment thereof, whether or not the optionee is then employed by the Company, if such action is deemed to be in the best interests of the Company The grant of an option pursuant to the Plan shall not limit in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure or to merge, exchange or consolidate or to dissolve, liquidate, sell or transfer all or any part of its business or assets. (d) METHOD OF EXERCISE. Stock Options may be exercised in whole or in part at any time during the option period by giving written notice of exercise to the Company specifying the number of shares to be purchased. Such notice shall be accompanied by payment in full of the purchase price, either by check, or by any other form of legal consideration deemed sufficient by the Committee and consistent with the Plan's purpose and applicable law, including promissory notes or a properly executed exercise notice together with irrevocable instructions to a broker acceptable to the Company to promptly deliver to the Company the amount of sale or loan proceeds to pay the exercise price. As determined by the Committee at the time of grant or exercise, in its sole discretion, payment in full or in part may also be made in the form of Stock already owned by the optionee (which in the case of Stock acquired upon exercise of an option have been owned for more than six months on the date of surrender)or, in the case of the exercise of a Non-Qualified Stock Option, Restricted Stock or Deferred 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, and provided further that in the event payment is made in the form of shares of Restricted Stock or a Deferred Stock award, the optionee will receive a portion of the option shares in the form of and in an amount equal to, the Restricted Stock or Deferred Stock award tendered as payment by the optionee. If the terms of an option so permit, an optionee may elect to pay all or part of the option exercise price by having the Company withhold from the shares of Stock that would otherwise be issued upon exercise that number of shares of Stock having a Fair Market Value equal to the aggregate option exercise price for the shares with respect to which such election is made. No shares of Stock shall be issued until full payment therefor has been made. An optionee shall generally have the rights to dividends and 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 paragraph (a) of Section 12. (e) 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 or by the optionee's legal representative or guardian in the event of the optionee's incapacity. Notwithstanding the foregoing, the Board in its sole discretion may provide in any Stock Option agreement that the optionee may transfer, without consideration for the transfer, his or her Non-Qualified Stock Options to members of his or her immediate family, to trusts for the benefit of such family members, or to partnerships in which such family members are the only partners or to limited liability companies in which such family members are the only members, provided that the transferee agrees in writing with the Company to be bound by all of the terms and conditions of this Plan and the applicable Option. (f) TERMINATION BY DEATH. Unless otherwise provided by the Committee, if an optionee's employment by the Company and any Subsidiary or Parent Corporation terminates by reason of death, the Stock Option may thereafter be immediately exercised, to the extent then exercisable, by the legal representative of the estate or by the legatee of the optionee under the will, of the optionee, for a Period of three months from the date of such death or until the expiration of the stated term of the option, whichever period is shorter. (g) TERMINATION BY REASON OF DISABILITY. Unless otherwise provided by the Committee, if an optionee's employment by the Company and any Subsidiary or Parent Corporation terminates by reason of Disability, any Stock Option held by such optionee may thereafter be exercised, to the extent it was exercisable at the time of termination due to Disability, but may not be exercised after twelve months from the date of such termination of employment or the expiration of the stated term of the 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, the option will thereafter be treated as a Non-Qualified Stock Option. (h) TERMINATION BY REASON OF RETIREMENT. Unless otherwise provided by the Committee, if an optionee's employment by the Company and any Subsidiary or Parent Corporation terminates by reason of Retirement and the terms of the Stock Option so provide, any Stock Option held by such optionee may thereafter be exercised to the extent it was exercisable at the time of such Retirement, but may not be exercised after three months from the date of such termination of employment or the expiration of the stated term of the 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 expiation of the exercise periods that apply for purposes of Section 422 of the Code, the option will thereafter be treated as a Non-Qualified Stock Option. (i) OTHER TERMINATION. In the event an optionee's continuous status as an employee or Consultant terminates (other than upon the optionee's death, Retirement or Disability), the optionee may exercise his or her Option, but only within such period of time as is determined by the Committee, and only to the extent that the optionee was entitled to exercise it at the date of termination(but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant). In the case of an Incentive Stock Option, the Committee shall determine such period of time when the Option is granted. If such period of time with respect to an Incentive Stock Option exceeds 90 days and the Option is exercised after 90 days from the date of termination, such Option shall thereafter be treated as a Non-Qualified Stock Option. In the event an optionee's employment with the Company is terminated for Cause, or under such other circumstances as the Committee shall define in the option grant, all Stock Options granted to such optionee shall immediately terminate. (j) ANNUAL LIMIT ON INCENTIVE STOCK OPTION. The aggregate Fair Market Value (determined as of the time the Stock Option is granted) of the Common Stock with respect to which an Incentive Stock Option under this Plan or any other plan of the Company and any Subsidiary or Parent Corporation is exercisable for the first time by an optionee during any calendar year shall not exceed $100,000. (k) DIRECTORS. The Board of Directors may amend this Plan to provide for annual automatic grants to directors who are not employees of the Company upon such terms and conditions as the Board deems advisable. In the event discretionary Stock Options are granted to members of the Committee, such Stock Options shall be granted by the Board. 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 Option. In the case of an Incentive Stock Option, such rights may be granted only at the time of the grant of the Stock Option. In the event Stock Appreciation Rights are granted to members of the Committee, such rights shall be granted by the Board. 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 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 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 paragraph (b) of this Section 6, by surrendering the applicable portion of the related Stock Option. Upon such exercise and surrender, the optionee shall be entitled to receive an amount determined in the manner prescribed in paragraph (b) of this Section 6. 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) TERMS 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: Stock Appreciation Rights shall be exercisable only at such time or times and to the extent that the Stock Options to which they relate shall be exercisable in accordance with the provisions of Section 5 and this Section 6 of the Plan. (i) 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 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 specified in the related option 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. (ii) Stock Appreciation Rights shall be transferable only when and to the extent that the underlying Stock Option would be transferable under Section 5 of the Plan. (iii) 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 issued under the Plan, but only to the extent of the number of shares issued or issuable under the Stock Appreciation Right at the time of exercise based on the value of the Stock Appreciation Right at such time. (iv) 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 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 officers, directors, key employees and Consultants of the Company and Subsidiaries to whom, and the time or times at which, grants of Restricted Stock will be made, the number of shares to be awarded, the time or times within which such awards may be subject to forfeiture, and all other conditions of the awards. The Committee may also condition the grant of Restricted Stock upon the attainment of specified performance goals. The provisions of Restricted Stock awards need not be the same with respect to each recipient. In the event Restricted Stock awards are granted to members of the Committee, such awards shall be granted by the Board. (b) AWARDS AND CERTIFICATES. The prospective recipient of an award of shares of Restricted Stock 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 Company, and has otherwise complied with the then applicable terms and conditions. (i) Each participant shall be issued a stock certificate in respect of shares of Restricted Stock awarded under the Plan. Such certificate shall be registered in the name of the 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 Firepond, Inc. 1997 Stock Plan and an Agreement entered into between the registered owner and Firepond, Inc. Copies of such Plan and Agreement are on file in the offices of Firepond, Inc., Waltham Woods Corporate Center, 890 Winter Street, Waltham, MA 02451." (ii) The Committee shall require that the stock certificates evidencing such shares be held in custody by the Company 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 the Plan 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 or assign shares of Restricted Stock awarded under the Plan. Within these limits, the Committee may provide for the lapse of such restrictions in installments where deemed appropriate. (ii) Except as provided in paragraph (c)(i) of this Section 7,the participant shall have, with respect to the shares of Restricted Stock all of the rights of a shareholder of the Company, including the right to vote the shares and the right to receive any cash dividends. The Committee, in its sole discretion, may permit or require the payment of cash dividends to be deferred and, if the Committee so determines, reinvested in additional shares of Restricted Stock (to the extent shares are available under Section 3 and subject to paragraph (f) of Section 12). Certificates for shares of unrestricted Stock shall be delivered to the grantee promptly after, and only after, the period of forfeiture shall have expired without forfeiture in respect of such shares of Restricted Stock. (iii) Subject to the provisions of the award agreement and paragraph (c)(iv) of this Section 7, upon termination of employment directorship (if the award was based on services as a director) or consulting relationship for any reason during the Restriction Period, all shares still subject to restriction shall be forfeited by the participant. (iv) In the event of special hardship circumstances of a participant whose employment is unforeseeable emergency of a participant still in service, the Committee may, in its sole terminated (other than for Cause),including death, Disability or Retirement or in the event of an discretion, when it finds that a waiver would be in the best interest of the Company, waive in whole or in part any or all remaining restrictions with respect to such participant's shares of Restricted Stock. (v) Notwithstanding anything contained in the Plan to the contrary, the Committee may, in its discretion, accelerate, extend or vary the terms or the lapsing of the restrictions placed on any Restricted Stock award granted pursuant to this Plan if such action is deemed to be in the best interests of the Company. SECTION 8. DEFERRED STOCK AWARDS. (a) ADMINISTRATION. Deferred Stock may be awarded either alone or in addition to other awards granted under the Plan. The Committee shall determine the officers, directors, key employees and Consultants of the Company and Subsidiaries to whom and the time or times at which Deferred Stock shall be awarded, the number of Shares of Deferred Stock to be awarded to any participant or group of participants, the duration of the period (the "Deferral Period") during which and the conditions under which, receipt of the Stock will be deferred, and the terms and conditions of the award in addition to those contained in paragraph (b) of this Section 8. The Committee may also condition the grant of Deferred Stock upon the attainment of specified performance goals. The provisions of Deferred Stock awards need not be the same with respect to each recipient. In the event Deferred Stock awards are granted to members of the Committee, such awards shall be granted by the Board. (b) TERMS AND CONDITIONS (i) Subject to the provisions of this Plan and the award agreement, Deferred Stock awards may not be sold, assigned, transferred, pledged or otherwise encumbered during the Deferral Period. At the expiration of the Deferral Period (or Elective Deferral Period, where applicable), share certificates shall be delivered to the participant, or his legal representative, in a number equal to the shares covered by the Deferred Stock award. (ii) Amounts equal to any dividends declared during the Deferral Period with respect to the number of shares covered by a Deferred Stock award will be paid to the participant currently or deferred and deemed to be reinvested in additional Deferred Stock or otherwise reinvested, all as determined at the time of the award by the Committee, in its sole discretion. (iii) Subject to the provisions of the award agreement and paragraph (b)(iv) of this Section 8, upon termination of employment, directorship (if the award was based on services as a director) or consulting relationship for any reason during the Deferral Period for a given award, the Deferred Stock in question shall be forfeited by the participant. (iv) In the event of special hardship circumstances of a participant whose employment is terminated (other than for Cause) including death, Disability or Retirement, or in the event of an unforeseeable emergency of a participant still in service, the Committee may, in its sole discretion, when it finds that a waiver would be in the best interest of the Company, waive in whole or in part any or all of the remaining deferral limitations imposed hereunder with respect to any or all of the participant's Deferred Stock. (v) A participant may elect to further defer receipt of the award for a specified period or until a specified event (the "Elective Deferral Period"), subject in each case to the Committee's approval and to such terms as are determined by the Committee, all in its sole discretion. Subject to any exceptions adopted by the Committee, such election must generally be made prior to completion of one half of the Deferral Period for a Deferred Stock award (or for an installment of such an award). (vi) Each award shall be confirmed by, and subject to the terms of, a Deferred Stock agreement executed by the Company and the participant. SECTION 9. TRANSFER LEAVE OF ABSENCE, ETC. For purposes of the Plan, the following events shall not be deemed a termination of employment: (a) a transfer of an employee from the Company to a Parent Corporation or Subsidiary, or from a Parent Corporation or Subsidiary to the Company, or from one Subsidiary to another; (b) a leave of absence, approved in writing by the Committee, for military service or sickness, or for any other purpose approved by the Company if the period of such leave does not exceed ninety (90) days (or such longer period as the Committee may approve, in its sole discretion); and (c) a leave of absence in excess of ninety (90) days, approved in writing by the Committee, but only if the employee's right to reemployment is guaranteed either by a statute or by contract, and provided that, in the case of any leave of absence, the employee returns to work within 30 days after the end of such leave. SECTION 10. AMENDMENTS AND TERMINATION. The Board may amend, after, or discontinue the Plan, but no amendment alteration, or discontinuation shall be made (i) which would adversely impair the rights of an optionee or participant under a Stock Option, Restricted Stock or other Stock-based award theretofore granted, without the optionee's or participant's consent, or (ii) which without the approval of the shareholders of the Company would cause the Plan to no longer comply with Rule 16b-3 under the Securities Exchange Act of 1934, Section 422 of the Code or any other regulatory requirements. The Committee may amend the terms of any award or option theretofore granted, prospectively or retroactively to the extent such amendment is consistent with the terms of this Plan, but no such amendment shall impair the rights of any holder without his or her consent except to the extent authorized under the Plan. The Committee may also substitute new Stock Options for previously granted Stock Options, including previously granted Stock Options having higher Stock Option prices. SECTION 11. 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 Company, nothing contained herein shall give any such participant or optionee any rights that are greater than those of a general creditor of the Company. In its sole discretion, the Committee 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 the existence of such trusts or other arrangements is consistent with the unfunded status of the Plan. SECTION 12. 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 Company in writing that the optionee 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 delivered under the Plan pursuant to any Restricted Stock, Deferred Stock or other Stock-based awards 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 Securities and Exchange Commission, any stock exchange upon which the Stock is then listed, and any applicable Federal or state securities laws, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. (b) Subject to paragraph (d) below, recipients of Restricted Stock, Deferred Stock and other Stock-based awards under the Plan (other than Stock Options) are not required to make any payment or provide consideration other than the rendering of services. (c) 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. The adoption of the Plan shall not confer upon any employee of the Company or any Subsidiary any right to continued employment with the Company or a Subsidiary, as the case may be, nor shall it interfere in any way with the right of the Company or a Subsidiary to terminate the employment of any of its employees at any time. (d) Each participant shall, no later than the date as of which any part of the value of an award first becomes includible as compensation in the gross income of the participant for Federal income tax purposes, pay to the Company, or make arrangements satisfactory to the Committee regarding payment of, any Federal, state, or local taxes of any kind required by law to be withheld with respect to the award. The obligations of the Company under the Plan shall be conditional on such payment or arrangements and the Company and Subsidiaries 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. With respect to any award under the Plan, if the terms of such award so permit, a participant may elect by written notice to the Company to satisfy part or all of the withholding tax requirements associated with the award by (1) authorizing the Company to retain from the number of shares of Stock that would otherwise be deliverable to the participant, or (ii) delivering to the Company from shares of Stock already owned by the participant, that number of shares having an aggregate Fair Market Value equal to part or all of the tax payable by the participant under this Section 12(d). Any such election shall be in accordance with, and subject to, applicable tax and securities laws, regulations and rulings. (e) At the time 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 repurchase right in favor of the Company, pursuant to which the participant shall be required to offer to the Company upon termination of employment for any reason any shares that the participant acquired under the Plan, with the price being the then Fair Market Value of the Stock or, in the case of a termination for Cause, an amount equal to the cash consideration paid for the Stock, subject to such other terms and conditions as the Committee may specify at the time of grant. The Committee may, at the time of the grant of an award under the Plan, provide the Company with the right to repurchase, or require the forfeiture of shares of Stock acquired pursuant to the Plan by any participant who at any time within two years after termination of employment with the Company, directly or indirectly competes with, or is employed by a competitor of the Company. (f) The reinvestment of dividends in additional Restricted Stock (or in Deferred Stock or other types of Plan awards) at the time of any dividend payment shall only be permissible in the Committee (or the company's chief financial officer) certifies in writing that under Section 3 sufficient shares are available for such reinvestment (taking into account then outstanding Stock Options and other Plan awards). (g) The Plan is expressly made subject to the approval by shareholders of the Company. If the Plan is not so approved by the shareholders on or before one year after this Plan's adoption by the Board of Directors, this Plan shall not come into effect. The offering of the shares hereunder shall be also subject to the effecting by the Company of any registration or qualification of the shares under any federal or state law or the obtaining of the consent or approval of any governmental regulatory body which the Company shall determine, in its sole discretion, is necessary or desirable as a condition to or in connection with, the offering or the issue or purchase of the shares covered thereby. (h) This Plan and all Options and actions taken thereunder shall be governed by the laws of the Commonwealth of Massachusetts, applied without regard to conflict of law principles thereof. - ------------------------------------------- Approved by the shareholders on May 7, 1997 EX-10.4 4 b41199fiex10-4.txt EX-10.4 AMENDED AND RESTATED 1999 STOCK OPTION EXHIBIT 10.4 FIREPOND, INC. AMENDED AND RESTATED 1999 STOCK OPTION AND GRANT PLAN FIREPOND, INC. AMENDED AND RESTATED 1999 STOCK OPTION AND GRANT PLAN SECTION 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS The name of the plan is the Firepond, Inc. 1999 Stock Option and Grant Plan (the "Plan"). The purpose of the Plan is to encourage and enable the officers, employees, directors, consultants, advisors and other key persons of Firepond, Inc. (the "Company") and its Subsidiaries (as defined below) upon whose judgment, initiative and efforts the Company largely depends for the successful conduct of its business to acquire a proprietary interest in the Company. It is anticipated that providing such persons with a direct stake in the Company's welfare will assure a closer identification of their interests with those of the Company, thereby stimulating their efforts on the Company's behalf and strengthening their desire to remain with the Company. The following terms shall be defined as set forth below: "Act" means the Securities Exchange Act of 1934, as amended. "Award" or "Awards," except where referring to a particular category of grant under the Plan, shall include Incentive Stock Options, Non-Qualified Stock Options, Restricted Stock Awards, and Unrestricted Stock Awards. "Board" means the Board of Directors of the Company. "Code" means the Internal Revenue Code of 1986, as amended, and any successor Code, and related rules, regulations and interpretations. "Committee" has the meaning specified in Section 2. "Effective Date" means the date on which the Plan is approved by stockholders as set forth in Section 13. "Fair Market Value" of the Stock on any given date means (i) if the Stock is admitted to quotation on the National Association of Securities Dealers Automated Quotation System ("NASDAQ"), the Fair Market Value on any given date shall not be less than the average of the highest bid and lowest asked prices of the Stock reported for such date or, if no bid and asked prices were reported for such date, for the last day preceding such date for which such prices were reported; or (ii) if the Stock is admitted to trading on a national securities exchange or the NASDAQ National Market System, then clause (i) shall not apply and the Fair Market Value on any date shall not be less than the closing price reported for the Stock on such exchange or system for such date or, if no sales were reported for such date, for the last date preceding such date for which a sale was reported; or (iii) if the Stock is not publicly traded on a securities exchange or traded in the over-the-counter market or, if traded or quoted, there are no transactions or quotations within the last ten trading days or trading has been halted for extraordinary reasons, the Fair Market Value on any given date shall be determined in good faith by the Committee; and (iv) notwithstanding the foregoing, the Fair Market Value of the Stock on the effective date of the Initial Public Offering shall be the offering price to the public of the Stock on such date. "Incentive Stock Option" means any Stock Option designated and qualified as an "incentive stock option" as defined in Section 422 of the Code. "Independent Director" means a member of the Board who is neither an employee nor officer of the Company or any Subsidiary. "Initial Public Offering" means the first underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of Stock to the public. "Non-Qualified Stock Option" means any Stock Option that is not an Incentive Stock Option. "Option" or "Stock Option" means any option to purchase shares of Stock granted pursuant to Section 5. "Restricted Stock Award" means any Award granted pursuant to Section 6. "Stock" means the Common Stock, par value $.01 per share, of the Company, subject to adjustments pursuant to Section 3. "Subsidiary" means any corporation or other entity (other than the Company) in any unbroken chain of corporations or other entities, beginning with the Company, if each of the corporations or entities (other than the last corporation or entity in the unbroken chain) owns stock or other interests possessing 50% or more of the economic interest or the total combined voting power of all classes of stock or other interests in one of the other corporations or entities in the chain. "Unrestricted Stock Award" means any Award granted pursuant to Section 7. SECTION 2. ADMINISTRATION OF PLAN; COMMITTEE AUTHORITY TO SELECT PARTICIPANTS AND DETERMINE AWARDS. (a) Committee. The Plan shall be administered by the Board of Directors of the Company, or at the discretion of the Board, by a committee of the Board consisting of not less than two Directors; provided, however, that if each member of the Committee is not (i) a "Non-Employee Director" within the meaning of Rule 16b-3(a)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and (ii) an "Outside Director" within the meaning of Section 162(m) of the Code and the regulations promulgated thereunder, any Awards granted to individuals subject to the reporting requirements of Section 16 of the Exchange Act shall be approved by the Board of Directors. All references herein to the Committee shall be deemed to refer to the entity then responsible for administration of the Plan at the relevant time (i.e., either the Board of Directors or a committee of the Board, as applicable). (b) Powers of Committee. The Committee shall have the power and authority to grant Awards consistent with the terms of the Plan, including the power and authority: (1) to select the officers, employees, Independent Directors, consultants, advisers and key persons of the Company and its Subsidiaries to whom Awards may from time to time be granted; (2) to determine the time or times of grant, and the extent, if any, of Incentive Stock Options, Non-Qualified Stock Options, Restricted Stock Awards and Unrestricted Stock Awards, or any combination of the foregoing, granted to any one or more participants; (3) to determine the number of shares of Stock to be covered by any Award; (4) to determine and modify from time to time the terms and conditions, including restrictions, not inconsistent with the terms of the Plan, of any Award, which terms and conditions may differ among individual Awards and participants, and to approve the form of written instruments evidencing the Awards; (5) to accelerate at any time the exercisability or vesting of all or any portion of any Award and/or to include provisions in Awards providing for such acceleration, (6) to impose any limitations on Awards granted under the Plan, including limitations on transfers repurchase provisions and the like and to exercise repurchase rights or obligations; (7) subject to the provisions of Section 5(a)(3), to extend at anytime the period in which Stock Options may be exercised; (8) to determine at any time whether, to what extent, and under what circumstances Stock and other amounts payable with respect to an Award shall be deferred either automatically or at the election of the participant and whether and to what extent the Company shall pay or credit amounts constituting interest(at rates determined by the Committee) or dividends or deemed dividends on such deferrals; and (9) at any time to adopt, alter and repeal such rules, guidelines and practices for administration of the Plan and for its own acts and proceedings as it shall deem advisable, to interpret the terms and provisions of the Plan and any Award (including related written instruments); to make all determinations it deems advisable for the administration of the Plan; to decide all disputes arising in connection with the Plan; and to otherwise supervise the administration of the Plan. All decisions and interpretations of the Committee shall be binding on all persons, including the Company and Plan participants. (c) Delegation of Authority to Grant Awards. The Committee, in its discretion, may delegate to the Chief Executive Officer of the Company all or part of the Committee's authority and duties with respect to Awards, including the granting thereof, to individuals who are not subject to the reporting and other provisions of Section 16 of the Act or "covered employees" within the meaning of Section 162(m) of the Code. Any such delegation by the Committee shall include a limitation as to the amount of Awards that may be granted during the period of delegation and shall contain guidelines as to the determination of the exercise price of any Option, the price of other Awards and the vesting criteria. The Committee may revoke or amend the terms of a delegation at anytime but such action shall not invalidate any prior actions of the Committee's delegate or delegates that were consistent with the terms of the Plan. SECTION 3. STOCK ISSUABLE UNDER THE PLAN; MERGERS; SUBSTITUTION (a) Stock Issuable. The maximum number of shares of Stock reserved and available for issuance under the Plan shall be 8,000,000 shares of Stock. For purposes of the foregoing limitations, the shares of Stock underlying any Awards which are forfeited, canceled, reacquired by the Company, satisfied without the issuance of Stock or otherwise terminated (other than by exercise) shall be added back to the shares of Stock available for issuance under the Plan. Subject to such overall limitation, shares of Stock may be issued up to such maximum number pursuant to any type or types of Award; provided, however, that from and after the date the Plan is subject to Section 162(m) of the Code, Awards with respect to no more than 1,000,000 shares of Stock may be granted to any one individual participant during any one calendar year period. The shares available for issuance under the Plan may be authorized but unissued shares of Stock or shares of Stock reacquired by the Company. (b) Recapitalizations. If, through or as a result of any merger, consolidation, sale of all or substantially all of the assets of the Company, reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar transaction, the outstanding shares of Stock are increased or decreased or are exchanged for a different number or kind of shares or other securities of the Company or any successor company, or additional shares or new or different shares or other securities of the Company or other non-cash assets are distributed with respect to such shares of Stock or other securities, the Committee shall make an appropriate or proportionate adjustment in (i) the maximum number of shares reserved for issuance under the Plan, (ii) the number of Stock Options, or other Awards that can be granted to any one individual participant, (iii) the number and kind of shares or other securities subject to any then outstanding Awards under the Plan, and (iv) the price for each share subject to any then outstanding Stock Options or other Awards under the Plan, without changing the aggregate exercise price (i.e., the exercise price multiplied by the number of shares) as to which such Stock Options remain exercisable and the repurchase price for shares subject to repurchase. The adjustment by the Committee shall be final, binding and conclusive. No fractional shares of Stock shall be issued under the Plan resulting from any such adjustment, but the Committee in its discretion may make cash payment in lieu of fractional shares. (c) Mergers and Other Transactions. In the case of i) the dissolution or liquidation of the Company, ii) a merger, reorganization or consolidation between the Company and another person or entity (other than a holding company or subsidiary of the Company) as a result of which the holders of the Company's outstanding voting stock immediately prior to the transaction hold less than a majority of the outstanding voting stock of the surviving entity immediately after the transaction, iii) the sale of all or substantially all of the assets of the Company to an unrelated person or entity, iv) the sale of all of the Stock of the Company to an unrelated person or entity; or v) any other transaction in which the owners of the Company's outstanding voting power prior to such transaction do not own a majority of the outstanding voting power of the relevant entity after the transaction, regardless of the form thereof in each case, a "Transaction", unless provision is made in connection with the Transaction for the assumption of the Awards heretofore granted, or the substitution of such Awards with new Awards of the successor entity or parent thereof, with appropriate adjustment as to the number and kind of shares and, if appropriate, the per share exercise prices, as provided in Section 3(b) above, all of the remaining outstanding Awards held by participants, to the extent not fully vested and exercisable, shall become fully vested and exercisable, except with respect to specific awards as the Committee otherwise determines. Upon the effectiveness of the transaction, the Plan and all Awards granted hereunder shall, unless assumed by the successor entity, terminate. In the event of such termination, each optionee shall be permitted to exercise for a period of at least 15 days prior to the date of such termination all outstanding Awards held by such optionee which are then exercisable. (d) Substitute Awards. The Committee may grant Awards under the Plan in substitution for stock and stock based awards held by employees of another corporation who become employees of the Company or a Subsidiary as the result of a merger or consolidation of the employing corporation with the Company or a Subsidiary or the acquisition by the Company or a Subsidiary of property or stock of the employing corporation. The Committee may direct that the substitute awards be granted on such terms and conditions as the Committee considers appropriate in the circumstances. SECTION 4. ELIGIBILITY. Participants in the Plan will be such officers and other employees, Independent Directors, consultants, advisors and other key persons of the Company and its Subsidiaries who are responsible for or contribute to the management, growth or profitability of the Company and its Subsidiaries as are selected from time to time by the Committee, in its sole discretion. SECTION 5. STOCK OPTIONS. Any Stock Option granted under the Plan shall be pursuant to a stock option agreement which shall be in such form as the Committee may from time to time approve. Option agreements need not be identical. Stock Options granted under the Plan may be either Incentive Stock Options or Non-Qualified Stock Options. Incentive Stock Options may be granted only to employees of the Company or any Subsidiary that is a "subsidiary corporation" within the meaning of Section 424(f) of the Code. Non-Qualified Stock Options may be granted to officers, employees, Independent Directors, advisors, consultants and other key persons of the Company and its Subsidiaries. To the extent that any Option does not qualify as an Incentive Stock Option, it shall be deemed a Non-Qualified Stock option. No Incentive Stock Option shall be granted under the Plan after November7, 2009. (a) Terms of Stock Options. Stock 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 desirable: (1) Exercise Price. The exercise price per share for the Stock covered by a Stock Option shall be determined by the Committee at the time of grant but shall not be less than 100% of the Fair Market Value in the case of Incentive Stock Options. If an employee owns or is deemed to own (by reason of the attribution rules applicable under Section 424(d) of the Code) more than 10%of the combined voting power of all classes of stock of the Company or any parent or Subsidiary corporation and an Incentive Stock Option is granted to such employee, the option price of such Incentive Stock Option shall be not less than 110% of the Fair Market Value on the grant date. (2) Grant of Discount Options in Lieu of Cash Compensation. Upon there quest of a participant and with the consent of the Committee, such participant may elect each calendar year to receive a Non-Qualified Stock Option in lieu of any cash bonus or other compensation to which he may become entitled during the following calendar year, but only if such participant makes an irrevocable election to waive receipt of all or a portion of such cash compensation. Such election shall be made on or before the date set by the Committee which date shall be no later than 15 days (or such shorter period permitted by the Committee) preceding January 1 of the calendar year for which the cash compensation would otherwise be paid. A Non-Qualified Stock Option shall be granted to each participant who made such an irrevocable election on the date the waived cash compensation would otherwise be paid. The exercise price per share shall be determined by the Committee. The number of shares of Stock subject to the Stock Option shall be determined by dividing the amount of the waived cash compensation by the difference between the Fair Market Value of the Stock on the date the Stock Option is granted and the exercise price per share of the Stock Option. The Stock Option shall be granted for a whole number of shares so determined; the value of any fractional share shall be paid in cash. (3) Option Term. The term of each Stock Option shall be fixed by the Committee, but no Incentive Stock Option shall be exercisable more than ten years after the date the Option is granted. If an employee owns or is deemed to own (by reason of the attribution rules of Section 424(d) of the Code) more than10% of the combined voting power of all classes of Stock of the Company or any parent or subsidiary corporation and an Incentive Stock Option is granted to such employee, the term of such Option shall be no more than five years from the grant date. (4) Exercisability; Rights of a Stockholder. Stock Options shall become vested and exercisable at such time or times, whether or not in installments, as shall be determined by the Committee at or after the grant date; provided, however, that Stock Options granted in lieu of cash compensation shall be exercisable in full as of the grant date. The Committee may at any time accelerate the exercisability of all or any portion of any Stock Option. An optionee shall have the rights of a stockholder only as to shares acquired upon the exercise of a Stock Option and not as to unexercised Stock Options. (5) Method of Exercise. Stock Options may be exercised in whole or in part, by giving written notice of exercise to the Company, specifying the number of shares to be purchased. Payment of the purchase price may be made by one or more of the following methods; provided, however, that the methods set forth in subsections (B) and (C) below shall become available only after the closing of the Initial Public Offering: (i) In cash by certified or bank check or other instrument acceptable to the Committee, (ii) In the form of shares of Stock that are not then subject to restrictions under any Company plan and that have been held by the optionee free of such restrictions for at least six months, if permitted by the Committee in its discretion. such surrendered shares shall be valued at Fair Market Value on the exercise date; (iii) By the optionee delivering to the Company a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company to pay the purchase price; provided that in the event the optionee chooses to pay the purchase price as so provided, the optionee and the broker shall comply with such procedures and enter into such agreements of indemnity and other agreements as the Committee shall prescribe as a condition of such payment procedure; or (iv) By the optionee delivering to the Company a promissory note if the Board has authorized the loan of funds to the optionee for the purpose of enabling or assisting the optionee to effect the exercise of his Stock Option; provided that at least so much of the exercise price as represents the par value of the Stock shall be paid other than with a promissory note. Payment instruments will be received subject to collection. The delivery of certificates representing the shares of Stock to be purchased pursuant to the exercise of a Stock Option will be contingent upon receipt from the optionee (or a purchaser acting in his stead in accordance with the provisions of the Stock Option) by the Company of the full purchase price for such shares and the fulfillment of any other requirements contained in the Stock Option or applicable provisions of laws. (6) Termination. Unless otherwise provided in the option agreement or determined by the Committee, upon the optionee's termination of employment (or other business relationship) with the Company and its Subsidiaries, the optionee's rights in his Stock Options shall automatically terminate. (7) Annual Limit on Incentive Stock Options. To the extent required for "incentive stock option" treatment under Section 422 of the Code, the aggregate Fair Market Value (determined as of the time of grant) of the shares of Stock with respect to which Incentive Stock Options granted under this Plan and any other plan of the Company or its parent and subsidiary corporations become exercisable for the first time by an optionee during any calendar year shall not exceed $100,000. To the extent that any Stock Option exceeds this limit, it shall constitute a Non-Qualified Stock Option. (b) Reload Options. At the discretion of the Committee, Options granted under the Plan may include a "reload" feature pursuant to which an optionee exercising an Option by the delivery of number of shares of stock in accordance with Section 5(a)(5)(ii) hereof would automatically be granted an additional Option (with an exercise price equal to the Fair Market Value of the Stock on the date the additional Option is granted and with the same expiration date as the original Option being exercised, and with such other terms as the Committee may provide) to purchase that number of shares of Stock equal to the number delivered to exercise the original Option. (c) 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, or by the optionee's legal representative or guardian in the event of the optionee's incapacity. Notwithstanding the foregoing, the Board in its sole discretion may provide in any Stock Option agreement that the optionee may transfer, without consideration for the transfer, his or her Non-Qualified Stock Options to members of his or her immediate family, to trusts for the benefit of such family members, or to partnerships in which such family members are the only partners or to limited liability companies in which such family members are the only members, provided that the transferee agrees in writing with the Company to be bound by all of the terms and conditions of this Plan and the applicable Option. SECTION 6. RESTRICTED STOCK AWARDS (a) Nature of Restricted Stock Awards. A Restricted Stock Award is an Award entitling the recipient to acquire, at par value or such other purchase price determined by the Committee, shares of Stock subject to such restrictions and conditions as the Committee may determine at the time of grant ("Restricted Stock"). Conditions may be based on continuing employment (or other business relationship) and/or achievement or pre-established performance goals and objectives. (b) Rights as a Stockholder. Upon execution of a written instrument setting forth the Restricted Stock Award and paying any applicable purchase price, a participant shall have the rights of a stockholder with respect to the voting of the Restricted Stock, subject to such conditions contained in the written instrument evidencing the Restricted Stock Award. Unless the Committee shall otherwise determine, certificates evidencing the Restricted Stock shall remain in the possession of the Company until such Restricted Stock is vested as provided in Section 6(d) below. (c) Restrictions. Restricted Stock may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of except as specifically provided herein or in the written instrument evidencing the Restricted Stock Award. If a participant's employment (or other business relationship) with the Company and its Subsidiaries terminates under the conditions specified in the relevant instrument relating to the Award, or upon such other event or events as may be stated in the instrument evidencing the Award, the Company or its assigns shall have the right or shall agree, as may be specified in the relevant instrument, to repurchase some or all of the shares of Stock subject to the Award at such purchase price as is set forth in such instrument. (d) Vesting of Restricted Stock. The Committee at the time of grant shall specify the date or dates and/or the attainment of pre-established performance goals, objectives and other conditions on which Restricted Stock shall become vested, subject to such further rights of the Company or its assigns as may be specified in the instrument evidencing the Restricted Stock Award. (e) Waiver, Deferral and Reinvestment of Dividends. The written instrument evidencing the Restricted Stock Award may require or permit the immediate payment, waiver, deferral or investment of dividends paid on the Restricted Stock. SECTION 7. UNRESTRICTED STOCK AWARDS (a) Grant or Sale of Unrestricted Stock. The Committee may, in its sole discretion, grant (or sell at a purchase price determined by the Committee)an Unrestricted Stock Award to any participant, pursuant to which such participant may receive shares of Stock free of any vesting restrictions("Unrestricted Stock") under the Plan. Unrestricted Stock Awards may be granted or sold as described in the preceding sentence in respect of past services or other valid consideration, or in lieu of any cash compensation due to such individual. (b) Elections to Receive Unrestricted Stock In Lieu of Compensation. Upon the request of a participant and with the consent of the Committee, each such participant may, pursuant to an advance written election delivered to the Company no later than the date specified by the Committee, receive a portion of the cash compensation otherwise due to such participant in the form of shares of Unrestricted Stock either currently or on a deferred basis. (c) Restrictions on Transfers. The right to receive shares of Unrestricted Stock on a deferred basis may not be sold, assigned, transferred, pledged or otherwise encumbered, other than by will or the laws of descent and distribution. SECTION 8. TAX WITHHOLDING (a) Payment by Participant. Each participant shall, no later than the date as of which the value of an Award or of any Stock or other amounts received thereunder first becomes includable in the gross income of the participant for Federal income tax purposes, pay to the Company, or make arrangements satisfactory to the Committee regarding payment of, any federal, state, or local taxes of any kind required by law to be withheld with respect to such income. The Company and its Subsidiaries 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. (b) Payment in Stock. Subject to approval by the Committee, a participant may elect to have such tax withholding obligation satisfied, in whole or in part, by (i) authorizing the Company to withhold from shares of Stock to be issued pursuant to any Award a number of shares with an aggregate Fair Market Value (as of the date the withholding is effected) that would satisfy the withholding amount due, or (ii) transferring to the Company shares of Stock owned by the participant with an aggregate Fair Market Value (as of the date the withholding is effected) that would satisfy the withholding amount due. SECTION 9. TRANSFER, LEAVE OF ABSENCE, ETC. For purposes of the Plan, the following events shall not be deemed a termination of employment: (a) a transfer to the employment of the Company from a Subsidiary or from the Company to a Subsidiary, or from one Subsidiary to another; or (b) an approved leave of absence for military service or sickness, or for any other purpose approved by the Company, if the employee's right tore-employment is guaranteed either by a statute or by contract or under the policy pursuant to which the leave of absence was granted or if the Committee otherwise so provides in writing. SECTION 10. AMENDMENTS AND TERMINATION The Board may, at any time, amend or discontinue the Plan and the Committee may, at any time, amend or cancel any outstanding Award (or provide substitute Awards at the same or reduced exercise or purchase price or with no exercise or purchase price in a manner not inconsistent with the terms of the Plan), but such price, if any, must satisfy the requirements which would apply to the substitute or amended Award if it were then initially granted under this Plan for the purpose of satisfying changes in law or for any other lawful purpose, but no such action shall adversely affect rights under any outstanding Award without the holder's consent. If and to the extent determined by the Committee to be required by the Act to ensure that Incentive Stock Options granted under the Plan are qualified under Section 422 of the Code, Plan amendments shall be subject to approval by the Company's stockholders who are eligible to vote at a meeting of stockholders. SECTION 11. STATUS OF PLAN With respect to the portion of any Award which has not been exercised and any payments in cash, Stock or other consideration not received by a participant, a participant shall have no rights greater than those of a general creditor of the Company unless the Committee shall otherwise expressly determine in connection with any Award or Awards. In its sole discretion, the Committee may authorize the creation of trusts or other arrangements to meet the Company's obligations to deliver Stock or make payments with respect to Awards hereunder, provided that the existence of such trusts or other arrangements is consistent with the foregoing sentence. SECTION 12. GENERAL PROVISIONS (a) No Distribution; Compliance with Legal Requirements. The Committee may require each person acquiring Stock pursuant to an Award to represent to and agree with the Company in writing that such person is acquiring the shares without a view to distribution thereof. No shares of Stock shall be issued pursuant to an Award until all applicable securities law and other legal and stock exchange or similar requirements have been satisfied. The Committee may require the placing of such stop orders and restrictive legends on certificates for Stock and Awards, as it deems appropriate. (b) Other Compensation Arrangements; No Employment Rights. Nothing contained in this Plan shall prevent the Board from adopting other or additional compensation arrangements, including trusts, and such arrangements may be either generally applicable or applicable only in specific cases. The adopting of this Plan and the grant of Awards do not confer upon any employee any right to continued employment with the Company or any Subsidiary. SECTION 13. EFFECTIVE DATE OF PLAN This Plan shall become effective upon approval by the holders of a majority of the shares of Stock of the Company present or represented and entitled to vote at a meeting of stockholders. Subject to such approval by the stockholders and to the requirement that no Stock may be issued hereunder prior to such approval, Stock Options and other Awards may be granted hereunder on and after adoption of this Plan by the Board. SECTION 14. GOVERNING LAW This Plan shall be governed by Massachusetts law except to the extent such law is preempted by federal law. Adopted and Effective: November 8, 1999. EX-10.5 5 b41199fiex10-5.txt EX-10.5 AMENDED AND RESTATED 1999 DIRECTOR PLAN EXHIBIT 10.5 FIREPOND, INC. AMENDED AND RESTATED 1999 DIRECTOR PLAN SECTION 1. GENERAL PURPOSE OF THE PLAN, DEFINITIONS The name of the plan is the 1999 Director Plan (the "Plan"). The purpose of the Plan is to enable Firepond, Inc. (the "Company") to attract and retain non-employee directors and further align their interests with those of the shareholders by providing for or increasing their equity interests in the Company. It is anticipated that providing such persons with a direct stake in the Company's welfare will assure a closer identification of their interests with those of the Company, thereby stimulating their efforts on the Company's behalf and strengthening their desire to remain with the Company. The following terms shall be defined as set forth below: "Act" means the Securities Exchange Act of 1934, as amended. "Board" means the Board of Directors of the Company. "Code" means the Internal Revenue Code of 1986, as amended, and any successor Code, and related rules, regulations and interpretations. "Fair Market Value" of the Stock on any given date means (i) if the Stock is admitted to quotation on the National Association of Securities Dealers Automated Quotation System ("NASDAQ"), the Fair Market Value on any given date shall not be less than the average of the highest bid and lowest asked prices of the Stock reported for such date or, if no bid and asked prices were reported for such date, for the last day preceding such date for which such prices were reported; or (ii) if the Stock is admitted to trading on a national securities exchange or the NASDAQ National Market System, then clause (i) shall not apply and the Fair Market Value on any date shall not be less than the closing price reported for the Stock on such exchange or system for such date or, if no sales were reported for such date, for the last date preceding such date for which a sale was reported; or (iii) if the Stock is not publicly traded on a securities exchange or traded in the over-the-counter market or, if traded or quoted, there are no transactions or quotations within the last ten trading days or trading has been halted for extraordinary reasons, the Fair Market Value on any given date shall be determined in good faith by the Committee; and (iv) notwithstanding the foregoing, the Fair Market Value of the Stock on the effective date of the Initial Public Offering shall be the offering price to the public of the Stock on such date. "Option" or "Stock Option" means any option to purchase shares of Stock granted pursuant to Section 5. "Non-Qualified Stock Option" means any Stock Option that is not designated and qualified as an "incentive stock option" as defined in Section 422 of the Code. "Service Relationship" means any relationship as a non-employee director of the Company or any Subsidiary of the Company. "Stock" means the Common Stock, par value $.01 per share, of the Company, subject to adjustments pursuant to Section 3. "Subsidiary" means any corporation or other entity (other than the Company) in any unbroken chain of corporations or other entities beginning with the Company if each of the corporations or entities (other than the last corporation or entity in the unbroken chain) owns stock or other interests possessing 50 percent or more of the economic interest or the total combined voting power of all classes of stock or other interests in one of the other corporations or entities in the chain. SECTION 2. ADMINISTRATION OF PLAN; COMMITTEE (a) ADMINISTRATION OF PLAN. The Plan shall be administered by the Board, or at the discretion of the Board, by a committee or committees of the Board, comprised, except as contemplated by Section 2(c), of not less than two directors. All references herein to the Committee shall be deemed to refer to the group then responsible for administration of the Plan at the relevant time (i.e., either the Board or a committee or committees of the Board, as applicable). (b) POWERS OF COMMITTEE. The Committee shall have the power and authority to grant Options consistent with the terms of the Plan, including the power and authority: (i) to determine and modify from time to time the terms and conditions, including restrictions, not inconsistent with the terms of the Plan, of any Option, which terms and conditions may differ among individual Options and participants, and to approve the form of written instruments evidencing the Options; (ii) to accelerate at any time the exercisability or vesting of all or any portion of any Option; (iii) to impose any limitations on Options granted under the Plan, including limitations on transfers, repurchase provisions and the like and to exercise repurchase rights or obligations; (iv) to extend at any time the period in which Stock Options may be exercised; and (v) at any time to adopt, alter and repeal such rules, guidelines and practices for administration of the Plan and for its own acts and proceedings as it shall deem advisable; to interpret the terms and provisions of the Plan and any Option (including related written instruments); to make all determinations it deems advisable for the administration of the Plan; to decide all disputes arising in connection with the Plan; and to otherwise supervise the administration of the Plan. -2- All decisions and interpretations of the Board shall be binding on all persons, including the Company and Plan participants. SECTION 3. STOCK ISSUABLE UNDER THE PLAN: MERGERS: SUBSTITUTION (a) STOCK ISSUABLE. The maximum number of shares of Stock reserved and available for issuance under the Plan shall be 500,000 shares of Common Stock subject to adjustment as provided in Section 3(b). For purposes of this limitation, the shares of Stock underlying any Options which are forfeited, canceled, reacquired by the Company, satisfied without the issuance of Stock or otherwise terminated (other than by exercise) shall be added back to the shares of Stock available for issuance under the Plan. The shares available for issuance under the Plan may be authorized but unissued shares of Stock or shares of Stock reacquired by the Company and held in its treasury. (b) CHANGES IN STOCK. Subject to Section 3(c) hereof, if, as a result of any reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar change in the Company's capital stock, the outstanding shares of Stock are increased or decreased or are exchanged for a different number or kind of shares or other securities of the Company, or additional shares or new or different shares or other securities of the Company or other non-cash assets are distributed with respect to such shares of Stock or other securities, the Board shall make an appropriate or proportionate adjustment in (i) the maximum number of shares reserved for issuance under the Plan, (ii) the number of Stock Options that can be granted to any one individual participant, (iii) the number and kind of shares or other securities subject to any then outstanding Options under the Plan, and (iv) the exercise price and/or exchange price for each share subject to any then outstanding Stock Options under the Plan, without changing the aggregate exercise price (i.e., the exercise price multiplied by the number of Stock Options ) as to which such Stock Options remain exercisable. The adjustment by the Board shall be final, binding and conclusive. No fractional shares of Stock shall be issued under the Plan resulting from any such adjustment, but the Board in its discretion may make a cash payment in lieu of fractional shares. The Board may also adjust the number of shares subject to outstanding Options and the exercise price and the terms of outstanding Options to take into consideration material changes in accounting practices or principles, extraordinary dividends, acquisitions or dispositions of stock or property or any other event if it is determined by the Board that such adjustment is appropriate to avoid distortion in the operation of the Plan. (c) MERGERS AND OTHER SALE EVENTS. In the case of (i) the dissolution or liquidation of the Company, (ii) the sale of all or substantially all of the assets of the Company on a consolidated basis to an unrelated person or entity, (iii) a merger, reorganization or consolidation between the Company and another person or entity (other than a holding company or Subsidiary of the Company) as a result of which, the holders of the Company's outstanding voting power immediately prior to such transaction do not own a majority of the outstanding voting power of the surviving or resulting entity immediately upon completion of such transaction, (iv) the sale of all of the Stock of the Company to an unrelated person or entity or (v) any other transaction in which the owners of the Company's outstanding voting power prior to such transaction do not own at least a majority of the outstanding voting power of the relevant entity after the -3- transaction, in each case, regardless of the form thereof (in each case, a "Transaction"), unless provision is made in connection with the Transaction for the assumption of the Options heretofore granted, or the substitution of such Options with new Options of the successor entity or parent thereof, with appropriate adjustment as to the number and kind of shares and, if appropriate, the per share exercise prices, as provided in Section 3(b) above Transaction all unvested shares of Stock subject to outstanding Options, to the extent not then fully vested and/or exercisable, shall become fully vested and exercisable upon and subject to the consummation of the Transaction, except with respect to specific Options as the Board otherwise determines at the time of grant of such Options. SECTION 4. ELIGIBILITY Each member of the Board who is not an employee of the Company or any of its Subsidiaries (a "Non-Employee Director") shall be eligible for the grant of Options under this Plan. SECTION 5. STOCK OPTIONS Any Stock Option granted under the Plan shall be pursuant to a Stock Option Agreement. Stock Options granted under the Plan shall be Non-Qualified Stock Options. All grants of Options to Non-Employee Directors under this Plan shall be automatic and non-discretionary and shall be made strictly in accordance with this Section 5. No person shall have any discretion to select which Non-Employee Directors shall be granted Options or to determine the number of shares to be covered by such Options. (a) TERMS OF STOCK OPTIONS. Stock 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. (i) INITIAL GRANTS. Each person who is a Non-Employee Director, other than Paul Butare, shall, on September 9, 1999 without further action by the Board automatically be granted an Option to purchase 50,000 shares of Stock, subject to adjustment as provided in Section 3(b) hereof. Paul Butare shall, on September 9, 1999 without further action by the Board automatically be granted an Option to purchase 33,334 shares of Stock, subject to adjustment as provided in Section (3)(b) hereof. In addition, each person who first becomes a Non-Employee Director after September 9, 1999 shall, on the date such person becomes a Non-Employee Director, without further action by the Board, automatically be granted an Option to purchase 50,000 shares of Stock, subject to adjustment as provided in Section 3(b) hereof. (ii) ANNUAL GRANTS. On the date of the Company's annual meeting of stockholders (provided that in no event shall such date be more than 180 days after the fiscal year end), or, if such date shall not be a business day, the business day immediately preceding such date, and so long as shares remain available for issuance under the Plan, each person who is a CONTINUING Non-Employee Director shall without further action by the Board automatically be granted an Option to purchase 12,500 Common Shares, subject to adjustment as provided in Section 3(b) hereof. -4- (iii) INSUFFICIENT SHARES. Notwithstanding the foregoing, if, on any date upon which Options are to be granted under Section 5(a)(i) or 5(a)(ii) hereof, the shares of Stock remaining available for issuance under this Plan is insufficient for the grant of Options to purchase the total number of shares of Stock specified in such section, then each Non-Employee Director entitled to receive an Option on such date shall be granted an Option to purchase a proportionate amount of the available number of shares of Stock (rounded down to the greatest number of whole shares). Except for the specified Options referred to in Section 5(a)(i) or 5(a)(ii) above, no other Options shall be granted under this Plan (iv) EXERCISABILITY; RIGHTS OF A STOCKHOLDER. Stock Options shall become exercisable at such time or times as set forth in the Stock Option Agreement. The Board may at any time accelerate the exercisability of all or any portion of any Stock Option. An optionee shall have the rights of a stockholder only as to shares acquired upon the exercise of a Stock Option and not as to unexercised Stock Options. (v) METHOD OF EXERCISE. Stock Options may be exercised in whole or in part, by giving written notice of exercise to the Company, specifying the number of shares to be purchased. Payment of the purchase price may be made by one or more of the following methods to the extent provided in the Stock Option Agreement: (A) In cash, by certified or bank check, or other instrument acceptable to the Committee in U.S. funds payable to the order of the Company in an amount equal to the purchase price of such Option Shares; (B) If permitted by the Board, through the delivery (or attestation to the ownership) of shares of Stock that have been purchased by the optionee on the open market or have been beneficially owned by the optionee for at least six months and are not then subject to restrictions under any Company plan. Such surrendered shares shall be valued at Fair Market Value on the exercise date; or (C) If permitted by the Board, by the optionee delivering to the Company a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company to pay the purchase price; provided that in the event the optionee chooses to pay the purchase price as so provided, the optionee and the broker shall comply with such procedures and enter into such agreements of indemnity and other agreements as the Board shall prescribe as a condition of such payment procedure. Payment instruments will be received subject to collection. No certificates for Option Shares so purchased will be issued to optionee until the Company has completed all steps required by law to be taken in connection with the issuance and sale of the shares, including without limitation (i) receipt of a representation from the optionee at the time of exercise of the Option that the optionee is purchasing the Option Shares for the optionee's own account and not with a view to any sale or distribution thereof, (ii) the legending of any certificate representing the shares to evidence the foregoing representations and restrictions, and (iii) obtaining from optionee payment or provision for all withholding taxes due as a result of the exercise of the Option. The delivery of certificates representing the shares of Stock to be purchased pursuant to -5- the exercise of a Stock Option will be contingent upon receipt from the optionee (or a purchaser acting in his or her stead in accordance with the provisions of the Stock Option) by the Company of the full purchase price for such shares and the fulfillment of any other requirements contained in the Stock Option or applicable provisions of laws. (b) 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, or by the optionee's legal representative or guardian in the event of the optionee's incapacity. Notwithstanding the foregoing, the Board in its sole discretion may provide in any Stock Option agreement that the optionee may transfer, without consideration for the transfer, his or her Non-Qualified Stock Options to members of his or her immediate family, to trusts for the benefit of such family members, or to partnerships in which such family members are the only partners or to limited liability companies in which such family members are the only members, provided that the transferee agrees in writing with the Company to be bound by all of the terms and conditions of this Plan and the applicable Option. (c) TERMINATION. Unless otherwise provided in the option agreement or determined by the Board, upon the termination of the optionee's Service Relationship with the Company or its Subsidiaries, the optionee's rights in his or her Stock Options shall automatically terminate upon the effective date of such termination. SECTION 6. TAX WITHHOLDING (a) PAYMENT BY PARTICIPANT. Each participant shall, no later than the date as of which the value of an Option or of any Stock or other amounts received thereunder first becomes includable in the gross income of the participant for Federal income tax purposes, pay to the Company, or make arrangements satisfactory to the Board regarding payment of, any federal, state, or local taxes of any kind required by law to be withheld with respect to such income. The Company and its Subsidiaries 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. (b) PAYMENT IN STOCK. Subject to approval by the Board, a participant may elect to have the minimum required tax withholding obligation satisfied, in whole or in part, by (i) authorizing the Company to withhold from shares of Stock to be issued pursuant to any Option a number of shares with an aggregate Fair Market Value (as of the date the withholding is effected) that would satisfy the withholding amount due, or (ii) transferring to the Company shares of Stock owned by the participant with an aggregate Fair Market Value (as of the date the withholding is effected) that would satisfy the withholding amount due. SECTION 7. AMENDMENTS AND TERMINATION The Board may, at any time, amend or discontinue the Plan and the Board may, at any time, amend or cancel any outstanding Option (or provide substitute Options at the same or reduced exercise or purchase price or with no exercise or purchase price in a manner not inconsistent with the terms of the Plan), but such price, if any, must satisfy the requirements which would apply to the substitute or amended Option if it were then initially granted under this -6- Plan for the purpose of satisfying changes in law or for any other lawful purpose, but no such action shall adversely affect rights under any outstanding Option without the holder's consent. SECTION 8. STATUS OF PLAN With respect to the portion of any Option that has not been exercised and any payments in cash, Stock or other consideration not received by a participant, a participant shall have no rights greater than those of a general creditor of the Company unless the Board shall otherwise expressly determine in connection with any Option or Options. In its sole discretion, the Board may authorize the creation of trusts or other arrangements to meet the Company's obligations to deliver Stock or make payments with respect to Options hereunder, provided that the existence of such trusts or other arrangements is consistent with the foregoing sentence. SECTION 9. GENERAL PROVISIONS (a) NO DISTRIBUTION; COMPLIANCE WITH LEGAL REQUIREMENTS. The Board may require each person acquiring Stock pursuant to an Option to represent to and agree with the Company in writing that such person is acquiring the shares without a view to distribution thereof. No shares of Stock shall be issued pursuant to an Option until all applicable securities law and other legal and stock exchange or similar requirements have been satisfied. The Board may require the placing of such stop-orders and restrictive legends on certificates for Stock and Options as it deems appropriate. (b) DELIVERY OF STOCK CERTIFICATES. Stock certificates to participants under this Plan shall be deemed delivered for all purposes when the Company or a stock transfer agent of the Company shall have mailed such certificates in the United States mail, addressed to the participant, at the participant's last known address on file with the Company. (c) OTHER COMPENSATION ARRANGEMENTS; NO EMPLOYMENT RIGHTS. Nothing contained in this Plan shall prevent the Board from adopting other or additional compensation arrangements, including trusts, and such arrangements may be either generally applicable or applicable only in specific cases. (d) TRADING POLICY RESTRICTIONS. Option exercises under the Plan shall be subject to such Company's insider-trading-policy-related restrictions, terms and conditions as may be established by the Board, or in accordance with policies set by the Board, from time to time. SECTION 10. EFFECTIVE DATE OF PLAN This Plan shall become effective and shall be deemed to have been adopted on September 9, 1999, subject to approval by the holders of a majority of the votes cast at a meeting of stockholders at which a quorum is present or by written consent in accordance with applicable law within twelve months after such vote. -7- SECTION 11. GOVERNING LAW This Plan and all Options and actions taken thereunder shall be governed by the laws of the Commonwealth of Massachusetts, applied without regard to conflict of law principles thereof. -8- EX-10.7 6 b41199fiex10-7.txt EX-10.7 FORM OF STOCK OPTION AGREEMENT-DIRECTORS EXHIBIT 10.7 FIREPOND, INC. STOCK OPTION AGREEMENT ---------------------- THIS OPTION AGREEMENT is made as of [DATE] (the "OPTION DATE"), between Firepond, Inc., a Delaware corporation (the "COMPANY"), and [OPTIONEE], [AN EMPLOYEE] [A DIRECTOR] of the Company or one or more of its Subsidiaries (the "OPTIONEE"). WHEREAS, the Company desires, by affording the Optionee an opportunity to purchase shares of its common stock, $.01 par value per share (the "COMMON STOCK"), as hereinafter provided, to carry out the purpose of the [NAME OF STOCK OPTION PLAN] (the "PLAN") of the Company. NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth and for other good and valuable consideration, the parties hereto have agreed, and do hereby agree, as follows: 1. GRANT OF OPTION. The Company hereby grants to the Optionee the right and Option (hereinafter called the "OPTION") to purchase from the Company all or any part of an aggregate amount of [NUMBER OF OPTION SHARES] shares (the "OPTION SHARES") of Common Stock on the terms and conditions set forth in this Option Agreement and in the Plan. This Option is not intended to constitute an incentive stock option, as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the "CODE"). 2. PURCHASE PRICE. The purchase price of the Option Shares shall be $[EXERCISE PRICE] per share. 3. TERM OF OPTION. The term of this Option shall be a period of five (5) years from the Option Date, subject to earlier termination as hereinafter provided. 4. EXERCISE OF OPTION. Subject to the provisions of Sections 7, 8, 9 and 11 hereof, this Option may be exercised during the term specified in Section 3 hereof as to [INSERT: NUMBER OF SHARES INITIALLY VESTED] of the Option Shares from and after the Option Date, and an additional [INSERT: NUMBER OF SHARES VESTING MONTHLY] of the Option Shares from and after each monthly anniversary following the Option Date, such that all of the Option Shares shall be vested and exercisable on the three (3) year anniversary of the Option Date. In no event shall this Option be exercisable for more than the aggregate number of Option Shares. 5. NON- TRANSFERABILITY. This Option is personal to the Optionee and is not transferable by the Optionee in any manner other than by will or by the laws of descent and distribution; provided that this Option may also be transferred by the Optionee, without consideration for the transfer, to members of his or her immediate family, to trusts for the benefit of such family members, to partnerships in which such family members are the only partners, or to limited liability companies in which such family members are the only members (each a Firepond Confidential And Proprietary 1 "PERMITTED TRANSFEREE"), provided that the transferee agrees in writing with the Company to be bound by all of the terms and conditions of the Plan and this Option Agreement. This Option may be exercised during the Optionee's lifetime only by the Optionee (or by the Optionee's legal representative or guardian in the event of the Optionee's incapacity) or by a Permitted Transferee pursuant to this Section 5. The Optionee may elect to designate a beneficiary by providing written notice of the name of such beneficiary to the Company, and may revoke or change such designation at any time by filing written notice of revocation or change with the Company; such beneficiary may exercise this Option in the event of the Optionee's death to the extent provided herein. If the Optionee does not designate a beneficiary, or if the designated beneficiary predeceases the Optionee, the executor of the Optionee may exercise this Option to the extent provided herein in the event of the Optionee's death. 6. NOT A CONTRACT OF EMPLOYMENT. Nothing in this Option Agreement shall confer upon the Optionee any right to continue in the employ or service of the Company or of any of its Subsidiaries or interfere in any way with the right of the Company, the shareholders of the Company, the shareholders of the Company or any such Subsidiary to terminate the employment or service of the Optionee at any time. 7. TERMINATION OF EMPLOYMENT. Subject to Sections 8, 9 and 11 hereof, in the event that the Service Relationship of the Optionee shall terminate or be terminated, the Option may be exercised (to the extent the Optionee shall have been entitled to do so at the date of such termination pursuant to Section 4 hereof) by the Optionee at any time: (i) within twelve (12) months after such termination if such termination was by reason of Disability; (ii) no later than the date of such termination if such termination was for Cause; and (iii) within thirty (30) days after such termination if such termination was for any reason other than Retirement, Disability, Cause or death. However, in each case, in no event may the Option be exercised later than the expiration of the term specified in Section 3 hereof. Any portion of this Option that is not exercisable pursuant to Section 4 on the date of termination of the Service Relationship shall immediately expire and be null and void. 8. DEATH. If the Optionee's Service Relationship terminates due to the Optionee's death, the Option may be exercised (to the extent that the Optionee shall have been entitled to do so at the date of his or her death pursuant to Section 4 hereof) by the Optionee's designated beneficiary or the person to whom the Option is transferred by will or the applicable laws of descent and distribution, at any time within twelve (12) months after the Optionee's death, but in no event later than the expiration of the term specified in Section 3 hereof. Firepond Confidential And Proprietary 2 9. EFFECT OF CERTAIN TRANSACTIONS. Upon the effectiveness of a Transaction, unless provision is made in connection with the Transaction for the assumption of this Option, or the substitution of this Option with new options of the successor entity or parent thereof, with appropriate adjustment to the number of Option Shares and, if appropriate, the Exercise Price, pursuant to the terms of the Plan (the "ASSUMPTION"), all of the remaining Option Shares, to the extent not vested and exercisable, shall, subject to and conditioned upon the effectiveness of the Transaction, become vested and exercisable fifteen (15) days prior to the anticipated effective date of the Transaction, as determined by the Company. Further, unless there is an Assumption of this Option, this Option shall terminate upon the effectiveness of the Transaction. In the event of such termination, the Optionee shall be permitted to exercise this Option for a period of at least fifteen (15) days prior to the anticipated effective date of such Transaction to the extent that it is then vested and exercisable (after giving effect to the acceleration of vesting, if any, provided for in this Section 9), PROVIDED, HOWEVER, that the exercise of the portion of this Option that becomes vested and exercisable pursuant to the acceleration provision of this Section 9 shall be subject to and conditioned upon the effectiveness of the Transaction. In addition, if there is an Assumption and the Optionee's Service Relationship with such successor entity is, on or within six (6) months after such Transaction, (i) terminated by the successor entity without Cause, or (ii) terminated by the Optionee for Good Reason, then one hundred percent (100%) of the shares of Common Stock subject to this Option, to the extent not fully vested and exercisable, shall become fully vested and exercisable. In the event that the vesting of this Option is accelerated following an Assumption pursuant to this Section 9, Optionee shall be given a period of three (3) months following such termination to exercise this Option. 10. METHOD OF EXERCISING OPTION. (a) Subject to the terms and conditions of this Option Agreement, this Option may be exercised by written notice (in substantially the form of APPENDIX A attached hereto) to the Chief Financial Officer of the Company at the principal office of the Company. Such notice shall state the election to exercise the Option and the number of Option Shares in respect of which it is being exercised, and shall be signed by the person so exercising the Option. Such notice shall be accompanied by payment of the full purchase price of such Option Shares, which payment shall be made in cash or by certified check or bank draft payable to the Company, or, in the sole discretion of the Company (i) by delivery (or attestation to the ownership) of shares of Common Stock with a Fair Market Value equal to the total aggregate purchase price (valued as of the exercise date) which shares were either purchased by the Optionee on the open market or have been held by the Optionee free of any applicable restrictions for at least six (6) months, or (ii) by delivery to the Company of a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company in the amount equal to the total aggregate purchase price; provided that, in the event that the Optionee chooses to pay the purchase price as so provided, the Optionee and the broker shall comply with such procedures and enter into such agreements of indemnity and other agreements as the Board shall prescribe as a condition of such payment procedure. Firepond Confidential And Proprietary 3 (b) Payment instruments will be received subject to collection. The certificate or certificates for the shares as to which the Option shall have been so exercised shall be registered in the name of the person so exercising the Option, or if the Optionee so elects, in the name of the Optionee or one other person as joint tenants. In the event the Option shall be exercised by any person other than the Optionee, such notice shall be accompanied by appropriate proof of the right of such person to exercise the Option. Certificates for the Option Shares so purchased will be issued and delivered to the Optionee upon compliance to the satisfaction of the Board with all requirements under applicable laws or regulations in connection with such issuance. Until the Optionee shall have complied with the requirements hereof and of the Plan, including the withholding requirements set forth in Section 13 below, the Company shall be under no obligation to issue the Option Shares subject to this Option, and the determination of the Board as to such compliance shall be final and binding on the Optionee. The Company shall not be required to issue fractional shares upon the exercise of this Option. 11. FORFEITURE OF UNEXERCISED OPTIONS. In the event the Optionee breaches the terms of the Company's standard Employee Agreement (the "EMPLOYEE AGREEMENT") as executed by the Optionee and the Company, the terms of which are expressly incorporated herein by reference, any Options which have vested but are unexercised at the time of such breach shall immediately be forfeited and shall not thereafter be exercisable by Optionee. Forfeiture of the unexercised portion of the Option shall apply to the unexercised portion held by the Optionee or by any Permitted Transferee of such unexercised portion of the Option. 12. PAYMENT UPON THE SALE OF EXERCISED SHARES. In the event that the Optionee breaches any of the terms of the Employee Agreement and prior to such breach has, or a Permitted Transferee has, sold, transferred or otherwise disposed of or, following such breach, sells, transfers or otherwise disposes of, any Exercised Shares, for each Exercised Share so sold, transferred or disposed of, the Optionee hereby agrees to pay to the Company, in cash, upon demand, an amount equal to the difference between the Exercise Price per share of the Exercised Shares and the value per share received by the Optionee, or the Permitted Transferee, pursuant to such sale of the Exercised Shares. 13. WITHHOLDING REQUIREMENTS. (a) PAYMENT BY OPTIONEE. Upon exercise of the Option by the Optionee (or, if applicable, the transfer, in whole or in part of any shares acquired upon the exercise of the Option, the operation of any law or regulation providing for the imputation of interest related to the Option, or the lapsing of any restriction with respect to any shares acquired upon exercise of the Option) which exercise (or other event) gives rise to taxable income and subjects the Company to a tax withholding obligation, the Company shall have the right to require the Optionee to remit to the Company cash in an amount sufficient to satisfy applicable federal, state, foreign and local tax withholding requirements or the Company may, but will not be required to, withhold such amounts from payroll or any other amounts payable to the Optionee. The Company shall inform the Optionee as to whether it will require the Optionee to remit cash for withholding taxes in accordance with the preceding sentence within two (2) business days after Firepond Confidential And Proprietary 4 receiving from the Optionee notice that such Optionee intends to exercise, or has exercised, all or a portion of the Option. (b) PAYMENT IN COMMON STOCK. Subject to approval by the Company, the Optionee may elect to have the minimum tax withholding obligation satisfied, in whole or in part, by (i) authorizing the Company to withhold from shares of Common Stock to be issued a number of shares of Common Stock with an aggregate Fair Market Value (as of the date the withholding is effected) that would satisfy the withholding amount due or (ii) transferring to the Company shares of Common Stock owned by the Optionee with an aggregate Fair Market Value (as of the date the withholding is effected) that would satisfy the withholding amount due. The Fair Market Value of any shares of Common Stock withheld or tendered to satisfy any such tax withholding obligation shall not exceed the amount determined by the applicable minimum statutory withholding rates. 14. STOCK PLAN. This Option is subject to all of the terms and conditions set forth in the Plan; provided, that, notwithstanding anything in this Option Agreement to the contrary, to the extent of any conflict between the terms of the Plan and this Option Agreement, the terms of the Plan shall control. By acceptance hereof, Optionee acknowledges receipt of a copy of the Plan and agrees to and accepts this Option subject to the terms of the Plan. A copy of the Plan is on file with the Chief Financial Officer of the Company. 15. NO DISTRIBUTION; COMPLIANCE WITH LEGAL REQUIREMENTS. The grant of this Option and the issuance of shares of Common Stock upon exercise of this Option shall be subject to compliance with all applicable requirements of federal, state and foreign law with respect to such securities. This Option may not be exercised if the issuance of shares of Common Stock upon exercise would constitute a violation of any applicable federal, state or foreign securities laws or other law or regulations or the requirements of any stock exchange or market system upon which the Common Stock may then be listed. Further, no shares of Common Stock shall be issued pursuant to this Option until all applicable securities law and other legal and stock exchange or similar requirements have been satisfied. The Board may require the placing of such stop orders and restrictive legends on certificates for Common Stock received pursuant to this Option, as it deems appropriate. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company's legal counsel to be necessary to the lawful issuance and sale of any shares hereunder shall relieve the Company of any liability in respect of the failure to issue or sell such shares as to which such requisite authority shall not have been obtained. As a condition to the exercise of this Option, the Company may require the Optionee to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect thereto as may be requested by the Company and may require the Optionee to represent to and agree with the Company in writing that such person is acquiring the shares without a view to distribution thereof. 16. LOCK-UP PROVISION. The Optionee agrees, if requested by the Company and any underwriter engaged by the Company, not to offer, sell, contract to sell, pledge, hypothecate, grant any option to purchase or make any short sale of, or otherwise dispose of any securities Firepond Confidential And Proprietary 5 (including the right to acquire any Common Stock) of the Company (including, without limitation, pursuant to Rule 144 under the Securities Act of 1933, as amended (the "SECURITIES ACT")) held by him or her for such period following the effective date of any registration statement of the Company filed under the Securities Act as the Company or such underwriter shall specify reasonably and in good faith, not to exceed ninety (90) days. 17. STATUS. Neither the Optionee nor the Optionee's executor, administrator, heirs or legatees shall be or have any rights or privileges of a shareholder of the Company in respect of the shares transferable upon exercise of the Option granted hereunder, unless and until certificates representing such shares shall be endorsed, transferred, and delivered and the transferee has caused the Optionee's name to be entered as the shareholder of record on the books of the Company. 18. COMPANY AUTHORITY. The existence of the Option herein granted shall not affect in any way the right or power of the Company or its shareholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the Company's capital structure or its business, or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred or prior preference stock ahead of or affecting the Common Stock of the Company or the rights thereof, or dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. 19. DISPUTES. As a condition of the granting of the Option herein granted, the Optionee agrees, for the Optionee, any Permitted Transferees and the Optionee's personal representatives, that any interpretation which may arise under or as a result of or pursuant to this Option Agreement shall be determined by the Board, in its sole discretion, and that any interpretation by the Board of the terms of this Option Agreement shall be final, binding and conclusive. 20. EQUITABLE RELIEF. The parties hereto agree and declare that legal remedies may be inadequate to enforce the provisions of this Option Agreement and that equitable relief, including specific performance and injunctive relief, may be used to enforce the provisions of this Option Agreement. 21. BINDING EFFECT. This Option Agreement shall be binding upon the heirs, executors, administrators, successors and assigns of the parties hereto. 22. INTEGRATED AGREEMENT. This Option Agreement and the Plan constitute the entire understanding and agreement between the Optionee and the Company with respect to the subject matter contained herein and supercedes any prior agreements, understandings, restrictions, representations, or warranties among the Optionee and the Company with respect to such subject matter except as provided for herein. To the extent contemplated herein, the provisions of this Option Agreement shall survive any exercise of this Option and shall remain in full force and effect. Firepond Confidential And Proprietary 6 23. SAVING CLAUSE. If any provision(s) of this Option Agreement shall be determined to be illegal or unenforceable, such determination shall in no manner affect the legality or enforceability of any other provision hereof. 24. HEADINGS. The headings used herein are intended only for convenience in finding the subject matter hereof and do not constitute part of the text of this Option Agreement and shall not be considered in the interpretation of this Option Agreement. 25. NOTICES. All notices, requests, consents and other communications shall be in writing and be deemed given when delivered personally, by telex or facsimile transmission or two (2) days after deposit in the mail if mailed by first class registered or certified mail, postage prepaid or one (1) business day after deposit with a nationally recognized overnight carrier. Notices to the Company or the Optionee shall be addressed to such address or addresses as may have been furnished by such party in writing to the other. 26. GOVERNING LAW. This Option Agreement is a Massachusetts contract and shall be construed under and be governed in all respects by the laws of the Commonwealth of Massachusetts, without regard to conflict of law principles. Any legal action or suit related to this Agreement shall be brought exclusively in the courts of Massachusetts. Both parties agree that the courts of Massachusetts are a convenient forum for the resolution of disputes. 27. DEFINITIONS. Capitalized terms used herein and not otherwise defined shall have their respective meanings set forth in the Plan. For purposes of this Option Agreement, the following terms shall be defined as set forth below: "CAUSE" means (i) any material breach by the Optionee of any agreement to which the Optionee and the Company or its Subsidiaries are parties, including breach of covenants not to compete and covenants relating to the protection of confidential information and proprietary rights of the Company or its Subsidiaries which breach is not cured pursuant to the terms of such agreement, (ii) any act (other than retirement) or omission to act by the Optionee which would reasonably be likely to have a material adverse effect on the business of the Company or its Subsidiaries or on the Optionee's ability to perform services for the Company or its Subsidiaries, including, without limitation, the conviction or plea of guilty or nolo contendre to any crime (other than ordinary traffic violations) which impairs the Optionee's ability to perform his or her duties, (iii) any material misconduct or willful and deliberate non-performance of duties by the Optionee in connection with the business or affairs of the Company or its Subsidiaries, (iv) the Optionee's theft, dishonesty, or falsification of the Company's or its Subsidiaries' documents or records, or (v) the Optionee's improper use or disclosure of the Company's or its Subsidiaries' confidential or proprietary information. All references herein to the Company or its Subsidiaries shall include any successor entity thereof. "DISABILITY" means permanent and total disability as determined by the Board. "EARLY RETIREMENT" means retirement, with consent of the Board at the time of retirement, from active employment with the Company and any Subsidiary or Parent Corporation. Firepond Confidential And Proprietary 7 "EXERCISED SHARES" means all shares of Common Stock purchased by Optionee upon exercise of this Option, or any portion thereof. "GOOD REASON" means the occurrence of any of the following events: (i) a substantial adverse change in the nature or scope of the Optionee's responsibilities, authorities, powers, functions or duties; (ii) a reduction in the Optionee's annual base salary except for across-the-board salary reductions similarly affecting all, or substantially all, management employees; or (iii) the relocation of the offices at which the Optionee is principally employed to a location more than fifty (50) miles from such offices. "NORMAL RETIREMENT" means retirement from active employment with the Company and any Subsidiary or Parent Corporation on or after age 65. "RETIREMENT" means Normal Retirement or Early Retirement. "SERVICE RELATIONSHIP" means the Optionee's employment or service with the Company or its Subsidiary, whether in the capacity of an employee, director or a consultant; provided that, if this Option was granted under the 1999 Director Plan, then "Service Relationship" shall mean any relationship as a non-employee director of the Company or any Subsidiary of the Company. Unless otherwise determined by the Company, the Optionee's Service Relationship shall not be deemed to have terminated merely because of a transfer between locations of the Company or its Subsidiaries or a transfer between the Company and any Subsidiary, provided that there is no interruption or other termination of the Service Relationship. Subject to the foregoing, the Company, in its discretion, shall determine whether the Optionee's Service Relationship has terminated and the effective date of such termination. The Company shall have the sole discretion to determine the reason for the termination of the Optionee's Service Relationship. Firepond Confidential And Proprietary 8 IN WITNESS WHEREOF, the Company has caused this Option Agreement to be duly executed by an officer thereunto duly authorized, and the Optionee has hereunto set his or her hand, as of the date(s) set forth below. FIREPOND, INC. By: ----------------------------------- Name: Paul K. McDermott Title: Chief Financial Officer --------------------------------------- Date OPTIONEE --------------------------------------- Optionee Signature --------------------------------------- Date Firepond Confidential And Proprietary 9 APPENDIX A ---------- STOCK OPTION EXERCISE NOTICE Firepond, Inc. 890 Winter Street Waltham, Massachusetts 02451 Attention: Chief Financial Officer Date: ___________________ Pursuant to the terms of the Stock Option Agreement granted pursuant to the [INSERT: PLAN] on _______________and entered into by Firepond, Inc. and [INSERT: OPTIONEE], I hereby [Circle One] partially/fully exercise such option by including herein payment in the amount of $__________ representing the purchase price for __________ shares of common stock, all of which have vested in accordance with the Stock Option Agreement. I hereby authorize payroll withholding or otherwise will make adequate provision for federal, state, foreign and local tax withholding obligations of the Company, if any, that arise in connection with the option. I acknowledge that the shares are being acquired in accordance with and subject to the terms, provisions and conditions of the Plan and the Stock Option Agreement, copies of which I have received and carefully read and understand, including the provision regarding payment upon the sale of exercised shares set forth therein, to all of which I hereby expressly assent. Sincerely yours, ___________________________________________ Name: [INSERT OPTIONEE'S NAME] Address: _________________________________ _________________________________ Firepond Confidential And Proprietary 10 EX-10.8 7 b41199fiex10-8.txt EX-10.8 FORM OF STOCK OPTION AGREEMENT-OTHERS EXHIBIT 10.8 FIREPOND, INC. STOCK OPTION AGREEMENT THIS OPTION AGREEMENT is made as of [DATE] (the "OPTION DATE"), between Firepond, Inc., a Delaware corporation (the "COMPANY"), and [OPTIONEE], [AN EMPLOYEE] [A DIRECTOR] of the Company or one or more of its Subsidiaries (the "OPTIONEE"). WHEREAS, the Company desires, by affording the Optionee an opportunity to purchase shares of its common stock, $.01 par value per share (the "COMMON STOCK"), as hereinafter provided, to carry out the purpose of the [NAME OF STOCK OPTION PLAN] (the "PLAN") of the Company. NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth and for other good and valuable consideration, the parties hereto have agreed, and do hereby agree, as follows: 1. GRANT OF OPTION. The Company hereby grants to the Optionee the right and Option (hereinafter called the "OPTION") to purchase from the Company all or any part of an aggregate amount of [NUMBER OF OPTION SHARES] shares (the "OPTION SHARES") of Common Stock on the terms and conditions set forth in this Option Agreement and in the Plan. This Option is not intended to constitute an incentive stock option, as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the "CODE"). 2. PURCHASE PRICE. The purchase price of the Option Shares shall be $[EXERCISE PRICE] per share. 3. TERM OF OPTION. The term of this Option shall be a period of five (5) years from the Option Date, subject to earlier termination as hereinafter provided. 4. EXERCISE OF OPTION. Subject to the provisions of Sections 7, 8, 9 and 11 hereof, this Option may be exercised during the term specified in Section 3 hereof as to [INSERT: NUMBER OF SHARES INITIALLY VESTED] of the Option Shares from and after the Option Date, and an additional [INSERT: NUMBER OF SHARES VESTING MONTHLY] of the Option Shares from and after each monthly anniversary of the Option Date, such that all of the Option Shares shall be vested and exercisable on the three (3) year anniversary of the Option Date. In no event shall this Option be exercisable for more than the aggregate number of Option Shares. 5. NON- TRANSFERABILITY. This Option is personal to the Optionee and is not transferable by the Optionee in any manner other than by will or by the laws of descent and distribution; provided that this Option may also be transferred by the Optionee, without consideration for the transfer, to members of his or her immediate family, to trusts for the benefit Firepond Confidential And Proprietary 1 of such family members, to partnerships in which such family members are the only partners, or to limited liability companies in which such family members are the only members (each a "PERMITTED TRANSFEREE"), provided that the transferee agrees in writing with the Company to be bound by all of the terms and conditions of the Plan and this Option Agreement. This Option may be exercised during the Optionee's lifetime only by the Optionee (or by the Optionee's legal representative or guardian in the event of the Optionee's incapacity) or by a Permitted Transferee pursuant to this Section 5. The Optionee may elect to designate a beneficiary by providing written notice of the name of such beneficiary to the Company, and may revoke or change such designation at any time by filing written notice of revocation or change with the Company; such beneficiary may exercise this Option in the event of the Optionee's death to the extent provided herein. If the Optionee does not designate a beneficiary, or if the designated beneficiary predeceases the Optionee, the executor of the Optionee may exercise this Option to the extent provided herein in the event of the Optionee's death. 6. NOT A CONTRACT OF EMPLOYMENT. Nothing in this Option Agreement shall confer upon the Optionee any right to continue in the employ or service of the Company or of any of its Subsidiaries or interfere in any way with the right of the Company, the shareholders of the Company, the shareholders of the Company or any such Subsidiary to terminate the employment or service of the Optionee at any time. 7. TERMINATION OF EMPLOYMENT. Subject to Sections 8, 9 and 11 hereof, in the event that the Service Relationship of the Optionee shall terminate or be terminated, the Option may be exercised (to the extent the Optionee shall have been entitled to do so at the date of such termination pursuant to Section 4 hereof) by the Optionee at any time: (i) within twelve (12) months after such termination if such termination was by reason of Disability; (ii) no later than the date of such termination if such termination was for Cause; and (iii) within thirty (30) days after such termination if such termination was for any reason other than Retirement, Disability, Cause or death. However, in each case, in no event may the Option be exercised later than the expiration of the term specified in Section 3 hereof. Any portion of this Option that is not exercisable pursuant to Section 4 on the date of termination of the Service Relationship shall immediately expire and be null and void. 8. DEATH. If the Optionee's Service Relationship terminates due to the Optionee's death, the Option may be exercised (to the extent that the Optionee shall have been entitled to do so at the date of his or her death pursuant to Section 4 hereof) by the Optionee's designated beneficiary or the person to whom the Option is transferred by will or the applicable laws of 2 descent and distribution, at any time within twelve (12) months after the Optionee's death, but in no event later than the expiration of the term specified in Section 3 hereof. 9. EFFECT OF CERTAIN TRANSACTIONS. Upon the effectiveness of a Transaction, unless provision is made in connection with the Transaction for the assumption of this Option, or the substitution of this Option with new options of the successor entity or parent thereof, with appropriate adjustment to the number of Option Shares and, if appropriate, the Exercise Price, pursuant to the terms of the Plan this Option shall terminate upon the effectiveness of the Transaction. In the event of such termination, the Optionee shall be permitted to exercise this Option for a period of at least fifteen (15) days prior to the anticipated effective date of such Transaction to the extent that it is then vested and exercisable. 10. METHOD OF EXERCISING OPTION. (a) Subject to the terms and conditions of this Option Agreement, this Option may be exercised by written notice (in substantially the form of APPENDIX A attached hereto) to the Chief Financial Officer of the Company at the principal office of the Company. Such notice shall state the election to exercise the Option and the number of Option Shares in respect of which it is being exercised, and shall be signed by the person so exercising the Option. Such notice shall be accompanied by payment of the full purchase price of such Option Shares, which payment shall be made in cash or by certified check or bank draft payable to the Company, or, in the sole discretion of the Company (i) by delivery (or attestation to the ownership) of shares of Common Stock with a Fair Market Value equal to the total aggregate purchase price (valued as of the exercise date) which shares were either purchased by the Optionee on the open market or have been held by the Optionee free of any applicable restrictions for at least six (6) months, or (ii) by delivery to the Company of a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company in the amount equal to the total aggregate purchase price; provided that, in the event that the Optionee chooses to pay the purchase price as so provided, the Optionee and the broker shall comply with such procedures and enter into such agreements of indemnity and other agreements as the Board shall prescribe as a condition of such payment procedure. (b) Payment instruments will be received subject to collection. The certificate or certificates for the shares as to which the Option shall have been so exercised shall be registered in the name of the person so exercising the Option, or if the Optionee so elects, in the name of the Optionee or one other person as joint tenants. In the event the Option shall be exercised by any person other than the Optionee, such notice shall be accompanied by appropriate proof of the right of such person to exercise the Option. Certificates for the Option Shares so purchased will be issued and delivered to the Optionee upon compliance to the satisfaction of the Board with all requirements under applicable laws or regulations in connection with such issuance. Until the Optionee shall have complied with the requirements hereof and of the Plan, including the withholding requirements set forth in Section 13 below, the Company shall be under no Firepond Confidential And Proprietary 3 obligation to issue the Option Shares subject to this Option, and the determination of the Board as to such compliance shall be final and binding on the Optionee. The Company shall not be required to issue fractional shares upon the exercise of this Option. 11. FORFEITURE OF UNEXERCISED OPTIONS. In the event the Optionee breaches the terms of the Company's standard Employee Agreement (the "EMPLOYEE AGREEMENT") as executed by the Optionee and the Company, the terms of which are expressly incorporated herein by reference, any Options which have vested but are unexercised at the time of such breach shall immediately be forfeited and shall not thereafter be exercisable by Optionee. Forfeiture of the unexercised portion of the Option shall apply to the unexercised portion held by the Optionee or by any Permitted Transferee of such unexercised portion of the Option. 12. PAYMENT UPON THE SALE OF EXERCISED SHARES. In the event that the Optionee breaches any of the terms of the Employee Agreement and prior to such breach has, or a Permitted Transferee has, sold, transferred or otherwise disposed of or, following such breach, sells, transfers or otherwise disposes of, any Exercised Shares, for each Exercised Share so sold, transferred or disposed of, the Optionee hereby agrees to pay to the Company, in cash, upon demand, an amount equal to the difference between the Exercise Price per share of the Exercised Shares and the value per share received by the Optionee, or the Permitted Transferee, pursuant to such sale of the Exercised Shares. 13. WITHHOLDING REQUIREMENTS. (a) PAYMENT BY OPTIONEE. Upon exercise of the Option by the Optionee (or, if applicable, the transfer, in whole or in part of any shares acquired upon the exercise of the Option, the operation of any law or regulation providing for the imputation of interest related to the Option, or the lapsing of any restriction with respect to any shares acquired upon exercise of the Option) which exercise (or other event) gives rise to taxable income and subjects the Company to a tax withholding obligation, the Company shall have the right to require the Optionee to remit to the Company cash in an amount sufficient to satisfy applicable federal, state, foreign and local tax withholding requirements or the Company may, but will not be required to, withhold such amounts from payroll or any other amounts payable to the Optionee. The Company shall inform the Optionee as to whether it will require the Optionee to remit cash for withholding taxes in accordance with the preceding sentence within two (2) business days after receiving from the Optionee notice that such Optionee intends to exercise, or has exercised, all or a portion of the Option. (b) PAYMENT IN COMMON STOCK. Subject to approval by the Company, the Optionee may elect to have the minimum tax withholding obligation satisfied, in whole or in part, by (i) authorizing the Company to withhold from shares of Common Stock to be issued a number of shares of Common Stock with an aggregate Fair Market Value (as of the date the withholding is effected) that would satisfy the withholding amount due or (ii) transferring to the Company shares of Common Stock owned by the Optionee with an aggregate Fair Market Value Firepond Confidential And Proprietary 4 (as of the date the withholding is effected) that would satisfy the withholding amount due. The Fair Market Value of any shares of Common Stock withheld or tendered to satisfy any such tax withholding obligation shall not exceed the amount determined by the applicable minimum statutory withholding rates. 14. STOCK PLAN. This Option is subject to all of the terms and conditions set forth in the Plan; provided, that, notwithstanding anything in this Option Agreement to the contrary, to the extent of any conflict between the terms of the Plan and this Option Agreement, the terms of the Plan shall control. By acceptance hereof, Optionee acknowledges receipt of a copy of the Plan and agrees to and accepts this Option subject to the terms of the Plan. A copy of the Plan is on file with the Chief Financial Officer of the Company. 15. NO DISTRIBUTION; COMPLIANCE WITH LEGAL REQUIREMENTS. The grant of this Option and the issuance of shares of Common Stock upon exercise of this Option shall be subject to compliance with all applicable requirements of federal, state and foreign law with respect to such securities. This Option may not be exercised if the issuance of shares of Common Stock upon exercise would constitute a violation of any applicable federal, state or foreign securities laws or other law or regulations or the requirements of any stock exchange or market system upon which the Common Stock may then be listed. Further, no shares of Common Stock shall be issued pursuant to this Option until all applicable securities law and other legal and stock exchange or similar requirements have been satisfied. The Board may require the placing of such stop orders and restrictive legends on certificates for Common Stock received pursuant to this Option, as it deems appropriate. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company's legal counsel to be necessary to the lawful issuance and sale of any shares hereunder shall relieve the Company of any liability in respect of the failure to issue or sell such shares as to which such requisite authority shall not have been obtained. As a condition to the exercise of this Option, the Company may require the Optionee to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect thereto as may be requested by the Company and may require the Optionee to represent to and agree with the Company in writing that such person is acquiring the shares without a view to distribution thereof. 16. LOCK-UP PROVISION. The Optionee agrees, if requested by the Company and any underwriter engaged by the Company, not to offer, sell, contract to sell, pledge, hypothecate, grant any option to purchase or make any short sale of, or otherwise dispose of any securities (including the right to acquire any Common Stock) of the Company (including, without limitation, pursuant to Rule 144 under the Securities Act of 1933, as amended (the "SECURITIES ACT")) held by him or her for such period following the effective date of any registration statement of the Company filed under the Securities Act as the Company or such underwriter shall specify reasonably and in good faith, not to exceed ninety (90) days. Firepond Confidential And Proprietary 5 17. STATUS. Neither the Optionee nor the Optionee's executor, administrator, heirs or legatees shall be or have any rights or privileges of a shareholder of the Company in respect of the shares transferable upon exercise of the Option granted hereunder, unless and until certificates representing such shares shall be endorsed, transferred, and delivered and the transferee has caused the Optionee's name to be entered as the shareholder of record on the books of the Company. 18. COMPANY AUTHORITY. The existence of the Option herein granted shall not affect in any way the right or power of the Company or its shareholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the Company's capital structure or its business, or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred or prior preference stock ahead of or affecting the Common Stock of the Company or the rights thereof, or dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. 19. DISPUTES. As a condition of the granting of the Option herein granted, the Optionee agrees, for the Optionee, any Permitted Transferees and the Optionee's personal representatives, that any interpretation which may arise under or as a result of or pursuant to this Option Agreement shall be determined by the Board, in its sole discretion, and that any interpretation by the Board of the terms of this Option Agreement shall be final, binding and conclusive. 20. EQUITABLE RELIEF. The parties hereto agree and declare that legal remedies may be inadequate to enforce the provisions of this Option Agreement and that equitable relief, including specific performance and injunctive relief, may be used to enforce the provisions of this Option Agreement. 21. BINDING EFFECT. This Option Agreement shall be binding upon the heirs, executors, administrators, successors and assigns of the parties hereto. 22. INTEGRATED AGREEMENT. This Option Agreement and the Plan constitute the entire understanding and agreement between the Optionee and the Company with respect to the subject matter contained herein and supercedes any prior agreements, understandings, restrictions, representations, or warranties among the Optionee and the Company with respect to such subject matter except as provided for herein. To the extent contemplated herein, the provisions of this Option Agreement shall survive any exercise of this Option and shall remain in full force and effect. 23. SAVING CLAUSE. If any provision(s) of this Option Agreement shall be determined to be illegal or unenforceable, such determination shall in no manner affect the legality or enforceability of any other provision hereof. Firepond Confidential And Proprietary 6 24. HEADINGS. The headings used herein are intended only for convenience in finding the subject matter hereof and do not constitute part of the text of this Option Agreement and shall not be considered in the interpretation of this Option Agreement. 25. NOTICES. All notices, requests, consents and other communications shall be in writing and be deemed given when delivered personally, by telex or facsimile transmission or two (2) days after deposit in the mail if mailed by first class registered or certified mail, postage prepaid or one (1) business day after deposit with a nationally recognized overnight carrier. Notices to the Company or the Optionee shall be addressed to such address or addresses as may have been furnished by such party in writing to the other. 26. GOVERNING LAW. This Option Agreement is a Massachusetts contract and shall be construed under and be governed in all respects by the laws of the Commonwealth of Massachusetts, without regard to conflict of law principles. Any legal action or suit related to this Agreement shall be brought exclusively in the courts of Massachusetts. Both parties agree that the courts of Massachusetts are a convenient forum for the resolution of disputes. 27. DEFINITIONS. Capitalized terms used herein and not otherwise defined shall have their respective meanings set forth in the Plan. For purposes of this Option Agreement, the following terms shall be defined as set forth below: "CAUSE" means (i) any material breach by the Optionee of any agreement to which the Optionee and the Company or its Subsidiaries are parties, including breach of covenants not to compete and covenants relating to the protection of confidential information and proprietary rights of the Company or its Subsidiaries which breach is not cured pursuant to the terms of such agreement, (ii) any act (other than retirement) or omission to act by the Optionee which would reasonably be likely to have a material adverse effect on the business of the Company or its Subsidiaries or on the Optionee's ability to perform services for the Company or its Subsidiaries, including, without limitation, the conviction or plea of guilty or nolo contendre to any crime (other than ordinary traffic violations) which impairs the Optionee's ability to perform his or her duties, (iii) any material misconduct or willful and deliberate non-performance of duties by the Optionee in connection with the business or affairs of the Company or its Subsidiaries, (iv) the Optionee's theft, dishonesty, or falsification of the Company's or its Subsidiaries' documents or records, or (v) the Optionee's improper use or disclosure of the Company's or its Subsidiaries' confidential or proprietary information. All references herein to the Company or its Subsidiaries shall include any successor entity thereof. "DISABILITY" means permanent and total disability as determined by the Board. "EARLY RETIREMENT" means retirement, with consent of the Board at the time of retirement, from active employment with the Company and any Subsidiary or Parent Corporation. "EXERCISED SHARES" means all shares of Common Stock purchased by Optionee Firepond Confidential And Proprietary 7 upon exercise of this Option, or any portion thereof. "GOOD REASON" means the occurrence of any of the following events: (i) a substantial adverse change in the nature or scope of the Optionee's responsibilities, authorities, powers, functions or duties; (ii) a reduction in the Optionee's annual base salary except for across-the-board salary reductions similarly affecting all, or substantially all, management employees; or (iii) the relocation of the offices at which the Optionee is principally employed to a location more than fifty (50) miles from such offices. "NORMAL RETIREMENT" means retirement from active employment with the Company and any Subsidiary or Parent Corporation on or after age 65. "RETIREMENT" means Normal Retirement or Early Retirement. "SERVICE RELATIONSHIP" means the Optionee's employment or service with the Company or its Subsidiary, whether in the capacity of an employee, director or a consultant; provided that, if this Option was granted under the 1999 Director Plan, then "Service Relationship" shall mean any relationship as a non-employee director of the Company or any Subsidiary of the Company. Unless otherwise determined by the Company, the Optionee's Service Relationship shall not be deemed to have terminated merely because of a transfer between locations of the Company or its Subsidiaries or a transfer between the Company and any Subsidiary, provided that there is no interruption or other termination of the Service Relationship. Subject to the foregoing, the Company, in its discretion, shall determine whether the Optionee's Service Relationship has terminated and the effective date of such termination. The Company shall have the sole discretion to determine the reason for the termination of the Optionee's Service Relationship. Firepond Confidential And Proprietary 8 IN WITNESS WHEREOF, the Company has caused this Option Agreement to be duly executed by an officer thereunto duly authorized, and the Optionee has hereunto set his or her hand, as of the date(s) set forth below. FIREPOND, INC. By: ----------------------------------- Name: Paul K. McDermott Title: Chief Financial Officer --------------------------------------- Date OPTIONEE --------------------------------------- Optionee Signature --------------------------------------- Date Firepond Confidential And Proprietary 9 APPENDIX A ---------- STOCK OPTION EXERCISE NOTICE Firepond, Inc. 890 Winter Street Waltham, Massachusetts 02451 Attention: Chief Financial Officer Date: _____________ Pursuant to the terms of the Stock Option Agreement granted pursuant to the [INSERT: PLAN] on _______________and entered into by Firepond, Inc. and [INSERT: OPTIONEE], I hereby [Circle One] partially/fully exercise such option by including herein payment in the amount of $__________ representing the purchase price for __________ shares of common stock, all of which have vested in accordance with the Stock Option Agreement. I hereby authorize payroll withholding or otherwise will make adequate provision for federal, state, foreign and local tax withholding obligations of the Company, if any, that arise in connection with the option. I acknowledge that the shares are being acquired in accordance with and subject to the terms, provisions and conditions of the Plan and the Stock Option Agreement, copies of which I have received and carefully read and understand, including the provision regarding payment upon the sale of exercised shares set forth therein, to all of which I hereby expressly assent. Sincerely yours, ___________________________________________ Name: [INSERT OPTIONEE'S NAME] Address: _________________________________ _________________________________ Firepond Confidential And Proprietary 10 EX-10.11 8 b41199fiex10-11.txt EX-10.11 RELOCATION AGREEMENT EXHIBIT 10.11 [FIREPOND LETTERHEAD] April 17, 2000 Mr. Joel Radford 5309 Channel Isle Plano, TX 75093 Re: Relocation to Boston Dear Joel: I am pleased to present the following proposal for you and your family to relocate to Boston and change your principal office to our Waltham Headquarters. FirePond will change your terms of employment to provide the following compensation plan as a replacement for earlier compensation plans (except for pre-existing stock option grants which shall continue in effect): - - Annualized Base salary of $140,000 per year; - - Grant of 50,000 stock options at fair market value as of the date of written acceptance, such options to vest equally on the annual anniversary of the grant over four years (25% per year) (each such grant subject to the terms of the 1999 Grant and Stock Option Plan, standard stock option agreement and execution of standard employment agreement regarding inventions, confidentiality and non-competition); - - In the event of a change of control ("Change of Control") meaning: - A sale of all or substantially all of the assets of the Company; - Any merger or consolidation of the Company where the Company is not the surviving entity; or - A sale of outstanding capital stock of the Company subsequent to the date of written acceptance whereby the holders of the Company's voting stock as becomes less than fifty (50%) percent following such sale, excluding any secondary or subsequent offering of the Company's stock to the public; where you are not offered a substantially similar position at substantially similar compensation, then after the closing of any of such events, fifty (50%) percent of your then outstanding unvested options shall become vested as of the date immediately preceding any such transaction closing; - - In the event your employment is terminated without cause FirePond will pay you six months base salary and six months employer's portion of fringe benefits (health and life insurance) premiums, and FirePond will pay the expense associate with moving you back to the vicinity of Plano, Texas on reimbursement terms consistent with the terms of moving you and your family to Boston; and - - Reimbursement of reasonable an actual relocation expenses on terms consistent with the FirePond Executive relocation plan; - - In order to assist with your transition, effective upon relocation, you will receive a salary supplement of $2,500 per month until the end of the black out period for fiscal Q3 (approximately September 10, 2000). The benefits listed above other than the first two bullet points (salary and grant of additional options) are contingent upon relocation by July 15, 2000, otherwise such additional incentives are null and void. Please confirm your acceptance of this proposal by signing the enclosed copy of this letter and returning to Paul McDermott, within two weeks. I look forward to your relocation to Boston! Sincerely, FIREPOND, INC. /s/ Paul Mcdermott - ---------------------------------- Paul K. McDermott Chief Financial Officer Enclosure (Duplicate Counterpart) AGREED AND ACCEPTED: Date: 4/17/00 /s/ Joel Radford - ---------------------------------- Joel Radford EX-10.12 9 b41199fiex10-12.txt EX-10.12 OFFER LETTER-JOEL RADFORD EXHIBIT 10.12 [FIREPOND LETTERHEAD] November 21, 2000 Mr. Joel Radford FirePond 890 Winter Street #300 Waltham, MA 02451 Dear Joel: This letter confirms the parameters of the offer presented to you for your consideration by Klaus Besier, CEO. POSITION Effective November 1, 2000 your position will be that of Vice President - Mergers and Acquisitions. This position will report directly to the CEO and will be a member of the Executive Staff. BASE SALARY Your base salary will be $7500 per semi-monthly pay period. This equates to an annual rate of $180,000. CASH INCENTIVE PROGRAMS For Fy'01, you will participate in the FirePond Global Cash Incentive Plan. Your target bonus is 40% of your annual base pay based on 100% achievement of approved MBO's and is contingent on the company achieving its budgeted FY'01 annual revenue and net income, adjusted for any acquisitions. You should present a list of 4-5 MBO's for consideration to Klaus Besier no later than November 30, 2000. If earned, this bonus payment will be made in December 2001, provided you are employed by the company at the time. There are no pro-ration provisions. For FY'00, should the FirePond Board of Directors approve a cash payment to participants in the Stock Based Incentive Plan, you would be eligible to receive $50,000. STOCK OPTIONS In addition to the cash compensation detailed above, FirePond, upon Board of Director Approval, will issue to you 50,000 Stock Options at the market closing price on November 1, 2000. Such options will be subject to the standard change of control policy. All other prior option agreement remain in force and become a part of this offer. SEVERANCE ALLOWANCE In the event that your employment is terminated by the company for any reason other than for just cause, you will receive six (6) months base salary paid in 12 equal installments less applicable tax withholdings. The company will also pay your COBRA costs during this time period provided that you continue to pay the required employee premium portion. In exchange for this promise of severance, you agree to execute a full and complete release of liability and adhere to the provisions of your Employee Agreement Regarding Inventions, Confidentiality and Non-Competition. OTHER CONDITIONS This letter along with the above mentioned agreement relating to proprietary rights between you and the company and stock option grant agreements, sets forth the terms of your employment with the Company and supersede any prior representations or agreements, whether written or oral. This letter may not be modified or amended except by written agreement signed by you and myself. It is recognized that this offer of employment is not intended to create a contract of employment other than as stated above and both FirePond and you retain the right to terminate the employment relationship at any time without cause. Sincerely, /s/ Michael Dudich - -------------------------------- Michael Dudich Vice President - Human Resources cc: Klaus Besier The undersigned accepts the above employment offer, agrees that it contains the terms of employment with FirePond, and that there are no other terms, expressed or implied. By accepting this offer of employment, the undersigned is acknowledging that no prior employment obligations or other contractual restrictions exist which preclude employment with FirePond. It is further understood that this offer is confidential and disclosure outside of your family or financial, accounting, and/or legal advisers may result in termination of employment or withdrawal of this offer. Accepted: /s/ Joel Radford 11/21/00 - -------------------------------------------------------------------------------- Joel Radford Date EX-10.13 10 b41199fiex10-13.txt EX-10.13 OFFER LETTER-JOHN KEIGHLEY EXHIBIT 10.13 [FIREPOND LETTERHEAD] February 19, 1999 John Keighley Diependaalselaan 317 1215 KG Hilversum The Netherlands Re: FirePond Offer of Employment Dear John: On behalf of FirePond Europe BV, a Netherlands corporation (the "Company"), I am pleased to extend to you an offer of employment on the following terms and conditions: Your title shall be Financial Director of Europe & Asia, based in the Netherlands, and you shall report operationally to Graham Williams, Senior Vice President and Managing Director of Europe & Asia and functionally to Paul McDermott, corporate CFO. Your start date shall be discussed and mutually agreed (the "Commencement Date"). Your fixed base annual salary will be 190,000 DGL including vacation and expense allowances, paid in accordance with the Company's normal monthly payroll practices, plus 10,000 DGL per annum covering international school fees. You shall be entitled to an incentive plan with an annual on-target achievement of 50,000 DGL based on revenue, margin and DSO objectives. The goals will be mutually established and this plan will be formalized within 30 days of employment. You will receive 25 days pro-rated vacation commencing your first year of employment and 25 days per year thereafter. You shall be entitled to 30,000 stock options. Current exercise price is $2.63 per share to be vested in equal annual installments over four years in accordance with the FirePond Incorporated 1997 Stock Plan. As a company employee you are also eligible to receive the Company's standard pension and insurance benefits plus a company car/allowance of 2.000 DGL per month. I have enclosed our Employee Agreement regarding Inventions, Confidentiality, and Non-Competition. If you accept this offer, please return to myself, a signed copy of this agreement prior to your accepted date of employment. This offer of employment is subject to your meeting with Paul McDermott and satisfactory references. Page 2 February 19, 1999 To indicate your acceptance of the Company's offer, please sign and date this letter in the space provided below and return it to myself. A duplicate original is enclosed for your records. This letter, along with the agreement relating to proprietary rights between you and the Company, set forth the terms of your employment with the Company and supersede any prior representations or agreements, whether written or oral. This letter may not be modified or amended except by a written agreement, signed by the Company and by you. We look forward to working with you at FirePond. Yours sincerely, FirePond Europe BV /s/ Graham Williams - ------------------------------------------- Graham Williams Senior Vice President and Managing Director of Europe & Asia ACCEPTED AND AGREED TO THIS 3rd Day of March, 1999 /s/ John Keighley ---------------------------------------- John Keighley Enclosures: Duplicate Original Letter Employee Agreement regarding Inventions, Confidentiality and Non-Competition EX-10.14 11 b41199fiex10-14.txt EX-10.14 AMENDMENT TO OFFER LETTER-JOHN KEIGHLEY EXHIBIT 10.14 John Keighley Diependaalselaan 317 1215 KG Hilversum Naarden, 4th May 2001 Dear John, This is to confirm your compensation package as discussed with Klaus Besier (CEO) and Paul McDermott (CFO) recognizing you as a top performer, key and senior manager: Effective as of your most recent "merit date": - - Base Salary (including Dutch vacation allowance (Function) 350.000. - (45% increase); - - Bonus opportunity 30% of Base Salary; - - Severance in the event of a Change of Control and your job is eliminated (double trigger) equal to 6 months Bases Salary and 10% vesting of stock options; - - Additional stock option grant of 20,000 shares at ($2 - $1.6 - I need to verify the date in March and strike price). We hope this conveys our sincere appreciation of the contribution you make and the workload you carry intentionally. Kind regards, FirePond Europe B.V. Sandra te Riele HR Manager Europe & Asia EX-10.15 12 b41199fiex10-15.txt EX-10.15 OFFER LETTER-CEM TANYEL EXHIBIT 10.15 [FIREPOND LETTERHEAD] January 23, 2001 Mr. Cem Tanyel Senior Vice President - Product Development Brightware 1401 Los Gamos Rd. San Rafael, CA 94903 -- REVISED -- Dear Cem: This offer supercedes and replaces the offer of employment dated January 23, 2001 which is rescinded. Your response is required by Monday, January 29, 2001. THE POSITION Your title shall be Senior Vice President - Product Development. In this role you will be responsible for developing and leading FirePond's Software Development organization in delivering FirePond products and technology direction. This will include building and leading a world class team. You will report directly to Randy Harvey, Executive Vice President - Product Development. Your work location will be San Rafael, CA. CASH COMPENSATION The base salary for the position is $8958.34 per semi-monthly pay period. This equates to an annual rate of $215,000.00. You will also be eligible to participate in a cash incentive program for each fiscal year with a targeted pay-out of 40% of your annualized base salary based on satisfactory execution of stated deliverables and management objectives subject to company performance. For FY'01 your target payout would be $86,000.00, providing a total target annual cash compensation of $301,000.00. In addition to the compensation detailed above, you will also be eligible to receive a supplemental bonus for FY'01 in the amount of $40,000. This bonus will be earned in two (2) $20,000 segments. The first earned for successful delivery of a unified architecture specification, no later than August 30, 2001. The second $20,000 is earned upon successful delivery of the first product release within the SalesPerformer Suite that was initiated under your management and direction. Success parameters for payment for each of these supplemental bonuses will be set forth by Randy Harvey. Earned bonuses amounts are paid within 60 days of the end of the fiscal year in which they are earned. However the supplemental bonuses will be paid within 60 days of being achieved. You must be actively employed at that time in order to receive a payment. There are no pro-ration provisions. STOCK OPTIONS In addition to the cash compensation detailed above, you will receive a stock option grant allowing you to purchase 250,000 shares of FirePond Common Stock. The exercise price shall be the closing price of the stock as stated in the Wall Street Journal on the closing date of the acquisition of Brightware. The stock option grant shall vest as follows: IMMEDIATE - 50,000 options. However, if you voluntarily terminate your employment prior to February 1, 2002, any monies received from the exercise of these options must be repaid to the company on a pro-rata basis to time in position. AUGUST 1, 2002 - 50,000 options. QUARTERLY THEREAFTER - 100,000 options shall vest at the rate of 10,000 options per quarter on the last day of each fiscal quarter starting August 1, 2002, until full vesting occurs. FEBRUARY 1, 2005 OR EARLIER UPON THE OFFICIAL DATE OF INTRODUCTION OF THE NEXT GENERATION OF THE FIREPOND SALESPERFORMER SUITE - 50,000 options. All options granted will be subject to the Brightware Acquisition Stock Plan and the standard option agreement and subject to the execution of the enclosed non-disclosure, non-compete agreement. Your stock option agreement will include provisions for accelerated vesting in the event of a change in control. As provided in the agreement, your options shall be 100% vested if (i) as a result of the change of control your employment is terminated by the acquiring entity within twelve months following the change of control or (ii) as a result of the change of control, your responsibilities are materially changed within twelve months following the change of control, provided that you remain with the acquiring entity for at least six months following the change of control. The six month transition may be waived by the company at their sole discretion. In addition, during the period October 31, 2001 through December 31, 2992, should Klaus Besier or Randy Harvey voluntarily terminate their employment with FirePond, your duties are diminished without your consent, or your location of employment is moved more than ten miles without mutual agreement, you may at your option terminate your employment and receive the severance provisions contained within this letter. Please refer to and adhere to the FirePond policies on insider trading before engaging in any sales, regardless of how the options or stock may have been acquired. SEVERANCE ALLOWANCE In the event that your employment is terminated by the company for any reason other than for Cause, and in exchange for a full and complete mutual release of liability, you will receive a severance payment of $150,000 paid in 12 semi-monthly installments of $12,500 less applicable tax withholdings. The company will also pay your COBRA costs during this time period provided that you continue to pay the required employee premium portion. A termination for "Cause" shall mean a termination for any of the following reasons: (i) your failure to perform a substantial and material portion of the duties of your position after receipt of a written warning, which failure to perform is not cured within thirty (30) days after such written warning; (ii) engaging in gross misconduct; (iii) being convicted of a crime, other than a traffic offense; (iv) committing an act of fraud against, or the misappropriation of property belonging to FirePond or its affiliates; or (v) material breach of this agreement or any confidentiality, non-competition or proprietary information agreement between you and FirePond. FirePond will provide written notice of the reason for termination in the case of any termination for "Cause." BENEFIT PROGRAMS As a FirePond employee you will be eligible to participate in the Company's 401K, medical, dental, disability, and life insurance benefit programs. In addition you will participate in the Personal Time Off (PTO) System. Your PTO allowance will be set at the 7+ year level. Summaries of these plans have been included for your review. FAMILY TRAVEL ALLOWANCE In addition to the standard company benefits, you will also receive a family travel allowance of up to $7500 each fiscal year. This can be used to cover the cost for family members to accompany you, or for you to travel on personal business in conjunction with a business trip. Any personal income tax liability associated with reimbursements is your sole responsibility. CONDITIONS Also enclosed is a copy of FirePond's Employee Agreement Regarding Inventions, Confidentiality and Non-competition. This offer letter is subject to the terms of this agreement and conditional upon your execution of this agreement. This offer letter id further conditioned your being able to supply proof of your eligibility to work in the United States (Form 1-9). To indicate your acceptance of this offer, please sign and date this letter in the space provided and return this letter to me along with a fully executed copy of the Employee Agreement Regarding Inventions, Confidentiality and Non-competition. A duplicate original is enclosed for your records. This letter, the above mentioned agreement relating to proprietary rights between you and the company, stock option agreements, benefit plan documents and all current FirePond policies and procedures, set forth the terms of your employment with the Company and supersede any prior representations or agreements, whether written or oral. This letter may not be modified or amended except by written agreement signed by you and myself or FirePond's CEO. FirePond reserves the right to withdraw this offer of employment if not accepted by you in writing by 8:30 AM Pacific Standard Time on Monday, January 29, 2001, if any representations by you cannot be verified, or in the event the sale of Brightware to FirePond does not close. A faxed copy of your signed acceptance to (781) 487-8418 will be deemed acceptable followed within 24 hours by the original signed documents. It is recognized that this offer of employment is not intended to create a contract of employment and both FirePond and you retain the right to terminate the employment relationship at any time without cause. Cem, we look forward to you joining FirePond! An aggressive and focused team, the ability to create industry leading software, and a dedication to client satisfaction, have all played a significant part in FirePond's past. We are confident that you will play an important role in our future success. Sincerely, /s/ Michael Dudich - -------------------------------- Michael Dudich Vice President - Human Resources CC: Klaus Besier, CEO; Randy Harvey, Executive Vice President - Product Development The undersigned accepts the above employment offer, agrees that this letter along with the associated employee agreements, benefit plan documents, and policies and procedures, contains the terms of employment with FirePond, and that there are no other terms, express or implied. By accepting this offer of employment, the undersigned is acknowledging that no prior employment obligations or other contractual restrictions exist which preclude employment with FirePond. It is further understood that this offer is confidential and disclosure outside of your family or financial, accounting, and/or legal advisers may result in termination of your employment or withdrawal of this offer. Accepted: /s/ Cem Tanyel January 28, 2001 - -------------------------------------------------------------------------------- Cem Tanyel Date EX-10.17 13 b41199fiex10-17.txt EX-10.17 AMENDMENT TO LEASE OF 890 WINTER STREET EXHIBIT 10.17 FIRST AMENDMENT TO LEASE THIS FIRST AMENDMENT TO LEASE (the "Amendment") is entered into as of the 18th day of OCTOBER, 2001 by and between Waltham Winter Street 890 LLC, a Delaware limited liability company ("Landlord"), and Firepond, Inc., a DELAWARE corporation ("Tenant"). This Amendment amends that certain Lease dated March 25, 1999, between 890 Winter Street, L.L.C., predecessor in interest to Landlord, and Tenant, pursuant to which Tenant currently leases approximately 29,534 square feet of space on the third floor (the "Premises") of the building known as 890 Winter Street, Waltham, Massachusetts (the "Building"). Landlord is the successor in interest to all right, title and interest of 890 Winter Street, L.L.C., as landlord, in and to the Lease. Capitalized terms not defined herein shall have the meaning ascribed to them in the Lease. For good and valuable consideration, the receipt and sufficiency of which are acknowledged by the parties, Landlord and Tenant hereby amended the Lease as follows: 1. REDUCTION OF PREMISES. Effective on December 1, 2001 (the "Change Date"), the portion of the Premises more particularly shown on the floor plan for the third floor of the Building attached hereto as EXHIBIT A ("Third Floor Plan") consisting of approximately 22,554 square feet (the "Relinquished Space") shall be released and no longer included in the Premises, and Tenant's obligations under the Lease with respect to the Relinquished Space shall be terminated as of the Change Date, except for those obligations which by their terms survive the termination of the Lease, except that Tenant shall continue to pay all Basic Rent and Additional Rent for the Relinquished Space through and including February 28, 2002. Tenant shall surrender the Relinquished Space to Landlord on the Change Date in its current condition as of the date hereof, reasonable wear and tear excepted, except that the Relinquished Space shall not contain any furniture or other personal property of Tenant. From and after the Change Date, that remaining portion of the Premises on the third floor of the Building consisting of approximately 6,980 square feet, more particularly shown on the Third Floor Plan, shall be the sole remaining portion of the Premises (the "Remaining Premises"0. Commencing on March 1, 2002, the annual rate of Basic Rent for the Remaining Premises shall be as follows (based on the same rates per annum previously applicable to the Premises): March 1, 2002 - June 30, 2002 $239,065.00 per annum ($34.25 per square foot) July 1, 2002 - June 30, 2003 $242,555.00 per annum ($34.75 per square foot) July 1, 2003 - December 31, 2004 $246,045.00 per annum ($35.25 per square foot) From and after the Change Date Tenant shall continue to pay all Additional Rent (including, without limitation, Additional Rent payable for Taxes as set forth in Article 8 and for Operating Expenses as set forth in Article 9 of the Lease) attributable to the Remaining Premises upon the same terms and conditions set forth in the Lease, and Tenant's Proportionate Share for the Remaining Premises shall be calculated as set forth in the Lease. 2. DEMISING WALLS. Landlord shall, at its sole cost and expense, construct a demising wall at the boundary between Relinquished Space and the Remaining Premises. Tenant shall provide Landlord with reasonable access to the Premises prior to the Change Date to permit Landlord to perform such work. Landlord shall use commercially reasonable efforts to complete the construction of the demising wall prior to the Change Date, but in no event shall any delay in such completion -1- operate to delay the Change Date. Tenant shall be solely responsible for any costs related to changes to its voice, data, security and related systems. 3. TERMINATION FEE. In consideration of Landlord's agreement to the release of the Relinquished Space from the Premises, Tenant shall pay to Landlord contemporaneously with Tenant's execution and delivery of this Amendment a termination fee in the amount of One Hundred Thousand Dollars ($100,000.00). 4. PARKING. From and after the Change Date the number of reserved parking spaces in the basement of the Building that Tenant is entitled to use (pursuant to Section 2.2(c) of the Lease) shall be reduced to four (4) reserved parking spaces. In addition, from and after the Change Date the aggregate number of parking spaces that Tenant shall have the right to use pursuant to Section 2.2(c) of the Lease, including four (4) spaces set forth in the previous sentence, shall be reduced based on the parking space allocation ratio set forth in Section 2.2(c) of the Lease (3.3 parking spaces per 1,000 square feet of Rentable Building Area) and the square footage of the Remaining Premises. 5. SECURITY DEPOSIT. Tenant shall have the right to submit updated financial information to Landlord and request a reduction in the amount of the Security Deposit to be effective March 1, 2002 and to reduce the required Security Deposit amounts for succeeding periods set forth in the table regarding the Security Deposit in Section 1.2 of the Lease. Landlord shall use good faith and commercially reasonable judgment in reviewing such financial information and such request, but Landlord shall be under no obligation to reduce said Security Deposit amounts. 6. BROKERS. Tenant and Landlord represent and warrant to each other that they have dealt with no brokers in connection with this Amendment other than Trammell Crow Company and Spaulding and Slye (together, the "Brokers") and agree to defend, with counsel approved by the other, indemnify and save the other harmless from and against any and all cost, expense or liability arising out of a breach of the foregoing representation and warranty. Landlord shall be responsible for payment of any commissions of the Brokers. Except as amended hereby, the Lease is hereby ratified and confirmed and shall remain in full force and effect. The provisions of this Amendment shall be binding upon and inure to the benefit of the parties and their respective successors and assigns. (Remainder of Page Intentionally Left Blank) IN WITNESS WHEREOF, this Amendment has been executed as a sealed instrument as of the day and year first written above. LANDLORD: WALTHAM WINTER STREET 890 LLC By: Waltham Winter Street LLC, its member By: Clarion Partners, LLC, its member By: /s/ Douglas J. Bower ------------------------------ Name: Douglas J. Bower Title: Authorized Signatory TENANT: FIREPOND, INC. By: /s/ Paul McDermott 10-18-01 -------------------------------------- Name: Paul McDermott Title: CFO Exhibit A THIRD FLOOR PLAN (See Attached) EX-10.18 14 b41199fiex10-18.txt EX-10.18 LEASE OF 1401 LOS GAMOS EXHIBIT 10.18 OFFICE BUILDING LEASE 1. PARTIES. This Lease, dated, for reference purposes only, JANUARY 6, 2000 is made by and between RICHARD AND DENISE BERGMANN (herein called "lessor") and BRIGHTWARE, INC., A DELAWARE CORPORATION (herein called "Lessee"). 2. PREMISES. Lessor does hereby lease to Lessee and Lessee hereby leases from Lessor that certain office building (herein called "Premises") indicated on Exhibit "A" attached hereto and by reference made a part hereof, said Premises being agreed, for the purpose of this Lease, to have an area of approximately 30,488 RENTABLE SQUARE FEET and being situated at that certain Building known as 1401 LOS GAMOS, SAN RAFAEL. The entire building at 1401 Los Gamos shall be known as THE PREMISES. Said Lease is subject to the terms, covenants and conditions herein set forth and the Lessee covenants as a material part of the consideration for this Lease to keep and perform each and all of said terms, covenants and conditions by it to be kept and performed and that this Lease is made upon the condition of said performance. 3. TERM. The term of this Lease shall be for 120 months commencing on SEPTEMBER 1, 2000 and ending AUGUST 31, 2010. 4. POSSESSION. a. If the Lessor, for any reason whatsoever, cannot deliver possession of the said Premises to the Lessee at the commencement of the term hereof, this Lease shall not be void or voidable, nor shall Lessor be liable to Lessee for any loss or damage resulting therefrom, and the expiration date of the above term shall be correspondingly extended, but in that event, all rent shall be abated during the period between the commencement of said term and the time when Lessor delivers possession. Notwithstanding the above, in the event Lessor is unable to deliver possession of the Premises within ninety (90) days from the commencement date, Lessee shall be granted one (1) day of free rent for every one day of delay in possession starting ninety (90) days from the commencement date, to be granted at the beginning of the term. If Lessor is unable to deliver possession of the premises within one hundred twenty (120) days from Lease Commencement, Lessee may terminate this Lease by giving written notice to Lessor. b. In the event that Lessor shall permit Lessee to occupy the Premises prior to the commencement date of the term, such occupancy shall be subject to all the provisions of this Lease. Said early possession shall not advance the termination date hereinabove provided. 5. HOLDING OVER. Any holding over after the expiration of the said term, with or without the express consent of Lessor, shall be construed as a tenancy from month to month, and shall be on the terms and conditions herein specified, so far as applicable. Such holding over shall not constitute an extension of this Lease. During such holding over, Lessee shall pay rent at 125% of the amount which would apply had the term been extended pursuant to the terms hereunder, and either party shall provide the other with written notice at least one month in advance of the date of termination of such monthly tenancy of his intention to terminate such tenancy. 6. RENT. Lessee agrees to pay to Lessor as rental, without prior notice or demand, the sum of $70,122.40 in advance, on or before the first day of each and every successive calendar month thereafter during the term hereof, except that the first month's rent shall be paid upon the execution hereof. Rent for any period during the term hereof which is for less than one (1) month shall be a prorated portion of the monthly installment herein, based upon a thirty (30) day month. Said rental shall be legal tender at the time of payment at the Office of the Building, or to such other person or at such other place as Lessor may from time to time designate in writing. a. RENT ESCALATIONS as follows: Lease Year Rate Per R.S.F. Monthly Rent ---------- --------------- ------------ Year 1 $2.30 $70,122.40 Year 2 $2.37 $72,256.56 Year 3 $2.44 $74,390.72 Year 4 $2.51 $76,524.88 Year 5 $2.59 $78,963.92 Year 6 $2.67 $81,402.96 Year 7 $2.75 $83,842.00 Year 8 $2.83 $86,281.04 Year 9 $2.91 $88,720.08 Year 10 $3.00 $91,464.00 7. SECURITY DEPOSIT. Lessee has deposited with Lessor the sum of $140,244.00. Said sum shall be held by Lessor as security for the faithful performance by Lessee of all the terms, covenants, and conditions of this Lease to be kept and performed by Lessee during the term hereof. If Lessee defaults with respect to any provision of this Lease, including, but not limited to the payment of rent, Lessor may (but shall not be required to) use, apply or retain all or any part of this security deposit for the payment of any rent or any other sum in default, or for the payment of any amount which Lessor may spend or become obligated to spend by reason of Lessee" default, to compensate Lessor for any other loss or damage which Lessor may suffer by reason of Lessee" default. If any portion of said deposit is so used or applied, Lessee shall within five (5) days after written demand therefor, deposit cash with Lessor in an amount sufficient to restore the security deposit to its original amount and Lessee" failure to do so shall be a material breach of this Lease. Lessor shall not be required to keep this security deposit separate from its general funds, and Lessee shall not be entitled to interest on such deposit. If Lessee shall fully and faithfully perform every provision of this Lease to be performed by it, the security deposit or any balance thereof shall be returned to Lessee (or, at Lessee's initial public offering, Lessor will refund Seventy thousand One Hundred Twenty-two and 00/100 dollars ($70,122.00), (one-half (1/2)( of the security deposit). Page 1 of 8 8. OPERATING EXPENSE ADJUSTMENTS. For the purpose of this Article, the following terms are defined as follows: Base Year: The calendar year 2001. Comparison Year: Each calendar year of the term after the Base Year. Direct Expenses: All direct costs of operation and maintenance, as determined by standard accounting practices, and shall include the following costs by way of illustration, but not be limited to: real property taxes and assessments; insurance premiums; janitorial services; labor; costs incurred in the management of the Building, if any; air-conditioning and heating; elevator maintenance; supplies; materials; equipment; and tools; including maintenance, costs, and upkeep of all parking and common areas. Notwithstanding the above, management fees shall not exceed five percent (5%) of the gross rents. ("Direct Expenses" shall not include depreciation on the Building of which the Premises are a part or equipment therein, loan payments, executive salaries or real estate brokers' commissions.) If the Direct Expenses paid or incurred by the Lessor for the Comparison Year on account of the operation or maintenance of the Building of which the Premises are a part are in excess of the Direct Expenses paid or incurred for the Base Year, then the Lessee shall pay (100%) of the increase. Lessor shall endeavor to give to Lessee on or before the first day of March of each year following the respective Comparison Year a statement of the increase in rent payable by Lessee hereunder, but failure by Lessor to give such statement by said date shall not constitute a waiver by Lessor of its rights to require an increase in rent. Upon receipt of the statement of the first Comparison Year, Lessee shall pay in full the total amount of increases due for the first Comparison Year, and in addition for the then current year, the amount of any such increase shall be used as an estimate for said current year and this amount shall be divided into twelve (12) equal monthly installments and Lessee shall pay to Lessor, concurrently with the regular monthly rent payment next due following the receipt of such statement, an amount equal to one (1) monthly installment multiplied by the number of months from January in the calendar year in which said statement is submitted to the month of such payment, both months inclusive. Subsequent installments shall be payable concurrently with the regular monthly rent payments for the balance of that calendar year and shall continue until the next Comparison Year's statement is rendered. If the next or any succeeding Comparison Year results in a greater increase in Direct Expenses, then upon receipt of a statement from Lessor, Lessee shall pay a lump sum equal to such total increase in Direct Expenses over the Base Year, less the total of the monthly installments to be paid for the next year, following said Comparison Year, shall be adjusted to reflect such increase. If in any Comparison Year the Lessee's share of Direct Expenses be less than the preceding year, then upon receipt of Lessor's statement, any overpayment made by Lessee on the monthly installment basis provided above shall be credited towards the next monthly rent falling due and the estimated monthly installments of Direct Expenses to be paid shall be adjusted to reflect such lower Direct Expenses for the most recent Comparison Year. Even though the term has expired and Lessee has vacated the Premises, when the final determination is made of Lessee's share of Direct Expenses for the year in which this Lease terminates, Lessee shall immediately pay any increase due over the estimated expenses paid and conversely any overpayment made in the event said expenses decrease shall be immediately rebated by Lessor to Lessee. Notwithstanding anything contained in this Article, the rental payable by Lessee shall in no event be less than the rent specified in Article 6 herinabove. 9. USE. Lessee shall use the Premises for general office purposes and shall not use or permit the Premises to be used for any other purpose without the prior written consent of Lessor. Lessee shall not do or permit anything to be done in or about the Premises nor bring or keep anything therein which will in any way increase the existing rate of or affect any fire or other insurance upon the Building or any of its contents, or cause cancellation of any insurance policy covering said Building or any part thereof or any of its contents. Lessee shall not allow the Premises to be used for any improper, immoral, unlawful or objectionable purpose, nor shall Lessee cause, maintain or permit any nuisance in, on or about the Premises. Lessee shall not commit or suffer to be committed any waste in or upon the Premises. 10. COMPLIANCE WITH LAW. Lessee shall not use the Premises or permit anything to be done in or about the Premises which will in any way conflict with any law, statute, ordinance or governmental rule or regulation now in force or which may hereafter be enacted or promulgated. Lessee shall, at its sole cost and expense, promptly comply with all laws, statutes, ordinances and governmental rules, regulations or similar bodies now or hereafter constituted, relating to, or affecting the condition, use or occupancy of the Premises, excluding structural changes not related to or affected by Lessee's improvements or acts. The judgment of any court of competent jurisdiction or the admission of Lessee in any action against Lessee in any action against Lessee, whether Lessor be a party thereto or not, that Lessee has violated any law, statute, ordinance or governmental rule, regulation or requirement, shall be conclusive of that fact as between the Lessor and Lessee. 11. ALERATIONS AND ADDITIONS. Lessee shall not make or suffer to be made any alterations, additions or improvements to or of the Premises or any part thereof without the written consent of Lessor first had and obtained and any alterations, additions or improvements to or if said Premises, including, but not limited to, wall covering, paneling and built-in cabinet work, but expecting movable furniture and trade fixtures, shall on the expiration of the term become a part of the realty and belong to the Lessor and shall be surrendered with the Premises. In the event Lessor consents to the making of any alterations, additions or improvements to the Premises by Lessee, the same shall be made by Lessee at Lessee's sole cost and expense; and any contractor or person selected by Lessee to make the same must first be approved of in writing by the Lessor. Upon the expiration or sooner termination of the term hereof, Lessee shall, upon written demand by Lessor, given at least thirty (30) days prior to the end of the term, at Lessee's sole cost and expense, forthwith and with all due diligence remove any alterations, additions or improvements, and Lessee shall, forthwith and with all due diligence at its sole cost and expense, repair any damage to the Premises caused by such removal. 12. REPAIRS. a. LESSEE OBLIGATIONS. By taking possession of the Premises, Lessee shall be deemed to have accepted the Premises as being in good, sanitary order, condition and repair. Lessee shall upon the expiration or sooner termination of this Lease hereof surrender the Premises to the Lessor in good condition, ordinary wear and tear and damage from causes beyond the reasonable control of Lessee expected. Except as specifically provided in this Lease, Lessor shall have no obligation whatsoever to alter, remodel, improve, repair, decorate or paint the Premises or any part thereof and the parties hereto affirm that Lessor has made no representations to Lessee respecting the condition of the Premises or the Building except as specifically herein set forth. Page 2 of 8 b. LESSOR OBLIGATIONS: Notwithstanding the provisions of Article 12.a. hereinabove, Lessor shall repair and maintain the structural portions of the Building, including the basic plumbing, air conditioning, heating, and electrical systems, installed or furnished by Lessor, unless such maintenance and repairs are caused in part or in whole by the act, neglect, fault or omission of any duty by the Lessee, its agents, servants, employees or invitees, in which case Lessee shall pay to Lessor the reasonable cost of such maintenance and repairs. Lessor shall not be liable for any failure to make any such repairs or to perform any maintenance unless such failure shall persist for an unreasonable time after written notice of the need of such repairs or maintenance is given to Lessor by Lessee. Except as provided in Article 23 hereof, there shall be no abatement of rent and no liability of Lessor by reason of any injury to or interference with Lessee's business arising from the making of any repairs, alterations or improvements in or to any portion of the Building or the Premises or in or to fixtures, appurtenances and equipment therein. Lessee waives the right to make repairs at Lessor's expense under any law, statute or ordinance now or hereafter in effect. Notwithstanding the above, in the event such maintenance and repairs are caused in part by the act, neglect, fault or omissions of any duty by the Lessee, Lessee shall be responsible for that portion attributed to Tenant's acts, neglect, fault or omissions as reasonably determined by Lessor's licensed contractor. 13. LIENS. Lessee shall keep the Premises and the property in which the Premises are situated free from any liens arising out of any work performed, materials furnished or obligations incurred by Lessee. Lessor may require, at Lessor's sole option, that Lessee shall provide to Lessor, at Lessee's sole cost and expense, a lien and completion bond in an amount equal to one and one-half (1 1/2) times any and all estimated cost of any improvements, additions, or alterations in the Premises, to insure Lessor against any liability for mechanics' and materialmen's liens and to insure completion of the work. 14. ASSIGNMENT AND SUBLETTING. Lessee shall not either voluntarily or by operation of law assign, transfer, mortgage, pledge, hypothecate or encumber this Lease or any interest therein, and shall not sublet the said Premises or any part thereof, or any right or privilege appurtenant thereto, or suffer any other person (the employees, agents, servants and invitees of Lessee excepted) to occupy or use the said Premises, or any portion thereof, without the written consent of Lessor first had and obtained, which consent shall not be unreasonably withheld, and a consent to one assignment, subletting, occupation or use by another person shall not be deemed to be a consent to any subsequent assignment, subletting, occupation or use by another person. Any such assignment or subletting without such consent shall be void, and shall, at the option of the Lessor, constitute a default under this Lease. 15. HOLD HARMLESS. Lessee shall indemnify and hold harmless Lessor against and from any and all claims arising from Lessee's use of Premises for the conduct of its business or from any activity, work, or other thing done, permitted or suffered by the Lessee in or about the Building, and shall further indemnify and hold harmless Lessor against and from any and all claims arising from any breach or default in the performance of any obligation on Lessee's part to be performed under the terms of this Lease, or arising from any act or negligence of the Lessee, or any officer, agent, employee, guest or invitee of Lessee, and from all and against all cost, reasonable attorney's fees, expenses and liabilities incurred in or about any such claim or any action or proceeding brought thereon, and, in any case, should action or proceeding be brought against Lessor by reason of any such claim, Lessee upon notice from Lessor shall defend the same at Lessee's expense by counsel reasonably satisfactory to Lessor. Lessee as a material part of the consideration to Lessor hereby assumes all risk of damage to property or injury to persons, in, upon or about the Premises, from any cause other than negligence by Lessor, Lessor's agents or employees, and Lessee hereby waives all claims in respect thereof against Lessor. Lessor or its agents shall not be liable for any damage to property entrusted to employees of the Building, nor for loss or damage to any property by theft or otherwise, nor for any injury to or damage to persons or property resulting from fire, explosion, falling plaster, steam, gas, electricity, water or rain which may leak from any part of the Building or from the pipes, appliances or plumbing works therein or from the roof, street or subsurface or from any other place resulting from dampness or any other cause whatsoever, unless caused by or due to the negligence of Lessor, its agents, servants or employees. Lessor or its agents shall not be liable for interference with the light or other incorporeal hereditament, loss of business by Lessee. Lessee shall give prompt notice to Lessor in case of fire or accidents in the Premises or in the Building or of defects therein or in the fixtures or equipment. 16. SUBROGATION. As long as their respective insurers so permit, Lessor and Lessee hereby mutually waive their respective rights of recovery against each other for any loss insured by fire, extended coverage and other property insurance policies existing for the benefit of the respective parties. Each party shall obtain any special endorsements, if required by their insurer to evidence compliance with the aforementioned waiver. 17. LIABILITY INSURANCE. Lessee shall, at Lessee's expense, obtain and keep in force during the term of this Lease a policy of Combined Single Limit Bodily Injury and Property Damage Insurance insuring Lessor and Lessee against any liability arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be in an amount not less than $1,000,000 per occurrence. The limit of said insurance shall not, however, limit the liability of the Lessee hereunder. Lessee may carry said insurance under a blanket policy, providing, however, said insurance by Lessee shall have a Lessor's protective liability endorsement attached thereto. If Lessee shall fail to procure and maintain said insurance, Lessor may but shall not be required to, procure and maintain same, but at the expense of Lessee. Insurance required hereunder, shall be in companies rated A+9 or better in "Best's Insurance Guide". 18. EVIDENCE OF INSURANCE. Lessee shall deliver to Lessor prior to occupancy of the Premises copies of policies of liability insurance required herein or certificates evidencing the existence and amounts of such insurance with loss payable clauses satisfactory to Lessor. No policy shall be cancelable or subject to reduction of coverage except after ten (10) days' prior written notice to Lessor. 19. SERVICES AND UTILITIES. Provided that Lessee is not in default hereunder, Lessor agrees to furnish five (5) days per week of Janitorial Service to the Premises. Lessor shall also maintain and keep lighted the common stairs, common entries and toilet rooms in the Building of which the Premises are a part. Lessor shall not be liable for, and Lessee shall not be entitled to, any reduction of rental by reason of Lessor's failure to furnish any of the foregoing when such failure is caused by accident, breakage, repairs, strikes, lockouts or other labor disturbances or labor disputes of any character, or by any other cause, similar or dissimilar, beyond the reasonable control of Lessor. Except where caused by negligence of Lessor, Lessor shall not be liable under any circumstances for a loss of or injury to property, however, occurring, through or in connection with or incidental to failure to furnish any of the foregoing. Whenever heat generating machines or equipment are used in the Premises which affect the temperature otherwise maintained by the air conditioning system, after written notice to Lessee, Lessor reserves the right to install supplementary air conditioning units in the Premises and the reasonable cost thereof, including the reasonable cost of installation, and the reasonable cost of operation and maintenance thereof shall be paid by Lessee to Lessor upon demand by Lessor. LESSEE SHALL BE RESPONSIBLE TO PAY FOR ALL UTILITIES PROVIDED TO THE PREMISES INCLUDING ELECTRICITY, GAS, WATER, AND SEWER CHARGES. Page 3 of 8 20. PROPERTY TAXES. Lessee shall pay, or cause to be paid, before delinquency, any and all taxes levied or assessed and which become payable during the term hereof upon all Lessee's leasehold improvements, equipment, furniture, fixtures and personal property located in the Premises; except that which has been paid for by Lessor, and is the standard of the Building. In the event any or all of the Lessee's leasehold improvements except for Lessee's initial improvements, equipment, furniture, fixtures and personal property shall be assessed and taxed with the Building, Lessee shall pay to Lessor its share of such taxes within ten (10) days after delivery to Lessee by Lessor of a statement in writing setting forth the amount of such taxes applicable to Lessee's property. 21. RULES AND REGULATIONS. Lessee shall faithfully observe and comply with the rules and regulations that Lessor shall from time to time promulgate. Lessor reserves the right from time to time to make all reasonable modifications to said rules. The additions and modifications to those rules shall be binding upon Lessee upon delivery of a copy of them to Lessee. 22. ENTRY BY LESSOR. Lessor or it's authorized agents reserves and shall at any and all times have the right to enter the Premises, inspect the same, supply janitorial service and any other service to be provided by Lessor to Lessee hereunder, to submit said Premises to inspection by prospective purchasers or, in the case of prospective Lessees, only during the last nine (9) months of the lease, to post notices of non-responsibility, and to alter, improve or repair the Premises and any portion of the Building of which the Premises are a part that Lessor may deem necessary or desirable, without abatement of rent and may for that purpose erect scaffolding and other necessary structures where reasonably required by the character of the work to be performed, always providing that the entrance to the Premises shall not be blocked thereby, and further providing that the business of the Lessee shall not be interfered with unreasonably. Lessee hereby waives any claim for damages or for any injury or inconvenience to or interference with Lessee's business, any loss of occupancy or quiet enjoyment of the Premises, and any other loss occasioned thereby. For each of the aforesaid purposes, Lessor and/or its authorized agents shall at all times have and retain a key with which to unlock all of the doors in, upon and about the Premises, excluding Lessee's vaults, safes and files, and Lessor and/or its authorized agents shall have the right to use any and all means which Lessor may deem proper to open said doors in any emergency, in order to obtain entry to the Premises without liability to Lessee except for any failure to exercise due care for Lessee's property. Any entry to the Premises obtained by Lessor and/or its authorized agents by any of said means, or otherwise, shall not under any circumstances be construed or deemed to be a forcible entry into, or a detainer of, the Premises, or an eviction of Lessee from the Premises or any portion thereof. Notwithstanding the above, Lessor shall notify Lessee twenty-four (24) hours prior to any entry of the Premises by Lessor, excepting in cases of emergency. 23. RECONSTRUCTION. In the event the Premises or the Building of which the Premises are a part are damaged by fire or other perils covered by extended coverage insurance, Lessor agrees to forthwith repair the same; and this Lease shall remain in full force and effect, except that Lessee shall be entitled to a proportionate reduction of the rent while such repairs are being made, such proportionate reduction to be based upon the extent to which the making of such repairs shall materially interfere with the business carried on by the Lessee in the Premises. If the damage is due to the intentional misconduct of Lessee or its employees, there shall be no abatement of rent. Notwithstanding anything to the contrary above, in the event Landlord is unable to collect under its "Loss of Rent" insurance provision, there shall be no abatement of Lessee's rent. In the event the Premises or the Building of which the Premises are a part are damaged as a result of any cause other than the perils covered by fire and extended coverage insurance, then Lessor shall forthwith repair the same, provided the extent of the destruction be less than ten (10%) percent of the then full replacement cost of the Premises or the Building of which the Premises are a part. In the event the destruction of the Premises or the Building is to an extent greater than ten (10%) percent of the full replacement cost, then Lessor shall have the option; (1) to repair or restore such damage, this Lease continuing in full force and effect, but the rent to be proportionately reduced as hereinabove in this Article provided; or (2) give notice to Lessee at any time within sixty (60) days after such damage terminating this Lease as of the date specified in such notice, which date shall be no less than thirty (30) and no more than sixty (60) days after the giving of such notice. In the event of giving such notice, this Lease shall expire and all interest of the Lessee in the Premises shall terminate on the date so specified in such notice and the Rent, reduced by a proportionate amount, based upon the extent, if any, to which such damage materially interfered with the business carried on by the Lessee in the Premises, shall be paid up to the time of such termination. Notwithstanding anything to the contrary contained in this Article, Lessor shall not have any obligation whatsoever to repair, reconstruct or restore the Premises when the damage resulting from any casualty covered under this Article occurs during the last twelve (12) months of the term of this Lease or any extension thereof. Lessor shall not be required to repair any injury or damage by fire or other cause, or to make any repairs or replacements of any panels, decoration, office fixtures, railings, floor covering, partitions, or any other property installed in the Premises by Lessee. The Lessee shall not be entitled to any compensation or damages from Lessor for loss of the use of the whole or any part of the premises. Lessee's personal property or any inconvenience or annoyance occasioned by such damage, repair, reconstruction or restoration. Notwithstanding the above, in the event of damage to the Premises or the Building, which cannot be repaired within three hundred sixty-five (365) days from the date of such damage, Lessee may terminate this Lease with thirty (30) days written notice. 24. DEFAULT. The occurrence of any one or more of the following events shall constitute a default and breach of this Lease by Lessee. a. The vacating or abandonment of the Premises by Lessee. b. The failure by Lessee to make any payment of rent or any other payment required to be made by Lessee hereunder, as and when due, where such failure shall continue for a period of three (3) days after written notice thereof by Lessor to Lessee. c. The failure by Lessee to observe or perform any of the covenants, conditions or provisions of this Lease to be observed or performed by the Lessee, other than described in Article 24.b. above, where such failure shall continue for a period of thirty (30) days after written notice thereof by Lessor to Lessee; provided, however, that if the nature of Lessee's default is such that more than thirty (30) days are reasonably required for its cure, then Lessee shall not be deemed to be in default if Lessee commences such cure within said thirty (30) day period and thereafter diligently prosecutes such cure to completion. d. The making by Lessee of any general assignment or general arrangement for the benefit of creditors; or the filing by or against Lessee of a petition to have Lessee adjudged as bankrupt, or a petition or reorganization or arrangement under any law relating to bankruptcy (unless, in the case of a petition filed against Lessee, the same is dismissed within sixty (60) days; or the appointment of a trustee or a receiver to take possession of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where possession is not restored to Lessee within thirty (30) days; or the attachment, execution or other judicial seizure of substantially all of Lessee's assets located at the Premises or of Lessee's interests in this Lease, where such seizure is not discharged in thirty (30) days. Page 4 of 8 25. REMEDIES IN DEFAULT. In the event of any such material default or breach by Lessee, Lessor may at any time thereafter, with or without notice or demand and without limiting Lessor in the exercise of a right or remedy which Lessor may have by reason of such default or breach: a. Terminate Lessee's right to possession of the Premises by any lawful means, in which case this Lease shall terminate and Lessee shall immediately surrender possession of the premises to Lessor. In such event Lessor shall be entitled to recover from Lessee all damages incurred by necessary renovation and alteration of the Premises, reasonable attorney's fees, any real estate commission actually paid; the worth at the time of award by the court having jurisdiction thereof of the amount by which the unpaid rent for the balance of the term after the time of such award exceeds the amount of such rental loss for the same period that Lessee proves could be reasonably avoided; that portion of the leasing commission paid by Lessor and applicable to the unexpired term of this Lease. Unpaid installments of rent or other sums shall bear interest from the date due at the rate of ten (10%) percent per annum. In the event Lessee shall have abandoned the Premises, Lessor shall have the option of (a) taking possession of the Premises and recovering from Lessee the amount specified in this paragraph, or (b) proceeding under the provisions of the following Article 25.b. b. Maintain Lessee's right to possession, in which case this Lease shall continue in effect whether or not Lessee shall have abandoned the Premises. In such event Lessor shall be entitled to enforce all of Lessor's right and remedies under this Lease, including the right to recover the rent as it becomes due hereunder, subject, however, to Lessor's obligation at law to mitigate damages. c. Pursue any other remedy now or hereafter available to Lessor under the laws or judicial decision of the State in which the Premises are located. 26. EMINENT DOMAIN. If more than twenty-five (25%) percent of the Premises shall be taken or appropriated by any public or quasi-public authority under the power of eminent domain, either party hereto shall have the right, at its option, to terminate this Lease, and Lessor shall be entitled to any and all income, rent, award, or any interest therein whatsoever which may be paid or made in connection with such public or quasi-public use or purpose, and Lessee shall have no claim against Lessor for the value of any unexpired term of this Lease. However, Lessee shall have the right to separately pursue a claim against such public or quasi-public entity for its costs of relocation and personal property. If either less than or more than twenty-five (25%) percent of the Premises is taken, and neither party elects to terminate as herein provided, the rental thereafter to be paid shall be equitably reduced. If any part of the Building other than the Premises may be so taken or appropriated, Lessor shall have the right at its option to terminate this Lease and shall be entitled to the entire award as above provided. 27. OFFSET STATEMENT. Lessee shall at any time and from time to time upon not less than ten (10) days prior written notice from Lessor execute, acknowledge and deliver to Lessor a statement in writing, (a) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease as so modified, is in full force and effect), and the date to which the rental and other charges are paid in advance, if any, and (b) acknowledge that there are not, to Lessee's knowledge, any incurred defaults on the part of the Lessor hereunder, or specifying such defaults if any are claimed. Any such statement may be relied upon by any prospective purchaser or encumbrance of all or any portion of the real property of which the Premises are a part. 28. PARKING. Lessee shall have the exclusive right to use the parking facilities of the Building at no additional cost during the term of this Lease or any extension thereto. 29. AUTHORITY OF PARTIES. a. Corporate Authority. If Lessee is a corporation, each individual executing this Lease on behalf of said corporation represents and warrants that he is duly authorized to execute and deliver this Lease on behalf of said corporation, in accordance with a duly adopted resolution of the board of directors of said corporation or in accordance with the by-laws of said corporation, and that this Lease is binding upon said corporation in accordance with its terms. Lessee shall deliver to Lessor a Corporate Resolution with a Corporate Seal authorizing this Lease by January 27, 2000. 30. GENERAL PROVISIONS. a. Plats and Riders. Clauses, plats and riders, if any, signed by the Lessor and the Lessee and endorsed on or affixed to this Lease are a part hereof. b. Waiver. The waiver by Lessor of any term, covenant or condition herein contained shall not be deemed to be a waiver of such term, covenant or condition on any subsequent breach of the same or any other term, covenant or condition herein contained. The subsequent acceptance of rent hereunder by Lessor shall not be deemed to be a waiver of any preceding breach by Lessee of any term, covenant or condition of this Lease, other than the failure of the Lessee to pay the particular rental so accepted, regardless of Lessor's knowledge of such preceding breach at the time of the acceptance of such rent. c. Notices. All notices and demands, which may or are to be required or permitted to be given by either party to the other hereunder, shall be in writing. All notices and demands by the Lessor to the Lessee shall be sent by United States Mail, postage prepaid, addressed to the lessee at the Premises, or to such other places as Lessee may from time to time designate in a notice to the Lessor. All notices and demands by the Lessee to the lessor shall be sent by United States Mail, postage prepaid, addressed to the Lessor at the Office of the Building, or to such other person or place as the Lessor may from time to time designate in a notice to the Lessee. d. Joint Obligation. If there be more than one Lessee the obligations hereunder imposed upon Lessees shall be joint and several. e. Marginal Headings. The marginal headings and Article titles to the Articles of this Lease are not a part of this Lease and shall have no effect upon the construction or interpretation of any part hereof. f. Time. Time is of the essence of this Lease and each and all of its provisions in which performance is a factor. g. Successors and Assigns. The covenants and conditions herein contained, subject to the provisions as to assignment, apply to and bind the heirs, successors, executors, administrators and assigns of the parties hereto. h. Recordation. Neither Lessor nor Lessee shall record this Lease or a short form memorandum hereof without the prior written consent of the other party. i. Quiet Possession. Upon lessee paying the rent reserved hereunder and observing and performing all of the covenants, conditions and provisions on Lessee's part to be observed and performed hereunder, Lessee shall have quiet possession of the Premises for the entire term hereof, subject to all the provisions of this Lease. Page 5 of 8 j. Late Charges. Lessee hereby acknowledges that late payment by Lessee to Lessor or rent or other sums due hereunder will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges, which may be imposed upon Lessor by terms of any mortgage or trust deed covering the Premises. Accordingly, if any installment of rent or a sum due from Lessee shall not be received by Lessor or Lessor's designee within ten (10) days after said amount is due, then Lessee shall pay to Lessor a late charge equal to ten (10%) percent of such overdue amount. The parties hereby agree that such late charges represent a fair and reasonable estimate of the cost that Lessor will incur by reason of the late payment by Lessee. Acceptance of such late charges by the Lessor shall in no event constitute a waiver of Lessee's default with respect to such overdue amount, nor prevent Lessor from exercising any of the other rights and remedies granted hereunder. k. Guaranty. As material condition of this Lease and for valuable consideration, Lessee's performance of the conditions embodied in this Lease is hereby guaranteed by the undersigned. l. Prior Agreements. This Lease contains all of the agreements of the parties hereto with respect to any matter covered or mentioned in this Lease, and no prior agreements or understanding pertaining to any such matters shall be effective for any purpose. No provision of this lease may be amended or added to except by an agreement in writing signed by the parties hereto or their respective successors in interest. This Lease shall not be effective or binding on any party until fully executed by both parties hereto. m. Inability to Perform. This Leas and the obligations of the Lessee hereunder shall not be affected or impaired because the Lessor is unable to fulfill any of its obligations hereunder or is delayed in doing so, if such inability or delay is caused by reason or strike, labor troubles, acts of God, or any other cause beyond the reasonable control of the Lessor. n. Attorneys' Fees. In the event of any action or proceeding brought by either party against the other under this Lease the prevailing party shall be entitled to recover all costs and expenses including the fees or its attorneys in such action or proceeding in such amount as the court may adjudge reasonable as attorneys' fees. o. Sale of Premises by Lessor. In the event of any sale of the Building, Lessor shall be and is hereby entirely freed and relieved of all liability under any and all of its covenants and obligations contained in or derived from this Lease arising out of any act, occurrence or omission occurring after the consummation of such sale; and the purchaser, at such sale or any subsequent sale of the Premises shall be deemed, without any further agreement between the parties or their successors in interest or between the parties and any such purchaser to have assumed and agreed to carry out any and all of the covenants and obligations of the Lessor under this lease. p. Subordination, Attornment. Upon request of the Lessor, Lessee will in writing subordinate its rights hereunder to the lien of any first mortgage, or first deed of trust to any bank, insurance company or other lending institution, now or hereafter in force against the land and Building of which the Premises are a part, and upon any buildings hereafter placed upon the land of which the Premises are a part, and to all advances made or hereafter to be made upon the security thereof. In the event any proceedings are brought for foreclosure, or in the event of the exercise of power of sale under any mortgage or deed of trust made by the Lessor covering the Premises, the lessee shall attorn to the purchaser upon any such foreclosure or sale and recognize such purchaser as the Lessor under this Lease. q. Name. Lessee shall not use the name of the Building or of the development in which the Building is situated for any purpose other than as an address of the business to be conducted by the Lessee in the Premises. r. Separability. Any provision of this Lease which shall prove to be invalid, void or illegal shall in no way effect, impair or invalidate any other provision hereof and such other provision shall remain in full force and effect. s. Cumulative Remedies. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity. t. Choice of Law. This Lease shall be governed by the laws of the State of California. u. Signs and Auctions. Lessee shall not place any sign upon the Premises or Building or conduct any auction thereon without Lessor's prior written consent. 31. BROKERS. Lessee warrants that it has had no dealings with any real estate broker or agents in connection with the negotiation of this Lease excepting only ORION PARTNERS LTD. AND SCHUBERT INVESTMENTS and it knows of no other real estate broker or agents in connection with this Lease. 32. OPTION TO EXTEND. a. General. Lessee has two (2) options to extend the term on all the provisions contained in this lease, except for rent, for a FIVE (5)-year period each (the "Extended Term") following expiration of the initial term by giving notice of exercise of the option ("Option Notice") to Lessor at least nine months and not earlier than twelve (12) months before the expiration of the initial or the first Extended Term; provided that, if Lessee is in default as of the date of giving the option notice, the option notice shall be ineffective, or if Lessee is in default as of the date the extended term is to commence, the extended term shall not commence and this lease shall expire at the end of the initial term. b. Rent. The rent for the extended terms shall be the fair market rental value of the Premises as of the date of commencement of the extended term, which fair market rental value shall in no event be less than the rent in effect during the last year of the previous term and shall be determined in accordance with paragraph c, below. c. Determination of Fair Market Rent. i. The parties shall endeavor by good faith negotiations to agree upon the fair market rental within thirty (30) days after Landlord's receipt of the Option Notice. ii. In the event the Lessor or Lessee cannot agree on the rent within thirty (30) days after Landlord's receipt of the Option Notice, then within 15 days thereafter each party, at its own cost and by giving notice to the other party, shall appoint a real estate broker within at least five (5) years' full time commercial leasing experience in the Marin County Area, to appraise and determine the fair market rental value of the Premises ("fair market rent"). If, in the time provided, only one party shall notice appointment of a broker, the single broker appointed shall determine the fair market rent. If two brokers are appointed by the parties, the two brokers shall independently, and without consultation between them, prepare an appraisal of the fair market rent within 15 days. Each broker shall seal its respective appraisal after completion. After both appraisals are completed, the resulting estimates of the fair market rent shall be opened and compared. If the value of the appraisals differ by no more than ten (10%) of the value of the higher appraisal, then the fair market rent shall be the average of the two appraisals. Page 6 of 8 iii. If the values of the appraisals differ by more than ten percent (10%) of the value of the higher appraisal, the two brokers shall designate a third broker meeting the qualifications set forth in subparagraph 32.3.ii, above. If the two brokers have not agreed on a third broker after ten (10) days, either Lessor or Tenant, by giving ten (10) days' notice to the other party, may apply to the then Presiding Judge of the Superior Court for the country in which the building is located for the selection of a third broker who meets the qualifications set forth in subparagraph 32.c.ii (ii) above. The third broker, however selected, shall be a person who has not previously acted in any capacity for either party. The third broker shall make an appraisal of the fair market rent within ten (10) days after selection and without consultation with the first two brokers. If, however, the low appraisal and/or the high appraisal are/is more than 15% lower and/or higher than the middle appraisal, the low appraisal and/or the high appraisal shall be disregarded. If one appraisal is disregarded, the remaining two appraisals shall be added together and their total divided by two, and the resulting quotient shall be the fair market rent. If both the low appraisal and the high appraisal are disregarded as provided in this subparagraph, the middle appraisal shall be the fair market rent. d. Delay. If the determination of the rent is delayed beyond the commencement of the extended term, Lessee shall pay rent based on the average of the appraisals received under subparagraphs c (i) and (ii), above, as of the extended term commencement until the first day of the month following the determination of the rent. On the first day of the month following the determination of the rent, there shall be an adjustment made to the rent payment then due for the difference between the amount of rent Lessee has paid to Lessor since the extended term commencement and the amount that Lessee would have paid if the rent as adjusted pursuant to this subparagraph had been in effect as of the extended term commencement. e. Costs. Each party shall pay the fees and expenses of their own broker, and 50% of the fees and expenses of the third broker. f. Criteria. The brokers shall determine the fair market rent using the "market comparison approach" with the relevant market being that for first class office space in the immediate area where the Building is located. The brokers shall use their best efforts to fairly and reasonably appraise and determine the fair market rental value of the Premises in accordance with the terms of the lease, and shall not act as advocates for either Lessor Tenant. g. No Further Extension. Lessee shall have no further option to extend the term of this Lease. Signed on JANUARY 18, 2000 ------------------------- at SAN RAFAEL, CALIF. -------------------------------- By: /s/ Richard Bergman ----------------------------------- Richard Bergman Its: LESSOR ----------------------------------- By: /s/ Denis Bergman ----------------------------------- Denis Bergman Its: LESSOR ----------------------------------- [LESSOR] Signed on 1/25/00 at [ILLEGIBLE], CALIF. -------------------------------- By: /s/ Christopher Erickson ----------------------------------- Christopher Erickson Its: CEO ----------------------------------- By: ----------------------------------- Its: ----------------------------------- [LESSEE] Page 7 of 8 RULES AND REGULATIONS 1. No sign, placard, picture, advertisement, name or notice shall be inscribed, displayed or printed or affixed on or to any part of the outside or inside of the Building without the written consent of Lessor first had and obtained and Lessor shall have the right to remove any such sign, placard, picture, advertisement, name or notice without notice to and at the expense of Lessee. All approved signs or lettering on doors shall be printed, painted, affixed or inscribed at the expense of Lessee by a person approved of by Lessor. Lessee shall not place anything or allow anything to be placed near the glass of any window, door, partition or wall which may appear unsightly from outside the Premises; provided, however, that Lessor may furnish and install a Building standard window covering at all exterior windows. Lessee shall not without prior written consent of Lessor cause or otherwise sunscreen any window. 2. The sidewalks, halls, passages, exits, entrances, elevators and stairways shall not be obstructed by any of the Lessees or used by them for any purpose other than for ingress and egress from their respective Premises. 3. Lessee shall not alter any lock or install any new or additional locks or any bolts on any doors or windows of the Premises. 4. The toilet rooms, urinals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed and no foreign substance of any kind whatsoever shall be thrown therein and the expense of any breakage, stoppage, or damage resulting from the violation of this rule shall be borne by the Lessee who, or whose employees or invitees shall have caused it. 5. Lessee shall not overload the floor of the Premises or in any way deface the Premises or any part thereof. 6. Lessor shall have the right to prescribe the weight, size and position of all safes and other heavy equipment brought into the Building and also the times and manner of moving the same in and out of the Building. Safes or other heavy objects shall, if considered necessary by Lessor, stand on supports of such thickness as is necessary to properly distribute the weight. lessor will not be responsible for loss of or damage to any such safe or property from any cause and all damage done to the Building by moving or maintaining any such safe or other property shall be repaired at the expense of the Lessee. 7. Lessee shall not use, keep or permit to be used or kept any foul or noxious gas or substance in the Premises, or permit or suffer the Premises to be occupied or used in a manner offensive or objectionable to the Lessor or other occupants of the Building by reason of noise, odors, electromagnetic radiation, and/or vibrations, or interfere in any way with other Lessees or those having business therein, nor shall any animals, excepting registered service animals, or birds be brought in or kept in or about the Premises or the Building. 8. No cooking appliances shall be used or permitted by any Lessee on the Premises, excepting only coffee makers and microwave ovens, nor shall the Premises be used for the storage of merchandise, for washing clothes, for lodging, or for any improper, objectionable or immoral purpose. 9. Lessee shall not use or keep in the Premises of the Building any kerosene, gasoline, or inflammable or combustible fluid or material, or use any method of heating or air conditioning other than that supplied by Lessor. 10. Lessor will direct electricians as to where and how telephone and telegraph wires are to be introduced. No boring or cutting for wires will be allowed without the consent of the Lessor. The location of telephones, call boxes and other office equipment affixed to the premises shall be subject to the approval of Lessor. 11. The Lessor shall in no case be liable for damages for any error with regard to the admission to or exclusion from the Building of any person. In case of invasion, mob, riot, public excitement, or other commotion, the Lessor reserves the right to prevent access to the Building during the continuance of the same by closing of the doors or otherwise, for the safety of the Lessees and protection of property in the Building and the Building. 12. Lessor reserves the right to exclude or expel from the Building any person who, in the judgment of Lessor, is intoxicated or under the influence of liquor or drugs, or who shall in any manner do any act in violation of any of the rules and regulations of the Building. 13. No vending machine or machines of any description shall be installed, maintained or operated upon the Premises other than for the use by Lessee's employees, without the written consent of the Lessor. 14. Lessor shall have the right, exercisable without notice and without liability to Lessee, to change the name and street address of the Building of which the Premises are a part. 15. All entrance doors in the Premises shall be left locked when the Premises are not in use, and all doors opening to public corridors shall be kept closed except for normal ingress and egress from the Premises. Page 8 of 8 ADDENDUM 1 To Lease by and Between Richard M. and Denise Bergmann ("LESSOR") and Brightware, Inc. ("LESSEE") for 1401 Los Gamos Road, San Rafael, California - -------------------------------------------------------------------------------- 1. SIGNAGE. Lessee shall be allowed top of building illuminated exterior signage facing Interstate 101, at no additional rent, subject to all required governmental approvals. Cost of exterior signage shall be at Lessee's sole expense. 2. RENTAL CONCESSION. The first (1st) month of the Lease Term shall be rent-free excepting utilities which shall be paid by the Lessee. 3. TENANT IMPROVEMENTS. Lessor will provide a Tenant Improvement allowance of $6.00 per square foot ($182,928). At Lessor's Option Landlord will provide an additional improvement allowance not to exceed $9.00 per square foot. The Tenant Improvement allowance ("Additional Improvements") shall not include any costs of procuring or installing in the Premises any trade fixtures, equipment, furniture, furnishings, telephone equipment, wiring or cabling or other personal property to be used in the Premises by Lessee. Lessor shall provide fifty percent (50%) of the allowance upon 50% completion of the work and fifty percent (50%) upon completion of the work in accordance with the approved plan, and all required governmental approvals including certificate of occupancy and monthly, amortized at ten percent (10%) over the term of the initial lease (ten years). All improvements to be completed by Lessee with Lessor's prior approval of plans and contractor. See Construction Rules, Exhibit A attached. Lessee shall provide a letter of credit in the amount of the additional improvements, which shall decline annually by one-tenth of the amount per year. 4. WARRANT. A warrant will be granted to Richard and Denise Bergmann for 22,000 shares of common stock of Brightware, Inc., at $1.75 per share. The Warrants shall be exercised for a period of two (2) years from the date of the fully executed Lease for the Premises. 5. BUILDING HOURS/ACCESS. Lessee shall have access and use of the Premises twenty-four (24) hours per day, three hundred sixty-five (365) days per year. 6. SATELLITE DISH. Lessee shall have the right at Lessee's cost to install a satellite dish on the roof, at no additional rent, in a location mutually acceptable to both Lessee and Lessor. Installation shall be in a professional manner. Lessee shall obtain any governmental approvals required for the installation of such dish. Lessee shall pay for any repairs required from installation or removal of the satellite dish. 7. NON-DISTURBANCE. Lessor shall provide a non-disturbance agreement for Lessee's lease hold interest in the property in a form acceptable to Lessor's lender. Lessee shall pay for any reasonable costs associated with Lessor providing the non-disturbance agreement. LESSOR: RICHARD M. AND DENISE BERGMANN /s/ Richard Bergmann Date: 1/18/2000 - ------------------------------- ------------- Richard Bergmann /s/ Denise Bergmann Date: 1/27/2000 - ------------------------------- ------------- Denise Bergmann LESSEE: BRIGHTWARE INC., A DELAWARE CORPORATION /s/ Christopher Erickson Date: 1/25/00 - ------------------------------- ------------- By: Its:CEO Date: - ------------------------------- ------------- By: Its: EXHIBIT A Construction Rules These Construction Rules are attached and made a part of that certain 1401 Los Gamos Lease dated January 6, 2000 by and between Richard and Denise Bergman as ("Lessor") and BRIGHTWARE, INC. as ("Lessee"). 1. WORK. Under the Lease, Lessee has agreed to accept the Premises "AS IS", without any obligation for the performance of-improvements or other work by Lessor and Lessee desires to perform certain improvements within the Premises ("Lessee's Work"). All of Lessee's Work shall be in accordance with the provisions of these Construction Rules, and to the extent not expressly inconsistent herewith, in accordance with the provisions of the' Lease. Lessee shall also comply and shall cause its contractors to comply with the Building's construction rules and. regulations attached hereto. 2. COST OF LESSEE'S WORK. Except as provided in the Lease, Lessee shall pay all costs associated with Lessee's Work, including without limitation, all permits, inspection fees, fees of space planners, architects, engineers, and contractors, fees for utility connections, the cost of all labor and materials, bonds, insurance, and any structural or mechanical work, additional HVAC equipment or relocation of any existing sprinkler heads, either within or outside the Premises required as a result of the layout design, or construction of Lessee's Work. 3. IMPROVEMENT ALLOWANCE. The Lessee Improvement Allowance of $182,928.00 ($6.00 per square foot) and additional improvements of up to $274,392.00 ($9.00 per square foot) shall be funded by Lessor in two installments. The first installment may be requested after Lessee! s Work is at least 50% completed and Lessee may request up to 50% of the Lessee Improvement Allowance, and/or Additional Improvement allowance at such time. The Second installment of the Lessee Improvement Allowance, and/or Additional Improvement allowance shall be funded after Lessee's Work has been completed in accordance with the "Final Plans" approved by Lessor in writing in accordance with the provisions hereof, and Lessee has submitted all invoices, lien waivers, affidavits Of payments, and such other evidence as Lessor may reasonably require to evidence that the cost of Lessee's Work has been paid for and that no mechanic's, materialmen's or other such liens have been or may be filed against the Property or the Premises arising out of the design or performance of Lessee's Work. Lessor agrees- to disburse each installment of the Lessee Improvement Allowance, and/or Additional Improvement allowance due to Lessee hereunder within thirty (30) days following the date all required backup material has be submitted as referenced herein. 4. CHANGE ORDERS. No changes, modifications, alterations, or additions to the approved Space Plan or Lessee's Working Drawings may be made without the prior written consent of the Lessor after written r request therefor by Lessee, which consent shall not be unreasonably withheld or delayed. In the event that the Premises are not constructed substantially in accordance with the Final Plans, then Lessee must promptly perform the work necessary for the Premises to reasonably comply in all respects with the Final Plans; in such case, the Rent shall nevertheless accrue and be payable as otherwise provided in the Lease. In no event may Lessee occupy any portion of the Premises unless all necessary governmental approvals have been obtained such that the Premises may be used and occupied for business purposes. Page 1 of 3 5. COMPLIANCE. Lessee's Work shall comply in all respects with the following: (a) the Bu . Code of the City of San Rafael, State and County laws, codes, ordinances, and regulations, as each may apply according to the! rulings of the controlling public official, agent or other such person, (b) applicable standards of the National Board of Fire Underwriters and National Electrical Code, and (c) building material manufacturer's specifications. 6. GUARANTEES. Each contractor, subcontractor and supplier participating in Lessee's Work shall guarantee that the portion thereof for which he is responsible shall. be free from any defects in Lessee's Workmanship and materials for a period of not less than one (1) year from the date of completion thereof. Every such contractor, subcontractor, and supplier shall be responsible for the replacement or repair, without additional charge, of all Lessee's Work done or furnished in accordance with its contract which shall become defective within one (1) year after completion thereof' The correction of such Lessee's Work shall include, without additional charge, all additional expenses and damages in connection with such removal or replacement of all or any part of Lessee's Work, and/or the Property and/or common areas, or Lessee's Work which may be damaged or disturbed thereby. All such warranties or guarantees shall inure to the benefit of both Lessor and Lessee, as their respective interest may appear, and can be directly enforced by either. Lessee covenants to give Lessor any assignment or other assurances necessary to effect such right of direct enforcement. Copies of all contracts and subcontracts shall be furnished to Lessor promptly after the same are entered. 7. PERFORMANCE. a. Lessee's Work shall be performed in a thoroughly safe, first-class and workmanlike manner in conformity with the Final Plans, and shall be in good and usable condition at the date of completion. b. Lessee shall be required to obtain and pay for all necessary permits and/or fees with respect to Lessee's Work, and the same shall be shown to Lessor prior to commencement of Lessee's Work, if requested. c. Lessor's acceptance of Lessee's Work as being complete in accordance with the Final Plans shall be subject to Lessor's inspection and written approval, with such approval not unreasonably withheld or delayed. d. Lessee shall, at its cost mid expense, obtain any governmentally required certificate of occupancy. e. Copies of "as built" drawings shall be provided to Lessor no later than thirty (30) days after completion of Lessee's Work. f Lessor's approvals of Lessee's plans and specifications, and Lessor's recommendations or approvals concerning contractors, subcontractors,. space. planners, engineers, or architects, shall not be deemed a warranty as to the quality or adequacy of Lessee's Work, or the design thereof, or its compliance with Laws, codes and other legal requirements. g. Lessor shall not be responsible for any disturbance or deficiency created in the air conditioning or other mechanical, electrical or structural facilities within the Property or Premises as a result of Lessee's Work. If such disturbances or deficiencies result from Lessee's Work, Lessee shall correct the same and restore the services to Lessor's reasonable satisfaction within a reasonable time. Page 2 of 3 8. REPAIR OF DAMAGE; INDEMNITY. Lessee shall be responsible to repair and restore at its sole cost and expense, any damage to any portions of the Building or the Property arising out of the conduct of Lessee's Work, including, without limitation, any damage caused by Lessee's agents, employees or contractors. Lessee shall indemnify and hold harmless Lessor (and Lessor's principals, partners, agents, trustees, beneficiaries, officers, employees and affiliates) from and against any claims, demands, losses, damages, injuries, liabilities, expenses, judgements, liens, encumbrances, orders, and awards, together with attorney's fees and litigation expenses arising out of or in connection with Lessee's Work, or Lessee's failure to comply with the provisions hereof, or any failure by Lessee's contractors, subcontractors or their employees to comply with the provisions hereof, except to the extent caused by Lessor, Lessor's agents or employees intentional or negligent acts. LESSOR: RICHARD M. AND DENISE BERGMANN /s/ Richard Bergmann Date: 1/28/2000 - -------------------------------------------- --------------------- Richard M. Bergmann /s/ Denise Bergmann Date: 1/27/2000 - -------------------------------------------- --------------------- Denise Bergmann LESSEE: BRIGHTWARE INC., A DELAWARE CORPORATION /s/ Christopher Erickson Date: 1/25/00 - ------------------------------------ --------------------- By: Its: CEO Date: - -------------------------------------------- ---------------------- By: Its: Page 3 of 3 ARBITRATION ADDENDUM To Agreement dated JANUARY 6, 2000, between RICHARD M. and DENISE BERGMANN ("LESSOR") and BRIGHTWARE, INC. ("LESSEE") concerning property commonly known as 1401 Los GAMOS ROAD, SAN RAFAEL, CALIFORNIA This Addendum supersedes any provisions regarding arbitration contained in the above reference Agreement. ARBITATION OF DISPUTES. Any dispute or claim in law or equity arising out of this contract will be decided by neutral binding arbitration in accordance with the California Arbitration Act, (C.C.P. ss. 1280 et seq.), and not by court action except as provided by California law for judicial review of arbitration proceedings. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction. The parties will have the right to discovery in accordance with Code of Civil Procedures ss. 1283.05. The parties agree that the following procedure will govern the making of the award by the arbitrator: (a) A Tentative Award will be made by the arbitrator within 30 days following submission of the matter to the arbitrator. (b) The Tentative Award will explain the factual and legal basis for the arbitrators decision as to each of the principal controverted issues. (c) The Tentative Award will be in writing unless the parties agree otherwise; provided, however, that if the hearing is concluded within one (1) day, the Tentative Award may be made orally at the hearing in the presence of the parties. (d) Within ten (10) days after the Tentative Award has been served or announced, any party may serve objections to the Tentative Award. Upon objections being timely served, the arbitrator may call for additional evidence, oral or written argument, or both. If no objections are filed, the Tentative Award will become final without further action by the parties or arbitrator. (e) Within thirty (30) days after the filing of objections, the arbitrator will either make the Tentative Award final or modify or correct the Tentative Award, which will then become final as modified or corrected. The provisions of C.C.P. ss. 128.5 authorizing the imposition of sanctions as a result of bad faith or tactics will apply to the arbitration proceedings. A prevailing p arty will also be entitled to an action for malicious prosecution if the elements of such cause of action are met. The following matters are excluded from arbitration: (a) a judicial or non-judicial foreclosure or other action or proceeding to enforce a deed of trust, mortgage, or real property sales contract as defined in Civil Code ss. 2985; (b) an unlawful detainer action; (c) the filing or enforcement of a mechanic's lien; (d) any matter which is within the jurisdiction of a probate court, or small claims court; or (e) an action for bodily injury or wrongful death, or for latent or patent defects to which Code of Civil Procedure ss. 337.1 or ss. 337.16 applies. The filing of a judicial action to enable the recording of a notice of pending action, for order of attachment, receivership, injunction, or other provisional remedies, will not constitute a waiver of the right to arbitrage under this provision. NOTICE: BY SIGNING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION OF DISPUTES" PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVICED BY CALIFORNIA LAW AND YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN COURT OR JURY TRIAL. BY SIGNING IN THE SPACE BELOW YOU ARE GIVING UP YOUR JUDICIAL RIGHTS TO DISCOVERY OR JURY TRIAL. BY SIGNING IN THE SPACE BELOW YOU ARE GIVING UP YOUR JUDICIAL RIGHTS TO DISCOVERY OR APPEAL, UNLESS THOSE RIGHTS ARE SPECIFICALLY INCLUDED IN THE "ARBITRATION OF DISPUTES" PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY. WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION OF DISPUTES" PROVISION TO NEUTRAL ARBITRATION. /s/ Richard Bergmann Date: 1/18/2000 - --------------------------------- ---------------- Richard Bergmann /s/ Christopher Erickson Date: 1/25/2000 - --------------------------------- ---------------- Christopher Erickson /s/ Denise Bergmann Date: 1/27/2000 - --------------------------------- ---------------- Denise Bergmann Caution: The copyright laws of the United States forbid the unauthorized reproduction of this form by any means including scanning or computerized formats. [ORION LOGO] DISCLOSURE ADDENDUM FOR PROPOSALS To LEASE AND LEASE AGREEMENTS PREMISES: 1401 LOS GAMOS ROAD, SAN RAFAEL, CALIFORNIA AGENCY: The following real estate brokers and brokerage relationships exist in this transaction and are consented to by the parties: ORION PARTNERS LTD. (check the box that applies) [X] represents the Lessor exclusively; [ ]represents the Lessee exclusively; [ ]represents both Lessor and Lessee in the capacity of a dual agent. SHUBERT INVESTMENTS (check the box that applies)[ ]represents the Lessor exclusively; [ ]represents the Lessee exclusively. THE AMERICANS WITH DISABILITIES ACT: Lessors and Lessee of real property may be subject to the requirements of the Americans with Disabilities Act ("ADA"). Among other things, this act is intended to make many business establishments equally accessible to persons with a variety of disabilities. Under US Law, remodeling and other modifications to real property may be required. State and local laws may also mandate changes. Orion Partners Ltd., Schubert Investments and its agents are not qualified to advise you as to what, if any, changes may be required to the Premises or building, mow or in the future, and the costs associated therewith. Lessors and Lessees should consult legal counsel and design professionals of their choice for information regarding these matters. Lessee is responsible for conducting its own independent investigation of these issues. HAZARDOUS MATERIALS. Various materials utilized in the construction of improvements to property may contain materials that have been or may in the future be determined to be toxic, hazardous, or undesirable. These materials may need to be specially handled or removed from the property. For example, some electrical transformers and other electrical components can contain PCBS. Asbestos has been used in a wide variety of building components such as fireproofing, air duct insulation, acoustical tiles, spray-on acoustical materials, linoleum, floor tiles, and plaster. Due to current or prior uses, the property or improvements may contain materials such as metals, minerals, chemicals, hydrocarbons, biological or radioactive materials, and other substances which are considered, or in the future may be determined to be, toxic wastes, hazardous materials, or undesirable substances. Such substances may be in aboveground and below-ground containers on the property or may be present on or in soils, water, building components, or other portions of the property in areas that may not be accessible or noticeable. Current and future federal, state, and local laws and regulations may require the clean-up of such toxic, hazardous, or undesirable: materials at the expense of those persons who in the post, present, or future have had any interest in property including, but not limited to, current past and future owners and users of the property. The parties are advised to consult with independent legal counsel of their choice to determine the potential liability with respect to toxic, hazardous, or undesirable materials. The parties should also consult with such legal counsel to determine what provisions regarding toxic, hazardous, or undesirable materials they may wish to include in purchase and sale agreements, leases, options, and other legal documentation related to transactions they contemplate entering into with respect to the property. The real estate salespersons and brokers in this transaction have no expertise with respect to toxic wastes, hazardous materials, or undesirable substances. Proper inspections of the property by qualified experts are an absolute necessity to determine whether or not there are any current or potential toxic wastes, hazardous materials, or undesirable substances in or on the property. The real estate salespersons and brokers in this transaction have not made, nor will make, any representations, either expressed or implied, regarding the existence or nonexistence of toxic wastes, hazardous materials, or undesirable substances in or on the property. Problems involving toxic wastes, hazardous materials, or undesirable substances can be extremely costly to correct. It is the responsibility of the parties to retain qualified experts to deal with the detection and correction of such matters. The parties are directed to seek further information concerning any and all future correctional measures, if any, from appropriate governmental agencies. Disclosure Addendum 1401 Los Gamos Road San Rafael California Page 2 of 2 To the best of Lessor's knowledge, Lessor has attached to this Disclosure copies of all existing surveys and reports known to Lessor regarding asbestos and other hazardous materials including underground tanks and undesirable substances related to the property. Lessors are required under California Health and Safety Code Section 25915 et seq. To disclose reports and surveys regarding asbestos to certain persons, including their employees, contractors, co-owners, purchasers and tenants. Lessees have similar disclosure obligations. Lessors and Lessees have additional hazardous materials disclosure responsibilities to each other under California Health and Safety Code Section 25359.7 and other California laws. Consult your attorney regarding this matter. FLOOD DISCLOSURE. If the premises is located in a Federally Designated Flood Zone the real and personal property of Lessee situated on or in the Premises is not protected by the hazard insurance policy for the property carried by Lessor. Lessee is responsible for investigating the Flood Zone status of the Premises and obtaining insurance to cover, Lessee's property if it so desires ZONING/USE . Prior to executing a lease, Lessee is responsible for determining that the zoning applicable to the property and Premises allows Lessee to use the property for its intended use of business, and that all building codes, parking requirements, and other governmental requirements, improvements required, and permits necessary have been met or are available to Lessee. Orion Partners Ltd., and Schubert Investments have made no representations, except in writing, if any, concerning die zoning and allowable use of the Premises and any requirements that may be imposed upon Lessee by any governmental agency. If Lessee's use of the Premises requires a Use Permit or other permits from a governmental authority it could take. several months to obtain same, and Lessee may still be responsible for the payment of rent and other charges whether or not such permits are ultimately obtained. MEASUREMENT OF THE PREMISES. Determination of the square footage or size of the Premises is not an exact science. Lessors and Lessees and their respective representatives may use different standards and conventions in measuring the Premises. Lessee is responsible for measuring the Premises and satisfying itself prior to execution of the lease that the size of the premises is acceptable to Lessee for the amount of rent it has bargained for. Orion Partners Ltd. and Schubert Investments do not guarantee the measurements or size represented in its advertising brochures, drawings or marketing flyers. UTILITIES. Prior to execution of a lease, Lessee should satisfy itself that the Premises contains the necessary utility services and capacities necessary for Lessee to operate its business at the Premises. ALQUIST-PRIOLO SPECIAL EARTHQUAKE FAULT ZONING ACT The property and Premises described above (check which box applies) [ ] is; [ ] is not; [ ] may or may not be situated in an Earthquake Fault Zone as designated under the Alquist-Priolo Earthquake Fault Zoning Act, Sections 2621-2630 inclusive, of the California Public Resources Code; and, as such the construction of development on the property of any structure for human occupancy may. be subject to the findings of a geologic report prepared by a geologist registered with the State of California, unless such report. is waived by the city or county under the terms of that Act. No representations on this subject are made by Schubert Investments, or Orion Partners Ltd. or its agents or employees and the Lessee is advised to make its own inquiry into this situation prior to entering into a lease agreement. The undersigned acknowledge that they have read and understand this disclosure and have received a copy. LESSOR LESSEE RICHARD M. AND DENISE BERGMANN BRIGHTWARE, INC. /s/ Richard Bergmann /s/ Christopher Erickson - -------------------------------- -------------------------------- Richard M. Bergmann By: Its: CEO /s/ Denise Bergmann - -------------------------------- -------------------------------- Denise Bergmann By: Its: Date: 1/27/2000 Date: - -------------------------------- -------------------------------- EX-21.1 15 b41199fiex21-1.txt EX-21.1 SUBSIDIARIES Exhibit 21.1 Subsidiaries Name Jurisdiction of Incorporation - ---- ----------------------------- Firepond UK Ltd England Firepond Nordic AB Sweden Firepond Benelux BV Netherlands Firepond Europe BV Netherlands Firepond Deutschland GmbH Germany Firepond France SAS France Firepond Japan KK Japan Firepond Korea Co. Ltd Korea Firepond International Inc Minnesota Firepond of Michigan, Inc. Michigan Brightware, Inc. Delaware EX-23.1 16 b41199fiex23-1.txt EX-23.1 CONSENT OF ARTHUR ANDERSEN LLP CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-K, into the Company's previously filed Registration Statements on Form S-8 File Nos. 333-33932, 333-55926 and 333-71254. /s/ Arthur Andersen LLP Boston, Massachusetts January 25, 2002 10-K405 17 b41199fie10-k405_pdf.pdf FIREPOND, INC. 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EX-10.3

                                                                    EXHIBIT 10.3











                                 FIREPOND, INC.
                              AMENDED AND RESTATED
                                 1997 STOCK PLAN
























                                 FIREPOND, INC.
                      AMENDED AND RESTATED 1997 STOCK PLAN



SECTION 1. GENERAL PURPOSE OF PLAN; DEFINITIONS

     The name of this plan is the Firepond, Inc. 1997 Stock Plan (the "Plan").
The purpose of the Plan is to enable Firepond, Inc. (the "Company") to retain
and attract executives and other key employees, directors and consultants who
contribute to the Company's success by their ability, ingenuity and industry,
and to enable such individuals to participate in the long-term success and
growth of the Company by giving them a proprietary interest in the Company.

     For purposes of the Plan, the following terms shall be defined as set forth
below:

     a.   "BOARD" means the Board of Directors of the Company as it may be
          comprised from time to time.

     b.   "CAUSE" means means (i) any material breach by the optionee of any
          agreement to which the optionee and the Company or its Subsidiaries
          are parties, including breach of covenants not to compete and
          covenants relating to the protection of confidential information and
          proprietary rights of the Company or its Subsidiaries which breach is
          not cured pursuant to the terms of such agreement, (ii) any act (other
          than retirement) or omission to act by the optionee which would
          reasonably be likely to have a material adverse effect on the business
          of the Company or its Subsidiaries or on the optionee's ability to
          perform services for the Company or its Subsidiaries, including,
          without limitation, the conviction or plea of guilty or nolo contendre
          to any crime (other than ordinary traffic violations) which impairs
          the optionee's ability to perform his or her duties, (iii) any
          material misconduct or willful and deliberate non-performance of
          duties by the optionee in connection with the business or affairs of
          the Company or its Subsidiaries, (iv) the optionee's theft,
          dishonesty, or falsification of the Company's or its Subsidiaries'
          documents or records, or (v) the optionee's improper use or disclosure
          of the Company's or its Subsidiaries' confidential or proprietary
          information. All references herein to the Company or its Subsidiaries
          shall include any successor entity thereof.

     c.   "CODE" means the Internal Revenue Code of 1986, as amended from time
          to time, or any successor statute.

     d.   "COMMITTEE" means the Committee referred to in Section 2 of the Plan.
          If at any time no Committee shall be in office, then the functions of
          the Committee specified in the Plan shall be exercised by the Board,
          unless the Plan specifically states otherwise.

     e.   "CONSULTANT" means any person, including an advisor, engaged by the
          Company or a Parent Corporation or a Subsidiary of the Company to
          render services and who is compensated for such services and who is
          not an employee of the Company or any Parent Corporation or Subsidiary
          of the Company. A director who is not an employee may serve as a
          Consultant.

     f.   "COMPANY" means Firepond, Inc., a corporation organized under the laws
          of the State of Delaware (or any successor corporation).

     g.   "DEFERRED STOCK" means an award made pursuant to Section 8 below of
          the right to receive stock at the end of a specified deferral period.



     h.   "DISABILITY" means permanent and total disability as determined by the
          Committee.

     i.   "EARLY RETIREMENT" means retirement, with consent of the Committee at
          the time of retirement, from active employment with the Company and
          any Subsidiary or Parent Corporation of the Company.

     j.   "FAIR MARKET VALUE" of Stock on any given date shall be determined by
          the Committee as follows:

          (a)  if the Stock is listed for trading on one or more national
               securities exchanges, or is traded on The Nasdaq Stock Market,
               the last reported sales price on the principal such exchange or
               The Nasdaq Stock Market on the date in question, or if such Stock
               shall not have been traded on such principal exchange on such
               date, the last reported sales price on such principal exchange or
               The Nasdaq Stock Market on the first day prior thereto on which
               such Stock was so traded, or

          (b)  if the Stock is not listed for trading on a national securities
               exchange or The Nasdaq Stock Market, but is traded in the
               over-the-counter market, including The Nasdaq Small Cap Market,
               the closing bid price for such Stock on the date in question, or
               if there is no such bid price for such Stock on such date the
               closing bid price on the first day prior thereto on which such
               price existed; or

          (c)  if neither (a) or (b) is applicable, by any means fair and
               reasonable by the Committee, which determination shall be final
               and binding on all parties.

     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.   "NON-EMPLOYEE DIRECTOR" shall have the meaning set forth in Rule
          16b-3(b)(3) as promulgated by the Securities and Exchange Commission
          under the Securities Exchange Act of 1934, as amended, or any
          successor definition adopted by the Commission.

     m.   "NON-QUALIFIED STOCK OPTION" means any Stock Option that is not an
          Incentive Stock Option, and is intended to be and is designated as a
          "Non-Qualified Stock Option."

     n.   "NORMAL RETIREMENT" means retirement from active employment with the
          Company and any Subsidiary or Parent Corporation of the Company on or
          after age 65.

     o.   "OUTSIDE DIRECTOR" means a director who

          (a)  is not a current employee of the Company or any member of an
               affiliated group which includes the Company,

          (b)  is not a former employee of the Company who receives compensation
               for prior services (other than benefits under a tax-qualified
               retirement plan) during the taxable year,

          (c)  has not been an officer of the Company;

          (d)  does not receive remuneration from the Company, either directly
               or indirectly, in any capacity other than as a director, except
               as otherwise permitted under Code Section 162(m) and regulations
               thereunder. For this purpose, remuneration includes any



               payment in exchange for goods or services. This definition shall
               be further governed by the provisions of Code Sections 162(m) and
               regulations promulgated thereunder.

     p.   "PARENT CORPORATION" means any corporation (other than the Company) in
          an unbroken chain of corporations ending with the Company if each of
          the corporations (other than the Company) owns stock possessing 50% or
          more of the total combined voting power of all classes of stock in one
          of the other corporations in the chain.

     q.   "RESTRICTED STOCK" means an award of shares of Stock that are subject
          to restrictions under Section 7 below.

     r.   "RETIREMENT" means Normal Retirement or Early Retirement.

     s.   "STOCK" means the Common Stock of the Company.

     t.   "STOCK APPRECIATION RIGHT" means the right pursuant to an award
          granted under Section 6 below to surrender to the Company all or a
          portion of a Stock Option in exchange for an amount equal to the
          difference between

          (i)  Fair Market Value, 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.

     u.   "STOCK OPTION" means any option to purchase shares of Stock granted
          pursuant to Section 5 below.

     v.   "SUBSIDIARY" means any corporation (other than the Company) in an
          unbroken chain of corporations beginning with the Company if each of
          the corporations (other than the last corporation in the unbroken
          chain) owns stock possessing 50% or more of the total combined voting
          power of all classes of stock in one of the other corporations in the
          chain.

     w.   "TRANSACTION" means the dissolution or liquidation of the Company,
          (ii) the sale of all or substantially all of the assets of the Company
          on a consolidated basis to an unrelated person or entity, (iii) a
          merger, reorganization or consolidation between the Company and
          another person or entity (other than a holding company or Subsidiary
          of the Company) as a result of which, the holders of the Company's
          outstanding voting power immediately prior to such transaction do not
          own a majority of the outstanding voting power of the surviving or
          resulting entity immediately upon completion of such transaction, (iv)
          the sale of all of the Stock of the Company to an unrelated person or
          entity or (v) any other transaction in which the owners of the
          Company's outstanding voting power prior to such transaction do not
          own at least a majority of the outstanding voting power of the
          relevant entity after the transaction, in each case, regardless of the
          form thereof

SECTION 2. ADMINISTRATION.

     The Plan shall be administered by the Board of Directors or by a Committee
of not less than two directors, all of whom shall be Non-Employee Directors upon
the Company becoming subject to the insider reporting requirements of Section 16
of the Securities Exchange Act of 1934, as amended, and also Outside Directors
upon the Company becoming subject to the requirements of Rule 162(m) of the
Code. Committee members shall be appointed by the Board of Directors of the
Company and shall serve



at the pleasure of the Board. Any and all functions of the Committee specified
in the Plan may be exercised by the Board, unless the Plan specifically states
otherwise.

     The Committee shall have the power and authority to grant to eligible
employees, directors or Consultants, pursuant to the terms of the Plan: (i)Stock
Options, (ii) Stock Appreciation Rights, (iii) Restricted Stock, or (iv)Deferred
Stock awards. In particular, the Committee shall have the authority:

              (i)    to select the officers, directors and other key employees
                     of the Company and its Subsidiaries and other eligible
                     persons to whom Stock Options, Stock Appreciation Rights,
                     Restricted Stock and Deferred Stock 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 Deferred Stock awards, or a
                     combination of the foregoing, are to be granted hereunder,

              (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, any restriction on any Stock
                     Option or other award and/or the shares of Stock relating
                     thereto), which authority shall be exclusively vested in
                     the Committee (and not the Board) for purposes of
                     establishing performance criteria used with Restricted
                     Stock and Deferred Stock awards provided, however, in the
                     event of a merger or asset sale, the applicable provisions
                     of Sections 5(c) and 7(c) of the Plan shall govern. the
                     acceleration of the vesting of any Stock option or awards;

              (v)    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,
form time to time, deem advisable; to interpret the terms and provisions of 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.
The Committee may delegate to executive officers of the Company the authority to
exercise the powers specified in (i), (ii), (iii), (iv) and (v) above with
respect to persons who are not executive officers of the Company.

     All decisions made by the Committee pursuant to the provisions of the Plan
shall be final and binding on all persons, including the Company and Plan
participants.

SECTION 3. STOCK SUBJECT TO PLAN.

     The total number of shares of Stock reserved and available for distribution
under the Plan shall be 14,095,222. Such shares may consist, in whole or in
part, of authorized and unissued shares.

     Subject to paragraph (b)(iv) of Section 6 below, if any shares that have
been optioned cease to be subject to Stock Options or if any shares subject to
any Restricted Stock or Deferred Stock award granted hereunder are forfeited or
such award otherwise terminates without a payment being made to the participant,
such shares shall again be available for distribution in connection with future
awards under the Plan.



     In the event of any merger; reorganization, consolidation,
recapitalization, stock dividend, other change in corporate structure affecting
the Stock, or spin-off or other distribution of assets to shareholders, 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 of
shares subject to Restricted Stock or Deferred Stock awards granted under the
Plan as may be determined 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 Company upon the exercise of any Stock Appreciation Right associated with
any Option.

SECTION 4. ELIGIBILITY

     Officers, directors, other key employees of the Company and Subsidiaries,
and Consultants who are responsible for or contribute to the management, growth
and profitability of the business of the Company and its Subsidiaries are
eligible to be granted Stock Options, Stock Appreciation Rights, Restricted
Stock or Deferred Stock awards under the Plan. The optionees and participants
under the Plan shall be selected from time to time by the Committee, in its sole
discretion, from among those eligible, and the Committee shall determine, in its
sole discretion, the number of shares covered by each award.

     Notwithstanding the foregoing, upon the Company becoming subject to the
requirements of Section 162(m) of the Code, no person shall receive grants or
awards under this Plan which exceed 1,500,000 shares during any fiscal year of
the Company.

SECTION 5. STOCK OPTIONS.

     Any Stock Option granted under the Plan shall be in such form as the
Committee may from time to time approve.

     The Stock Options granted under the Plan may be of two types: (i)Incentive
Stock Options and (ii) Non-Qualified Stock Options. No Incentive Stock Options
shall be granted under the Plan after May 7, 2007.

     The Committee shall have the authority to grant any optionee Incentive
Stock Options, Non-Qualified Stock Options, or both types of options (in each
case with or without Stock Appreciation Rights). To the extent that any option
does not qualify its 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 either the Plan or any Incentive Stock Option under Section 422
of the Code. The preceding sentence shall not preclude any modification or
amendment to an outstanding Incentive Stock Option, whether or not such
modification or amendment results in disqualification of such Stock Option as an
Incentive Stock Option provided the optionee consents in writing to the
modification or amendment.

     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 desirable.

          (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. In no event shall




               the option price per share of Stock purchasable under an
               Incentive Stock Option be less than 100% of Fair Market Value on
               the date the option is granted. If an employee owns or is deemed
               to own (by reason of the attribution rules applicable under
               Section 424(d) of the Code) more than 10% of the combined voting
               power of all classes of stock of the Company or any Parent
               Corporation or Subsidiary and an Incentive Stock Option is
               granted to such employee, the option price shall be no less than
               110% of the Fair Market Value of the Stock on the date the option
               is granted.

          (b)  OPTION TERM. The term of each Stock Option shall be fixed by the
               Committee, but no Incentive Stock Option shall be exercisable
               more than ten years after the date the option is granted. If an
               employee owns or is deemed to own (by reason of the attribution
               rules of Section 424(d) of the Code) more than10% of the combined
               voting power of all classes of stock of the Company or any Parent
               Corporation or Subsidiary and an Incentive Stock Option is
               granted to such employee, the term of such option shall be no
               more than five years from the date of grant.

          (c)  EXERCISABILITY. Stock Options shall be exercisable at such time
               or times as determined by the Committee at or after grant. If the
               Committee provides, in its discretion, that any option is
               exercisable only in installments, the Committee may waive such
               installment exercise provisions at any time, provided, however,
               that upon the Company becoming subject to the requirements of
               Section 16 of the Securities Exchange Act of 1934, as amended, a
               Stock Option granted to an officer, director or 10% shareholder
               of the Company shall not be exercisable for a period of six (6)
               months after the date of grant UNLESS the Stock Option has been
               approved by the Board, the ------ Committee or shareholders of
               the Company. Notwithstanding anything contained in the Plan to
               the contrary, the Committee may, in its discretion, accelerate,
               extend or vary the term of any Stock Option or any installment
               thereof, whether or not the optionee is then employed by the
               Company, if such action is deemed to be in the best interests of
               the Company

               The grant of an option pursuant to the Plan shall not limit in
          any way the right or power of the Company to make adjustments,
          reclassifications, reorganizations or changes of its capital or
          business structure or to merge, exchange or consolidate or to
          dissolve, liquidate, sell or transfer all or any part of its business
          or assets.

          (d)  METHOD OF EXERCISE. Stock Options may be exercised in whole or in
               part at any time during the option period by giving written
               notice of exercise to the Company specifying the number of shares
               to be purchased. Such notice shall be accompanied by payment in
               full of the purchase price, either by check, or by any other form
               of legal consideration deemed sufficient by the Committee and
               consistent with the Plan's purpose and applicable law, including
               promissory notes or a properly executed exercise notice together
               with irrevocable instructions to a broker acceptable to the
               Company to promptly deliver to the Company the amount of sale or
               loan proceeds to pay the exercise price. As determined by the
               Committee at the time of grant or exercise, in its sole
               discretion, payment in full or in part may also be made in the
               form of Stock already owned by the optionee (which in the case of
               Stock acquired upon exercise of an option have been owned for
               more than six months on the date of surrender)or, in the case of
               the exercise of a Non-Qualified Stock Option, Restricted Stock or
               Deferred 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, and
               provided further that in the event payment is made in the form of
               shares of Restricted Stock or a Deferred Stock award, the



               optionee will receive a portion of the option shares in the form
               of and in an amount equal to, the Restricted Stock or Deferred
               Stock award tendered as payment by the optionee. If the terms of
               an option so permit, an optionee may elect to pay all or part of
               the option exercise price by having the Company withhold from the
               shares of Stock that would otherwise be issued upon exercise that
               number of shares of Stock having a Fair Market Value equal to the
               aggregate option exercise price for the shares with respect to
               which such election is made. No shares of Stock shall be issued
               until full payment therefor has been made. An optionee shall
               generally have the rights to dividends and 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 paragraph (a) of Section 12.

          (e)  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
               or by the optionee's legal representative or guardian in the
               event of the optionee's incapacity. Notwithstanding the
               foregoing, the Board in its sole discretion may provide in any
               Stock Option agreement that the optionee may transfer, without
               consideration for the transfer, his or her Non-Qualified Stock
               Options to members of his or her immediate family, to trusts for
               the benefit of such family members, or to partnerships in which
               such family members are the only partners or to limited liability
               companies in which such family members are the only members,
               provided that the transferee agrees in writing with the Company
               to be bound by all of the terms and conditions of this Plan and
               the applicable Option.

          (f)  TERMINATION BY DEATH. Unless otherwise provided by the Committee,
               if an optionee's employment by the Company and any Subsidiary or
               Parent Corporation terminates by reason of death, the Stock
               Option may thereafter be immediately exercised, to the extent
               then exercisable, by the legal representative of the estate or by
               the legatee of the optionee under the will, of the optionee, for
               a Period of three months from the date of such death or until the
               expiration of the stated term of the option, whichever period is
               shorter.

          (g)  TERMINATION BY REASON OF DISABILITY. Unless otherwise provided by
               the Committee, if an optionee's employment by the Company and any
               Subsidiary or Parent Corporation terminates by reason of
               Disability, any Stock Option held by such optionee may thereafter
               be exercised, to the extent it was exercisable at the time of
               termination due to Disability, but may not be exercised after
               twelve months from the date of such termination of employment or
               the expiration of the stated term of the 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, the option will thereafter
               be treated as a Non-Qualified Stock Option.

          (h)  TERMINATION BY REASON OF RETIREMENT. Unless otherwise provided by
               the Committee, if an optionee's employment by the Company and any
               Subsidiary or Parent Corporation terminates by reason of
               Retirement and the terms of the Stock Option so provide, any
               Stock Option held by such optionee may thereafter be exercised to
               the extent it was exercisable at the time of such Retirement, but
               may not be exercised after three months from the date of such
               termination of employment or the expiration of the stated term of
               the 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 expiation of the
               exercise periods that apply for purposes




               of Section 422 of the Code, the option will thereafter be treated
               as a Non-Qualified Stock Option.

          (i)  OTHER TERMINATION. In the event an optionee's continuous status
               as an employee or Consultant terminates (other than upon the
               optionee's death, Retirement or Disability), the optionee may
               exercise his or her Option, but only within such period of time
               as is determined by the Committee, and only to the extent that
               the optionee was entitled to exercise it at the date of
               termination(but in no event later than the expiration of the term
               of such Option as set forth in the Notice of Grant). In the case
               of an Incentive Stock Option, the Committee shall determine such
               period of time when the Option is granted. If such period of time
               with respect to an Incentive Stock Option exceeds 90 days and the
               Option is exercised after 90 days from the date of termination,
               such Option shall thereafter be treated as a Non-Qualified Stock
               Option. In the event an optionee's employment with the Company is
               terminated for Cause, or under such other circumstances as the
               Committee shall define in the option grant, all Stock Options
               granted to such optionee shall immediately terminate.

          (j)  ANNUAL LIMIT ON INCENTIVE STOCK OPTION. The aggregate Fair Market
               Value (determined as of the time the Stock Option is granted) of
               the Common Stock with respect to which an Incentive Stock Option
               under this Plan or any other plan of the Company and any
               Subsidiary or Parent Corporation is exercisable for the first
               time by an optionee during any calendar year shall not exceed
               $100,000.

          (k)  DIRECTORS. The Board of Directors may amend this Plan to provide
               for annual automatic grants to directors who are not employees of
               the Company upon such terms and conditions as the Board deems
               advisable. In the event discretionary Stock Options are granted
               to members of the Committee, such Stock Options shall be granted
               by the Board.

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 Option. In
          the case of an Incentive Stock Option, such rights may be granted only
          at the time of the grant of the Stock Option.

     In the event Stock Appreciation Rights are granted to members of the
Committee, such rights shall be granted by the Board.

     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 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 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 paragraph (b) of this Section 6, by surrendering the applicable portion of
the related Stock Option. Upon such exercise and surrender, the optionee shall
be entitled to receive an amount determined in the manner prescribed in
paragraph (b) of this Section 6. 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)  TERMS 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: Stock Appreciation Rights shall be
          exercisable only at such time or times and to the extent that the
          Stock Options to which they relate shall be exercisable in accordance
          with the provisions of Section 5 and this Section 6 of the Plan.

              (i)    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 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 specified in the
                     related option 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.

              (ii)   Stock Appreciation Rights shall be transferable only when
                     and to the extent that the underlying Stock Option would be
                     transferable under Section 5 of the Plan.

              (iii)  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 issued under
                     the Plan, but only to the extent of the number of shares
                     issued or issuable under the Stock Appreciation Right at
                     the time of exercise based on the value of the Stock
                     Appreciation Right at such time.

              (iv)   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 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 officers, directors, key employees and Consultants
          of the Company and Subsidiaries to whom, and the time or times at
          which, grants of Restricted Stock will be made, the number of shares
          to be awarded, the time or times within which such awards may be
          subject to forfeiture, and all other conditions of the awards. The
          Committee may also condition the grant of Restricted Stock upon the
          attainment of specified performance goals. The provisions of
          Restricted Stock awards need not be the same with respect to each
          recipient.

     In the event Restricted Stock awards are granted to members of the
Committee, such awards shall be granted by the Board.

     (b)  AWARDS AND CERTIFICATES. The prospective recipient of an award of
          shares of Restricted Stock 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 Company, and has otherwise complied with the then applicable
          terms and conditions.

              (i)    Each participant shall be issued a stock certificate in
                     respect of shares of Restricted Stock awarded under the
                     Plan. Such certificate shall be registered in the name of
                     the 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 Firepond, Inc.
                     1997 Stock Plan and an Agreement entered into between the
                     registered owner and Firepond, Inc. Copies of such Plan and
                     Agreement are on file in the offices of Firepond, Inc.,
                     Waltham Woods Corporate Center, 890 Winter Street, Waltham,
                     MA 02451."

              (ii)   The Committee shall require that the stock certificates
                     evidencing such shares be held in custody by the Company
                     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 the Plan 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 or assign shares of Restricted Stock awarded under
                     the Plan. Within these limits, the Committee may provide
                     for the lapse of such restrictions in installments where
                     deemed appropriate.

              (ii)   Except as provided in paragraph (c)(i) of this Section
                     7,the participant shall have, with respect to the shares of
                     Restricted Stock all of the rights of a shareholder of the
                     Company, including the right to vote the shares and the
                     right to receive any cash dividends. The Committee, in its
                     sole discretion, may permit or require the payment of cash
                     dividends to be deferred and, if the Committee so
                     determines, reinvested in additional shares of Restricted
                     Stock (to the extent shares are available under Section 3
                     and subject to paragraph (f) of Section 12). Certificates
                     for shares of unrestricted Stock shall be delivered to the
                     grantee promptly after, and only after, the period of
                     forfeiture shall have expired without forfeiture in respect
                     of such shares of Restricted Stock.

              (iii)  Subject to the provisions of the award agreement and
                     paragraph (c)(iv) of this Section 7, upon termination of
                     employment directorship (if the award was based on services
                     as a director) or consulting relationship for any reason
                     during the Restriction Period, all shares still subject to
                     restriction shall be forfeited by the participant.

              (iv)   In the event of special hardship circumstances of a
                     participant whose employment is unforeseeable emergency of
                     a participant still in service, the Committee may, in its
                     sole terminated (other than for Cause),including death,
                     Disability or Retirement or in the event of an discretion,
                     when it finds that a waiver would be in the best interest
                     of the Company, waive in whole or in part any or all
                     remaining restrictions with respect to such participant's
                     shares of Restricted Stock.

              (v)    Notwithstanding anything contained in the Plan to the
                     contrary, the Committee may, in its discretion, accelerate,
                     extend or vary the terms or the lapsing of the



                     restrictions placed on any Restricted Stock award granted
                     pursuant to this Plan if such action is deemed to be in the
                     best interests of the Company.

SECTION 8. DEFERRED STOCK AWARDS.

     (a)  ADMINISTRATION. Deferred Stock may be awarded either alone or in
          addition to other awards granted under the Plan. The Committee shall
          determine the officers, directors, key employees and Consultants of
          the Company and Subsidiaries to whom and the time or times at which
          Deferred Stock shall be awarded, the number of Shares of Deferred
          Stock to be awarded to any participant or group of participants, the
          duration of the period (the "Deferral Period") during which and the
          conditions under which, receipt of the Stock will be deferred, and the
          terms and conditions of the award in addition to those contained in
          paragraph (b) of this Section 8. The Committee may also condition the
          grant of Deferred Stock upon the attainment of specified performance
          goals. The provisions of Deferred Stock awards need not be the same
          with respect to each recipient.

     In the event Deferred Stock awards are granted to members of the Committee,
such awards shall be granted by the Board.

     (b)  TERMS AND CONDITIONS

              (i)    Subject to the provisions of this Plan and the award
                     agreement, Deferred Stock awards may not be sold, assigned,
                     transferred, pledged or otherwise encumbered during the
                     Deferral Period. At the expiration of the Deferral Period
                     (or Elective Deferral Period, where applicable), share
                     certificates shall be delivered to the participant, or his
                     legal representative, in a number equal to the shares
                     covered by the Deferred Stock award.

              (ii)   Amounts equal to any dividends declared during the Deferral
                     Period with respect to the number of shares covered by a
                     Deferred Stock award will be paid to the participant
                     currently or deferred and deemed to be reinvested in
                     additional Deferred Stock or otherwise reinvested, all as
                     determined at the time of the award by the Committee, in
                     its sole discretion.

              (iii)  Subject to the provisions of the award agreement and
                     paragraph (b)(iv) of this Section 8, upon termination of
                     employment, directorship (if the award was based on
                     services as a director) or consulting relationship for any
                     reason during the Deferral Period for a given award, the
                     Deferred Stock in question shall be forfeited by the
                     participant.

              (iv)   In the event of special hardship circumstances of a
                     participant whose employment is terminated (other than for
                     Cause) including death, Disability or Retirement, or in the
                     event of an unforeseeable emergency of a participant still
                     in service, the Committee may, in its sole discretion, when
                     it finds that a waiver would be in the best interest of the
                     Company, waive in whole or in part any or all of the
                     remaining deferral limitations imposed hereunder with
                     respect to any or all of the participant's Deferred Stock.

              (v)    A participant may elect to further defer receipt of the
                     award for a specified period or until a specified event
                     (the "Elective Deferral Period"), subject in each case to
                     the Committee's approval and to such terms as are
                     determined by the Committee, all in its sole discretion.
                     Subject to any exceptions adopted by the Committee, such
                     election must generally be made prior to completion of one
                     half



                     of the Deferral Period for a Deferred Stock award (or for
                     an installment of such an award).

              (vi)   Each award shall be confirmed by, and subject to the terms
                     of, a Deferred Stock agreement executed by the Company and
                     the participant.

SECTION 9. TRANSFER LEAVE OF ABSENCE, ETC.

       For purposes of the Plan, the following events shall not be deemed a
termination of employment:

               (a)  a transfer of an employee from the Company to a Parent
                    Corporation or Subsidiary, or from a Parent Corporation or
                    Subsidiary to the Company, or from one Subsidiary to
                    another;

               (b)  a leave of absence, approved in writing by the Committee,
                    for military service or sickness, or for any other purpose
                    approved by the Company if the period of such leave does not
                    exceed ninety (90) days (or such longer period as the
                    Committee may approve, in its sole discretion); and

               (c)  a leave of absence in excess of ninety (90) days, approved
                    in writing by the Committee, but only if the employee's
                    right to reemployment is guaranteed either by a statute or
                    by contract, and provided that, in the case of any leave of
                    absence, the employee returns to work within 30 days after
                    the end of such leave.

SECTION 10. AMENDMENTS AND TERMINATION.

     The Board may amend, after, or discontinue the Plan, but no amendment
alteration, or discontinuation shall be made (i) which would adversely impair
the rights of an optionee or participant under a Stock Option, Restricted Stock
or other Stock-based award theretofore granted, without the optionee's or
participant's consent, or (ii) which without the approval of the shareholders of
the Company would cause the Plan to no longer comply with Rule 16b-3 under the
Securities Exchange Act of 1934, Section 422 of the Code or any other regulatory
requirements.

     The Committee may amend the terms of any award or option theretofore
granted, prospectively or retroactively to the extent such amendment is
consistent with the terms of this Plan, but no such amendment shall impair the
rights of any holder without his or her consent except to the extent authorized
under the Plan. The Committee may also substitute new Stock Options for
previously granted Stock Options, including previously granted Stock Options
having higher Stock Option prices.

SECTION 11. 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 Company, nothing contained herein shall give any
such participant or optionee any rights that are greater than those of a general
creditor of the Company. In its sole discretion, the Committee 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 the existence of such trusts or other
arrangements is consistent with the unfunded status of the Plan.



SECTION 12. 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 Company
          in writing that the optionee 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 delivered under the Plan pursuant to
any Restricted Stock, Deferred Stock or other Stock-based awards 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
Securities and Exchange Commission, any stock exchange upon which the Stock is
then listed, and any applicable Federal or state securities laws, and the
Committee may cause a legend or legends to be put on any such certificates to
make appropriate reference to such restrictions.

     (b)  Subject to paragraph (d) below, recipients of Restricted Stock,
          Deferred Stock and other Stock-based awards under the Plan (other than
          Stock Options) are not required to make any payment or provide
          consideration other than the rendering of services.

     (c)  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. The adoption of the Plan shall not confer upon any
          employee of the Company or any Subsidiary any right to continued
          employment with the Company or a Subsidiary, as the case may be, nor
          shall it interfere in any way with the right of the Company or a
          Subsidiary to terminate the employment of any of its employees at any
          time.

     (d)  Each participant shall, no later than the date as of which any part of
          the value of an award first becomes includible as compensation in the
          gross income of the participant for Federal income tax purposes, pay
          to the Company, or make arrangements satisfactory to the Committee
          regarding payment of, any Federal, state, or local taxes of any kind
          required by law to be withheld with respect to the award. The
          obligations of the Company under the Plan shall be conditional on such
          payment or arrangements and the Company and Subsidiaries 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. With respect
          to any award under the Plan, if the terms of such award so permit, a
          participant may elect by written notice to the Company to satisfy part
          or all of the withholding tax requirements associated with the award
          by (1) authorizing the Company to retain from the number of shares of
          Stock that would otherwise be deliverable to the participant, or (ii)
          delivering to the Company from shares of Stock already owned by the
          participant, that number of shares having an aggregate Fair Market
          Value equal to part or all of the tax payable by the participant under
          this Section 12(d). Any such election shall be in accordance with, and
          subject to, applicable tax and securities laws, regulations and
          rulings.

     (e)  At the time 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 repurchase right in favor
          of the Company, pursuant to which the participant shall be required to
          offer to the Company upon termination of employment for any reason any
          shares that the participant acquired under the Plan, with the price
          being the then Fair Market Value of the Stock or, in the case of a
          termination for Cause, an amount equal to the cash consideration paid
          for the Stock, subject to such other terms and conditions as the
          Committee may specify at the time of grant. The Committee may, at the
          time of the grant of an award under the Plan, provide the Company with
          the right to repurchase, or require the forfeiture of shares of Stock




          acquired pursuant to the Plan by any participant who at any time
          within two years after termination of employment with the Company,
          directly or indirectly competes with, or is employed by a competitor
          of the Company.

     (f)  The reinvestment of dividends in additional Restricted Stock (or in
          Deferred Stock or other types of Plan awards) at the time of any
          dividend payment shall only be permissible in the Committee (or the
          company's chief financial officer) certifies in writing that under
          Section 3 sufficient shares are available for such reinvestment
          (taking into account then outstanding Stock Options and other Plan
          awards).

     (g)  The Plan is expressly made subject to the approval by shareholders of
          the Company. If the Plan is not so approved by the shareholders on or
          before one year after this Plan's adoption by the Board of Directors,
          this Plan shall not come into effect. The offering of the shares
          hereunder shall be also subject to the effecting by the Company of any
          registration or qualification of the shares under any federal or state
          law or the obtaining of the consent or approval of any governmental
          regulatory body which the Company shall determine, in its sole
          discretion, is necessary or desirable as a condition to or in
          connection with, the offering or the issue or purchase of the shares
          covered thereby.

     (h)  This Plan and all Options and actions taken thereunder shall be
          governed by the laws of the Commonwealth of Massachusetts, applied
          without regard to conflict of law principles thereof.


- -------------------------------------------
Approved by the shareholders on May 7, 1997

EX-10.4

                                                                    EXHIBIT 10.4











                                 FIREPOND, INC.
                              AMENDED AND RESTATED
                        1999 STOCK OPTION AND GRANT PLAN

































                                 FIREPOND, INC.
              AMENDED AND RESTATED 1999 STOCK OPTION AND GRANT PLAN



SECTION 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS

     The name of the plan is the Firepond, Inc. 1999 Stock Option and Grant Plan
(the "Plan"). The purpose of the Plan is to encourage and enable the officers,
employees, directors, consultants, advisors and other key persons of Firepond,
Inc. (the "Company") and its Subsidiaries (as defined below) upon whose
judgment, initiative and efforts the Company largely depends for the successful
conduct of its business to acquire a proprietary interest in the Company. It is
anticipated that providing such persons with a direct stake in the Company's
welfare will assure a closer identification of their interests with those of the
Company, thereby stimulating their efforts on the Company's behalf and
strengthening their desire to remain with the Company. The following terms shall
be defined as set forth below:

"Act" means the Securities Exchange Act of 1934, as amended.

"Award" or "Awards," except where referring to a particular category of grant
under the Plan, shall include Incentive Stock Options, Non-Qualified Stock
Options, Restricted Stock Awards, and Unrestricted Stock Awards.

"Board" means the Board of Directors of the Company.

"Code" means the Internal Revenue Code of 1986, as amended, and any successor
Code, and related rules, regulations and interpretations.

"Committee" has the meaning specified in Section 2.

"Effective Date" means the date on which the Plan is approved by stockholders as
set forth in Section 13.

"Fair Market Value" of the Stock on any given date means (i) if the Stock is
admitted to quotation on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ"), the Fair Market Value on any given date
shall not be less than the average of the highest bid and lowest asked prices of
the Stock reported for such date or, if no bid and asked prices were reported
for such date, for the last day preceding such date for which such prices were
reported; or (ii) if the Stock is admitted to trading on a national securities
exchange or the NASDAQ National Market System, then clause (i) shall not apply
and the Fair Market Value on any date shall not be less than the closing price
reported for the Stock on such exchange or system for such date or, if no sales
were reported for such date, for the last date preceding such date for which a
sale was reported; or (iii) if the Stock is not publicly traded on a securities
exchange or traded in the over-the-counter market or, if traded or quoted, there
are no transactions or quotations within the last ten trading days or trading
has been halted for extraordinary reasons, the Fair Market Value on any given
date shall be determined in good faith by the Committee; and (iv)
notwithstanding the foregoing, the Fair Market Value of the Stock on the
effective date of the Initial Public Offering shall be the offering price to the
public of the Stock on such date.

"Incentive Stock Option" means any Stock Option designated and qualified as an
"incentive stock option" as defined in Section 422 of the Code.

"Independent Director" means a member of the Board who is neither an employee
nor officer of the Company or any Subsidiary.



"Initial Public Offering" means the first underwritten public offering pursuant
to an effective registration statement under the Securities Act of 1933, as
amended, covering the offer and sale of Stock to the public.

"Non-Qualified Stock Option" means any Stock Option that is not an Incentive
Stock Option.

"Option" or "Stock Option" means any option to purchase shares of Stock granted
pursuant to Section 5.

"Restricted Stock Award" means any Award granted pursuant to Section 6.

"Stock" means the Common Stock, par value $.01 per share, of the Company,
subject to adjustments pursuant to Section 3.

"Subsidiary" means any corporation or other entity (other than the Company) in
any unbroken chain of corporations or other entities, beginning with the
Company, if each of the corporations or entities (other than the last
corporation or entity in the unbroken chain) owns stock or other interests
possessing 50% or more of the economic interest or the total combined voting
power of all classes of stock or other interests in one of the other
corporations or entities in the chain.

"Unrestricted Stock Award" means any Award granted pursuant to Section 7.

SECTION 2. ADMINISTRATION OF PLAN; COMMITTEE AUTHORITY TO SELECT PARTICIPANTS
AND DETERMINE AWARDS.

     (a)  Committee. The Plan shall be administered by the Board of Directors of
          the Company, or at the discretion of the Board, by a committee of the
          Board consisting of not less than two Directors; provided, however,
          that if each member of the Committee is not

               (i)  a "Non-Employee Director" within the meaning of Rule
                    16b-3(a)(3) of the Securities Exchange Act of 1934, as
                    amended (the "Exchange Act") and

               (ii) an "Outside Director" within the meaning of Section 162(m)
                    of the Code and the regulations promulgated thereunder, any
                    Awards granted to individuals subject to the reporting
                    requirements of Section 16 of the Exchange Act shall be
                    approved by the Board of Directors. All references herein to
                    the Committee shall be deemed to refer to the entity then
                    responsible for administration of the Plan at the relevant
                    time (i.e., either the Board of Directors or a committee of
                    the Board, as applicable).

     (b)  Powers of Committee. The Committee shall have the power and authority
          to grant Awards consistent with the terms of the Plan, including the
          power and authority:

               (1)  to select the officers, employees, Independent Directors,
                    consultants, advisers and key persons of the Company and its
                    Subsidiaries to whom Awards may from time to time be
                    granted;

               (2)  to determine the time or times of grant, and the extent, if
                    any, of Incentive Stock Options, Non-Qualified Stock
                    Options, Restricted Stock Awards and Unrestricted Stock
                    Awards, or any combination of the foregoing, granted to any
                    one or more participants;

               (3)  to determine the number of shares of Stock to be covered by
                    any Award;



               (4)  to determine and modify from time to time the terms and
                    conditions, including restrictions, not inconsistent with
                    the terms of the Plan, of any Award, which terms and
                    conditions may differ among individual Awards and
                    participants, and to approve the form of written instruments
                    evidencing the Awards;

               (5)  to accelerate at any time the exercisability or vesting of
                    all or any portion of any Award and/or to include provisions
                    in Awards providing for such acceleration,

               (6)  to impose any limitations on Awards granted under the Plan,
                    including limitations on transfers repurchase provisions and
                    the like and to exercise repurchase rights or obligations;

               (7)  subject to the provisions of Section 5(a)(3), to extend at
                    anytime the period in which Stock Options may be exercised;

               (8)  to determine at any time whether, to what extent, and under
                    what circumstances Stock and other amounts payable with
                    respect to an Award shall be deferred either automatically
                    or at the election of the participant and whether and to
                    what extent the Company shall pay or credit amounts
                    constituting interest(at rates determined by the Committee)
                    or dividends or deemed dividends on such deferrals; and

               (9)  at any time to adopt, alter and repeal such rules,
                    guidelines and practices for administration of the Plan and
                    for its own acts and proceedings as it shall deem advisable,
                    to interpret the terms and provisions of the Plan and any
                    Award (including related written instruments); to make all
                    determinations it deems advisable for the administration of
                    the Plan; to decide all disputes arising in connection with
                    the Plan; and to otherwise supervise the administration of
                    the Plan. All decisions and interpretations of the Committee
                    shall be binding on all persons, including the Company and
                    Plan participants.

     (c)  Delegation of Authority to Grant Awards. The Committee, in its
          discretion, may delegate to the Chief Executive Officer of the Company
          all or part of the Committee's authority and duties with respect to
          Awards, including the granting thereof, to individuals who are not
          subject to the reporting and other provisions of Section 16 of the Act
          or "covered employees" within the meaning of Section 162(m) of the
          Code. Any such delegation by the Committee shall include a limitation
          as to the amount of Awards that may be granted during the period of
          delegation and shall contain guidelines as to the determination of the
          exercise price of any Option, the price of other Awards and the
          vesting criteria. The Committee may revoke or amend the terms of a
          delegation at anytime but such action shall not invalidate any prior
          actions of the Committee's delegate or delegates that were consistent
          with the terms of the Plan.

SECTION 3. STOCK ISSUABLE UNDER THE PLAN; MERGERS; SUBSTITUTION

     (a)  Stock Issuable. The maximum number of shares of Stock reserved and
          available for issuance under the Plan shall be 8,000,000 shares of
          Stock. For purposes of the foregoing limitations, the shares of Stock
          underlying any Awards which are forfeited, canceled, reacquired by the
          Company, satisfied without the issuance of Stock or otherwise
          terminated (other than by exercise) shall be added back to the shares
          of Stock available for issuance under the Plan. Subject to such
          overall limitation, shares of Stock may be issued up to such maximum
          number pursuant to any type or types of Award; provided, however, that
          from and after the date the Plan is subject to Section 162(m) of the
          Code, Awards with respect to no more than 1,000,000 shares of Stock
          may be granted to any one individual participant during any one




          calendar year period. The shares available for issuance under the Plan
          may be authorized but unissued shares of Stock or shares of Stock
          reacquired by the Company.

     (b)  Recapitalizations. If, through or as a result of any merger,
          consolidation, sale of all or substantially all of the assets of the
          Company, reorganization, recapitalization, reclassification, stock
          dividend, stock split, reverse stock split or other similar
          transaction, the outstanding shares of Stock are increased or
          decreased or are exchanged for a different number or kind of shares or
          other securities of the Company or any successor company, or
          additional shares or new or different shares or other securities of
          the Company or other non-cash assets are distributed with respect to
          such shares of Stock or other securities, the Committee shall make an
          appropriate or proportionate adjustment in

              (i)    the maximum number of shares reserved for issuance under
                     the Plan,

              (ii)   the number of Stock Options, or other Awards that can be
                     granted to any one individual participant,

              (iii)  the number and kind of shares or other securities subject
                     to any then outstanding Awards under the Plan, and

              (iv)   the price for each share subject to any then outstanding
                     Stock Options or other Awards under the Plan, without
                     changing the aggregate exercise price (i.e., the exercise
                     price multiplied by the number of shares) as to which such
                     Stock Options remain exercisable and the repurchase price
                     for shares subject to repurchase. The adjustment by the
                     Committee shall be final, binding and conclusive. No
                     fractional shares of Stock shall be issued under the Plan
                     resulting from any such adjustment, but the Committee in
                     its discretion may make cash payment in lieu of fractional
                     shares.

     (c)  Mergers and Other Transactions. In the case of

              i)     the dissolution or liquidation of the Company,

              ii)    a merger, reorganization or consolidation between the
                     Company and another person or entity (other than a holding
                     company or subsidiary of the Company) as a result of which
                     the holders of the Company's outstanding voting stock
                     immediately prior to the transaction hold less than a
                     majority of the outstanding voting stock of the surviving
                     entity immediately after the transaction,

              iii)   the sale of all or substantially all of the assets of the
                     Company to an unrelated person or entity,

              iv)    the sale of all of the Stock of the Company to an unrelated
                     person or entity; or

              v)     any other transaction in which the owners of the Company's
                     outstanding voting power prior to such transaction do not
                     own a majority of the outstanding voting power of the
                     relevant entity after the transaction, regardless of the
                     form thereof in each case, a "Transaction", unless
                     provision is made in connection with the Transaction for
                     the assumption of the Awards heretofore granted, or the
                     substitution of such Awards with new Awards of the
                     successor entity or parent thereof, with appropriate
                     adjustment as to the number and kind of shares and, if
                     appropriate, the per share exercise prices, as provided in
                     Section 3(b) above, all of the remaining outstanding Awards
                     held by participants, to the extent not fully vested and
                     exercisable, shall become fully vested and exercisable,
                     except with



                     respect to specific awards as the Committee otherwise
                     determines. Upon the effectiveness of the transaction, the
                     Plan and all Awards granted hereunder shall, unless assumed
                     by the successor entity, terminate. In the event of such
                     termination, each optionee shall be permitted to exercise
                     for a period of at least 15 days prior to the date of such
                     termination all outstanding Awards held by such optionee
                     which are then exercisable.

     (d)  Substitute Awards. The Committee may grant Awards under the Plan in
          substitution for stock and stock based awards held by employees of
          another corporation who become employees of the Company or a
          Subsidiary as the result of a merger or consolidation of the employing
          corporation with the Company or a Subsidiary or the acquisition by the
          Company or a Subsidiary of property or stock of the employing
          corporation. The Committee may direct that the substitute awards be
          granted on such terms and conditions as the Committee considers
          appropriate in the circumstances.

SECTION 4. ELIGIBILITY.

     Participants in the Plan will be such officers and other employees,
Independent Directors, consultants, advisors and other key persons of the
Company and its Subsidiaries who are responsible for or contribute to the
management, growth or profitability of the Company and its Subsidiaries as are
selected from time to time by the Committee, in its sole discretion.

SECTION 5. STOCK OPTIONS.

     Any Stock Option granted under the Plan shall be pursuant to a stock option
agreement which shall be in such form as the Committee may from time to time
approve. Option agreements need not be identical. Stock Options granted under
the Plan may be either Incentive Stock Options or Non-Qualified Stock Options.
Incentive Stock Options may be granted only to employees of the Company or any
Subsidiary that is a "subsidiary corporation" within the meaning of Section
424(f) of the Code. Non-Qualified Stock Options may be granted to officers,
employees, Independent Directors, advisors, consultants and other key persons of
the Company and its Subsidiaries. To the extent that any Option does not qualify
as an Incentive Stock Option, it shall be deemed a Non-Qualified Stock option.
No Incentive Stock Option shall be granted under the Plan after November7, 2009.

     (a)  Terms of Stock Options. Stock 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 desirable:

          (1)  Exercise Price. The exercise price per share for the Stock
               covered by a Stock Option shall be determined by the Committee at
               the time of grant but shall not be less than 100% of the Fair
               Market Value in the case of Incentive Stock Options. If an
               employee owns or is deemed to own (by reason of the attribution
               rules applicable under Section 424(d) of the Code) more than
               10%of the combined voting power of all classes of stock of the
               Company or any parent or Subsidiary corporation and an Incentive
               Stock Option is granted to such employee, the option price of
               such Incentive Stock Option shall be not less than 110% of the
               Fair Market Value on the grant date.

          (2)  Grant of Discount Options in Lieu of Cash Compensation. Upon
               there quest of a participant and with the consent of the
               Committee, such participant may elect each calendar year to
               receive a Non-Qualified Stock Option in lieu of any cash bonus or
               other compensation to which he may become entitled during the
               following calendar year, but only if such participant makes an
               irrevocable election to waive receipt of all



              or a portion of such cash compensation. Such election shall be
              made on or before the date set by the Committee which date shall
              be no later than 15 days (or such shorter period permitted by the
              Committee) preceding January 1 of the calendar year for which the
              cash compensation would otherwise be paid. A Non-Qualified Stock
              Option shall be granted to each participant who made such an
              irrevocable election on the date the waived cash compensation
              would otherwise be paid. The exercise price per share shall be
              determined by the Committee. The number of shares of Stock subject
              to the Stock Option shall be determined by dividing the amount of
              the waived cash compensation by the difference between the Fair
              Market Value of the Stock on the date the Stock Option is granted
              and the exercise price per share of the Stock Option. The Stock
              Option shall be granted for a whole number of shares so
              determined; the value of any fractional share shall be paid in
              cash.

          (3)  Option Term. The term of each Stock Option shall be fixed by the
               Committee, but no Incentive Stock Option shall be exercisable
               more than ten years after the date the Option is granted. If an
               employee owns or is deemed to own (by reason of the attribution
               rules of Section 424(d) of the Code) more than10% of the combined
               voting power of all classes of Stock of the Company or any parent
               or subsidiary corporation and an Incentive Stock Option is
               granted to such employee, the term of such Option shall be no
               more than five years from the grant date.

          (4)  Exercisability; Rights of a Stockholder. Stock Options shall
               become vested and exercisable at such time or times, whether or
               not in installments, as shall be determined by the Committee at
               or after the grant date; provided, however, that Stock Options
               granted in lieu of cash compensation shall be exercisable in full
               as of the grant date. The Committee may at any time accelerate
               the exercisability of all or any portion of any Stock Option. An
               optionee shall have the rights of a stockholder only as to shares
               acquired upon the exercise of a Stock Option and not as to
               unexercised Stock Options.

          (5)  Method of Exercise. Stock Options may be exercised in whole or in
               part, by giving written notice of exercise to the Company,
               specifying the number of shares to be purchased. Payment of the
               purchase price may be made by one or more of the following
               methods; provided, however, that the methods set forth in
               subsections (B) and (C) below shall become available only after
               the closing of the Initial Public Offering:

                     (i)    In cash by certified or bank check or other
                            instrument acceptable to the Committee,

                     (ii)   In the form of shares of Stock that are not then
                            subject to restrictions under any Company plan and
                            that have been held by the optionee free of such
                            restrictions for at least six months, if permitted
                            by the Committee in its discretion. such surrendered
                            shares shall be valued at Fair Market Value on the
                            exercise date;

                     (iii)  By the optionee delivering to the Company a properly
                            executed exercise notice together with irrevocable
                            instructions to a broker to promptly deliver to the
                            Company cash or a check payable and acceptable to
                            the Company to pay the purchase price; provided that
                            in the event the optionee chooses to pay the
                            purchase price as so provided, the optionee and the
                            broker shall comply with such procedures and enter
                            into such agreements of indemnity and other




                            agreements as the Committee shall prescribe as a
                            condition of such payment procedure; or

                     (iv)   By the optionee delivering to the Company a
                            promissory note if the Board has authorized the loan
                            of funds to the optionee for the purpose of enabling
                            or assisting the optionee to effect the exercise of
                            his Stock Option; provided that at least so much of
                            the exercise price as represents the par value of
                            the Stock shall be paid other than with a promissory
                            note. Payment instruments will be received subject
                            to collection. The delivery of certificates
                            representing the shares of Stock to be purchased
                            pursuant to the exercise of a Stock Option will be
                            contingent upon receipt from the optionee (or a
                            purchaser acting in his stead in accordance with the
                            provisions of the Stock Option) by the Company of
                            the full purchase price for such shares and the
                            fulfillment of any other requirements contained in
                            the Stock Option or applicable provisions of laws.

          (6)  Termination. Unless otherwise provided in the option agreement or
               determined by the Committee, upon the optionee's termination of
               employment (or other business relationship) with the Company and
               its Subsidiaries, the optionee's rights in his Stock Options
               shall automatically terminate.

          (7)  Annual Limit on Incentive Stock Options. To the extent required
               for "incentive stock option" treatment under Section 422 of the
               Code, the aggregate Fair Market Value (determined as of the time
               of grant) of the shares of Stock with respect to which Incentive
               Stock Options granted under this Plan and any other plan of the
               Company or its parent and subsidiary corporations become
               exercisable for the first time by an optionee during any calendar
               year shall not exceed $100,000. To the extent that any Stock
               Option exceeds this limit, it shall constitute a Non-Qualified
               Stock Option.

     (b)  Reload Options. At the discretion of the Committee, Options granted
          under the Plan may include a "reload" feature pursuant to which an
          optionee exercising an Option by the delivery of number of shares of
          stock in accordance with Section 5(a)(5)(ii) hereof would
          automatically be granted an additional Option (with an exercise price
          equal to the Fair Market Value of the Stock on the date the additional
          Option is granted and with the same expiration date as the original
          Option being exercised, and with such other terms as the Committee may
          provide) to purchase that number of shares of Stock equal to the
          number delivered to exercise the original Option.

     (c)  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, or by the optionee's legal
          representative or guardian in the event of the optionee's incapacity.
          Notwithstanding the foregoing, the Board in its sole discretion may
          provide in any Stock Option agreement that the optionee may transfer,
          without consideration for the transfer, his or her Non-Qualified Stock
          Options to members of his or her immediate family, to trusts for the
          benefit of such family members, or to partnerships in which such
          family members are the only partners or to limited liability companies
          in which such family members are the only members, provided that the
          transferee agrees in writing with the Company to be bound by all of
          the terms and conditions of this Plan and the applicable Option.

SECTION 6. RESTRICTED STOCK AWARDS



     (a)  Nature of Restricted Stock Awards. A Restricted Stock Award is an
          Award entitling the recipient to acquire, at par value or such other
          purchase price determined by the Committee, shares of Stock subject to
          such restrictions and conditions as the Committee may determine at the
          time of grant ("Restricted Stock"). Conditions may be based on
          continuing employment (or other business relationship) and/or
          achievement or pre-established performance goals and objectives.

     (b)  Rights as a Stockholder. Upon execution of a written instrument
          setting forth the Restricted Stock Award and paying any applicable
          purchase price, a participant shall have the rights of a stockholder
          with respect to the voting of the Restricted Stock, subject to such
          conditions contained in the written instrument evidencing the
          Restricted Stock Award. Unless the Committee shall otherwise
          determine, certificates evidencing the Restricted Stock shall remain
          in the possession of the Company until such Restricted Stock is vested
          as provided in Section 6(d) below.

     (c)  Restrictions. Restricted Stock may not be sold, assigned, transferred,
          pledged or otherwise encumbered or disposed of except as specifically
          provided herein or in the written instrument evidencing the Restricted
          Stock Award. If a participant's employment (or other business
          relationship) with the Company and its Subsidiaries terminates under
          the conditions specified in the relevant instrument relating to the
          Award, or upon such other event or events as may be stated in the
          instrument evidencing the Award, the Company or its assigns shall have
          the right or shall agree, as may be specified in the relevant
          instrument, to repurchase some or all of the shares of Stock subject
          to the Award at such purchase price as is set forth in such
          instrument.

     (d)  Vesting of Restricted Stock. The Committee at the time of grant shall
          specify the date or dates and/or the attainment of pre-established
          performance goals, objectives and other conditions on which Restricted
          Stock shall become vested, subject to such further rights of the
          Company or its assigns as may be specified in the instrument
          evidencing the Restricted Stock Award.

     (e)  Waiver, Deferral and Reinvestment of Dividends. The written instrument
          evidencing the Restricted Stock Award may require or permit the
          immediate payment, waiver, deferral or investment of dividends paid on
          the Restricted Stock.

SECTION 7. UNRESTRICTED STOCK AWARDS

     (a)  Grant or Sale of Unrestricted Stock. The Committee may, in its sole
          discretion, grant (or sell at a purchase price determined by the
          Committee)an Unrestricted Stock Award to any participant, pursuant to
          which such participant may receive shares of Stock free of any vesting
          restrictions("Unrestricted Stock") under the Plan. Unrestricted Stock
          Awards may be granted or sold as described in the preceding sentence
          in respect of past services or other valid consideration, or in lieu
          of any cash compensation due to such individual.

     (b)  Elections to Receive Unrestricted Stock In Lieu of Compensation. Upon
          the request of a participant and with the consent of the Committee,
          each such participant may, pursuant to an advance written election
          delivered to the Company no later than the date specified by the
          Committee, receive a portion of the cash compensation otherwise due to
          such participant in the form of shares of Unrestricted Stock either
          currently or on a deferred basis.

     (c)  Restrictions on Transfers. The right to receive shares of Unrestricted
          Stock on a deferred basis may not be sold, assigned, transferred,
          pledged or otherwise encumbered, other than by will or the laws of
          descent and distribution.



SECTION 8. TAX WITHHOLDING

     (a)  Payment by Participant. Each participant shall, no later than the date
          as of which the value of an Award or of any Stock or other amounts
          received thereunder first becomes includable in the gross income of
          the participant for Federal income tax purposes, pay to the Company,
          or make arrangements satisfactory to the Committee regarding payment
          of, any federal, state, or local taxes of any kind required by law to
          be withheld with respect to such income. The Company and its
          Subsidiaries 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.

     (b)  Payment in Stock. Subject to approval by the Committee, a participant
          may elect to have such tax withholding obligation satisfied, in whole
          or in part, by

               (i)  authorizing the Company to withhold from shares of Stock to
                    be issued pursuant to any Award a number of shares with an
                    aggregate Fair Market Value (as of the date the withholding
                    is effected) that would satisfy the withholding amount due,
                    or

               (ii) transferring to the Company shares of Stock owned by the
                    participant with an aggregate Fair Market Value (as of the
                    date the withholding is effected) that would satisfy the
                    withholding amount due.

SECTION 9. TRANSFER, LEAVE OF ABSENCE, ETC.

     For purposes of the Plan, the following events shall not be deemed a
termination of employment:

               (a)  a transfer to the employment of the Company from a
                    Subsidiary or from the Company to a Subsidiary, or from one
                    Subsidiary to another; or

               (b)  an approved leave of absence for military service or
                    sickness, or for any other purpose approved by the Company,
                    if the employee's right tore-employment is guaranteed either
                    by a statute or by contract or under the policy pursuant to
                    which the leave of absence was granted or if the Committee
                    otherwise so provides in writing.

SECTION 10. AMENDMENTS AND TERMINATION

     The Board may, at any time, amend or discontinue the Plan and the Committee
may, at any time, amend or cancel any outstanding Award (or provide substitute
Awards at the same or reduced exercise or purchase price or with no exercise or
purchase price in a manner not inconsistent with the terms of the Plan), but
such price, if any, must satisfy the requirements which would apply to the
substitute or amended Award if it were then initially granted under this Plan
for the purpose of satisfying changes in law or for any other lawful purpose,
but no such action shall adversely affect rights under any outstanding Award
without the holder's consent. If and to the extent determined by the Committee
to be required by the Act to ensure that Incentive Stock Options granted under
the Plan are qualified under Section 422 of the Code, Plan amendments shall be
subject to approval by the Company's stockholders who are eligible to vote at a
meeting of stockholders.



SECTION 11. STATUS OF PLAN

     With respect to the portion of any Award which has not been exercised and
any payments in cash, Stock or other consideration not received by a
participant, a participant shall have no rights greater than those of a general
creditor of the Company unless the Committee shall otherwise expressly determine
in connection with any Award or Awards. In its sole discretion, the Committee
may authorize the creation of trusts or other arrangements to meet the Company's
obligations to deliver Stock or make payments with respect to Awards hereunder,
provided that the existence of such trusts or other arrangements is consistent
with the foregoing sentence.

SECTION 12. GENERAL PROVISIONS

     (a)  No Distribution; Compliance with Legal Requirements. The Committee may
          require each person acquiring Stock pursuant to an Award to represent
          to and agree with the Company in writing that such person is acquiring
          the shares without a view to distribution thereof. No shares of Stock
          shall be issued pursuant to an Award until all applicable securities
          law and other legal and stock exchange or similar requirements have
          been satisfied. The Committee may require the placing of such stop
          orders and restrictive legends on certificates for Stock and Awards,
          as it deems appropriate.

     (b)  Other Compensation Arrangements; No Employment Rights. Nothing
          contained in this Plan shall prevent the Board from adopting other or
          additional compensation arrangements, including trusts, and such
          arrangements may be either generally applicable or applicable only in
          specific cases. The adopting of this Plan and the grant of Awards do
          not confer upon any employee any right to continued employment with
          the Company or any Subsidiary.

SECTION 13. EFFECTIVE DATE OF PLAN

     This Plan shall become effective upon approval by the holders of a majority
of the shares of Stock of the Company present or represented and entitled to
vote at a meeting of stockholders. Subject to such approval by the stockholders
and to the requirement that no Stock may be issued hereunder prior to such
approval, Stock Options and other Awards may be granted hereunder on and after
adoption of this Plan by the Board.

SECTION 14. GOVERNING LAW

     This Plan shall be governed by Massachusetts law except to the extent such
law is preempted by federal law. Adopted and Effective: November 8, 1999.

EX-10.5

                                                                    EXHIBIT 10.5

                                 FIREPOND, INC.
                              AMENDED AND RESTATED
                               1999 DIRECTOR PLAN


SECTION 1.  GENERAL PURPOSE OF THE PLAN, DEFINITIONS

         The name of the plan is the 1999 Director Plan (the "Plan"). The
purpose of the Plan is to enable Firepond, Inc. (the "Company") to attract and
retain non-employee directors and further align their interests with those of
the shareholders by providing for or increasing their equity interests in the
Company. It is anticipated that providing such persons with a direct stake in
the Company's welfare will assure a closer identification of their interests
with those of the Company, thereby stimulating their efforts on the Company's
behalf and strengthening their desire to remain with the Company.

         The following terms shall be defined as set forth below:

         "Act" means the Securities Exchange Act of 1934, as amended.

         "Board" means the Board of Directors of the Company.

         "Code" means the Internal Revenue Code of 1986, as amended, and any
successor Code, and related rules, regulations and interpretations.

         "Fair Market Value" of the Stock on any given date means (i) if the
Stock is admitted to quotation on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ"), the Fair Market Value on any given date
shall not be less than the average of the highest bid and lowest asked prices of
the Stock reported for such date or, if no bid and asked prices were reported
for such date, for the last day preceding such date for which such prices were
reported; or (ii) if the Stock is admitted to trading on a national securities
exchange or the NASDAQ National Market System, then clause (i) shall not apply
and the Fair Market Value on any date shall not be less than the closing price
reported for the Stock on such exchange or system for such date or, if no sales
were reported for such date, for the last date preceding such date for which a
sale was reported; or (iii) if the Stock is not publicly traded on a securities
exchange or traded in the over-the-counter market or, if traded or quoted, there
are no transactions or quotations within the last ten trading days or trading
has been halted for extraordinary reasons, the Fair Market Value on any given
date shall be determined in good faith by the Committee; and (iv)
notwithstanding the foregoing, the Fair Market Value of the Stock on the
effective date of the Initial Public Offering shall be the offering price to the
public of the Stock on such date.

          "Option" or "Stock Option" means any option to purchase shares of
Stock granted pursuant to Section 5.

         "Non-Qualified Stock Option" means any Stock Option that is not
designated and qualified as an "incentive stock option" as defined in Section
422 of the Code.



          "Service Relationship" means any relationship as a non-employee
director of the Company or any Subsidiary of the Company.

         "Stock" means the Common Stock, par value $.01 per share, of the
Company, subject to adjustments pursuant to Section 3.

         "Subsidiary" means any corporation or other entity (other than the
Company) in any unbroken chain of corporations or other entities beginning with
the Company if each of the corporations or entities (other than the last
corporation or entity in the unbroken chain) owns stock or other interests
possessing 50 percent or more of the economic interest or the total combined
voting power of all classes of stock or other interests in one of the other
corporations or entities in the chain.

SECTION 2.  ADMINISTRATION OF PLAN; COMMITTEE

         (a)      ADMINISTRATION OF PLAN. The Plan shall be administered by the
Board, or at the discretion of the Board, by a committee or committees of the
Board, comprised, except as contemplated by Section 2(c), of not less than two
directors. All references herein to the Committee shall be deemed to refer to
the group then responsible for administration of the Plan at the relevant time
(i.e., either the Board or a committee or committees of the Board, as
applicable).

         (b)      POWERS OF COMMITTEE. The Committee shall have the power and
authority to grant Options consistent with the terms of the Plan, including the
power and authority:

                  (i)      to determine and modify from time to time the terms
and conditions, including restrictions, not inconsistent with the terms of the
Plan, of any Option, which terms and conditions may differ among individual
Options and participants, and to approve the form of written instruments
evidencing the Options;

                  (ii)     to accelerate at any time the exercisability or
vesting of all or any portion of any Option;

                  (iii)    to impose any limitations on Options granted under
the Plan, including limitations on transfers, repurchase provisions and the like
and to exercise repurchase rights or obligations;

                  (iv)     to extend at any time the period in which Stock
Options may be exercised; and

                  (v)      at any time to adopt, alter and repeal such rules,
guidelines and practices for administration of the Plan and for its own acts and
proceedings as it shall deem advisable; to interpret the terms and provisions of
the Plan and any Option (including related written instruments); to make all
determinations it deems advisable for the administration of the Plan; to decide
all disputes arising in connection with the Plan; and to otherwise supervise the
administration of the Plan.


                                      -2-


         All decisions and interpretations of the Board shall be binding on all
persons, including the Company and Plan participants.

SECTION 3. STOCK ISSUABLE UNDER THE PLAN: MERGERS: SUBSTITUTION

         (a)      STOCK ISSUABLE. The maximum number of shares of Stock reserved
and available for issuance under the Plan shall be 500,000 shares of Common
Stock subject to adjustment as provided in Section 3(b). For purposes of this
limitation, the shares of Stock underlying any Options which are forfeited,
canceled, reacquired by the Company, satisfied without the issuance of Stock or
otherwise terminated (other than by exercise) shall be added back to the shares
of Stock available for issuance under the Plan. The shares available for
issuance under the Plan may be authorized but unissued shares of Stock or shares
of Stock reacquired by the Company and held in its treasury.

         (b)      CHANGES IN STOCK. Subject to Section 3(c) hereof, if, as a
result of any reorganization, recapitalization, reclassification, stock
dividend, stock split, reverse stock split or other similar change in the
Company's capital stock, the outstanding shares of Stock are increased or
decreased or are exchanged for a different number or kind of shares or other
securities of the Company, or additional shares or new or different shares or
other securities of the Company or other non-cash assets are distributed with
respect to such shares of Stock or other securities, the Board shall make an
appropriate or proportionate adjustment in (i) the maximum number of shares
reserved for issuance under the Plan, (ii) the number of Stock Options that can
be granted to any one individual participant, (iii) the number and kind of
shares or other securities subject to any then outstanding Options under the
Plan, and (iv) the exercise price and/or exchange price for each share subject
to any then outstanding Stock Options under the Plan, without changing the
aggregate exercise price (i.e., the exercise price multiplied by the number of
Stock Options ) as to which such Stock Options remain exercisable. The
adjustment by the Board shall be final, binding and conclusive. No fractional
shares of Stock shall be issued under the Plan resulting from any such
adjustment, but the Board in its discretion may make a cash payment in lieu of
fractional shares.

         The Board may also adjust the number of shares subject to outstanding
Options and the exercise price and the terms of outstanding Options to take into
consideration material changes in accounting practices or principles,
extraordinary dividends, acquisitions or dispositions of stock or property or
any other event if it is determined by the Board that such adjustment is
appropriate to avoid distortion in the operation of the Plan.

         (c)      MERGERS AND OTHER SALE EVENTS. In the case of (i) the
dissolution or liquidation of the Company, (ii) the sale of all or substantially
all of the assets of the Company on a consolidated basis to an unrelated person
or entity, (iii) a merger, reorganization or consolidation between the Company
and another person or entity (other than a holding company or Subsidiary of the
Company) as a result of which, the holders of the Company's outstanding voting
power immediately prior to such transaction do not own a majority of the
outstanding voting power of the surviving or resulting entity immediately upon
completion of such transaction, (iv) the sale of all of the Stock of the Company
to an unrelated person or entity or (v) any other transaction in which the
owners of the Company's outstanding voting power prior to such transaction do
not own at least a majority of the outstanding voting power of the relevant
entity after the


                                      -3-


transaction, in each case, regardless of the form thereof (in each case, a
"Transaction"), unless provision is made in connection with the Transaction for
the assumption of the Options heretofore granted, or the substitution of such
Options with new Options of the successor entity or parent thereof, with
appropriate adjustment as to the number and kind of shares and, if appropriate,
the per share exercise prices, as provided in Section 3(b) above Transaction all
unvested shares of Stock subject to outstanding Options, to the extent not then
fully vested and/or exercisable, shall become fully vested and exercisable upon
and subject to the consummation of the Transaction, except with respect to
specific Options as the Board otherwise determines at the time of grant of such
Options.

SECTION 4. ELIGIBILITY

         Each member of the Board who is not an employee of the Company or any
of its Subsidiaries (a "Non-Employee Director") shall be eligible for the grant
of Options under this Plan.

SECTION 5. STOCK OPTIONS

         Any Stock Option granted under the Plan shall be pursuant to a Stock
Option Agreement. Stock Options granted under the Plan shall be Non-Qualified
Stock Options. All grants of Options to Non-Employee Directors under this Plan
shall be automatic and non-discretionary and shall be made strictly in
accordance with this Section 5. No person shall have any discretion to select
which Non-Employee Directors shall be granted Options or to determine the number
of shares to be covered by such Options.

         (a)      TERMS OF STOCK OPTIONS. Stock 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.

                  (i)      INITIAL GRANTS. Each person who is a Non-Employee
Director, other than Paul Butare, shall, on September 9, 1999 without further
action by the Board automatically be granted an Option to purchase 50,000 shares
of Stock, subject to adjustment as provided in Section 3(b) hereof. Paul Butare
shall, on September 9, 1999 without further action by the Board automatically be
granted an Option to purchase 33,334 shares of Stock, subject to adjustment as
provided in Section (3)(b) hereof. In addition, each person who first becomes a
Non-Employee Director after September 9, 1999 shall, on the date such person
becomes a Non-Employee Director, without further action by the Board,
automatically be granted an Option to purchase 50,000 shares of Stock, subject
to adjustment as provided in Section 3(b) hereof.

                  (ii)     ANNUAL GRANTS. On the date of the Company's annual
meeting of stockholders (provided that in no event shall such date be more than
180 days after the fiscal year end), or, if such date shall not be a business
day, the business day immediately preceding such date, and so long as shares
remain available for issuance under the Plan, each person who is a CONTINUING
Non-Employee Director shall without further action by the Board automatically be
granted an Option to purchase 12,500 Common Shares, subject to adjustment as
provided in Section 3(b) hereof.


                                      -4-


                  (iii)    INSUFFICIENT SHARES. Notwithstanding the foregoing,
if, on any date upon which Options are to be granted under Section 5(a)(i) or
5(a)(ii) hereof, the shares of Stock remaining available for issuance under this
Plan is insufficient for the grant of Options to purchase the total number of
shares of Stock specified in such section, then each Non-Employee Director
entitled to receive an Option on such date shall be granted an Option to
purchase a proportionate amount of the available number of shares of Stock
(rounded down to the greatest number of whole shares). Except for the specified
Options referred to in Section 5(a)(i) or 5(a)(ii) above, no other Options shall
be granted under this Plan

                  (iv)     EXERCISABILITY; RIGHTS OF A STOCKHOLDER. Stock
Options shall become exercisable at such time or times as set forth in the Stock
Option Agreement. The Board may at any time accelerate the exercisability of all
or any portion of any Stock Option. An optionee shall have the rights of a
stockholder only as to shares acquired upon the exercise of a Stock Option and
not as to unexercised Stock Options.

                  (v)      METHOD OF EXERCISE. Stock Options may be exercised in
whole or in part, by giving written notice of exercise to the Company,
specifying the number of shares to be purchased. Payment of the purchase price
may be made by one or more of the following methods to the extent provided in
the Stock Option Agreement:

                           (A)      In cash, by certified or bank check, or
                                    other instrument acceptable to the Committee
                                    in U.S. funds payable to the order of the
                                    Company in an amount equal to the purchase
                                    price of such Option Shares;

                           (B)      If permitted by the Board, through the
                                    delivery (or attestation to the ownership)
                                    of shares of Stock that have been purchased
                                    by the optionee on the open market or have
                                    been beneficially owned by the optionee for
                                    at least six months and are not then subject
                                    to restrictions under any Company plan. Such
                                    surrendered shares shall be valued at Fair
                                    Market Value on the exercise date; or

                           (C)      If permitted by the Board, by the optionee
                                    delivering to the Company a properly
                                    executed exercise notice together with
                                    irrevocable instructions to a broker to
                                    promptly deliver to the Company cash or a
                                    check payable and acceptable to the Company
                                    to pay the purchase price; provided that in
                                    the event the optionee chooses to pay the
                                    purchase price as so provided, the optionee
                                    and the broker shall comply with such
                                    procedures and enter into such agreements of
                                    indemnity and other agreements as the Board
                                    shall prescribe as a condition of such
                                    payment procedure.

         Payment instruments will be received subject to collection. No
certificates for Option Shares so purchased will be issued to optionee until the
Company has completed all steps required by law to be taken in connection with
the issuance and sale of the shares, including without limitation (i) receipt of
a representation from the optionee at the time of exercise of the Option that
the optionee is purchasing the Option Shares for the optionee's own account and
not with a view to any sale or distribution thereof, (ii) the legending of any
certificate representing the shares to evidence the foregoing representations
and restrictions, and (iii) obtaining from optionee payment or provision for all
withholding taxes due as a result of the exercise of the Option. The delivery of
certificates representing the shares of Stock to be purchased pursuant to



                                      -5-


the exercise of a Stock Option will be contingent upon receipt from the optionee
(or a purchaser acting in his or her stead in accordance with the provisions of
the Stock Option) by the Company of the full purchase price for such shares and
the fulfillment of any other requirements contained in the Stock Option or
applicable provisions of laws.

         (b)      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, or by the optionee's legal
representative or guardian in the event of the optionee's incapacity.
Notwithstanding the foregoing, the Board in its sole discretion may provide in
any Stock Option agreement that the optionee may transfer, without consideration
for the transfer, his or her Non-Qualified Stock Options to members of his or
her immediate family, to trusts for the benefit of such family members, or to
partnerships in which such family members are the only partners or to limited
liability companies in which such family members are the only members, provided
that the transferee agrees in writing with the Company to be bound by all of the
terms and conditions of this Plan and the applicable Option.

         (c)      TERMINATION. Unless otherwise provided in the option agreement
or determined by the Board, upon the termination of the optionee's Service
Relationship with the Company or its Subsidiaries, the optionee's rights in his
or her Stock Options shall automatically terminate upon the effective date of
such termination.

SECTION 6. TAX WITHHOLDING

         (a)      PAYMENT BY PARTICIPANT. Each participant shall, no later than
the date as of which the value of an Option or of any Stock or other amounts
received thereunder first becomes includable in the gross income of the
participant for Federal income tax purposes, pay to the Company, or make
arrangements satisfactory to the Board regarding payment of, any federal, state,
or local taxes of any kind required by law to be withheld with respect to such
income. The Company and its Subsidiaries 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.

         (b)      PAYMENT IN STOCK. Subject to approval by the Board, a
participant may elect to have the minimum required tax withholding obligation
satisfied, in whole or in part, by (i) authorizing the Company to withhold from
shares of Stock to be issued pursuant to any Option a number of shares with an
aggregate Fair Market Value (as of the date the withholding is effected) that
would satisfy the withholding amount due, or (ii) transferring to the Company
shares of Stock owned by the participant with an aggregate Fair Market Value (as
of the date the withholding is effected) that would satisfy the withholding
amount due.

SECTION 7. AMENDMENTS AND TERMINATION

         The Board may, at any time, amend or discontinue the Plan and the Board
may, at any time, amend or cancel any outstanding Option (or provide substitute
Options at the same or reduced exercise or purchase price or with no exercise or
purchase price in a manner not inconsistent with the terms of the Plan), but
such price, if any, must satisfy the requirements which would apply to the
substitute or amended Option if it were then initially granted under this


                                      -6-


Plan for the purpose of satisfying changes in law or for any other lawful
purpose, but no such action shall adversely affect rights under any outstanding
Option without the holder's consent.

SECTION 8.  STATUS OF PLAN

         With respect to the portion of any Option that has not been exercised
and any payments in cash, Stock or other consideration not received by a
participant, a participant shall have no rights greater than those of a general
creditor of the Company unless the Board shall otherwise expressly determine in
connection with any Option or Options. In its sole discretion, the Board may
authorize the creation of trusts or other arrangements to meet the Company's
obligations to deliver Stock or make payments with respect to Options hereunder,
provided that the existence of such trusts or other arrangements is consistent
with the foregoing sentence.

SECTION 9.  GENERAL PROVISIONS

         (a)      NO DISTRIBUTION; COMPLIANCE WITH LEGAL REQUIREMENTS. The Board
may require each person acquiring Stock pursuant to an Option to represent to
and agree with the Company in writing that such person is acquiring the shares
without a view to distribution thereof. No shares of Stock shall be issued
pursuant to an Option until all applicable securities law and other legal and
stock exchange or similar requirements have been satisfied. The Board may
require the placing of such stop-orders and restrictive legends on certificates
for Stock and Options as it deems appropriate.

         (b)      DELIVERY OF STOCK CERTIFICATES. Stock certificates to
participants under this Plan shall be deemed delivered for all purposes when the
Company or a stock transfer agent of the Company shall have mailed such
certificates in the United States mail, addressed to the participant, at the
participant's last known address on file with the Company.

         (c)      OTHER COMPENSATION ARRANGEMENTS; NO EMPLOYMENT RIGHTS. Nothing
contained in this Plan shall prevent the Board from adopting other or additional
compensation arrangements, including trusts, and such arrangements may be either
generally applicable or applicable only in specific cases.

         (d)      TRADING POLICY RESTRICTIONS. Option exercises under the Plan
shall be subject to such Company's insider-trading-policy-related restrictions,
terms and conditions as may be established by the Board, or in accordance with
policies set by the Board, from time to time.

SECTION 10.  EFFECTIVE DATE OF PLAN

         This Plan shall become effective and shall be deemed to have been
adopted on September 9, 1999, subject to approval by the holders of a majority
of the votes cast at a meeting of stockholders at which a quorum is present or
by written consent in accordance with applicable law within twelve months after
such vote.


                                      -7-


SECTION 11.  GOVERNING LAW

         This Plan and all Options and actions taken thereunder shall be
governed by the laws of the Commonwealth of Massachusetts, applied without
regard to conflict of law principles thereof.



                                      -8-

EX-10.7

                                                                    EXHIBIT 10.7


                                 FIREPOND, INC.

                             STOCK OPTION AGREEMENT
                             ----------------------


         THIS OPTION AGREEMENT is made as of [DATE] (the "OPTION DATE"), between
Firepond, Inc., a Delaware corporation (the "COMPANY"), and [OPTIONEE], [AN
EMPLOYEE] [A DIRECTOR] of the Company or one or more of its Subsidiaries (the
"OPTIONEE").

         WHEREAS, the Company desires, by affording the Optionee an opportunity
to purchase shares of its common stock, $.01 par value per share (the "COMMON
STOCK"), as hereinafter provided, to carry out the purpose of the [NAME OF STOCK
OPTION PLAN] (the "PLAN") of the Company.

         NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth and for other good and valuable consideration, the parties hereto have
agreed, and do hereby agree, as follows:

         1.       GRANT OF OPTION. The Company hereby grants to the Optionee the
right and Option (hereinafter called the "OPTION") to purchase from the Company
all or any part of an aggregate amount of [NUMBER OF OPTION SHARES] shares (the
"OPTION SHARES") of Common Stock on the terms and conditions set forth in this
Option Agreement and in the Plan. This Option is not intended to constitute an
incentive stock option, as defined in Section 422 of the Internal Revenue Code
of 1986, as amended (the "CODE").

         2.       PURCHASE PRICE. The purchase price of the Option Shares shall
be $[EXERCISE PRICE] per share.

         3.       TERM OF OPTION. The term of this Option shall be a period of
five (5) years from the Option Date, subject to earlier termination as
hereinafter provided.

         4.       EXERCISE OF OPTION. Subject to the provisions of Sections 7,
8, 9 and 11 hereof, this Option may be exercised during the term specified in
Section 3 hereof as to [INSERT: NUMBER OF SHARES INITIALLY VESTED] of the Option
Shares from and after the Option Date, and an additional [INSERT: NUMBER OF
SHARES VESTING MONTHLY] of the Option Shares from and after each monthly
anniversary following the Option Date, such that all of the Option Shares shall
be vested and exercisable on the three (3) year anniversary of the Option Date.
In no event shall this Option be exercisable for more than the aggregate number
of Option Shares.

         5.       NON- TRANSFERABILITY. This Option is personal to the Optionee
and is not transferable by the Optionee in any manner other than by will or by
the laws of descent and distribution; provided that this Option may also be
transferred by the Optionee, without consideration for the transfer, to members
of his or her immediate family, to trusts for the benefit of such family
members, to partnerships in which such family members are the only partners, or
to limited liability companies in which such family members are the only members
(each a


                                           Firepond Confidential And Proprietary


                                       1


"PERMITTED TRANSFEREE"), provided that the transferee agrees in writing with the
Company to be bound by all of the terms and conditions of the Plan and this
Option Agreement. This Option may be exercised during the Optionee's lifetime
only by the Optionee (or by the Optionee's legal representative or guardian in
the event of the Optionee's incapacity) or by a Permitted Transferee pursuant to
this Section 5. The Optionee may elect to designate a beneficiary by providing
written notice of the name of such beneficiary to the Company, and may revoke or
change such designation at any time by filing written notice of revocation or
change with the Company; such beneficiary may exercise this Option in the event
of the Optionee's death to the extent provided herein. If the Optionee does not
designate a beneficiary, or if the designated beneficiary predeceases the
Optionee, the executor of the Optionee may exercise this Option to the extent
provided herein in the event of the Optionee's death.

         6.       NOT A CONTRACT OF EMPLOYMENT. Nothing in this Option Agreement
shall confer upon the Optionee any right to continue in the employ or service of
the Company or of any of its Subsidiaries or interfere in any way with the right
of the Company, the shareholders of the Company, the shareholders of the Company
or any such Subsidiary to terminate the employment or service of the Optionee at
any time.

         7.       TERMINATION OF EMPLOYMENT. Subject to Sections 8, 9 and 11
hereof, in the event that the Service Relationship of the Optionee shall
terminate or be terminated, the Option may be exercised (to the extent the
Optionee shall have been entitled to do so at the date of such termination
pursuant to Section 4 hereof) by the Optionee at any time:

                  (i)      within twelve (12) months after such termination if
         such termination was by reason of Disability;

                  (ii)     no later than the date of such termination if such
         termination was for Cause; and

                  (iii)    within thirty (30) days after such termination if
         such termination was for any reason other than Retirement, Disability,
         Cause or death.

However, in each case, in no event may the Option be exercised later than the
expiration of the term specified in Section 3 hereof. Any portion of this Option
that is not exercisable pursuant to Section 4 on the date of termination of the
Service Relationship shall immediately expire and be null and void.

         8.       DEATH. If the Optionee's Service Relationship terminates due
to the Optionee's death, the Option may be exercised (to the extent that the
Optionee shall have been entitled to do so at the date of his or her death
pursuant to Section 4 hereof) by the Optionee's designated beneficiary or the
person to whom the Option is transferred by will or the applicable laws of
descent and distribution, at any time within twelve (12) months after the
Optionee's death, but in no event later than the expiration of the term
specified in Section 3 hereof.



                                           Firepond Confidential And Proprietary


                                       2


         9.       EFFECT OF CERTAIN TRANSACTIONS. Upon the effectiveness of a
Transaction, unless provision is made in connection with the Transaction for the
assumption of this Option, or the substitution of this Option with new options
of the successor entity or parent thereof, with appropriate adjustment to the
number of Option Shares and, if appropriate, the Exercise Price, pursuant to the
terms of the Plan (the "ASSUMPTION"), all of the remaining Option Shares, to the
extent not vested and exercisable, shall, subject to and conditioned upon the
effectiveness of the Transaction, become vested and exercisable fifteen (15)
days prior to the anticipated effective date of the Transaction, as determined
by the Company. Further, unless there is an Assumption of this Option, this
Option shall terminate upon the effectiveness of the Transaction. In the event
of such termination, the Optionee shall be permitted to exercise this Option for
a period of at least fifteen (15) days prior to the anticipated effective date
of such Transaction to the extent that it is then vested and exercisable (after
giving effect to the acceleration of vesting, if any, provided for in this
Section 9), PROVIDED, HOWEVER, that the exercise of the portion of this Option
that becomes vested and exercisable pursuant to the acceleration provision of
this Section 9 shall be subject to and conditioned upon the effectiveness of the
Transaction. In addition, if there is an Assumption and the Optionee's Service
Relationship with such successor entity is, on or within six (6) months after
such Transaction, (i) terminated by the successor entity without Cause, or (ii)
terminated by the Optionee for Good Reason, then one hundred percent (100%) of
the shares of Common Stock subject to this Option, to the extent not fully
vested and exercisable, shall become fully vested and exercisable. In the event
that the vesting of this Option is accelerated following an Assumption pursuant
to this Section 9, Optionee shall be given a period of three (3) months
following such termination to exercise this Option.

         10.      METHOD OF EXERCISING OPTION.

                  (a)      Subject to the terms and conditions of this Option
Agreement, this Option may be exercised by written notice (in substantially the
form of APPENDIX A attached hereto) to the Chief Financial Officer of the
Company at the principal office of the Company. Such notice shall state the
election to exercise the Option and the number of Option Shares in respect of
which it is being exercised, and shall be signed by the person so exercising the
Option. Such notice shall be accompanied by payment of the full purchase price
of such Option Shares, which payment shall be made in cash or by certified check
or bank draft payable to the Company, or, in the sole discretion of the Company
(i) by delivery (or attestation to the ownership) of shares of Common Stock with
a Fair Market Value equal to the total aggregate purchase price (valued as of
the exercise date) which shares were either purchased by the Optionee on the
open market or have been held by the Optionee free of any applicable
restrictions for at least six (6) months, or (ii) by delivery to the Company of
a properly executed exercise notice together with irrevocable instructions to a
broker to promptly deliver to the Company cash or a check payable and acceptable
to the Company in the amount equal to the total aggregate purchase price;
provided that, in the event that the Optionee chooses to pay the purchase price
as so provided, the Optionee and the broker shall comply with such procedures
and enter into such agreements of indemnity and other agreements as the Board
shall prescribe as a condition of such payment procedure.



                                           Firepond Confidential And Proprietary


                                       3


                  (b)      Payment instruments will be received subject to
collection. The certificate or certificates for the shares as to which the
Option shall have been so exercised shall be registered in the name of the
person so exercising the Option, or if the Optionee so elects, in the name of
the Optionee or one other person as joint tenants. In the event the Option shall
be exercised by any person other than the Optionee, such notice shall be
accompanied by appropriate proof of the right of such person to exercise the
Option. Certificates for the Option Shares so purchased will be issued and
delivered to the Optionee upon compliance to the satisfaction of the Board with
all requirements under applicable laws or regulations in connection with such
issuance. Until the Optionee shall have complied with the requirements hereof
and of the Plan, including the withholding requirements set forth in Section 13
below, the Company shall be under no obligation to issue the Option Shares
subject to this Option, and the determination of the Board as to such compliance
shall be final and binding on the Optionee. The Company shall not be required to
issue fractional shares upon the exercise of this Option.

         11.      FORFEITURE OF UNEXERCISED OPTIONS. In the event the Optionee
breaches the terms of the Company's standard Employee Agreement (the "EMPLOYEE
AGREEMENT") as executed by the Optionee and the Company, the terms of which are
expressly incorporated herein by reference, any Options which have vested but
are unexercised at the time of such breach shall immediately be forfeited and
shall not thereafter be exercisable by Optionee. Forfeiture of the unexercised
portion of the Option shall apply to the unexercised portion held by the
Optionee or by any Permitted Transferee of such unexercised portion of the
Option.

         12.      PAYMENT UPON THE SALE OF EXERCISED SHARES. In the event that
the Optionee breaches any of the terms of the Employee Agreement and prior to
such breach has, or a Permitted Transferee has, sold, transferred or otherwise
disposed of or, following such breach, sells, transfers or otherwise disposes
of, any Exercised Shares, for each Exercised Share so sold, transferred or
disposed of, the Optionee hereby agrees to pay to the Company, in cash, upon
demand, an amount equal to the difference between the Exercise Price per share
of the Exercised Shares and the value per share received by the Optionee, or the
Permitted Transferee, pursuant to such sale of the Exercised Shares.

         13.      WITHHOLDING REQUIREMENTS.

                  (a)      PAYMENT BY OPTIONEE. Upon exercise of the Option by
the Optionee (or, if applicable, the transfer, in whole or in part of any shares
acquired upon the exercise of the Option, the operation of any law or regulation
providing for the imputation of interest related to the Option, or the lapsing
of any restriction with respect to any shares acquired upon exercise of the
Option) which exercise (or other event) gives rise to taxable income and
subjects the Company to a tax withholding obligation, the Company shall have the
right to require the Optionee to remit to the Company cash in an amount
sufficient to satisfy applicable federal, state, foreign and local tax
withholding requirements or the Company may, but will not be required to,
withhold such amounts from payroll or any other amounts payable to the Optionee.
The Company shall inform the Optionee as to whether it will require the Optionee
to remit cash for withholding taxes in accordance with the preceding sentence
within two (2) business days after



                                           Firepond Confidential And Proprietary


                                       4


receiving from the Optionee notice that such Optionee intends to exercise, or
has exercised, all or a portion of the Option.

                  (b)      PAYMENT IN COMMON STOCK. Subject to approval by the
Company, the Optionee may elect to have the minimum tax withholding obligation
satisfied, in whole or in part, by (i) authorizing the Company to withhold from
shares of Common Stock to be issued a number of shares of Common Stock with an
aggregate Fair Market Value (as of the date the withholding is effected) that
would satisfy the withholding amount due or (ii) transferring to the Company
shares of Common Stock owned by the Optionee with an aggregate Fair Market Value
(as of the date the withholding is effected) that would satisfy the withholding
amount due. The Fair Market Value of any shares of Common Stock withheld or
tendered to satisfy any such tax withholding obligation shall not exceed the
amount determined by the applicable minimum statutory withholding rates.

         14.      STOCK PLAN. This Option is subject to all of the terms and
conditions set forth in the Plan; provided, that, notwithstanding anything in
this Option Agreement to the contrary, to the extent of any conflict between the
terms of the Plan and this Option Agreement, the terms of the Plan shall
control. By acceptance hereof, Optionee acknowledges receipt of a copy of the
Plan and agrees to and accepts this Option subject to the terms of the Plan. A
copy of the Plan is on file with the Chief Financial Officer of the Company.

         15.      NO DISTRIBUTION; COMPLIANCE WITH LEGAL REQUIREMENTS. The grant
of this Option and the issuance of shares of Common Stock upon exercise of this
Option shall be subject to compliance with all applicable requirements of
federal, state and foreign law with respect to such securities. This Option may
not be exercised if the issuance of shares of Common Stock upon exercise would
constitute a violation of any applicable federal, state or foreign securities
laws or other law or regulations or the requirements of any stock exchange or
market system upon which the Common Stock may then be listed. Further, no shares
of Common Stock shall be issued pursuant to this Option until all applicable
securities law and other legal and stock exchange or similar requirements have
been satisfied. The Board may require the placing of such stop orders and
restrictive legends on certificates for Common Stock received pursuant to this
Option, as it deems appropriate. The inability of the Company to obtain from any
regulatory body having jurisdiction the authority, if any, deemed by the
Company's legal counsel to be necessary to the lawful issuance and sale of any
shares hereunder shall relieve the Company of any liability in respect of the
failure to issue or sell such shares as to which such requisite authority shall
not have been obtained. As a condition to the exercise of this Option, the
Company may require the Optionee to satisfy any qualifications that may be
necessary or appropriate, to evidence compliance with any applicable law or
regulation and to make any representation or warranty with respect thereto as
may be requested by the Company and may require the Optionee to represent to and
agree with the Company in writing that such person is acquiring the shares
without a view to distribution thereof.

         16.      LOCK-UP PROVISION. The Optionee agrees, if requested by the
Company and any underwriter engaged by the Company, not to offer, sell, contract
to sell, pledge, hypothecate, grant any option to purchase or make any short
sale of, or otherwise dispose of any securities



                                           Firepond Confidential And Proprietary


                                       5


(including the right to acquire any Common Stock) of the Company (including,
without limitation, pursuant to Rule 144 under the Securities Act of 1933, as
amended (the "SECURITIES ACT")) held by him or her for such period following the
effective date of any registration statement of the Company filed under the
Securities Act as the Company or such underwriter shall specify reasonably and
in good faith, not to exceed ninety (90) days.

         17.      STATUS. Neither the Optionee nor the Optionee's executor,
administrator, heirs or legatees shall be or have any rights or privileges of a
shareholder of the Company in respect of the shares transferable upon exercise
of the Option granted hereunder, unless and until certificates representing such
shares shall be endorsed, transferred, and delivered and the transferee has
caused the Optionee's name to be entered as the shareholder of record on the
books of the Company.

         18.      COMPANY AUTHORITY. The existence of the Option herein granted
shall not affect in any way the right or power of the Company or its
shareholders to make or authorize any or all adjustments, recapitalizations,
reorganizations or other changes in the Company's capital structure or its
business, or any merger or consolidation of the Company, or any issue of bonds,
debentures, preferred or prior preference stock ahead of or affecting the Common
Stock of the Company or the rights thereof, or dissolution or liquidation of the
Company, or any sale or transfer of all or any part of its assets or business,
or any other corporate act or proceeding, whether of a similar character or
otherwise.

         19.      DISPUTES. As a condition of the granting of the Option herein
granted, the Optionee agrees, for the Optionee, any Permitted Transferees and
the Optionee's personal representatives, that any interpretation which may arise
under or as a result of or pursuant to this Option Agreement shall be determined
by the Board, in its sole discretion, and that any interpretation by the Board
of the terms of this Option Agreement shall be final, binding and conclusive.

         20.      EQUITABLE RELIEF. The parties hereto agree and declare that
legal remedies may be inadequate to enforce the provisions of this Option
Agreement and that equitable relief, including specific performance and
injunctive relief, may be used to enforce the provisions of this Option
Agreement.

         21.      BINDING EFFECT. This Option Agreement shall be binding upon
the heirs, executors, administrators, successors and assigns of the parties
hereto.

         22.      INTEGRATED AGREEMENT. This Option Agreement and the Plan
constitute the entire understanding and agreement between the Optionee and the
Company with respect to the subject matter contained herein and supercedes any
prior agreements, understandings, restrictions, representations, or warranties
among the Optionee and the Company with respect to such subject matter except as
provided for herein. To the extent contemplated herein, the provisions of this
Option Agreement shall survive any exercise of this Option and shall remain in
full force and effect.



                                           Firepond Confidential And Proprietary


                                       6


         23.      SAVING CLAUSE. If any provision(s) of this Option Agreement
shall be determined to be illegal or unenforceable, such determination shall in
no manner affect the legality or enforceability of any other provision hereof.

         24.      HEADINGS. The headings used herein are intended only for
convenience in finding the subject matter hereof and do not constitute part of
the text of this Option Agreement and shall not be considered in the
interpretation of this Option Agreement.

         25.      NOTICES. All notices, requests, consents and other
communications shall be in writing and be deemed given when delivered
personally, by telex or facsimile transmission or two (2) days after deposit in
the mail if mailed by first class registered or certified mail, postage prepaid
or one (1) business day after deposit with a nationally recognized overnight
carrier. Notices to the Company or the Optionee shall be addressed to such
address or addresses as may have been furnished by such party in writing to the
other.

         26.      GOVERNING LAW. This Option Agreement is a Massachusetts
contract and shall be construed under and be governed in all respects by the
laws of the Commonwealth of Massachusetts, without regard to conflict of law
principles. Any legal action or suit related to this Agreement shall be brought
exclusively in the courts of Massachusetts. Both parties agree that the courts
of Massachusetts are a convenient forum for the resolution of disputes.

         27.      DEFINITIONS. Capitalized terms used herein and not otherwise
defined shall have their respective meanings set forth in the Plan. For purposes
of this Option Agreement, the following terms shall be defined as set forth
below:

                  "CAUSE" means (i) any material breach by the Optionee of any
agreement to which the Optionee and the Company or its Subsidiaries are parties,
including breach of covenants not to compete and covenants relating to the
protection of confidential information and proprietary rights of the Company or
its Subsidiaries which breach is not cured pursuant to the terms of such
agreement, (ii) any act (other than retirement) or omission to act by the
Optionee which would reasonably be likely to have a material adverse effect on
the business of the Company or its Subsidiaries or on the Optionee's ability to
perform services for the Company or its Subsidiaries, including, without
limitation, the conviction or plea of guilty or nolo contendre to any crime
(other than ordinary traffic violations) which impairs the Optionee's ability to
perform his or her duties, (iii) any material misconduct or willful and
deliberate non-performance of duties by the Optionee in connection with the
business or affairs of the Company or its Subsidiaries, (iv) the Optionee's
theft, dishonesty, or falsification of the Company's or its Subsidiaries'
documents or records, or (v) the Optionee's improper use or disclosure of the
Company's or its Subsidiaries' confidential or proprietary information. All
references herein to the Company or its Subsidiaries shall include any successor
entity thereof.

                  "DISABILITY" means permanent and total disability as
determined by the Board.

                  "EARLY RETIREMENT" means retirement, with consent of the Board
at the time of retirement, from active employment with the Company and any
Subsidiary or Parent Corporation.



                                           Firepond Confidential And Proprietary


                                       7


                  "EXERCISED SHARES" means all shares of Common Stock purchased
by Optionee upon exercise of this Option, or any portion thereof.

                  "GOOD REASON" means the occurrence of any of the following
events: (i) a substantial adverse change in the nature or scope of the
Optionee's responsibilities, authorities, powers, functions or duties; (ii) a
reduction in the Optionee's annual base salary except for across-the-board
salary reductions similarly affecting all, or substantially all, management
employees; or (iii) the relocation of the offices at which the Optionee is
principally employed to a location more than fifty (50) miles from such offices.

                  "NORMAL RETIREMENT" means retirement from active employment
with the Company and any Subsidiary or Parent Corporation on or after age 65.

                  "RETIREMENT" means Normal Retirement or Early Retirement.

                  "SERVICE RELATIONSHIP" means the Optionee's employment or
service with the Company or its Subsidiary, whether in the capacity of an
employee, director or a consultant; provided that, if this Option was granted
under the 1999 Director Plan, then "Service Relationship" shall mean any
relationship as a non-employee director of the Company or any Subsidiary of the
Company. Unless otherwise determined by the Company, the Optionee's Service
Relationship shall not be deemed to have terminated merely because of a transfer
between locations of the Company or its Subsidiaries or a transfer between the
Company and any Subsidiary, provided that there is no interruption or other
termination of the Service Relationship. Subject to the foregoing, the Company,
in its discretion, shall determine whether the Optionee's Service Relationship
has terminated and the effective date of such termination. The Company shall
have the sole discretion to determine the reason for the termination of the
Optionee's Service Relationship.



                                           Firepond Confidential And Proprietary


                                       8



         IN WITNESS WHEREOF, the Company has caused this Option Agreement to be
duly executed by an officer thereunto duly authorized, and the Optionee has
hereunto set his or her hand, as of the date(s) set forth below.


                                        FIREPOND, INC.


                                        By:
                                            -----------------------------------
                                            Name: Paul K. McDermott
                                            Title: Chief Financial Officer



                                        ---------------------------------------
                                        Date



                                        OPTIONEE


                                        ---------------------------------------
                                        Optionee Signature



                                        ---------------------------------------
                                        Date




                                           Firepond Confidential And Proprietary


                                       9



                                   APPENDIX A
                                   ----------

                          STOCK OPTION EXERCISE NOTICE



Firepond, Inc.
890 Winter Street
Waltham, Massachusetts  02451
Attention:  Chief Financial Officer                    Date: ___________________


         Pursuant to the terms of the Stock Option Agreement granted pursuant to
the [INSERT: PLAN] on _______________and entered into by Firepond, Inc. and
[INSERT: OPTIONEE], I hereby [Circle One] partially/fully exercise such option
by including herein payment in the amount of $__________ representing the
purchase price for __________ shares of common stock, all of which have vested
in accordance with the Stock Option Agreement. I hereby authorize payroll
withholding or otherwise will make adequate provision for federal, state,
foreign and local tax withholding obligations of the Company, if any, that arise
in connection with the option.

         I acknowledge that the shares are being acquired in accordance with and
subject to the terms, provisions and conditions of the Plan and the Stock Option
Agreement, copies of which I have received and carefully read and understand,
including the provision regarding payment upon the sale of exercised shares set
forth therein, to all of which I hereby expressly assent.



                           Sincerely yours,


                                     ___________________________________________
                                     Name: [INSERT OPTIONEE'S NAME]

                                     Address:
                                               _________________________________

                                               _________________________________





                                           Firepond Confidential And Proprietary


                                       10

EX-10.8

                                                                    EXHIBIT 10.8

                                 FIREPOND, INC.

                             STOCK OPTION AGREEMENT


         THIS OPTION AGREEMENT is made as of [DATE] (the "OPTION DATE"), between
Firepond, Inc., a Delaware corporation (the "COMPANY"), and [OPTIONEE], [AN
EMPLOYEE] [A DIRECTOR] of the Company or one or more of its Subsidiaries (the
"OPTIONEE").

         WHEREAS, the Company desires, by affording the Optionee an opportunity
to purchase shares of its common stock, $.01 par value per share (the "COMMON
STOCK"), as hereinafter provided, to carry out the purpose of the [NAME OF STOCK
OPTION PLAN] (the "PLAN") of the Company.

         NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth and for other good and valuable consideration, the parties hereto have
agreed, and do hereby agree, as follows:

         1.       GRANT OF OPTION. The Company hereby grants to the Optionee the
right and Option (hereinafter called the "OPTION") to purchase from the Company
all or any part of an aggregate amount of [NUMBER OF OPTION SHARES] shares (the
"OPTION SHARES") of Common Stock on the terms and conditions set forth in this
Option Agreement and in the Plan. This Option is not intended to constitute an
incentive stock option, as defined in Section 422 of the Internal Revenue Code
of 1986, as amended (the "CODE").

         2.       PURCHASE PRICE. The purchase price of the Option Shares shall
be $[EXERCISE PRICE] per share.

         3.       TERM OF OPTION. The term of this Option shall be a period of
five (5) years from the Option Date, subject to earlier termination as
hereinafter provided.

         4.       EXERCISE OF OPTION. Subject to the provisions of Sections 7,
8, 9 and 11 hereof, this Option may be exercised during the term specified in
Section 3 hereof as to [INSERT: NUMBER OF SHARES INITIALLY VESTED] of the Option
Shares from and after the Option Date, and an additional [INSERT: NUMBER OF
SHARES VESTING MONTHLY] of the Option Shares from and after each monthly
anniversary of the Option Date, such that all of the Option Shares shall be
vested and exercisable on the three (3) year anniversary of the Option Date. In
no event shall this Option be exercisable for more than the aggregate number of
Option Shares.

         5.       NON- TRANSFERABILITY. This Option is personal to the Optionee
and is not transferable by the Optionee in any manner other than by will or by
the laws of descent and distribution; provided that this Option may also be
transferred by the Optionee, without consideration for the transfer, to members
of his or her immediate family, to trusts for the benefit



                                           Firepond Confidential And Proprietary


                                       1


of such family members, to partnerships in which such family members are the
only partners, or to limited liability companies in which such family members
are the only members (each a "PERMITTED TRANSFEREE"), provided that the
transferee agrees in writing with the Company to be bound by all of the terms
and conditions of the Plan and this Option Agreement. This Option may be
exercised during the Optionee's lifetime only by the Optionee (or by the
Optionee's legal representative or guardian in the event of the Optionee's
incapacity) or by a Permitted Transferee pursuant to this Section 5. The
Optionee may elect to designate a beneficiary by providing written notice of the
name of such beneficiary to the Company, and may revoke or change such
designation at any time by filing written notice of revocation or change with
the Company; such beneficiary may exercise this Option in the event of the
Optionee's death to the extent provided herein. If the Optionee does not
designate a beneficiary, or if the designated beneficiary predeceases the
Optionee, the executor of the Optionee may exercise this Option to the extent
provided herein in the event of the Optionee's death.

         6.       NOT A CONTRACT OF EMPLOYMENT. Nothing in this Option Agreement
shall confer upon the Optionee any right to continue in the employ or service of
the Company or of any of its Subsidiaries or interfere in any way with the right
of the Company, the shareholders of the Company, the shareholders of the Company
or any such Subsidiary to terminate the employment or service of the Optionee at
any time.

         7.       TERMINATION OF EMPLOYMENT. Subject to Sections 8, 9 and 11
hereof, in the event that the Service Relationship of the Optionee shall
terminate or be terminated, the Option may be exercised (to the extent the
Optionee shall have been entitled to do so at the date of such termination
pursuant to Section 4 hereof) by the Optionee at any time:

                  (i)      within twelve (12) months after such termination if
         such termination was by reason of Disability;

                  (ii)     no later than the date of such termination if such
         termination was for Cause; and

                  (iii)    within thirty (30) days after such termination if
         such termination was for any reason other than Retirement, Disability,
         Cause or death.

However, in each case, in no event may the Option be exercised later than the
expiration of the term specified in Section 3 hereof. Any portion of this Option
that is not exercisable pursuant to Section 4 on the date of termination of the
Service Relationship shall immediately expire and be null and void.

         8.       DEATH. If the Optionee's Service Relationship terminates due
to the Optionee's death, the Option may be exercised (to the extent that the
Optionee shall have been entitled to do so at the date of his or her death
pursuant to Section 4 hereof) by the Optionee's designated beneficiary or the
person to whom the Option is transferred by will or the applicable laws of


                                       2


descent and distribution, at any time within twelve (12) months after the
Optionee's death, but in no event later than the expiration of the term
specified in Section 3 hereof.

         9.       EFFECT OF CERTAIN TRANSACTIONS. Upon the effectiveness of a
Transaction, unless provision is made in connection with the Transaction for the
assumption of this Option, or the substitution of this Option with new options
of the successor entity or parent thereof, with appropriate adjustment to the
number of Option Shares and, if appropriate, the Exercise Price, pursuant to the
terms of the Plan this Option shall terminate upon the effectiveness of the
Transaction. In the event of such termination, the Optionee shall be permitted
to exercise this Option for a period of at least fifteen (15) days prior to the
anticipated effective date of such Transaction to the extent that it is then
vested and exercisable.

         10.      METHOD OF EXERCISING OPTION.

                  (a)      Subject to the terms and conditions of this Option
Agreement, this Option may be exercised by written notice (in substantially the
form of APPENDIX A attached hereto) to the Chief Financial Officer of the
Company at the principal office of the Company. Such notice shall state the
election to exercise the Option and the number of Option Shares in respect of
which it is being exercised, and shall be signed by the person so exercising the
Option. Such notice shall be accompanied by payment of the full purchase price
of such Option Shares, which payment shall be made in cash or by certified check
or bank draft payable to the Company, or, in the sole discretion of the Company
(i) by delivery (or attestation to the ownership) of shares of Common Stock with
a Fair Market Value equal to the total aggregate purchase price (valued as of
the exercise date) which shares were either purchased by the Optionee on the
open market or have been held by the Optionee free of any applicable
restrictions for at least six (6) months, or (ii) by delivery to the Company of
a properly executed exercise notice together with irrevocable instructions to a
broker to promptly deliver to the Company cash or a check payable and acceptable
to the Company in the amount equal to the total aggregate purchase price;
provided that, in the event that the Optionee chooses to pay the purchase price
as so provided, the Optionee and the broker shall comply with such procedures
and enter into such agreements of indemnity and other agreements as the Board
shall prescribe as a condition of such payment procedure.

                  (b)      Payment instruments will be received subject to
collection. The certificate or certificates for the shares as to which the
Option shall have been so exercised shall be registered in the name of the
person so exercising the Option, or if the Optionee so elects, in the name of
the Optionee or one other person as joint tenants. In the event the Option shall
be exercised by any person other than the Optionee, such notice shall be
accompanied by appropriate proof of the right of such person to exercise the
Option. Certificates for the Option Shares so purchased will be issued and
delivered to the Optionee upon compliance to the satisfaction of the Board with
all requirements under applicable laws or regulations in connection with such
issuance. Until the Optionee shall have complied with the requirements hereof
and of the Plan, including the withholding requirements set forth in Section 13
below, the Company shall be under no



                                           Firepond Confidential And Proprietary


                                       3


obligation to issue the Option Shares subject to this Option, and the
determination of the Board as to such compliance shall be final and binding on
the Optionee. The Company shall not be required to issue fractional shares upon
the exercise of this Option.

         11.      FORFEITURE OF UNEXERCISED OPTIONS. In the event the Optionee
breaches the terms of the Company's standard Employee Agreement (the "EMPLOYEE
AGREEMENT") as executed by the Optionee and the Company, the terms of which are
expressly incorporated herein by reference, any Options which have vested but
are unexercised at the time of such breach shall immediately be forfeited and
shall not thereafter be exercisable by Optionee. Forfeiture of the unexercised
portion of the Option shall apply to the unexercised portion held by the
Optionee or by any Permitted Transferee of such unexercised portion of the
Option.

         12.      PAYMENT UPON THE SALE OF EXERCISED SHARES. In the event that
the Optionee breaches any of the terms of the Employee Agreement and prior to
such breach has, or a Permitted Transferee has, sold, transferred or otherwise
disposed of or, following such breach, sells, transfers or otherwise disposes
of, any Exercised Shares, for each Exercised Share so sold, transferred or
disposed of, the Optionee hereby agrees to pay to the Company, in cash, upon
demand, an amount equal to the difference between the Exercise Price per share
of the Exercised Shares and the value per share received by the Optionee, or the
Permitted Transferee, pursuant to such sale of the Exercised Shares.

         13.      WITHHOLDING REQUIREMENTS.

                  (a)      PAYMENT BY OPTIONEE. Upon exercise of the Option by
the Optionee (or, if applicable, the transfer, in whole or in part of any shares
acquired upon the exercise of the Option, the operation of any law or regulation
providing for the imputation of interest related to the Option, or the lapsing
of any restriction with respect to any shares acquired upon exercise of the
Option) which exercise (or other event) gives rise to taxable income and
subjects the Company to a tax withholding obligation, the Company shall have the
right to require the Optionee to remit to the Company cash in an amount
sufficient to satisfy applicable federal, state, foreign and local tax
withholding requirements or the Company may, but will not be required to,
withhold such amounts from payroll or any other amounts payable to the Optionee.
The Company shall inform the Optionee as to whether it will require the Optionee
to remit cash for withholding taxes in accordance with the preceding sentence
within two (2) business days after receiving from the Optionee notice that such
Optionee intends to exercise, or has exercised, all or a portion of the Option.

                  (b)      PAYMENT IN COMMON STOCK. Subject to approval by the
Company, the Optionee may elect to have the minimum tax withholding obligation
satisfied, in whole or in part, by (i) authorizing the Company to withhold from
shares of Common Stock to be issued a number of shares of Common Stock with an
aggregate Fair Market Value (as of the date the withholding is effected) that
would satisfy the withholding amount due or (ii) transferring to the Company
shares of Common Stock owned by the Optionee with an aggregate Fair Market Value



                                           Firepond Confidential And Proprietary


                                       4


(as of the date the withholding is effected) that would satisfy the withholding
amount due. The Fair Market Value of any shares of Common Stock withheld or
tendered to satisfy any such tax withholding obligation shall not exceed the
amount determined by the applicable minimum statutory withholding rates.

         14.      STOCK PLAN. This Option is subject to all of the terms and
conditions set forth in the Plan; provided, that, notwithstanding anything in
this Option Agreement to the contrary, to the extent of any conflict between the
terms of the Plan and this Option Agreement, the terms of the Plan shall
control. By acceptance hereof, Optionee acknowledges receipt of a copy of the
Plan and agrees to and accepts this Option subject to the terms of the Plan. A
copy of the Plan is on file with the Chief Financial Officer of the Company.

         15.      NO DISTRIBUTION; COMPLIANCE WITH LEGAL REQUIREMENTS. The grant
of this Option and the issuance of shares of Common Stock upon exercise of this
Option shall be subject to compliance with all applicable requirements of
federal, state and foreign law with respect to such securities. This Option may
not be exercised if the issuance of shares of Common Stock upon exercise would
constitute a violation of any applicable federal, state or foreign securities
laws or other law or regulations or the requirements of any stock exchange or
market system upon which the Common Stock may then be listed. Further, no shares
of Common Stock shall be issued pursuant to this Option until all applicable
securities law and other legal and stock exchange or similar requirements have
been satisfied. The Board may require the placing of such stop orders and
restrictive legends on certificates for Common Stock received pursuant to this
Option, as it deems appropriate. The inability of the Company to obtain from any
regulatory body having jurisdiction the authority, if any, deemed by the
Company's legal counsel to be necessary to the lawful issuance and sale of any
shares hereunder shall relieve the Company of any liability in respect of the
failure to issue or sell such shares as to which such requisite authority shall
not have been obtained. As a condition to the exercise of this Option, the
Company may require the Optionee to satisfy any qualifications that may be
necessary or appropriate, to evidence compliance with any applicable law or
regulation and to make any representation or warranty with respect thereto as
may be requested by the Company and may require the Optionee to represent to and
agree with the Company in writing that such person is acquiring the shares
without a view to distribution thereof.

         16.      LOCK-UP PROVISION. The Optionee agrees, if requested by the
Company and any underwriter engaged by the Company, not to offer, sell, contract
to sell, pledge, hypothecate, grant any option to purchase or make any short
sale of, or otherwise dispose of any securities (including the right to acquire
any Common Stock) of the Company (including, without limitation, pursuant to
Rule 144 under the Securities Act of 1933, as amended (the "SECURITIES ACT"))
held by him or her for such period following the effective date of any
registration statement of the Company filed under the Securities Act as the
Company or such underwriter shall specify reasonably and in good faith, not to
exceed ninety (90) days.



                                           Firepond Confidential And Proprietary

                                       5


         17.      STATUS. Neither the Optionee nor the Optionee's executor,
administrator, heirs or legatees shall be or have any rights or privileges of a
shareholder of the Company in respect of the shares transferable upon exercise
of the Option granted hereunder, unless and until certificates representing such
shares shall be endorsed, transferred, and delivered and the transferee has
caused the Optionee's name to be entered as the shareholder of record on the
books of the Company.

         18.      COMPANY AUTHORITY. The existence of the Option herein granted
 shall not affect in any way the right or power of the Company or its
shareholders to make or authorize any or all adjustments, recapitalizations,
reorganizations or other changes in the Company's capital structure or its
business, or any merger or consolidation of the Company, or any issue of bonds,
debentures, preferred or prior preference stock ahead of or affecting the Common
Stock of the Company or the rights thereof, or dissolution or liquidation of the
Company, or any sale or transfer of all or any part of its assets or business,
or any other corporate act or proceeding, whether of a similar character or
otherwise.

         19.      DISPUTES. As a condition of the granting of the Option herein
granted, the Optionee agrees, for the Optionee, any Permitted Transferees and
the Optionee's personal representatives, that any interpretation which may arise
under or as a result of or pursuant to this Option Agreement shall be determined
by the Board, in its sole discretion, and that any interpretation by the Board
of the terms of this Option Agreement shall be final, binding and conclusive.

         20.      EQUITABLE RELIEF. The parties hereto agree and declare that
legal remedies may be inadequate to enforce the provisions of this Option
Agreement and that equitable relief, including specific performance and
injunctive relief, may be used to enforce the provisions of this Option
Agreement.

         21.      BINDING EFFECT. This Option Agreement shall be binding upon
the heirs, executors, administrators, successors and assigns of the parties
hereto.

         22.      INTEGRATED AGREEMENT. This Option Agreement and the Plan
constitute the entire understanding and agreement between the Optionee and the
Company with respect to the subject matter contained herein and supercedes any
prior agreements, understandings, restrictions, representations, or warranties
among the Optionee and the Company with respect to such subject matter except as
provided for herein. To the extent contemplated herein, the provisions of this
Option Agreement shall survive any exercise of this Option and shall remain in
full force and effect.

         23.      SAVING CLAUSE. If any provision(s) of this Option Agreement
shall be determined to be illegal or unenforceable, such determination shall in
no manner affect the legality or enforceability of any other provision hereof.



                                           Firepond Confidential And Proprietary

                                       6


         24.      HEADINGS. The headings used herein are intended only for
convenience in finding the subject matter hereof and do not constitute part of
the text of this Option Agreement and shall not be considered in the
interpretation of this Option Agreement.

         25.      NOTICES. All notices, requests, consents and other
communications shall be in writing and be deemed given when delivered
personally, by telex or facsimile transmission or two (2) days after deposit in
the mail if mailed by first class registered or certified mail, postage prepaid
or one (1) business day after deposit with a nationally recognized overnight
carrier. Notices to the Company or the Optionee shall be addressed to such
address or addresses as may have been furnished by such party in writing to the
other.

         26.      GOVERNING LAW. This Option Agreement is a Massachusetts

contract and shall be construed under and be governed in all respects by the
laws of the Commonwealth of Massachusetts, without regard to conflict of law
principles. Any legal action or suit related to this Agreement shall be brought
exclusively in the courts of Massachusetts. Both parties agree that the courts
of Massachusetts are a convenient forum for the resolution of disputes.

         27.      DEFINITIONS. Capitalized terms used herein and not otherwise
defined shall have their respective meanings set forth in the Plan. For purposes
of this Option Agreement, the following terms shall be defined as set forth
below:

                  "CAUSE" means (i) any material breach by the Optionee of any
agreement to which the Optionee and the Company or its Subsidiaries are parties,
including breach of covenants not to compete and covenants relating to the
protection of confidential information and proprietary rights of the Company or
its Subsidiaries which breach is not cured pursuant to the terms of such
agreement, (ii) any act (other than retirement) or omission to act by the
Optionee which would reasonably be likely to have a material adverse effect on
the business of the Company or its Subsidiaries or on the Optionee's ability to
perform services for the Company or its Subsidiaries, including, without
limitation, the conviction or plea of guilty or nolo contendre to any crime
(other than ordinary traffic violations) which impairs the Optionee's ability to
perform his or her duties, (iii) any material misconduct or willful and
deliberate non-performance of duties by the Optionee in connection with the
business or affairs of the Company or its Subsidiaries, (iv) the Optionee's
theft, dishonesty, or falsification of the Company's or its Subsidiaries'
documents or records, or (v) the Optionee's improper use or disclosure of the
Company's or its Subsidiaries' confidential or proprietary information. All
references herein to the Company or its Subsidiaries shall include any successor
entity thereof.

                  "DISABILITY" means permanent and total disability as
determined by the Board.

                  "EARLY RETIREMENT" means retirement, with consent of the Board
at the time of retirement, from active employment with the Company and any
Subsidiary or Parent Corporation.

                  "EXERCISED SHARES" means all shares of Common Stock purchased
by Optionee



                                           Firepond Confidential And Proprietary


                                       7


upon exercise of this Option, or any portion thereof.

                  "GOOD REASON" means the occurrence of any of the following
events: (i) a substantial adverse change in the nature or scope of the
Optionee's responsibilities, authorities, powers, functions or duties; (ii) a
reduction in the Optionee's annual base salary except for across-the-board
salary reductions similarly affecting all, or substantially all, management
employees; or (iii) the relocation of the offices at which the Optionee is
principally employed to a location more than fifty (50) miles from such offices.

                  "NORMAL RETIREMENT" means retirement from active employment
with the Company and any Subsidiary or Parent Corporation on or after age 65.

                  "RETIREMENT" means Normal Retirement or Early Retirement.

                  "SERVICE RELATIONSHIP" means the Optionee's employment or
service with the Company or its Subsidiary, whether in the capacity of an
employee, director or a consultant; provided that, if this Option was granted
under the 1999 Director Plan, then "Service Relationship" shall mean any
relationship as a non-employee director of the Company or any Subsidiary of the
Company. Unless otherwise determined by the Company, the Optionee's Service
Relationship shall not be deemed to have terminated merely because of a transfer
between locations of the Company or its Subsidiaries or a transfer between the
Company and any Subsidiary, provided that there is no interruption or other
termination of the Service Relationship. Subject to the foregoing, the Company,
in its discretion, shall determine whether the Optionee's Service Relationship
has terminated and the effective date of such termination. The Company shall
have the sole discretion to determine the reason for the termination of the
Optionee's Service Relationship.




                                           Firepond Confidential And Proprietary

                                       8



         IN WITNESS WHEREOF, the Company has caused this Option Agreement to be
duly executed by an officer thereunto duly authorized, and the Optionee has
hereunto set his or her hand, as of the date(s) set forth below.




                                        FIREPOND, INC.


                                        By:
                                            -----------------------------------
                                            Name: Paul K. McDermott
                                            Title: Chief Financial Officer



                                        ---------------------------------------
                                        Date



                                        OPTIONEE


                                        ---------------------------------------
                                        Optionee Signature



                                        ---------------------------------------
                                        Date






                                           Firepond Confidential And Proprietary


                                       9




                                   APPENDIX A
                                   ----------

                          STOCK OPTION EXERCISE NOTICE



Firepond, Inc.
890 Winter Street
Waltham, Massachusetts  02451
Attention: Chief Financial Officer                           Date: _____________



         Pursuant to the terms of the Stock Option Agreement granted pursuant to
the [INSERT: PLAN] on _______________and entered into by Firepond, Inc. and
[INSERT: OPTIONEE], I hereby [Circle One] partially/fully exercise such option
by including herein payment in the amount of $__________ representing the
purchase price for __________ shares of common stock, all of which have vested
in accordance with the Stock Option Agreement. I hereby authorize payroll
withholding or otherwise will make adequate provision for federal, state,
foreign and local tax withholding obligations of the Company, if any, that arise
in connection with the option.

         I acknowledge that the shares are being acquired in accordance with and
subject to the terms, provisions and conditions of the Plan and the Stock Option
Agreement, copies of which I have received and carefully read and understand,
including the provision regarding payment upon the sale of exercised shares set
forth therein, to all of which I hereby expressly assent.



                           Sincerely yours,


                                     ___________________________________________
                                     Name: [INSERT OPTIONEE'S NAME]

                                     Address:
                                               _________________________________

                                               _________________________________





                                           Firepond Confidential And Proprietary


                                       10

EX-10.11

                                                                   EXHIBIT 10.11


                             [FIREPOND LETTERHEAD]


April 17, 2000

Mr. Joel Radford
5309 Channel Isle
Plano, TX 75093

Re: Relocation to Boston


Dear Joel:

I am pleased to present the following proposal for you and your family to
relocate to Boston and change your principal office to our Waltham Headquarters.
FirePond will change your terms of employment to provide the following
compensation plan as a replacement for earlier compensation plans (except for
pre-existing stock option grants which shall continue in effect):

- -     Annualized Base salary of $140,000 per year;

- -     Grant of 50,000 stock options at fair market value as of the date of
      written acceptance, such options to vest equally on the annual anniversary
      of the grant over four years (25% per year) (each such grant subject to
      the terms of the 1999 Grant and Stock Option Plan, standard stock option
      agreement and execution of standard employment agreement regarding
      inventions, confidentiality and non-competition);

- -     In the event of a change of control ("Change of Control") meaning:

      -     A sale of all or substantially all of the assets of the Company;

      -     Any merger or consolidation of the Company where the Company is not
            the surviving entity; or

      -     A sale of outstanding capital stock of the Company subsequent to the
            date of written acceptance whereby the holders of the Company's
            voting stock as becomes less than fifty (50%) percent following such
            sale, excluding any secondary or subsequent offering of the
            Company's stock to the public;

      where you are not offered a substantially similar position at
      substantially similar compensation, then after the closing of any of such
      events, fifty (50%) percent of your then outstanding unvested options
      shall become vested as of the date immediately preceding any such
      transaction closing;

- -     In the event your employment is terminated without cause FirePond will pay
      you six months base salary and six months employer's portion of fringe
      benefits (health and life insurance) premiums, and FirePond will pay the




      expense associate with moving you back to the vicinity of Plano, Texas on
      reimbursement terms consistent with the terms of moving you and your
      family to Boston; and

- -     Reimbursement of reasonable an actual relocation expenses on terms
      consistent with the FirePond Executive relocation plan;

- -     In order to assist with your transition, effective upon relocation, you
      will receive a salary supplement of $2,500 per month until the end of the
      black out period for fiscal Q3 (approximately September 10, 2000).

The benefits listed above other than the first two bullet points (salary and
grant of additional options) are contingent upon relocation by July 15, 2000,
otherwise such additional incentives are null and void.

Please confirm your acceptance of this proposal by signing the enclosed copy of
this letter and returning to Paul McDermott, within two weeks.


I look forward to your relocation to Boston!

Sincerely,

FIREPOND, INC.

/s/ Paul Mcdermott
- ----------------------------------
Paul K. McDermott
Chief Financial Officer

Enclosure (Duplicate Counterpart)

AGREED AND ACCEPTED:                                       Date: 4/17/00


/s/ Joel Radford
- ----------------------------------
Joel Radford

EX-10.12

                                                                   EXHIBIT 10.12

                             [FIREPOND LETTERHEAD]


November 21, 2000


Mr. Joel Radford
FirePond
890 Winter Street #300
Waltham, MA 02451



Dear Joel:

This letter confirms the parameters of the offer presented to you for your
consideration by Klaus Besier, CEO.

POSITION

Effective November 1, 2000 your position will be that of Vice President -
Mergers and Acquisitions. This position will report directly to the CEO and will
be a member of the Executive Staff.

BASE SALARY

Your base salary will be $7500 per semi-monthly pay period. This equates to an
annual rate of $180,000.

CASH INCENTIVE PROGRAMS

For Fy'01, you will participate in the FirePond Global Cash Incentive Plan. Your
target bonus is 40% of your annual base pay based on 100% achievement of
approved MBO's and is contingent on the company achieving its budgeted FY'01
annual revenue and net income, adjusted for any acquisitions. You should present
a list of 4-5 MBO's for consideration to Klaus Besier no later than November 30,
2000.



If earned, this bonus payment will be made in December 2001, provided you are
employed by the company at the time. There are no pro-ration provisions.

For FY'00, should the FirePond Board of Directors approve a cash payment to
participants in the Stock Based Incentive Plan, you would be eligible to receive
$50,000.

STOCK OPTIONS

In addition to the cash compensation detailed above, FirePond, upon Board of
Director Approval, will issue to you 50,000 Stock Options at the market closing
price on November 1, 2000. Such options will be subject to the standard change
of control policy. All other prior option agreement remain in force and become a
part of this offer.

SEVERANCE ALLOWANCE

In the event that your employment is terminated by the company for any reason
other than for just cause, you will receive six (6) months base salary paid in
12 equal installments less applicable tax withholdings. The company will also
pay your COBRA costs during this time period provided that you continue to pay
the required employee premium portion. In exchange for this promise of
severance, you agree to execute a full and complete release of liability and
adhere to the provisions of your Employee Agreement Regarding Inventions,
Confidentiality and Non-Competition.

OTHER CONDITIONS

This letter along with the above mentioned agreement relating to proprietary
rights between you and the company and stock option grant agreements, sets forth
the terms of your employment with the Company and supersede any prior
representations or agreements, whether written or oral. This letter may not be
modified or amended except by written agreement signed by you and myself.

It is recognized that this offer of employment is not intended to create a
contract of employment other than as stated above and both FirePond and you
retain the right to terminate the employment relationship at any time without
cause.




Sincerely,

/s/  Michael Dudich
- --------------------------------
Michael Dudich
Vice President - Human Resources


cc: Klaus Besier

The undersigned accepts the above employment offer, agrees that it contains the
terms of employment with FirePond, and that there are no other terms, expressed
or implied. By accepting this offer of employment, the undersigned is
acknowledging that no prior employment obligations or other contractual
restrictions exist which preclude employment with FirePond. It is further
understood that this offer is confidential and disclosure outside of your family
or financial, accounting, and/or legal advisers may result in termination of
employment or withdrawal of this offer.


Accepted:


/s/ Joel Radford                                               11/21/00
- --------------------------------------------------------------------------------
Joel Radford                                                     Date

EX-10.13

                                                                   EXHIBIT 10.13


                             [FIREPOND LETTERHEAD]


February 19, 1999


John Keighley
Diependaalselaan 317
1215 KG Hilversum
The Netherlands

Re: FirePond Offer of Employment

Dear John:

On behalf of FirePond Europe BV, a Netherlands corporation (the "Company"), I am
pleased to extend to you an offer of employment on the following terms and
conditions:

         Your title shall be Financial Director of Europe & Asia, based in the
         Netherlands, and you shall report operationally to Graham Williams,
         Senior Vice President and Managing Director of Europe & Asia and
         functionally to Paul McDermott, corporate CFO. Your start date shall be
         discussed and mutually agreed (the "Commencement Date").

         Your fixed base annual salary will be 190,000 DGL including vacation
         and expense allowances, paid in accordance with the Company's normal
         monthly payroll practices, plus 10,000 DGL per annum covering
         international school fees. You shall be entitled to an incentive plan
         with an annual on-target achievement of 50,000 DGL based on revenue,
         margin and DSO objectives. The goals will be mutually established and
         this plan will be formalized within 30 days of employment.

         You will receive 25 days pro-rated vacation commencing your first year
         of employment and 25 days per year thereafter.

         You shall be entitled to 30,000 stock options. Current exercise price
         is $2.63 per share to be vested in equal annual installments over four
         years in accordance with the FirePond Incorporated 1997 Stock Plan.

         As a company employee you are also eligible to receive the Company's
         standard pension and insurance benefits plus a company car/allowance of
         2.000 DGL per month.

         I have enclosed our Employee Agreement regarding Inventions,
         Confidentiality, and Non-Competition. If you accept this offer, please
         return to myself, a signed copy of this agreement prior to your
         accepted date of employment.

         This offer of employment is subject to your meeting with Paul McDermott
         and satisfactory references.




Page 2
February 19, 1999

         To indicate your acceptance of the Company's offer, please sign and
         date this letter in the space provided below and return it to myself. A
         duplicate original is enclosed for your records. This letter, along
         with the agreement relating to proprietary rights between you and the
         Company, set forth the terms of your employment with the Company and
         supersede any prior representations or agreements, whether written or
         oral. This letter may not be modified or amended except by a written
         agreement, signed by the Company and by you.

         We look forward to working with you at FirePond.


Yours sincerely,


FirePond Europe BV



/s/ Graham Williams
- -------------------------------------------
Graham Williams
Senior Vice President and Managing Director
of Europe & Asia



                                        ACCEPTED AND AGREED TO THIS
                                        3rd Day of March, 1999


                                        /s/ John Keighley
                                        ----------------------------------------
                                        John Keighley


Enclosures:  Duplicate Original Letter
             Employee Agreement regarding Inventions, Confidentiality and
             Non-Competition

EX-10.14

                                                                   EXHIBIT 10.14


John Keighley
Diependaalselaan 317
1215 KG Hilversum


Naarden, 4th May 2001


Dear John,

This is to confirm your compensation package as discussed with Klaus Besier
(CEO) and Paul McDermott (CFO) recognizing you as a top performer, key and
senior manager:

Effective as of your most recent "merit date":

- -    Base Salary (including Dutch vacation allowance (Function) 350.000. - (45%
     increase);

- -    Bonus opportunity 30% of Base Salary;

- -    Severance in the event of a Change of Control and your job is eliminated
     (double trigger) equal to 6 months Bases Salary and 10% vesting of stock
     options;

- -    Additional stock option grant of 20,000 shares at ($2 - $1.6 - I need to
     verify the date in March and strike price).

We hope this conveys our sincere appreciation of the contribution you make and
the workload you carry intentionally.



Kind regards,
FirePond Europe B.V.


Sandra te Riele
HR Manager Europe & Asia

EX-10.15

                                                                   EXHIBIT 10.15



                             [FIREPOND LETTERHEAD]


January 23, 2001


Mr. Cem Tanyel
Senior Vice President - Product Development
Brightware
1401 Los Gamos Rd.
San Rafael, CA  94903

                                  -- REVISED --


Dear Cem:

This offer supercedes and replaces the offer of employment dated January 23,
2001 which is rescinded. Your response is required by Monday, January 29, 2001.

THE POSITION

Your title shall be Senior Vice President - Product Development. In this role
you will be responsible for developing and leading FirePond's Software
Development organization in delivering FirePond products and technology
direction. This will include building and leading a world class team. You will
report directly to Randy Harvey, Executive Vice President - Product Development.
Your work location will be San Rafael, CA.

CASH COMPENSATION

The base salary for the position is $8958.34 per semi-monthly pay period. This
equates to an annual rate of $215,000.00. You will also be eligible to
participate in a cash incentive program for each fiscal year with a targeted
pay-out of 40% of your annualized base salary based on satisfactory execution of
stated deliverables and management objectives subject to company performance.
For FY'01 your target payout would be $86,000.00, providing a total target
annual cash compensation of $301,000.00.

In addition to the compensation detailed above, you will also be eligible to
receive a supplemental bonus for FY'01 in the amount of $40,000. This bonus



will be earned in two (2) $20,000 segments. The first earned for successful
delivery of a unified architecture specification, no later than August 30, 2001.
The second $20,000 is earned upon successful delivery of the first product
release within the SalesPerformer Suite that was initiated under your management
and direction. Success parameters for payment for each of these supplemental
bonuses will be set forth by Randy Harvey.

Earned bonuses amounts are paid within 60 days of the end of the fiscal year in
which they are earned. However the supplemental bonuses will be paid within 60
days of being achieved. You must be actively employed at that time in order to
receive a payment. There are no pro-ration provisions.

STOCK OPTIONS

In addition to the cash compensation detailed above, you will receive a stock
option grant allowing you to purchase 250,000 shares of FirePond Common Stock.
The exercise price shall be the closing price of the stock as stated in the Wall
Street Journal on the closing date of the acquisition of Brightware. The stock
option grant shall vest as follows:

            IMMEDIATE -

            50,000 options. However, if you voluntarily terminate your
            employment prior to February 1, 2002, any monies received from the
            exercise of these options must be repaid to the company on a
            pro-rata basis to time in position.

            AUGUST 1, 2002 -

            50,000 options.

            QUARTERLY THEREAFTER -

            100,000 options shall vest at the rate of 10,000 options per quarter
            on the last day of each fiscal quarter starting August 1, 2002,
            until full vesting occurs.

            FEBRUARY 1, 2005 OR EARLIER UPON THE OFFICIAL DATE OF INTRODUCTION
            OF THE NEXT GENERATION OF THE FIREPOND SALESPERFORMER SUITE -

            50,000 options.

All options granted will be subject to the Brightware Acquisition Stock Plan and
the standard option agreement and subject to the execution of the enclosed
non-disclosure, non-compete agreement. Your stock option agreement will include




provisions for accelerated vesting in the event of a change in control. As
provided in the agreement, your options shall be 100% vested if (i) as a result
of the change of control your employment is terminated by the acquiring entity
within twelve months following the change of control or (ii) as a result of the
change of control, your responsibilities are materially changed within twelve
months following the change of control, provided that you remain with the
acquiring entity for at least six months following the change of control. The
six month transition may be waived by the company at their sole discretion.

In addition, during the period October 31, 2001 through December 31, 2992,
should Klaus Besier or Randy Harvey voluntarily terminate their employment with
FirePond, your duties are diminished without your consent, or your location of
employment is moved more than ten miles without mutual agreement, you may at
your option terminate your employment and receive the severance provisions
contained within this letter. Please refer to and adhere to the FirePond
policies on insider trading before engaging in any sales, regardless of how the
options or stock may have been acquired.

SEVERANCE ALLOWANCE

In the event that your employment is terminated by the company for any reason
other than for Cause, and in exchange for a full and complete mutual release of
liability, you will receive a severance payment of $150,000 paid in 12
semi-monthly installments of $12,500 less applicable tax withholdings. The
company will also pay your COBRA costs during this time period provided that you
continue to pay the required employee premium portion.


A termination for "Cause" shall mean a termination for any of the following
reasons: (i) your failure to perform a substantial and material portion of the
duties of your position after receipt of a written warning, which failure to
perform is not cured within thirty (30) days after such written warning; (ii)
engaging in gross misconduct; (iii) being convicted of a crime, other than a
traffic offense; (iv) committing an act of fraud against, or the
misappropriation of property belonging to FirePond or its affiliates; or (v)
material breach of this agreement or any confidentiality, non-competition or
proprietary information agreement between you and FirePond. FirePond will
provide written notice of the reason for termination in the case of any
termination for "Cause."

BENEFIT PROGRAMS

As a FirePond employee you will be eligible to participate in the Company's
401K, medical, dental, disability, and life insurance benefit programs. In
addition you will participate in the Personal Time Off (PTO) System. Your PTO
allowance will be set at the 7+ year level. Summaries of these plans have been
included for your review.



FAMILY TRAVEL ALLOWANCE

In addition to the standard company benefits, you will also receive a family
travel allowance of up to $7500 each fiscal year. This can be used to cover the
cost for family members to accompany you, or for you to travel on personal
business in conjunction with a business trip. Any personal income tax liability
associated with reimbursements is your sole responsibility.

CONDITIONS

Also enclosed is a copy of FirePond's Employee Agreement Regarding Inventions,
Confidentiality and Non-competition. This offer letter is subject to the terms
of this agreement and conditional upon your execution of this agreement. This
offer letter id further conditioned your being able to supply proof of your
eligibility to work in the United States (Form 1-9).

To indicate your acceptance of this offer, please sign and date this letter in
the space provided and return this letter to me along with a fully executed copy
of the Employee Agreement Regarding Inventions, Confidentiality and
Non-competition. A duplicate original is enclosed for your records.

This letter, the above mentioned agreement relating to proprietary rights
between you and the company, stock option agreements, benefit plan documents and
all current FirePond policies and procedures, set forth the terms of your
employment with the Company and supersede any prior representations or
agreements, whether written or oral. This letter may not be modified or amended
except by written agreement signed by you and myself or FirePond's CEO. FirePond
reserves the right to withdraw this offer of employment if not accepted by you
in writing by 8:30 AM Pacific Standard Time on Monday, January 29, 2001, if any
representations by you cannot be verified, or in the event the sale of
Brightware to FirePond does not close. A faxed copy of your signed acceptance to
(781) 487-8418 will be deemed acceptable followed within 24 hours by the
original signed documents.

It is recognized that this offer of employment is not intended to create a
contract of employment and both FirePond and you retain the right to terminate
the employment relationship at any time without cause.

Cem, we look forward to you joining FirePond! An aggressive and focused team,
the ability to create industry leading software, and a dedication to client
satisfaction, have all played a significant part in FirePond's past. We are
confident that you will play an important role in our future success.



Sincerely,


/s/ Michael Dudich
- --------------------------------
Michael Dudich
Vice President - Human Resources


CC: Klaus Besier, CEO; Randy Harvey, Executive Vice President - Product
Development

The undersigned accepts the above employment offer, agrees that this letter
along with the associated employee agreements, benefit plan documents, and
policies and procedures, contains the terms of employment with FirePond, and
that there are no other terms, express or implied. By accepting this offer of
employment, the undersigned is acknowledging that no prior employment
obligations or other contractual restrictions exist which preclude employment
with FirePond. It is further understood that this offer is confidential and
disclosure outside of your family or financial, accounting, and/or legal
advisers may result in termination of your employment or withdrawal of this
offer.


Accepted:


/s/ Cem Tanyel                                                January 28, 2001
- --------------------------------------------------------------------------------
Cem Tanyel                                                             Date

EX-10.17

                                                                   EXHIBIT 10.17

                            FIRST AMENDMENT TO LEASE

THIS FIRST AMENDMENT TO LEASE (the "Amendment") is entered into as of the 18th
day of OCTOBER, 2001 by and between Waltham Winter Street 890 LLC, a Delaware
limited liability company ("Landlord"), and Firepond, Inc., a DELAWARE
corporation ("Tenant"). This Amendment amends that certain Lease dated March 25,
1999, between 890 Winter Street, L.L.C., predecessor in interest to Landlord,
and Tenant, pursuant to which Tenant currently leases approximately 29,534
square feet of space on the third floor (the "Premises") of the building known
as 890 Winter Street, Waltham, Massachusetts (the "Building"). Landlord is the
successor in interest to all right, title and interest of 890 Winter Street,
L.L.C., as landlord, in and to the Lease. Capitalized terms not defined herein
shall have the meaning ascribed to them in the Lease. For good and valuable
consideration, the receipt and sufficiency of which are acknowledged by the
parties, Landlord and Tenant hereby amended the Lease as follows:

        1.      REDUCTION OF PREMISES. Effective on December 1, 2001 (the
"Change Date"), the portion of the Premises more particularly shown on the floor
plan for the third floor of the Building attached hereto as EXHIBIT A ("Third
Floor Plan") consisting of approximately 22,554 square feet (the "Relinquished
Space") shall be released and no longer included in the Premises, and Tenant's
obligations under the Lease with respect to the Relinquished Space shall be
terminated as of the Change Date, except for those obligations which by their
terms survive the termination of the Lease, except that Tenant shall continue to
pay all Basic Rent and Additional Rent for the Relinquished Space through and
including February 28, 2002. Tenant shall surrender the Relinquished Space to
Landlord on the Change Date in its current condition as of the date hereof,
reasonable wear and tear excepted, except that the Relinquished Space shall not
contain any furniture or other personal property of Tenant. From and after the
Change Date, that remaining portion of the Premises on the third floor of the
Building consisting of approximately 6,980 square feet, more particularly shown
on the Third Floor Plan, shall be the sole remaining portion of the Premises
(the "Remaining Premises"0. Commencing on March 1, 2002, the annual rate of
Basic Rent for the Remaining Premises shall be as follows (based on the same
rates per annum previously applicable to the Premises):

March 1, 2002 - June 30, 2002     $239,065.00 per annum ($34.25 per square foot)
July 1, 2002 - June 30, 2003      $242,555.00 per annum ($34.75 per square foot)
July 1, 2003 - December 31, 2004  $246,045.00 per annum ($35.25 per square foot)

From and after the Change Date Tenant shall continue to pay all Additional Rent
(including, without limitation, Additional Rent payable for Taxes as set forth
in Article 8 and for Operating Expenses as set forth in Article 9 of the Lease)
attributable to the Remaining Premises upon the same terms and conditions set
forth in the Lease, and Tenant's Proportionate Share for the Remaining Premises
shall be calculated as set forth in the Lease.

        2.      DEMISING WALLS. Landlord shall, at its sole cost and expense,
construct a demising wall at the boundary between Relinquished Space and the
Remaining Premises. Tenant shall provide Landlord with reasonable access to the
Premises prior to the Change Date to permit Landlord to perform such work.
Landlord shall use commercially reasonable efforts to complete the construction
of the demising wall prior to the Change Date, but in no event shall any delay
in such completion



                                      -1-


operate to delay the Change Date. Tenant shall be solely responsible for any
costs related to changes to its voice, data, security and related systems.

        3.      TERMINATION FEE. In consideration of Landlord's agreement to the
release of the Relinquished Space from the Premises, Tenant shall pay to
Landlord contemporaneously with Tenant's execution and delivery of this
Amendment a termination fee in the amount of One Hundred Thousand Dollars
($100,000.00).

        4.      PARKING. From and after the Change Date the number of reserved
parking spaces in the basement of the Building that Tenant is entitled to use
(pursuant to Section 2.2(c) of the Lease) shall be reduced to four (4) reserved
parking spaces. In addition, from and after the Change Date the aggregate number
of parking spaces that Tenant shall have the right to use pursuant to Section
2.2(c) of the Lease, including four (4) spaces set forth in the previous
sentence, shall be reduced based on the parking space allocation ratio set forth
in Section 2.2(c) of the Lease (3.3 parking spaces per 1,000 square feet of
Rentable Building Area) and the square footage of the Remaining Premises.

        5.      SECURITY DEPOSIT. Tenant shall have the right to submit updated
financial information to Landlord and request a reduction in the amount of the
Security Deposit to be effective March 1, 2002 and to reduce the required
Security Deposit amounts for succeeding periods set forth in the table regarding
the Security Deposit in Section 1.2 of the Lease. Landlord shall use good faith
and commercially reasonable judgment in reviewing such financial information and
such request, but Landlord shall be under no obligation to reduce said Security
Deposit amounts.

        6.      BROKERS. Tenant and Landlord represent and warrant to each other
that they have dealt with no brokers in connection with this Amendment other
than Trammell Crow Company and Spaulding and Slye (together, the "Brokers") and
agree to defend, with counsel approved by the other, indemnify and save the
other harmless from and against any and all cost, expense or liability arising
out of a breach of the foregoing representation and warranty. Landlord shall be
responsible for payment of any commissions of the Brokers.

         Except as amended hereby, the Lease is hereby ratified and confirmed
and shall remain in full force and effect. The provisions of this Amendment
shall be binding upon and inure to the benefit of the parties and their
respective successors and assigns.

                  (Remainder of Page Intentionally Left Blank)





         IN WITNESS WHEREOF, this Amendment has been executed as a sealed
instrument as of the day and year first written above.



                                      LANDLORD:

                                      WALTHAM WINTER STREET 890 LLC

                                      By: Waltham Winter Street LLC, its member

                                          By: Clarion Partners, LLC, its member


                                              By: /s/ Douglas J. Bower
                                                  ------------------------------
                                                  Name: Douglas J. Bower
                                                  Title: Authorized Signatory


                                      TENANT:

                                      FIREPOND, INC.


                                      By: /s/ Paul McDermott            10-18-01
                                          --------------------------------------
                                          Name: Paul McDermott
                                          Title: CFO








                                    Exhibit A

                                THIRD FLOOR PLAN

                                 (See Attached)

EX-10.18

                                                                   EXHIBIT 10.18

                              OFFICE BUILDING LEASE


1.    PARTIES. This Lease, dated, for reference purposes only, JANUARY 6, 2000
is made by and between RICHARD AND DENISE BERGMANN (herein called "lessor") and
BRIGHTWARE, INC., A DELAWARE CORPORATION (herein called "Lessee").

2.    PREMISES. Lessor does hereby lease to Lessee and Lessee hereby leases from
Lessor that certain office building (herein called "Premises") indicated on
Exhibit "A" attached hereto and by reference made a part hereof, said Premises
being agreed, for the purpose of this Lease, to have an area of approximately
30,488 RENTABLE SQUARE FEET and being situated at that certain Building known as
1401 LOS GAMOS, SAN RAFAEL. The entire building at 1401 Los Gamos shall be known
as THE PREMISES.

      Said Lease is subject to the terms, covenants and conditions herein set
forth and the Lessee covenants as a material part of the consideration for this
Lease to keep and perform each and all of said terms, covenants and conditions
by it to be kept and performed and that this Lease is made upon the condition of
said performance.

3.    TERM. The term of this Lease shall be for 120 months commencing on
SEPTEMBER 1, 2000 and ending AUGUST 31, 2010.

4.    POSSESSION.

      a.    If the Lessor, for any reason whatsoever, cannot deliver possession
of the said Premises to the Lessee at the commencement of the term hereof, this
Lease shall not be void or voidable, nor shall Lessor be liable to Lessee for
any loss or damage resulting therefrom, and the expiration date of the above
term shall be correspondingly extended, but in that event, all rent shall be
abated during the period between the commencement of said term and the time when
Lessor delivers possession. Notwithstanding the above, in the event Lessor is
unable to deliver possession of the Premises within ninety (90) days from the
commencement date, Lessee shall be granted one (1) day of free rent for every
one day of delay in possession starting ninety (90) days from the commencement
date, to be granted at the beginning of the term. If Lessor is unable to deliver
possession of the premises within one hundred twenty (120) days from Lease
Commencement, Lessee may terminate this Lease by giving written notice to
Lessor.

      b.    In the event that Lessor shall permit Lessee to occupy the Premises
prior to the commencement date of the term, such occupancy shall be subject to
all the provisions of this Lease. Said early possession shall not advance the
termination date hereinabove provided.

5.    HOLDING OVER. Any holding over after the expiration of the said term, with
or without the express consent of Lessor, shall be construed as a tenancy from
month to month, and shall be on the terms and conditions herein specified, so
far as applicable. Such holding over shall not constitute an extension of this
Lease. During such holding over, Lessee shall pay rent at 125% of the amount
which would apply had the term been extended pursuant to the terms hereunder,
and either party shall provide the other with written notice at least one month
in advance of the date of termination of such monthly tenancy of his intention
to terminate such tenancy.

6.    RENT. Lessee agrees to pay to Lessor as rental, without prior notice or
demand, the sum of $70,122.40 in advance, on or before the first day of each and
every successive calendar month thereafter during the term hereof, except that
the first month's rent shall be paid upon the execution hereof. Rent for any
period during the term hereof which is for less than one (1) month shall be a
prorated portion of the monthly installment herein, based upon a thirty (30) day
month. Said rental shall be legal tender at the time of payment at the Office of
the Building, or to such other person or at such other place as Lessor may from
time to time designate in writing.

      a.    RENT ESCALATIONS

            as follows:

             Lease Year             Rate Per R.S.F.               Monthly Rent
             ----------             ---------------               ------------

               Year 1                    $2.30                     $70,122.40
               Year 2                    $2.37                     $72,256.56
               Year 3                    $2.44                     $74,390.72
               Year 4                    $2.51                     $76,524.88
               Year 5                    $2.59                     $78,963.92
               Year 6                    $2.67                     $81,402.96
               Year 7                    $2.75                     $83,842.00
               Year 8                    $2.83                     $86,281.04
               Year 9                    $2.91                     $88,720.08
              Year 10                    $3.00                     $91,464.00

7.    SECURITY DEPOSIT. Lessee has deposited with Lessor the sum of $140,244.00.
Said sum shall be held by Lessor as security for the faithful performance by
Lessee of all the terms, covenants, and conditions of this Lease to be kept and
performed by Lessee during the term hereof. If Lessee defaults with respect to
any provision of this Lease, including, but not limited to the payment of rent,
Lessor may (but shall not be required to) use, apply or retain all or any part
of this security deposit for the payment of any rent or any other sum in
default, or for the payment of any amount which Lessor may spend or become
obligated to spend by reason of Lessee" default, to compensate Lessor for any
other loss or damage which Lessor may suffer by reason of Lessee" default. If
any portion of said deposit is so used or applied, Lessee shall within five (5)
days after written demand therefor, deposit cash with Lessor in an amount
sufficient to restore the security deposit to its original amount and Lessee"
failure to do so shall be a material breach of this Lease. Lessor shall not be
required to keep this security deposit separate from its general funds, and
Lessee shall not be entitled to interest on such deposit. If Lessee shall fully
and faithfully perform every provision of this Lease to be performed by it, the
security deposit or any balance thereof shall be returned to Lessee (or, at
Lessee's initial public offering, Lessor will refund Seventy thousand One
Hundred Twenty-two and 00/100 dollars ($70,122.00), (one-half (1/2)( of the
security deposit).


                                  Page 1 of 8


8.    OPERATING EXPENSE ADJUSTMENTS. For the purpose of this Article, the
following terms are defined as follows:

Base Year:        The calendar year 2001.

Comparison Year:  Each calendar year of the term after the Base Year.

Direct Expenses:  All direct costs of operation and maintenance, as determined
                  by standard accounting practices, and shall include the
                  following costs by way of illustration, but not be limited to:
                  real property taxes and assessments; insurance premiums;
                  janitorial services; labor; costs incurred in the management
                  of the Building, if any; air-conditioning and heating;
                  elevator maintenance; supplies; materials; equipment; and
                  tools; including maintenance, costs, and upkeep of all parking
                  and common areas. Notwithstanding the above, management fees
                  shall not exceed five percent (5%) of the gross rents.
                  ("Direct Expenses" shall not include depreciation on the
                  Building of which the Premises are a part or equipment
                  therein, loan payments, executive salaries or real estate
                  brokers' commissions.)

      If the Direct Expenses paid or incurred by the Lessor for the Comparison
Year on account of the operation or maintenance of the Building of which the
Premises are a part are in excess of the Direct Expenses paid or incurred for
the Base Year, then the Lessee shall pay (100%) of the increase. Lessor shall
endeavor to give to Lessee on or before the first day of March of each year
following the respective Comparison Year a statement of the increase in rent
payable by Lessee hereunder, but failure by Lessor to give such statement by
said date shall not constitute a waiver by Lessor of its rights to require an
increase in rent. Upon receipt of the statement of the first Comparison Year,
Lessee shall pay in full the total amount of increases due for the first
Comparison Year, and in addition for the then current year, the amount of any
such increase shall be used as an estimate for said current year and this amount
shall be divided into twelve (12) equal monthly installments and Lessee shall
pay to Lessor, concurrently with the regular monthly rent payment next due
following the receipt of such statement, an amount equal to one (1) monthly
installment multiplied by the number of months from January in the calendar year
in which said statement is submitted to the month of such payment, both months
inclusive. Subsequent installments shall be payable concurrently with the
regular monthly rent payments for the balance of that calendar year and shall
continue until the next Comparison Year's statement is rendered. If the next or
any succeeding Comparison Year results in a greater increase in Direct Expenses,
then upon receipt of a statement from Lessor, Lessee shall pay a lump sum equal
to such total increase in Direct Expenses over the Base Year, less the total of
the monthly installments to be paid for the next year, following said Comparison
Year, shall be adjusted to reflect such increase. If in any Comparison Year the
Lessee's share of Direct Expenses be less than the preceding year, then upon
receipt of Lessor's statement, any overpayment made by Lessee on the monthly
installment basis provided above shall be credited towards the next monthly rent
falling due and the estimated monthly installments of Direct Expenses to be paid
shall be adjusted to reflect such lower Direct Expenses for the most recent
Comparison Year.

      Even though the term has expired and Lessee has vacated the Premises, when
the final determination is made of Lessee's share of Direct Expenses for the
year in which this Lease terminates, Lessee shall immediately pay any increase
due over the estimated expenses paid and conversely any overpayment made in the
event said expenses decrease shall be immediately rebated by Lessor to Lessee.

      Notwithstanding anything contained in this Article, the rental payable by
Lessee shall in no event be less than the rent specified in Article 6
herinabove.

9.    USE. Lessee shall use the Premises for general office purposes and shall
not use or permit the Premises to be used for any other purpose without the
prior written consent of Lessor.

      Lessee shall not do or permit anything to be done in or about the Premises
nor bring or keep anything therein which will in any way increase the existing
rate of or affect any fire or other insurance upon the Building or any of its
contents, or cause cancellation of any insurance policy covering said Building
or any part thereof or any of its contents. Lessee shall not allow the Premises
to be used for any improper, immoral, unlawful or objectionable purpose, nor
shall Lessee cause, maintain or permit any nuisance in, on or about the
Premises. Lessee shall not commit or suffer to be committed any waste in or upon
the Premises.

10.   COMPLIANCE WITH LAW. Lessee shall not use the Premises or permit anything
to be done in or about the Premises which will in any way conflict with any law,
statute, ordinance or governmental rule or regulation now in force or which may
hereafter be enacted or promulgated. Lessee shall, at its sole cost and expense,
promptly comply with all laws, statutes, ordinances and governmental rules,
regulations or similar bodies now or hereafter constituted, relating to, or
affecting the condition, use or occupancy of the Premises, excluding structural
changes not related to or affected by Lessee's improvements or acts. The
judgment of any court of competent jurisdiction or the admission of Lessee in
any action against Lessee in any action against Lessee, whether Lessor be a
party thereto or not, that Lessee has violated any law, statute, ordinance or
governmental rule, regulation or requirement, shall be conclusive of that fact
as between the Lessor and Lessee.

11.   ALERATIONS AND ADDITIONS. Lessee shall not make or suffer to be made any
alterations, additions or improvements to or of the Premises or any part thereof
without the written consent of Lessor first had and obtained and any
alterations, additions or improvements to or if said Premises, including, but
not limited to, wall covering, paneling and built-in cabinet work, but expecting
movable furniture and trade fixtures, shall on the expiration of the term become
a part of the realty and belong to the Lessor and shall be surrendered with the
Premises. In the event Lessor consents to the making of any alterations,
additions or improvements to the Premises by Lessee, the same shall be made by
Lessee at Lessee's sole cost and expense; and any contractor or person selected
by Lessee to make the same must first be approved of in writing by the Lessor.
Upon the expiration or sooner termination of the term hereof, Lessee shall, upon
written demand by Lessor, given at least thirty (30) days prior to the end of
the term, at Lessee's sole cost and expense, forthwith and with all due
diligence remove any alterations, additions or improvements, and Lessee shall,
forthwith and with all due diligence at its sole cost and expense, repair any
damage to the Premises caused by such removal.

12.   REPAIRS.

      a.    LESSEE OBLIGATIONS. By taking possession of the Premises, Lessee
shall be deemed to have accepted the Premises as being in good, sanitary order,
condition and repair. Lessee shall upon the expiration or sooner termination of
this Lease hereof surrender the Premises to the Lessor in good condition,
ordinary wear and tear and damage from causes beyond the reasonable control of
Lessee expected. Except as specifically provided in this Lease, Lessor shall
have no obligation whatsoever to alter, remodel, improve, repair, decorate or
paint the Premises or any part thereof and the parties hereto affirm that Lessor
has made no representations to Lessee respecting the condition of the Premises
or the Building except as specifically herein set forth.


                                  Page 2 of 8


      b.    LESSOR OBLIGATIONS: Notwithstanding the provisions of Article 12.a.
hereinabove, Lessor shall repair and maintain the structural portions of the
Building, including the basic plumbing, air conditioning, heating, and
electrical systems, installed or furnished by Lessor, unless such maintenance
and repairs are caused in part or in whole by the act, neglect, fault or
omission of any duty by the Lessee, its agents, servants, employees or invitees,
in which case Lessee shall pay to Lessor the reasonable cost of such maintenance
and repairs. Lessor shall not be liable for any failure to make any such repairs
or to perform any maintenance unless such failure shall persist for an
unreasonable time after written notice of the need of such repairs or
maintenance is given to Lessor by Lessee. Except as provided in Article 23
hereof, there shall be no abatement of rent and no liability of Lessor by reason
of any injury to or interference with Lessee's business arising from the making
of any repairs, alterations or improvements in or to any portion of the Building
or the Premises or in or to fixtures, appurtenances and equipment therein.
Lessee waives the right to make repairs at Lessor's expense under any law,
statute or ordinance now or hereafter in effect. Notwithstanding the above, in
the event such maintenance and repairs are caused in part by the act, neglect,
fault or omissions of any duty by the Lessee, Lessee shall be responsible for
that portion attributed to Tenant's acts, neglect, fault or omissions as
reasonably determined by Lessor's licensed contractor.

13.   LIENS. Lessee shall keep the Premises and the property in which the
Premises are situated free from any liens arising out of any work performed,
materials furnished or obligations incurred by Lessee. Lessor may require, at
Lessor's sole option, that Lessee shall provide to Lessor, at Lessee's sole cost
and expense, a lien and completion bond in an amount equal to one and one-half
(1 1/2) times any and all estimated cost of any improvements, additions, or
alterations in the Premises, to insure Lessor against any liability for
mechanics' and materialmen's liens and to insure completion of the work.

14.   ASSIGNMENT AND SUBLETTING. Lessee shall not either voluntarily or by
operation of law assign, transfer, mortgage, pledge, hypothecate or encumber
this Lease or any interest therein, and shall not sublet the said Premises or
any part thereof, or any right or privilege appurtenant thereto, or suffer any
other person (the employees, agents, servants and invitees of Lessee excepted)
to occupy or use the said Premises, or any portion thereof, without the written
consent of Lessor first had and obtained, which consent shall not be
unreasonably withheld, and a consent to one assignment, subletting, occupation
or use by another person shall not be deemed to be a consent to any subsequent
assignment, subletting, occupation or use by another person. Any such assignment
or subletting without such consent shall be void, and shall, at the option of
the Lessor, constitute a default under this Lease.

15.   HOLD HARMLESS. Lessee shall indemnify and hold harmless Lessor against and
from any and all claims arising from Lessee's use of Premises for the conduct of
its business or from any activity, work, or other thing done, permitted or
suffered by the Lessee in or about the Building, and shall further indemnify and
hold harmless Lessor against and from any and all claims arising from any breach
or default in the performance of any obligation on Lessee's part to be performed
under the terms of this Lease, or arising from any act or negligence of the
Lessee, or any officer, agent, employee, guest or invitee of Lessee, and from
all and against all cost, reasonable attorney's fees, expenses and liabilities
incurred in or about any such claim or any action or proceeding brought thereon,
and, in any case, should action or proceeding be brought against Lessor by
reason of any such claim, Lessee upon notice from Lessor shall defend the same
at Lessee's expense by counsel reasonably satisfactory to Lessor. Lessee as a
material part of the consideration to Lessor hereby assumes all risk of damage
to property or injury to persons, in, upon or about the Premises, from any cause
other than negligence by Lessor, Lessor's agents or employees, and Lessee hereby
waives all claims in respect thereof against Lessor.

      Lessor or its agents shall not be liable for any damage to property
entrusted to employees of the Building, nor for loss or damage to any property
by theft or otherwise, nor for any injury to or damage to persons or property
resulting from fire, explosion, falling plaster, steam, gas, electricity, water
or rain which may leak from any part of the Building or from the pipes,
appliances or plumbing works therein or from the roof, street or subsurface or
from any other place resulting from dampness or any other cause whatsoever,
unless caused by or due to the negligence of Lessor, its agents, servants or
employees. Lessor or its agents shall not be liable for interference with the
light or other incorporeal hereditament, loss of business by Lessee. Lessee
shall give prompt notice to Lessor in case of fire or accidents in the Premises
or in the Building or of defects therein or in the fixtures or equipment.

16.   SUBROGATION. As long as their respective insurers so permit, Lessor and
Lessee hereby mutually waive their respective rights of recovery against each
other for any loss insured by fire, extended coverage and other property
insurance policies existing for the benefit of the respective parties. Each
party shall obtain any special endorsements, if required by their insurer to
evidence compliance with the aforementioned waiver.

17.   LIABILITY INSURANCE. Lessee shall, at Lessee's expense, obtain and keep in
force during the term of this Lease a policy of Combined Single Limit Bodily
Injury and Property Damage Insurance insuring Lessor and Lessee against any
liability arising out of the ownership, use, occupancy or maintenance of the
Premises and all areas appurtenant thereto. Such insurance shall be in an amount
not less than $1,000,000 per occurrence. The limit of said insurance shall not,
however, limit the liability of the Lessee hereunder. Lessee may carry said
insurance under a blanket policy, providing, however, said insurance by Lessee
shall have a Lessor's protective liability endorsement attached thereto. If
Lessee shall fail to procure and maintain said insurance, Lessor may but shall
not be required to, procure and maintain same, but at the expense of Lessee.
Insurance required hereunder, shall be in companies rated A+9 or better in
"Best's Insurance Guide".

18.   EVIDENCE OF INSURANCE. Lessee shall deliver to Lessor prior to occupancy
of the Premises copies of policies of liability insurance required herein or
certificates evidencing the existence and amounts of such insurance with loss
payable clauses satisfactory to Lessor. No policy shall be cancelable or subject
to reduction of coverage except after ten (10) days' prior written notice to
Lessor.

19.   SERVICES AND UTILITIES. Provided that Lessee is not in default hereunder,
Lessor agrees to furnish five (5) days per week of Janitorial Service to the
Premises. Lessor shall also maintain and keep lighted the common stairs, common
entries and toilet rooms in the Building of which the Premises are a part.
Lessor shall not be liable for, and Lessee shall not be entitled to, any
reduction of rental by reason of Lessor's failure to furnish any of the
foregoing when such failure is caused by accident, breakage, repairs, strikes,
lockouts or other labor disturbances or labor disputes of any character, or by
any other cause, similar or dissimilar, beyond the reasonable control of Lessor.
Except where caused by negligence of Lessor, Lessor shall not be liable under
any circumstances for a loss of or injury to property, however, occurring,
through or in connection with or incidental to failure to furnish any of the
foregoing. Whenever heat generating machines or equipment are used in the
Premises which affect the temperature otherwise maintained by the air
conditioning system, after written notice to Lessee, Lessor reserves the right
to install supplementary air conditioning units in the Premises and the
reasonable cost thereof, including the reasonable cost of installation, and the
reasonable cost of operation and maintenance thereof shall be paid by Lessee to
Lessor upon demand by Lessor.

      LESSEE SHALL BE RESPONSIBLE TO PAY FOR ALL UTILITIES PROVIDED TO THE
PREMISES INCLUDING ELECTRICITY, GAS, WATER, AND SEWER CHARGES.


                                  Page 3 of 8


20.   PROPERTY TAXES. Lessee shall pay, or cause to be paid, before delinquency,
any and all taxes levied or assessed and which become payable during the term
hereof upon all Lessee's leasehold improvements, equipment, furniture, fixtures
and personal property located in the Premises; except that which has been paid
for by Lessor, and is the standard of the Building. In the event any or all of
the Lessee's leasehold improvements except for Lessee's initial improvements,
equipment, furniture, fixtures and personal property shall be assessed and taxed
with the Building, Lessee shall pay to Lessor its share of such taxes within ten
(10) days after delivery to Lessee by Lessor of a statement in writing setting
forth the amount of such taxes applicable to Lessee's property.

21.   RULES AND REGULATIONS. Lessee shall faithfully observe and comply with the
rules and regulations that Lessor shall from time to time promulgate. Lessor
reserves the right from time to time to make all reasonable modifications to
said rules. The additions and modifications to those rules shall be binding upon
Lessee upon delivery of a copy of them to Lessee.

22.   ENTRY BY LESSOR. Lessor or it's authorized agents reserves and shall at
any and all times have the right to enter the Premises, inspect the same, supply
janitorial service and any other service to be provided by Lessor to Lessee
hereunder, to submit said Premises to inspection by prospective purchasers or,
in the case of prospective Lessees, only during the last nine (9) months of the
lease, to post notices of non-responsibility, and to alter, improve or repair
the Premises and any portion of the Building of which the Premises are a part
that Lessor may deem necessary or desirable, without abatement of rent and may
for that purpose erect scaffolding and other necessary structures where
reasonably required by the character of the work to be performed, always
providing that the entrance to the Premises shall not be blocked thereby, and
further providing that the business of the Lessee shall not be interfered with
unreasonably. Lessee hereby waives any claim for damages or for any injury or
inconvenience to or interference with Lessee's business, any loss of occupancy
or quiet enjoyment of the Premises, and any other loss occasioned thereby. For
each of the aforesaid purposes, Lessor and/or its authorized agents shall at all
times have and retain a key with which to unlock all of the doors in, upon and
about the Premises, excluding Lessee's vaults, safes and files, and Lessor
and/or its authorized agents shall have the right to use any and all means which
Lessor may deem proper to open said doors in any emergency, in order to obtain
entry to the Premises without liability to Lessee except for any failure to
exercise due care for Lessee's property. Any entry to the Premises obtained by
Lessor and/or its authorized agents by any of said means, or otherwise, shall
not under any circumstances be construed or deemed to be a forcible entry into,
or a detainer of, the Premises, or an eviction of Lessee from the Premises or
any portion thereof. Notwithstanding the above, Lessor shall notify Lessee
twenty-four (24) hours prior to any entry of the Premises by Lessor, excepting
in cases of emergency.

23.   RECONSTRUCTION. In the event the Premises or the Building of which the
Premises are a part are damaged by fire or other perils covered by extended
coverage insurance, Lessor agrees to forthwith repair the same; and this Lease
shall remain in full force and effect, except that Lessee shall be entitled to a
proportionate reduction of the rent while such repairs are being made, such
proportionate reduction to be based upon the extent to which the making of such
repairs shall materially interfere with the business carried on by the Lessee in
the Premises. If the damage is due to the intentional misconduct of Lessee or
its employees, there shall be no abatement of rent. Notwithstanding anything to
the contrary above, in the event Landlord is unable to collect under its "Loss
of Rent" insurance provision, there shall be no abatement of Lessee's rent.

      In the event the Premises or the Building of which the Premises are a part
are damaged as a result of any cause other than the perils covered by fire and
extended coverage insurance, then Lessor shall forthwith repair the same,
provided the extent of the destruction be less than ten (10%) percent of the
then full replacement cost of the Premises or the Building of which the Premises
are a part. In the event the destruction of the Premises or the Building is to
an extent greater than ten (10%) percent of the full replacement cost, then
Lessor shall have the option; (1) to repair or restore such damage, this Lease
continuing in full force and effect, but the rent to be proportionately reduced
as hereinabove in this Article provided; or (2) give notice to Lessee at any
time within sixty (60) days after such damage terminating this Lease as of the
date specified in such notice, which date shall be no less than thirty (30) and
no more than sixty (60) days after the giving of such notice. In the event of
giving such notice, this Lease shall expire and all interest of the Lessee in
the Premises shall terminate on the date so specified in such notice and the
Rent, reduced by a proportionate amount, based upon the extent, if any, to which
such damage materially interfered with the business carried on by the Lessee in
the Premises, shall be paid up to the time of such termination.

      Notwithstanding anything to the contrary contained in this Article, Lessor
shall not have any obligation whatsoever to repair, reconstruct or restore the
Premises when the damage resulting from any casualty covered under this Article
occurs during the last twelve (12) months of the term of this Lease or any
extension thereof.

      Lessor shall not be required to repair any injury or damage by fire or
other cause, or to make any repairs or replacements of any panels, decoration,
office fixtures, railings, floor covering, partitions, or any other property
installed in the Premises by Lessee.

      The Lessee shall not be entitled to any compensation or damages from
Lessor for loss of the use of the whole or any part of the premises. Lessee's
personal property or any inconvenience or annoyance occasioned by such damage,
repair, reconstruction or restoration.

      Notwithstanding the above, in the event of damage to the Premises or the
Building, which cannot be repaired within three hundred sixty-five (365) days
from the date of such damage, Lessee may terminate this Lease with thirty (30)
days written notice.

24.   DEFAULT. The occurrence of any one or more of the following events shall
constitute a default and breach of this Lease by Lessee.

      a.    The vacating or abandonment of the Premises by Lessee.

      b.    The failure by Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder, as and when due, where such
failure shall continue for a period of three (3) days after written notice
thereof by Lessor to Lessee.

      c.    The failure by Lessee to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by the
Lessee, other than described in Article 24.b. above, where such failure shall
continue for a period of thirty (30) days after written notice thereof by Lessor
to Lessee; provided, however, that if the nature of Lessee's default is such
that more than thirty (30) days are reasonably required for its cure, then
Lessee shall not be deemed to be in default if Lessee commences such cure within
said thirty (30) day period and thereafter diligently prosecutes such cure to
completion.

      d.    The making by Lessee of any general assignment or general

arrangement for the benefit of creditors; or the filing by or against Lessee of
a petition to have Lessee adjudged as bankrupt, or a petition or reorganization
or arrangement under any law relating to bankruptcy (unless, in the case of a
petition filed against Lessee, the same is dismissed within sixty (60) days; or
the appointment of a trustee or a receiver to take possession of substantially
all of Lessee's assets located at the Premises or of Lessee's interest in this
Lease, where possession is not restored to Lessee within thirty (30) days; or
the attachment, execution or other judicial seizure of substantially all of
Lessee's assets located at the Premises or of Lessee's interests in this Lease,
where such seizure is not discharged in thirty (30) days.


                                  Page 4 of 8


25.   REMEDIES IN DEFAULT. In the event of any such material default or breach
by Lessee, Lessor may at any time thereafter, with or without notice or demand
and without limiting Lessor in the exercise of a right or remedy which Lessor
may have by reason of such default or breach:

      a.    Terminate Lessee's right to possession of the Premises by any lawful
means, in which case this Lease shall terminate and Lessee shall immediately
surrender possession of the premises to Lessor. In such event Lessor shall be
entitled to recover from Lessee all damages incurred by necessary renovation and
alteration of the Premises, reasonable attorney's fees, any real estate
commission actually paid; the worth at the time of award by the court having
jurisdiction thereof of the amount by which the unpaid rent for the balance of
the term after the time of such award exceeds the amount of such rental loss for
the same period that Lessee proves could be reasonably avoided; that portion of
the leasing commission paid by Lessor and applicable to the unexpired term of
this Lease. Unpaid installments of rent or other sums shall bear interest from
the date due at the rate of ten (10%) percent per annum. In the event Lessee
shall have abandoned the Premises, Lessor shall have the option of (a) taking
possession of the Premises and recovering from Lessee the amount specified in
this paragraph, or (b) proceeding under the provisions of the following Article
25.b.

      b.    Maintain Lessee's right to possession, in which case this Lease
shall continue in effect whether or not Lessee shall have abandoned the
Premises. In such event Lessor shall be entitled to enforce all of Lessor's
right and remedies under this Lease, including the right to recover the rent as
it becomes due hereunder, subject, however, to Lessor's obligation at law to
mitigate damages.

      c.    Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decision of the State in which the Premises are located.

26.   EMINENT DOMAIN. If more than twenty-five (25%) percent of the Premises
shall be taken or appropriated by any public or quasi-public authority under the
power of eminent domain, either party hereto shall have the right, at its
option, to terminate this Lease, and Lessor shall be entitled to any and all
income, rent, award, or any interest therein whatsoever which may be paid or
made in connection with such public or quasi-public use or purpose, and Lessee
shall have no claim against Lessor for the value of any unexpired term of this
Lease. However, Lessee shall have the right to separately pursue a claim against
such public or quasi-public entity for its costs of relocation and personal
property. If either less than or more than twenty-five (25%) percent of the
Premises is taken, and neither party elects to terminate as herein provided, the
rental thereafter to be paid shall be equitably reduced. If any part of the
Building other than the Premises may be so taken or appropriated, Lessor shall
have the right at its option to terminate this Lease and shall be entitled to
the entire award as above provided.

27.   OFFSET STATEMENT. Lessee shall at any time and from time to time upon not
less than ten (10) days prior written notice from Lessor execute, acknowledge
and deliver to Lessor a statement in writing, (a) certifying that this Lease is
unmodified and in full force and effect (or, if modified, stating the nature of
such modification and certifying that this Lease as so modified, is in full
force and effect), and the date to which the rental and other charges are paid
in advance, if any, and (b) acknowledge that there are not, to Lessee's
knowledge, any incurred defaults on the part of the Lessor hereunder, or
specifying such defaults if any are claimed. Any such statement may be relied
upon by any prospective purchaser or encumbrance of all or any portion of the
real property of which the Premises are a part.

28.   PARKING. Lessee shall have the exclusive right to use the parking
facilities of the Building at no additional cost during the term of this Lease
or any extension thereto.

29.   AUTHORITY OF PARTIES.

      a.    Corporate Authority. If Lessee is a corporation, each individual
executing this Lease on behalf of said corporation represents and warrants that
he is duly authorized to execute and deliver this Lease on behalf of said
corporation, in accordance with a duly adopted resolution of the board of
directors of said corporation or in accordance with the by-laws of said
corporation, and that this Lease is binding upon said corporation in accordance
with its terms. Lessee shall deliver to Lessor a Corporate Resolution with a
Corporate Seal authorizing this Lease by January 27, 2000.

30.   GENERAL PROVISIONS.

      a.    Plats and Riders. Clauses, plats and riders, if any, signed by the
Lessor and the Lessee and endorsed on or affixed to this Lease are a part
hereof.

      b.    Waiver. The waiver by Lessor of any term, covenant or condition
herein contained shall not be deemed to be a waiver of such term, covenant or
condition on any subsequent breach of the same or any other term, covenant or
condition herein contained. The subsequent acceptance of rent hereunder by
Lessor shall not be deemed to be a waiver of any preceding breach by Lessee of
any term, covenant or condition of this Lease, other than the failure of the
Lessee to pay the particular rental so accepted, regardless of Lessor's
knowledge of such preceding breach at the time of the acceptance of such rent.

      c.    Notices. All notices and demands, which may or are to be required or
permitted to be given by either party to the other hereunder, shall be in
writing. All notices and demands by the Lessor to the Lessee shall be sent by
United States Mail, postage prepaid, addressed to the lessee at the Premises, or
to such other places as Lessee may from time to time designate in a notice to
the Lessor. All notices and demands by the Lessee to the lessor shall be sent by
United States Mail, postage prepaid, addressed to the Lessor at the Office of
the Building, or to such other person or place as the Lessor may from time to
time designate in a notice to the Lessee.

      d.    Joint Obligation. If there be more than one Lessee the obligations
hereunder imposed upon Lessees shall be joint and several.

      e.    Marginal Headings. The marginal headings and Article titles to the
Articles of this Lease are not a part of this Lease and shall have no effect
upon the construction or interpretation of any part hereof.

      f.    Time. Time is of the essence of this Lease and each and all of its
provisions in which performance is a factor.

      g.    Successors and Assigns. The covenants and conditions herein
contained, subject to the provisions as to assignment, apply to and bind the
heirs, successors, executors, administrators and assigns of the parties hereto.

      h.    Recordation. Neither Lessor nor Lessee shall record this Lease or a
short form memorandum hereof without the prior written consent of the other
party.

      i.    Quiet Possession. Upon lessee paying the rent reserved hereunder and
observing and performing all of the covenants, conditions and provisions on
Lessee's part to be observed and performed hereunder, Lessee shall have quiet
possession of the Premises for the entire term hereof, subject to all the
provisions of this Lease.


                                  Page 5 of 8


      j.    Late Charges. Lessee hereby acknowledges that late payment by Lessee
to Lessor or rent or other sums due hereunder will cause Lessor to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges, which may be imposed upon Lessor by
terms of any mortgage or trust deed covering the Premises. Accordingly, if any
installment of rent or a sum due from Lessee shall not be received by Lessor or
Lessor's designee within ten (10) days after said amount is due, then Lessee
shall pay to Lessor a late charge equal to ten (10%) percent of such overdue
amount. The parties hereby agree that such late charges represent a fair and
reasonable estimate of the cost that Lessor will incur by reason of the late
payment by Lessee. Acceptance of such late charges by the Lessor shall in no
event constitute a waiver of Lessee's default with respect to such overdue
amount, nor prevent Lessor from exercising any of the other rights and remedies
granted hereunder.

      k.    Guaranty. As material condition of this Lease and for valuable
consideration, Lessee's performance of the conditions embodied in this Lease is
hereby guaranteed by the undersigned.

      l.    Prior Agreements. This Lease contains all of the agreements of the
parties hereto with respect to any matter covered or mentioned in this Lease,
and no prior agreements or understanding pertaining to any such matters shall be
effective for any purpose. No provision of this lease may be amended or added to
except by an agreement in writing signed by the parties hereto or their
respective successors in interest. This Lease shall not be effective or binding
on any party until fully executed by both parties hereto.

      m.    Inability to Perform. This Leas and the obligations of the Lessee
hereunder shall not be affected or impaired because the Lessor is unable to
fulfill any of its obligations hereunder or is delayed in doing so, if such
inability or delay is caused by reason or strike, labor troubles, acts of God,
or any other cause beyond the reasonable control of the Lessor.

      n.    Attorneys' Fees. In the event of any action or proceeding brought by
either party against the other under this Lease the prevailing party shall be
entitled to recover all costs and expenses including the fees or its attorneys
in such action or proceeding in such amount as the court may adjudge reasonable
as attorneys' fees.

      o.    Sale of Premises by Lessor. In the event of any sale of the
Building, Lessor shall be and is hereby entirely freed and relieved of all
liability under any and all of its covenants and obligations contained in or
derived from this Lease arising out of any act, occurrence or omission occurring
after the consummation of such sale; and the purchaser, at such sale or any
subsequent sale of the Premises shall be deemed, without any further agreement
between the parties or their successors in interest or between the parties and
any such purchaser to have assumed and agreed to carry out any and all of the
covenants and obligations of the Lessor under this lease.

      p.    Subordination, Attornment. Upon request of the Lessor, Lessee will
in writing subordinate its rights hereunder to the lien of any first mortgage,
or first deed of trust to any bank, insurance company or other lending
institution, now or hereafter in force against the land and Building of which
the Premises are a part, and upon any buildings hereafter placed upon the land
of which the Premises are a part, and to all advances made or hereafter to be
made upon the security thereof.

            In the event any proceedings are brought for foreclosure, or in the
event of the exercise of power of sale under any mortgage or deed of trust made
by the Lessor covering the Premises, the lessee shall attorn to the purchaser
upon any such foreclosure or sale and recognize such purchaser as the Lessor
under this Lease.

      q.    Name. Lessee shall not use the name of the Building or of the
development in which the Building is situated for any purpose other than as an
address of the business to be conducted by the Lessee in the Premises.

      r.    Separability. Any provision of this Lease which shall prove to be
invalid, void or illegal shall in no way effect, impair or invalidate any other
provision hereof and such other provision shall remain in full force and effect.

      s.    Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.

      t.    Choice of Law. This Lease shall be governed by the laws of the State
of California.

      u.    Signs and Auctions. Lessee shall not place any sign upon the
Premises or Building or conduct any auction thereon without Lessor's prior
written consent.

31.   BROKERS. Lessee warrants that it has had no dealings with any real estate
broker or agents in connection with the negotiation of this Lease excepting only
ORION PARTNERS LTD. AND SCHUBERT INVESTMENTS and it knows of no other real
estate broker or agents in connection with this Lease.

32.   OPTION TO EXTEND.

      a.    General. Lessee has two (2) options to extend the term on all the
provisions contained in this lease, except for rent, for a FIVE (5)-year period
each (the "Extended Term") following expiration of the initial term by giving
notice of exercise of the option ("Option Notice") to Lessor at least nine
months and not earlier than twelve (12) months before the expiration of the
initial or the first Extended Term; provided that, if Lessee is in default as of
the date of giving the option notice, the option notice shall be ineffective, or
if Lessee is in default as of the date the extended term is to commence, the
extended term shall not commence and this lease shall expire at the end of the
initial term.

      b.    Rent. The rent for the extended terms shall be the fair market
rental value of the Premises as of the date of commencement of the extended
term, which fair market rental value shall in no event be less than the rent in
effect during the last year of the previous term and shall be determined in
accordance with paragraph c, below.

      c.    Determination of Fair Market Rent.

            i.    The parties shall endeavor by good faith negotiations to agree
upon the fair market rental within thirty (30) days after Landlord's receipt of
the Option Notice.

            ii.   In the event the Lessor or Lessee cannot agree on the rent
within thirty (30) days after Landlord's receipt of the Option Notice, then
within 15 days thereafter each party, at its own cost and by giving notice to
the other party, shall appoint a real estate broker within at least five (5)
years' full time commercial leasing experience in the Marin County Area, to
appraise and determine the fair market rental value of the Premises ("fair
market rent"). If, in the time provided, only one party shall notice appointment
of a broker, the single broker appointed shall determine the fair market rent.
If two brokers are appointed by the parties, the two brokers shall
independently, and without consultation between them, prepare an appraisal of
the fair market rent within 15 days. Each broker shall seal its respective
appraisal after completion. After both appraisals are completed, the resulting
estimates of the fair market rent shall be opened and compared. If the value of
the appraisals differ by no more than ten (10%) of the value of the higher
appraisal, then the fair market rent shall be the average of the two appraisals.

                                  Page 6 of 8


            iii.  If the values of the appraisals differ by more than ten
percent (10%) of the value of the higher appraisal, the two brokers shall
designate a third broker meeting the qualifications set forth in subparagraph
32.3.ii, above. If the two brokers have not agreed on a third broker after ten
(10) days, either Lessor or Tenant, by giving ten (10) days' notice to the other
party, may apply to the then Presiding Judge of the Superior Court for the
country in which the building is located for the selection of a third broker who
meets the qualifications set forth in subparagraph 32.c.ii (ii) above. The third
broker, however selected, shall be a person who has not previously acted in any
capacity for either party. The third broker shall make an appraisal of the fair
market rent within ten (10) days after selection and without consultation with
the first two brokers. If, however, the low appraisal and/or the high appraisal
are/is more than 15% lower and/or higher than the middle appraisal, the low
appraisal and/or the high appraisal shall be disregarded. If one appraisal is
disregarded, the remaining two appraisals shall be added together and their
total divided by two, and the resulting quotient shall be the fair market rent.
If both the low appraisal and the high appraisal are disregarded as provided in
this subparagraph, the middle appraisal shall be the fair market rent.

      d.    Delay. If the determination of the rent is delayed beyond the
commencement of the extended term, Lessee shall pay rent based on the average of
the appraisals received under subparagraphs c (i) and (ii), above, as of the
extended term commencement until the first day of the month following the
determination of the rent. On the first day of the month following the
determination of the rent, there shall be an adjustment made to the rent payment
then due for the difference between the amount of rent Lessee has paid to Lessor
since the extended term commencement and the amount that Lessee would have paid
if the rent as adjusted pursuant to this subparagraph had been in effect as of
the extended term commencement.

      e.    Costs. Each party shall pay the fees and expenses of their own
broker, and 50% of the fees and expenses of the third broker.

      f.    Criteria. The brokers shall determine the fair market rent using the
"market comparison approach" with the relevant market being that for first class
office space in the immediate area where the Building is located. The brokers
shall use their best efforts to fairly and reasonably appraise and determine the
fair market rental value of the Premises in accordance with the terms of the
lease, and shall not act as advocates for either Lessor Tenant.

      g.    No Further Extension. Lessee shall have no further option to extend
the term of this Lease.



Signed on JANUARY 18, 2000
          -------------------------

at SAN RAFAEL, CALIF.
   --------------------------------


        By: /s/ Richard Bergman
            -----------------------------------
            Richard Bergman


        Its:             LESSOR
            -----------------------------------

        By: /s/ Denis Bergman
            -----------------------------------
            Denis Bergman


        Its:              LESSOR
            -----------------------------------
                         [LESSOR]


Signed on 1/25/00

at [ILLEGIBLE], CALIF.
   --------------------------------

        By: /s/ Christopher Erickson
            -----------------------------------
            Christopher Erickson

        Its: CEO
            -----------------------------------

        By:
            -----------------------------------

        Its:
            -----------------------------------
                        [LESSEE]




                                  Page 7 of 8




                              RULES AND REGULATIONS


1.    No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed or printed or affixed on or to any part of the outside or
inside of the Building without the written consent of Lessor first had and
obtained and Lessor shall have the right to remove any such sign, placard,
picture, advertisement, name or notice without notice to and at the expense of
Lessee.

      All approved signs or lettering on doors shall be printed, painted,
affixed or inscribed at the expense of Lessee by a person approved of by Lessor.

      Lessee shall not place anything or allow anything to be placed near the
glass of any window, door, partition or wall which may appear unsightly from
outside the Premises; provided, however, that Lessor may furnish and install a
Building standard window covering at all exterior windows. Lessee shall not
without prior written consent of Lessor cause or otherwise sunscreen any window.

2.    The sidewalks, halls, passages, exits, entrances, elevators and stairways
shall not be obstructed by any of the Lessees or used by them for any purpose
other than for ingress and egress from their respective Premises.

3.    Lessee shall not alter any lock or install any new or additional locks or
any bolts on any doors or windows of the Premises.

4.    The toilet rooms, urinals, wash bowls and other apparatus shall not be
used for any purpose other than that for which they were constructed and no
foreign substance of any kind whatsoever shall be thrown therein and the expense
of any breakage, stoppage, or damage resulting from the violation of this rule
shall be borne by the Lessee who, or whose employees or invitees shall have
caused it.

5.    Lessee shall not overload the floor of the Premises or in any way deface
the Premises or any part thereof.

6.    Lessor shall have the right to prescribe the weight, size and position of
all safes and other heavy equipment brought into the Building and also the times
and manner of moving the same in and out of the Building. Safes or other heavy
objects shall, if considered necessary by Lessor, stand on supports of such
thickness as is necessary to properly distribute the weight. lessor will not be
responsible for loss of or damage to any such safe or property from any cause
and all damage done to the Building by moving or maintaining any such safe or
other property shall be repaired at the expense of the Lessee.

7.    Lessee shall not use, keep or permit to be used or kept any foul or
noxious gas or substance in the Premises, or permit or suffer the Premises to be
occupied or used in a manner offensive or objectionable to the Lessor or other
occupants of the Building by reason of noise, odors, electromagnetic radiation,
and/or vibrations, or interfere in any way with other Lessees or those having
business therein, nor shall any animals, excepting registered service animals,
or birds be brought in or kept in or about the Premises or the Building.

8.    No cooking appliances shall be used or permitted by any Lessee on the
Premises, excepting only coffee makers and microwave ovens, nor shall the
Premises be used for the storage of merchandise, for washing clothes, for
lodging, or for any improper, objectionable or immoral purpose.

9.    Lessee shall not use or keep in the Premises of the Building any kerosene,
gasoline, or inflammable or combustible fluid or material, or use any method of
heating or air conditioning other than that supplied by Lessor.

10.   Lessor will direct electricians as to where and how telephone and
telegraph wires are to be introduced. No boring or cutting for wires will be
allowed without the consent of the Lessor. The location of telephones, call
boxes and other office equipment affixed to the premises shall be subject to the
approval of Lessor.

11.   The Lessor shall in no case be liable for damages for any error with
regard to the admission to or exclusion from the Building of any person. In case
of invasion, mob, riot, public excitement, or other commotion, the Lessor
reserves the right to prevent access to the Building during the continuance of
the same by closing of the doors or otherwise, for the safety of the Lessees and
protection of property in the Building and the Building.

12.   Lessor reserves the right to exclude or expel from the Building any person
who, in the judgment of Lessor, is intoxicated or under the influence of liquor
or drugs, or who shall in any manner do any act in violation of any of the rules
and regulations of the Building.

13.   No vending machine or machines of any description shall be installed,
maintained or operated upon the Premises other than for the use by Lessee's
employees, without the written consent of the Lessor.

14.   Lessor shall have the right, exercisable without notice and without
liability to Lessee, to change the name and street address of the Building of
which the Premises are a part.

15.   All entrance doors in the Premises shall be left locked when the Premises
are not in use, and all doors opening to public corridors shall be kept closed
except for normal ingress and egress from the Premises.



                                  Page 8 of 8



                                   ADDENDUM 1

        To Lease by and Between Richard M. and Denise Bergmann ("LESSOR")
                         and Brightware, Inc. ("LESSEE")
                 for 1401 Los Gamos Road, San Rafael, California
- --------------------------------------------------------------------------------

1.    SIGNAGE. Lessee shall be allowed top of building illuminated exterior
      signage facing Interstate 101, at no additional rent, subject to all
      required governmental approvals. Cost of exterior signage shall be at
      Lessee's sole expense.

2.    RENTAL CONCESSION. The first (1st) month of the Lease Term shall be
      rent-free excepting utilities which shall be paid by the Lessee.

3.    TENANT IMPROVEMENTS. Lessor will provide a Tenant Improvement allowance of
      $6.00 per square foot ($182,928). At Lessor's Option Landlord will provide
      an additional improvement allowance not to exceed $9.00 per square foot.
      The Tenant Improvement allowance ("Additional Improvements") shall not
      include any costs of procuring or installing in the Premises any trade
      fixtures, equipment, furniture, furnishings, telephone equipment, wiring
      or cabling or other personal property to be used in the Premises by
      Lessee. Lessor shall provide fifty percent (50%) of the allowance upon 50%
      completion of the work and fifty percent (50%) upon completion of the work
      in accordance with the approved plan, and all required governmental
      approvals including certificate of occupancy and monthly, amortized at ten
      percent (10%) over the term of the initial lease (ten years). All
      improvements to be completed by Lessee with Lessor's prior approval of
      plans and contractor. See Construction Rules, Exhibit A attached.

      Lessee shall provide a letter of credit in the amount of the additional
      improvements, which shall decline annually by one-tenth of the amount per
      year.

4.    WARRANT. A warrant will be granted to Richard and Denise Bergmann for
      22,000 shares of common stock of Brightware, Inc., at $1.75 per share. The
      Warrants shall be exercised for a period of two (2) years from the date of
      the fully executed Lease for the Premises.

5.    BUILDING HOURS/ACCESS. Lessee shall have access and use of the Premises
      twenty-four (24) hours per day, three hundred sixty-five (365) days per
      year.

6.    SATELLITE DISH. Lessee shall have the right at Lessee's cost to install a
      satellite dish on the roof, at no additional rent, in a location mutually
      acceptable to both Lessee and Lessor. Installation shall be in a
      professional manner. Lessee shall obtain any governmental approvals
      required for the installation of such dish. Lessee shall pay for any
      repairs required from installation or removal of the satellite dish.

7.    NON-DISTURBANCE. Lessor shall provide a non-disturbance agreement for
      Lessee's lease hold interest in the property in a form acceptable to
      Lessor's lender. Lessee shall pay for any reasonable costs associated with
      Lessor providing the non-disturbance agreement.



LESSOR:  RICHARD M. AND DENISE BERGMANN


/s/ Richard Bergmann                                    Date:   1/18/2000
- -------------------------------                               -------------
Richard Bergmann


/s/ Denise Bergmann                                     Date:   1/27/2000
- -------------------------------                               -------------
Denise Bergmann


LESSEE:  BRIGHTWARE INC., A DELAWARE CORPORATION


/s/ Christopher Erickson                                Date:   1/25/00
- -------------------------------                               -------------
By:
Its:CEO

                                                        Date:
- -------------------------------                               -------------
By:
Its:





                                    EXHIBIT A
                               Construction Rules

      These Construction Rules are attached and made a part of that certain 1401
Los Gamos Lease dated January 6, 2000 by and between Richard and Denise Bergman
as ("Lessor") and BRIGHTWARE, INC. as ("Lessee").

1.    WORK. Under the Lease, Lessee has agreed to accept the Premises "AS IS",
      without any obligation for the performance of-improvements or other work
      by Lessor and Lessee desires to perform certain improvements within the
      Premises ("Lessee's Work"). All of Lessee's Work shall be in accordance
      with the provisions of these Construction Rules, and to the extent not
      expressly inconsistent herewith, in accordance with the provisions of the'
      Lease. Lessee shall also comply and shall cause its contractors to comply
      with the Building's construction rules and. regulations attached hereto.

2.    COST OF LESSEE'S WORK. Except as provided in the Lease, Lessee shall pay
      all costs associated with Lessee's Work, including without limitation, all
      permits, inspection fees, fees of space planners, architects, engineers,
      and contractors, fees for utility connections, the cost of all labor and
      materials, bonds, insurance, and any structural or mechanical work,
      additional HVAC equipment or relocation of any existing sprinkler heads,
      either within or outside the Premises required as a result of the layout
      design, or construction of Lessee's Work.

3.    IMPROVEMENT ALLOWANCE. The Lessee Improvement Allowance of $182,928.00
      ($6.00 per square foot) and additional improvements of up to $274,392.00
      ($9.00 per square foot) shall be funded by Lessor in two installments. The
      first installment may be requested after Lessee! s Work is at least 50%
      completed and Lessee may request up to 50% of the Lessee Improvement
      Allowance, and/or Additional Improvement allowance at such time. The
      Second installment of the Lessee Improvement Allowance, and/or Additional
      Improvement allowance shall be funded after Lessee's Work has been
      completed in accordance with the "Final Plans" approved by Lessor in
      writing in accordance with the provisions hereof, and Lessee has submitted
      all invoices, lien waivers, affidavits Of payments, and such other
      evidence as Lessor may reasonably require to evidence that the cost of
      Lessee's Work has been paid for and that no mechanic's, materialmen's or
      other such liens have been or may be filed against the Property or the
      Premises arising out of the design or performance of Lessee's Work. Lessor
      agrees- to disburse each installment of the Lessee Improvement Allowance,
      and/or Additional Improvement allowance due to Lessee hereunder within
      thirty (30) days following the date all required backup material has be
      submitted as referenced herein.

4.    CHANGE ORDERS. No changes, modifications, alterations, or additions to the
      approved Space Plan or Lessee's Working Drawings may be made without the
      prior written consent of the Lessor after written r request therefor by
      Lessee, which consent shall not be unreasonably withheld or delayed. In
      the event that the Premises are not constructed substantially in
      accordance with the Final Plans, then Lessee must promptly perform the
      work necessary for the Premises to reasonably comply in all respects with
      the Final Plans; in such case, the Rent shall nevertheless accrue and be
      payable as otherwise provided in the Lease. In no event may Lessee occupy
      any portion of the Premises unless all necessary governmental approvals
      have been obtained such that the Premises may be used and occupied for
      business purposes.

                                  Page 1 of 3



5.    COMPLIANCE. Lessee's Work shall comply in all respects with the following:
      (a) the Bu . Code of the City of San Rafael, State and County laws, codes,
      ordinances, and regulations, as each may apply according to the! rulings
      of the controlling public official, agent or other such person, (b)
      applicable standards of the National Board of Fire Underwriters and
      National Electrical Code, and (c) building material manufacturer's
      specifications.

6.    GUARANTEES. Each contractor, subcontractor and supplier participating in
      Lessee's Work shall guarantee that the portion thereof for which he is
      responsible shall. be free from any defects in Lessee's Workmanship and
      materials for a period of not less than one (1) year from the date of
      completion thereof. Every such contractor, subcontractor, and supplier
      shall be responsible for the replacement or repair, without additional
      charge, of all Lessee's Work done or furnished in accordance with its
      contract which shall become defective within one (1) year after completion
      thereof' The correction of such Lessee's Work shall include, without
      additional charge, all additional expenses and damages in connection with
      such removal or replacement of all or any part of Lessee's Work, and/or
      the Property and/or common areas, or Lessee's Work which may be damaged or
      disturbed thereby. All such warranties or guarantees shall inure to the
      benefit of both Lessor and Lessee, as their respective interest may
      appear, and can be directly enforced by either. Lessee covenants to give
      Lessor any assignment or other assurances necessary to effect such right
      of direct enforcement. Copies of all contracts and subcontracts shall be
      furnished to Lessor promptly after the same are entered.

7.    PERFORMANCE.

      a.    Lessee's Work shall be performed in a thoroughly safe, first-class
            and workmanlike manner in conformity with the Final Plans, and shall
            be in good and usable condition at the date of completion.

      b.    Lessee shall be required to obtain and pay for all necessary permits
            and/or fees with respect to Lessee's Work, and the same shall be
            shown to Lessor prior to commencement of Lessee's Work, if
            requested.

      c.    Lessor's acceptance of Lessee's Work as being complete in accordance
            with the Final Plans shall be subject to Lessor's inspection and
            written approval, with such approval not unreasonably withheld or
            delayed.

      d.    Lessee shall, at its cost mid expense, obtain any governmentally
            required certificate of occupancy.

      e.    Copies of "as built" drawings shall be provided to Lessor no later
            than thirty (30) days after completion of Lessee's Work.

      f     Lessor's approvals of Lessee's plans and specifications, and
            Lessor's recommendations or approvals concerning contractors,
            subcontractors,. space. planners, engineers, or architects, shall
            not be deemed a warranty as to the quality or adequacy of Lessee's
            Work, or the design thereof, or its compliance with Laws, codes and
            other legal requirements.

      g.    Lessor shall not be responsible for any disturbance or deficiency
            created in the air conditioning or other mechanical, electrical or
            structural facilities within the Property or Premises as a result of
            Lessee's Work. If such disturbances or deficiencies result from
            Lessee's Work, Lessee shall correct the same and restore the
            services to Lessor's reasonable satisfaction within a reasonable
            time.


                                  Page 2 of 3


8.    REPAIR OF DAMAGE; INDEMNITY. Lessee shall be responsible to repair and
      restore at its sole cost and expense, any damage to any portions of the
      Building or the Property arising out of the conduct of Lessee's Work,
      including, without limitation, any damage caused by Lessee's agents,
      employees or contractors. Lessee shall indemnify and hold harmless Lessor
      (and Lessor's principals, partners, agents, trustees, beneficiaries,
      officers, employees and affiliates) from and against any claims, demands,
      losses, damages, injuries, liabilities, expenses, judgements, liens,
      encumbrances, orders, and awards, together with attorney's fees and
      litigation expenses arising out of or in connection with Lessee's Work, or
      Lessee's failure to comply with the provisions hereof, or any failure by
      Lessee's contractors, subcontractors or their employees to comply with the
      provisions hereof, except to the extent caused by Lessor, Lessor's agents
      or employees intentional or negligent acts.


LESSOR: RICHARD M. AND DENISE BERGMANN


/s/ Richard Bergmann                                 Date:      1/28/2000
- --------------------------------------------               ---------------------
Richard M. Bergmann


/s/ Denise Bergmann                                  Date:      1/27/2000
- --------------------------------------------               ---------------------
Denise Bergmann



LESSEE: BRIGHTWARE INC., A DELAWARE CORPORATION


/s/ Christopher Erickson                             Date:      1/25/00
- ------------------------------------                       ---------------------
By:
Its:  CEO


                                                     Date:
- --------------------------------------------              ----------------------
By:
Its:


                                  Page 3 of 3



                              ARBITRATION ADDENDUM

To Agreement dated JANUARY 6, 2000, between RICHARD M. and DENISE BERGMANN
("LESSOR") and BRIGHTWARE, INC. ("LESSEE") concerning property commonly known as
1401 Los GAMOS ROAD, SAN RAFAEL, CALIFORNIA

This Addendum supersedes any provisions regarding arbitration contained in the
above reference Agreement.

ARBITATION OF DISPUTES. Any dispute or claim in law or equity arising out of
this contract will be decided by neutral binding arbitration in accordance with
the California Arbitration Act, (C.C.P. ss. 1280 et seq.), and not by court
action except as provided by California law for judicial review of arbitration
proceedings. Judgment upon the award rendered by the arbitrator may be entered
in any court having jurisdiction. The parties will have the right to discovery
in accordance with Code of Civil Procedures ss. 1283.05.
The parties agree that the following procedure will govern the making of the
award by the arbitrator:

      (a)   A Tentative Award will be made by the arbitrator within 30 days
            following submission of the matter to the arbitrator.

      (b)   The Tentative Award will explain the factual and legal basis for the
            arbitrators decision as to each of the principal controverted
            issues. (c) The Tentative Award will be in writing unless the
            parties agree otherwise; provided, however, that if the hearing is
            concluded within one (1) day, the Tentative Award may be made orally
            at the hearing in the presence of the parties.

      (d)   Within ten (10) days after the Tentative Award has been served or
            announced, any party may serve objections to the Tentative Award.
            Upon objections being timely served, the arbitrator may call for
            additional evidence, oral or written argument, or both. If no
            objections are filed, the Tentative Award will become final without
            further action by the parties or arbitrator.

      (e)   Within thirty (30) days after the filing of objections, the
            arbitrator will either make the Tentative Award final or modify or
            correct the Tentative Award, which will then become final as
            modified or corrected.

      The provisions of C.C.P. ss. 128.5 authorizing the imposition of sanctions
as a result of bad faith or tactics will apply to the arbitration proceedings. A
prevailing p arty will also be entitled to an action for malicious prosecution
if the elements of such cause of action are met.

      The following matters are excluded from arbitration: (a) a judicial or
non-judicial foreclosure or other action or proceeding to enforce a deed of
trust, mortgage, or real property sales contract as defined in Civil Code ss.
2985; (b) an unlawful detainer action; (c) the filing or enforcement of a
mechanic's lien; (d) any matter which is within the jurisdiction of a probate
court, or small claims court; or (e) an action for bodily injury or wrongful
death, or for latent or patent defects to which Code of Civil Procedure ss.
337.1 or ss. 337.16 applies. The filing of a judicial action to enable the
recording of a notice of pending action, for order of attachment, receivership,
injunction, or other provisional remedies, will not constitute a waiver of the
right to arbitrage under this provision.

      NOTICE: BY SIGNING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE
ARISING OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION OF DISPUTES" PROVISION
DECIDED BY NEUTRAL ARBITRATION AS PROVICED BY CALIFORNIA LAW AND YOU ARE GIVING
UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN COURT OR JURY
TRIAL. BY SIGNING IN THE SPACE BELOW YOU ARE GIVING UP YOUR JUDICIAL RIGHTS TO
DISCOVERY OR JURY TRIAL. BY SIGNING IN THE SPACE BELOW YOU ARE GIVING UP YOUR
JUDICIAL RIGHTS TO DISCOVERY OR APPEAL, UNLESS THOSE RIGHTS ARE SPECIFICALLY
INCLUDED IN THE "ARBITRATION OF DISPUTES" PROVISION. IF YOU REFUSE TO SUBMIT TO
ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE
UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO
THIS ARBITRATION PROVISION IS VOLUNTARY.

      WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES
ARISING OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION OF DISPUTES" PROVISION
TO NEUTRAL ARBITRATION.


/s/ Richard Bergmann                                      Date:   1/18/2000
- ---------------------------------                               ----------------
Richard Bergmann


/s/ Christopher Erickson                                  Date:   1/25/2000
- ---------------------------------                               ----------------
Christopher Erickson


/s/ Denise Bergmann                                       Date:   1/27/2000
- ---------------------------------                               ----------------
Denise Bergmann


Caution: The copyright laws of the United States forbid the unauthorized
reproduction of this form by any means including scanning or computerized
formats.




[ORION LOGO]


                   DISCLOSURE ADDENDUM FOR PROPOSALS To LEASE
                              AND LEASE AGREEMENTS


PREMISES: 1401 LOS GAMOS ROAD, SAN RAFAEL, CALIFORNIA

AGENCY: The following real estate brokers and brokerage relationships exist in
        this transaction and are consented to by the parties:

        ORION PARTNERS LTD. (check the box that applies) [X] represents the
        Lessor exclusively; [ ]represents the Lessee exclusively; [ ]represents
        both Lessor and Lessee in the capacity of a dual agent.

        SHUBERT INVESTMENTS (check the box that applies)[ ]represents the Lessor
        exclusively; [ ]represents the Lessee exclusively.

THE AMERICANS WITH DISABILITIES ACT: Lessors and Lessee of real property may be
subject to the requirements of the Americans with Disabilities Act ("ADA").
Among other things, this act is intended to make many business establishments
equally accessible to persons with a variety of disabilities. Under US Law,
remodeling and other modifications to real property may be required. State and
local laws may also mandate changes. Orion Partners Ltd., Schubert Investments
and its agents are not qualified to advise you as to what, if any, changes may
be required to the Premises or building, mow or in the future, and the costs
associated therewith. Lessors and Lessees should consult legal counsel and
design professionals of their choice for information regarding these matters.
Lessee is responsible for conducting its own independent investigation of these
issues.

HAZARDOUS MATERIALS. Various materials utilized in the construction of
improvements to property may contain materials that have been or may in the
future be determined to be toxic, hazardous, or undesirable. These materials may
need to be specially handled or removed from the property. For example, some
electrical transformers and other electrical components can contain PCBS.
Asbestos has been used in a wide variety of building components such as
fireproofing, air duct insulation, acoustical tiles, spray-on acoustical
materials, linoleum, floor tiles, and plaster. Due to current or prior uses, the
property or improvements may contain materials such as metals, minerals,
chemicals, hydrocarbons, biological or radioactive materials, and other
substances which are considered, or in the future may be determined to be, toxic
wastes, hazardous materials, or undesirable substances. Such substances may be
in aboveground and below-ground containers on the property or may be present on
or in soils, water, building components, or other portions of the property in
areas that may not be accessible or noticeable.

Current and future federal, state, and local laws and regulations may require
the clean-up of such toxic, hazardous, or undesirable: materials at the expense
of those persons who in the post, present, or future have had any interest in
property including, but not limited to, current past and future owners and users
of the property. The parties are advised to consult with independent legal
counsel of their choice to determine the potential liability with respect to
toxic, hazardous, or undesirable materials. The parties should also consult with
such legal counsel to determine what provisions regarding toxic, hazardous, or
undesirable materials they may wish to include in purchase and sale agreements,
leases, options, and other legal documentation related to transactions they
contemplate entering into with respect to the property.

The real estate salespersons and brokers in this transaction have no expertise
with respect to toxic wastes, hazardous materials, or undesirable substances.
Proper inspections of the property by qualified experts are an absolute
necessity to determine whether or not there are any current or potential toxic
wastes, hazardous materials, or undesirable substances in or on the property.

The real estate salespersons and brokers in this transaction have not made, nor
will make, any representations, either expressed or implied, regarding the
existence or nonexistence of toxic wastes, hazardous materials, or undesirable
substances in or on the property. Problems involving toxic wastes, hazardous
materials, or undesirable substances can be extremely costly to correct. It is
the responsibility of the parties to retain qualified experts to deal with the
detection and correction of such matters.

The parties are directed to seek further information concerning any and all
future correctional measures, if any, from appropriate governmental agencies.



Disclosure Addendum
1401 Los Gamos Road
San Rafael California
Page 2 of 2

To the best of Lessor's knowledge, Lessor has attached to this Disclosure copies
of all existing surveys and reports known to Lessor regarding asbestos and other
hazardous materials including underground tanks and undesirable substances
related to the property. Lessors are required under California Health and Safety
Code Section 25915 et seq. To disclose reports and surveys regarding asbestos to
certain persons, including their employees, contractors, co-owners, purchasers
and tenants. Lessees have similar disclosure obligations. Lessors and Lessees
have additional hazardous materials disclosure responsibilities to each other
under California Health and Safety Code Section 25359.7 and other California
laws. Consult your attorney regarding this matter.

FLOOD DISCLOSURE. If the premises is located in a Federally Designated Flood
Zone the real and personal property of Lessee situated on or in the Premises is
not protected by the hazard insurance policy for the property carried by Lessor.
Lessee is responsible for investigating the Flood Zone status of the Premises
and obtaining insurance to cover, Lessee's property if it so desires

ZONING/USE . Prior to executing a lease, Lessee is responsible for determining
that the zoning applicable to the property and Premises allows Lessee to use the
property for its intended use of business, and that all building codes, parking
requirements, and other governmental requirements, improvements required, and
permits necessary have been met or are available to Lessee. Orion Partners Ltd.,
and Schubert Investments have made no representations, except in writing, if
any, concerning die zoning and allowable use of the Premises and any
requirements that may be imposed upon Lessee by any governmental agency. If
Lessee's use of the Premises requires a Use Permit or other permits from a
governmental authority it could take. several months to obtain same, and Lessee
may still be responsible for the payment of rent and other charges whether or
not such permits are ultimately obtained.

MEASUREMENT OF THE PREMISES. Determination of the square footage or size of the
Premises is not an exact science. Lessors and Lessees and their respective
representatives may use different standards and conventions in measuring the
Premises. Lessee is responsible for measuring the Premises and satisfying itself
prior to execution of the lease that the size of the premises is acceptable to
Lessee for the amount of rent it has bargained for. Orion Partners Ltd. and
Schubert Investments do not guarantee the measurements or size represented in
its advertising brochures, drawings or marketing flyers.

UTILITIES. Prior to execution of a lease, Lessee should satisfy itself that the
Premises contains the necessary utility services and capacities necessary for
Lessee to operate its business at the Premises.

ALQUIST-PRIOLO SPECIAL EARTHQUAKE FAULT ZONING ACT The property and Premises
described above (check which box applies) [ ] is; [ ] is not; [ ] may or may not
be situated in an Earthquake Fault Zone as designated under the Alquist-Priolo
Earthquake Fault Zoning Act, Sections 2621-2630 inclusive, of the California
Public Resources Code; and, as such the construction of development on the
property of any structure for human occupancy may. be subject to the findings of
a geologic report prepared by a geologist registered with the State of
California, unless such report. is waived by the city or county under the terms
of that Act. No representations on this subject are made by Schubert
Investments, or Orion Partners Ltd. or its agents or employees and the Lessee is
advised to make its own inquiry into this situation prior to entering into a
lease agreement.

The undersigned acknowledge that they have read and understand this disclosure
and have received a copy.


LESSOR                                          LESSEE
RICHARD M. AND DENISE BERGMANN                  BRIGHTWARE, INC.


/s/ Richard Bergmann                            /s/ Christopher Erickson
- --------------------------------                --------------------------------
Richard M. Bergmann                             By:
                                                Its: CEO


/s/ Denise Bergmann
- --------------------------------                --------------------------------
Denise Bergmann                                 By:
                                                Its:


Date:     1/27/2000                             Date:
- --------------------------------                --------------------------------

EX-21.1

                                                                    Exhibit 21.1

                                  Subsidiaries



Name                                        Jurisdiction of Incorporation
- ----                                        -----------------------------


Firepond UK Ltd                                         England
Firepond Nordic AB                                      Sweden
Firepond Benelux BV                                     Netherlands
Firepond Europe BV                                      Netherlands
Firepond Deutschland GmbH                               Germany
Firepond France SAS                                     France
Firepond Japan KK                                       Japan
Firepond Korea Co. Ltd                                  Korea
Firepond International Inc                              Minnesota
Firepond of Michigan, Inc.                              Michigan
Brightware, Inc.                                        Delaware

EX-23.1

                   CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into the Company's previously filed
Registration Statements on Form S-8 File Nos. 333-33932, 333-55926 and
333-71254.


/s/ Arthur Andersen LLP

Boston, Massachusetts
January 25, 2002