Edgar Filing: FIREPOND INC

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934

FILED BY THE REGISTRANT [X] FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]

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[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material under Rule 14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))

FIREPOND, INC.
(Name of Registrant as Specified in its Charter)

FIREPOND, INC.
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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FIREPOND, INC.
890 WINTER STREET
WALTHAM, MA 02451

March 1, 2002

Dear Stockholder:

You are cordially invited to attend the Annual Meeting of Stockholders of
Firepond, Inc. (the "Company") to be held on Friday, March 22, 2002, at 10:00
a.m. eastern time, at the offices of McDermott, Will & Emery, 28 State Street,
Boston, MA 02109 (the "Annual Meeting").

The Annual Meeting has been called for the purpose of (i) electing two
Class II Directors for a three-year term, (ii) considering and voting upon an
amendment to the Company's certificate of incorporation to effect a reverse
stock split of the Company's outstanding common stock of not less than 1-for-3
and not more than 1-for-10, with the Company's Board of Directors having the
authority and discretion to determine if and when to effectuate any reverse
stock split within the foregoing parameters, and (iii) considering and voting
upon such other business as may properly come before the Annual Meeting or any
adjournments or postponements thereof.

The Board of Directors has fixed the close of business on February 15, 2002
as the record date for the determination of stockholders entitled to notice of,
and to vote at, the Annual Meeting and any adjournments or postponements
thereof.

The Board of Directors of the Company recommends that you vote "FOR" the
election of the nominees of the Board of Directors as Directors of the Company
and "FOR" approval of the amendment to the Company's certificate of
incorporation.

IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE ANNUAL MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, YOU ARE REQUESTED TO
COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED
ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IF YOU ARE A
STOCKHOLDER OF RECORD AND YOU ATTEND THE ANNUAL MEETING, YOU MAY VOTE IN PERSON,
EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD.

Sincerely,

KLAUS P. BESIER
Chairman and Chief Executive Officer

FIREPOND, INC.
890 WINTER STREET
WALTHAM, MA 02451
(781) 487-8400

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD ON FRIDAY, MARCH 22, 2002

NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Firepond,
Inc. (the "Company") will be held on Friday, March 22, 2002, at 10:00 a.m.
eastern time, at the offices of McDermott, Will & Emery, 28 State Street,
Boston, MA 02109 (the "Annual Meeting") for the purpose of considering and
voting upon:

1. The election of two Class II Directors for a three-year term;

2. An amendment to the Company's Certificate of Incorporation to effectuate
a reverse stock split of the outstanding shares of the Company's common
stock of not less than 1-for-3 and not more than 1-for-10; and

3. Such other business as may properly come before the Annual Meeting and
any adjournments or postponements thereof.

The Board of Directors has fixed the close of business on February 15,
2002, as the record date for the determination of stockholders entitled to
notice of, and to vote at, the Annual Meeting and any adjournments or
postponements thereof. Only holders of the Company's common stock of record at
the close of business on such date will be entitled to notice of, and to vote
at, the Annual Meeting and any adjournments or postponements thereof.

In the event there are not sufficient shares to be voted in favor of any of
the foregoing proposals at the time of the Annual Meeting, the Annual Meeting
may be adjourned in order to permit further solicitation of proxies.

By Order of the Board of Directors

CHRISTIAN J. MISVAER
Secretary

IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE ANNUAL MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON, YOU ARE
REQUESTED TO COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE
ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IF
YOU ARE A STOCKHOLDER OF RECORD AND YOU ATTEND THE ANNUAL MEETING, YOU MAY VOTE
IN PERSON, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD.

FIREPOND, INC.
890 WINTER STREET
WALTHAM, MA 02451
(781) 487-8400

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PROXY STATEMENT
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ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD ON FRIDAY, MARCH 22, 2002

This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Firepond, Inc. ("Firepond" or the
"Company") for use at the Annual Meeting of Stockholders of Firepond to be held
on Friday, March 22, 2002, at 10:00 a.m. eastern time, at the offices of
McDermott, Will & Emery, 28 State Street, Boston, MA 02109, and any adjournments
or postponements thereof (the "Annual Meeting").

At the Annual Meeting, the stockholders of Firepond will be asked to
consider and vote upon the following matters:

1. The election of two Class II Directors of the Company to serve for the
ensuing three-year period, with such term to continue until the annual
meeting of stockholders to be held in the year 2005 (the "2005 Annual
Meeting") and until such Directors' successors are duly elected and
qualified or until their earlier death or resignation;

2. An amendment to the Company's certificate of incorporation to effect a
reverse stock split of the outstanding shares of the Company's common
stock of not less than 1-for-3 and not more than 1-for-10; and

3. Such other business as may properly come before the meeting and any
adjournments or postponements thereof.

The Notice of Annual Meeting, Proxy Statement and Proxy Card are first
being mailed to stockholders of the Company on or about Friday, March 1, 2002 in
connection with the notice of, and solicitation of proxies for, the Annual
Meeting. The Board of Directors has fixed the close of business on February 15,
2002 as the record date (the "Record Date") for the determination of
stockholders entitled to notice of, and to vote at, the Annual Meeting. Only
holders of record of the Company's common stock at the close of business on the
Record Date will be entitled to notice of, and to vote at, the Annual Meeting.
As of the Record Date, there were approximately 37,017,983 shares of the
Company's common stock outstanding and entitled to vote at the Annual Meeting.
Each holder of shares of the Company's common stock outstanding as of the close
of business on the Record Date will be entitled to one vote for each share held
of record with respect to the matters submitted at the Annual Meeting.

The presence, in person or by proxy, of a majority of the total number of
outstanding shares of the Company's common stock is necessary to constitute a
quorum for the transaction of business at the Annual Meeting. A quorum being
present, (i) the affirmative vote of a plurality of the votes cast is necessary
for the election of the Class II Directors and (ii) the affirmative vote of the
holders of a majority of the outstanding shares of the Company's common stock is
required to approve the amendment to the certificate of incorporation.

Shares that reflect abstentions or "broker non-votes" (i.e., shares
represented at the meeting held by brokers or nominees as to which no
instructions have been received from the beneficial owners or persons entitled
to vote such shares and with respect to which the broker or nominee does not
have discretionary voting power to vote such shares) will be counted for
purposes of determining whether a quorum is present for the transaction of
business at the meeting. The Company's By-laws (the "By-laws") provide that any
election by stockholders shall be determined by a plurality of the votes of the
shares present in person or represented by

proxy at the meeting and entitled to vote thereon. With respect to the election
of Class II Directors, votes may be cast in favor of or withheld from the
nominee; votes that are withheld will be excluded entirely from the vote and
will have no effect. There will not be any broker non-votes with respect to the
election of the Class II Directors because brokers and other nominees have
discretion to vote on the matter. With respect to the amendment to the
certificate of incorporation, votes may be cast for or against the proposal, or
the voting stockholder may choose to abstain. For purposes of determining
whether the amendment to the certificate of incorporation has passed,
abstentions will be treated as votes cast against the amendment to the
certificate of incorporation.

STOCKHOLDERS OF FIREPOND ARE REQUESTED TO COMPLETE, DATE, SIGN AND RETURN
THE ACCOMPANYING PROXY CARD IN THE ENCLOSED ENVELOPE. SHARES OF THE COMPANY'S
COMMON STOCK REPRESENTED BY PROPERLY EXECUTED PROXIES RECEIVED BY THE COMPANY
AND NOT REVOKED WILL BE VOTED AT THE ANNUAL MEETING IN ACCORDANCE WITH THE
INSTRUCTIONS CONTAINED THEREIN. IF INSTRUCTIONS ARE NOT STATED THEREIN, PROPERLY
EXECUTED PROXIES WILL BE VOTED "FOR" THE ELECTION OF THE NOMINEES FOR DIRECTOR
NAMED IN THIS PROXY STATEMENT AND "FOR" APPROVAL OF THE ADOPTION OF THE
AMENDMENT TO THE CERTIFICATE OF INCORPORATION. IT IS NOT ANTICIPATED THAT ANY
MATTERS OTHER THAN THE ELECTION OF NOMINEES FOR DIRECTOR AND THE APPROVAL OF THE
ADOPTION OF THE AMENDMENT TO THE CERTIFICATE OF INCORPORATION WILL BE PRESENTED
AT THE ANNUAL MEETING. IF OTHER MATTERS ARE PRESENTED, PROXIES WILL BE VOTED IN
ACCORDANCE WITH THE DISCRETION OF THE PROXY HOLDERS.

Any properly completed proxy may be revoked by the stockholder of record
represented by such proxy at any time before it is voted on any matter (without,
however, affecting any vote taken prior to such revocation) by giving written
notice of such revocation to the Secretary of the Annual Meeting, or by signing
and duly delivering a proxy bearing a later date, or by attending the Annual
Meeting and voting in person. Attendance at the Annual Meeting will not, by
itself, revoke a proxy.

The Annual Report of the Company, including financial statements for the
fiscal year ended October 31, 2001 ("Fiscal Year 2001"), was filed with the
Securities and Exchange Commission on January 29, 2002. A copy of the Annual
Report is being mailed to stockholders of Firepond concurrently with this Proxy
Statement. The Annual Report, however, is not a part of the proxy solicitation
materials.

PROPOSAL NO. 1

ELECTION OF DIRECTORS

The Board of Directors of the Company (the "Board of Directors") is divided
into three classes and is comprised of two Directors in each of Class I, Class
II and Class III. Directors serve for three-year terms with one class of
Directors being elected by the Company's stockholders at each annual meeting.

At the Annual Meeting, two Class II Directors will be elected to serve
until the 2005 Annual Meeting and until such Directors' successors are duly
elected and qualified or until their earlier death or resignation. The Board of
Directors has nominated William O. Grabe and Vernon Lawrence Weber (the
"Nominees") for re-election as Class II Directors. Unless otherwise specified in
the proxy, it is the intention of the persons named in the proxy to vote the
shares represented by each properly executed proxy for the re-election of the
Nominees as Directors. The Nominees have agreed to stand for election and to
serve, if elected, as Directors. However, if the Nominees fail to stand for
election or are unable to accept election, proxies will be voted for the
election of such other persons as the Board of Directors may recommend.

William O. Grabe has been a Director of the Company since May 1997. Mr.
Grabe is a Managing Member of General Atlantic Partners, LLC, a private equity
investment firm which invests in information technology and communications
companies on a global basis, where he has worked since 1992. Mr. Grabe brings
broad international experience and an extensive sales and marketing background.
He has assisted numerous firms in their geographical expansion and development
of strategic alliances. Mr. Grabe is a director of several public information
technology companies including Bottomline Technologies, Inc., Digital China
Holdings Ltd., Exact Holding N.V., Compuware Corporation, Gartner, Inc., and
several other privately held information technology companies. Prior to his
affiliation with General Atlantic, Mr. Grabe retired from the IBM Corporation as
an IBM Vice President and Corporate Officer where he used to head up North
American sales and marketing. His outside affiliations include being a member of
the UCLA Foundation Board of Councillors and the UCLA Anderson School's Board of
Visitors, a member of the Cancer Research Institute Board of Trustees, a Trustee
of Outward Bound USA, and a director of Compuware Corporation and Gartner, Inc.

Vernon Lawrence Weber has been a Director of the Company since January
2000. Mr. Weber is the Chairman and Chief Executive Officer of the Advanced
Marketing Services Group of The Interpublic Group of Companies, the largest
marketing communications and services company in the world. He sits on the
boards of several technology companies and nonprofit organizations, including
the Boston Symphony Orchestra, the Boston Museum of Science and the Isabella
Stewart Gardner Museum.

VOTE REQUIRED FOR APPROVAL

A quorum being present, the affirmative vote of a plurality of the shares
present in person or represented by proxy is necessary to elect the Nominees as
Directors of the Company.

RECOMMENDATION OF THE BOARD OF DIRECTORS

THE BOARD RECOMMENDS A VOTE FOR THE ELECTION OF THE NOMINEES OF THE BOARD
AS DIRECTORS OF THE COMPANY.

PROPOSAL NO. 2

REVERSE STOCK SPLIT AMENDMENT

This proposal, if authorized by the Company's stockholders, will approve an
amendment to the Company's Third Amended and Restated Certificate of
Incorporation for the purpose of effectuating a reverse stock split of the
Company's outstanding common stock of not less than 1-for-3 and not more than
1-for-10 (a "Reverse Stock Split"), with the Company's Board of Directors having
the authority and discretion to determine if and when to effectuate any Reverse
Stock Splits.

INTRODUCTION AND BOARD RECOMMENDATION

The Company's Board of Directors has determined that it would be advisable
to obtain the approval of the stockholders for a Reverse Stock Split that would
reduce the number of shares of the Company's outstanding common stock in order
to attempt to increase the trading price of the Company's common stock on The
Nasdaq National Market on a per share basis. The Board of Directors proposes
this action because over the course of the Company's 2001 fiscal year, the
trading price of shares of the Company's common stock has, on occasion, declined
below $1.00. According to the requirements of continued listing on The Nasdaq
National Market, the failure to maintain the trading price above $1.00 on a
consistent basis may result in delisting of the Company's common stock. The
Company's Board of Directors believes that such a delisting could harm the
Company's stockholders by reducing the marketability and the liquidity of their
shares. If a Reverse Stock Split were to be implemented, the number of shares of
the Company's common stock owned by each stockholder would be reduced in the
same proportion as the reduction in the total number of shares outstanding, so
that the percentage of the outstanding shares owned by each stockholder would
remain unchanged.

By obtaining stockholder approval of a Reverse Stock Split at the Annual
Meeting, the Company's Board of Directors will be able to determine the most
appropriate time, if ever, to effectuate the Reverse Stock Split, by filing an
amendment to the Company's Third Amended and Restated Certificate of
Incorporation in the form attached as Exhibit A (the "Amendment"). When
appropriate, the Company's Board of Directors will determine whether to file the
Amendment based on factors such as prevailing market conditions and the trading
price of the Company's common stock on The Nasdaq National Market. If the Board
of Directors determines that a Reverse Stock Split is in the best interest of
the Company and its stockholders, they will then take the necessary steps to
effect a Reverse Stock Split. The Company's Board of Directors also believes
that, because it is not possible to predict market conditions at the time the
Reverse Stock Split is to be effectuated, it would be in the best interests of
the stockholders if the Board of Directors were to be able to determine, within
specified limits approved in advance by the stockholders, the appropriate ratio
of the Reverse Stock Split.

If approved by the stockholders of the Company, a Reverse Stock Split may
become effective on any date selected by the Board of Directors on or prior to
the Company's next annual meeting of stockholders but in no event later than
such time. Moreover, the Board of Directors reserves the right, even after
stockholder approval, to entirely forego filing of the Amendment if such action
is determined not to be in the best interests of the Company and its
stockholders. If a Reverse Stock Split approved by the stockholders is
subsequently not implemented by the Board of Directors on or prior to the
Company's next annual meeting, the proposal to amend the Company's certificate
of incorporation to effect a Reverse Stock Split will be deemed abandoned,
without any further effect. In such case, the Board of Directors will again seek
stockholder approval at a future date for a reverse stock split if it deems a
reverse stock split to be advisable at that time.

Accordingly, the Board of Directors is asking that the Company's
stockholders approve a range of Reverse Stock Splits of not less than 1-for-3
and not more than 1-for-10; and further, that the Board of Directors be
authorized to determine which of the Reverse Stock Splits in the specified
range, if any, to implement. In determining which Reverse Stock Split to
implement, if any, the Board of Directors will assess a variety of factors,
including, but not limited to, analysis of general market conditions. However,
primary emphasis will be placed on the trading price of the Company's common
stock on the days leading up to the date of the Reverse Stock Split.
4

A vote in favor of Proposal No. 2 will be a vote for approval of each of
the reverse split ratios in the specified range and for the granting of
authority and discretion to the Board of Directors to effectuate one of the
Reverse Stock Splits in the range as it deems advisable at the time the Reverse
Stock Split is to be effectuated. The proposal gives the Board of Directors the
discretion to abandon the Reverse Stock Split if the trading price of shares of
the Company's common stock continues to be above Nasdaq's minimum trading price
requirements prior to its implementation, or if market or other conditions or
circumstances make implementation of the Reverse Stock Split inadvisable as
determined by the Board of Directors. The vote required for approval of the
Reverse Stock Split proposal is a majority of the outstanding shares of the
Company's common stock.

REASONS FOR THE REVERSE STOCK SPLIT

The primary purpose of the Reverse Stock Split is to combine the
outstanding shares of the Company's common stock into a smaller number of shares
so that the shares will trade at a significantly higher price per share than
their recent trading prices. Pursuant to Nasdaq listing requirements, the
minimum [closing] bid price of shares of the Company's common stock must be at
least $1.00 per share in order to maintain inclusion on The Nasdaq National
Market. During the period from July 2, 2001 to December 31, 2001, the closing
price of shares of the Company's common stock on The Nasdaq National Market
ranged from a high of $1.30 to a low of $0.41 per share, trading below the $1.00
threshold for much of that period. On August 22, 2001 we were notified that the
Company's common stock might be delisted from trading on The Nasdaq National
Market. However, on September 27, 2001, Nasdaq temporarily suspended the minimum
bid price and public float requirements for continued listing on The Nasdaq
National Market. This temporary suspension of the minimum bid price and public
float requirements terminated on January 2, 2002.

The Company believes that the implementation of a Reverse Stock Split would
enable shares of the Company's common stock to trade above the $1.00 minimum
closing bid price which is one of the requirements to continued listing on The
Nasdaq National Market. The Company believes that continued listing of the
Company's common stock on The Nasdaq National Market is in the best interests of
the Company and its stockholders. Inclusion on the Nasdaq National Market
increases liquidity and may minimize the spread between the "bid" and "asked"
prices quoted by market makers. Further, a continued Nasdaq National Market
listing may enhance the Company's access to capital and increase its flexibility
in responding to anticipated capital requirements. The Company also believes
that prospective investors will view an investment in the Company more favorably
if the Company's shares continue to be listed on The Nasdaq National Market. The
Board of Directors also believes that such a low quoted market price per share
may discourage potential new investors and decrease the liquidity of the
Company's common stock.

During the period from January 2, 2002 through January 31, 2002, the
closing price of shares of the Company's common stock on The Nasdaq National
Market ranged from a high of $1.57 to a low of $1.25. Accordingly, at such
prices, the Company's common stock would not be in danger of being delisted from
The Nasdaq National Market based upon the $1.00 minimum bid price criteria. But
if the trading price for the Company's common stock should decline to the point
where the listing of the Company's common stock with The Nasdaq National Market
was again threatened, the Company would like the authority to proceed with a
Reverse Stock Split without further authorization of the Company's stockholders.
Obtaining stockholder approval of a Reverse Stock Split at this Annual Meeting
of Stockholders will enable the Company to avoid the additional time and expense
of holding a special meeting of stockholders should the Board of Directors
determine that it is in the best interest of the Company's stockholders to
implement a Reverse Stock Split prior to the Company's next annual meeting of
stockholders.

For the above reasons, the Company believes that giving the Board of
Directors the authority to effectuate a Reverse Stock Split without further
authorization of the Company's stockholders is in the best interests of the
Company and its stockholders. The Company anticipates that, following the
consummation of a Reverse Stock Split, the Company's common stock would trade at
a price per share that is proportionately higher than current market prices.
However, there can be no assurances that the Reverse Stock Split, if
implemented, would have the desired effect of proportionately raising the
Company's common stock price.

If the Reverse Stock Split proposal is approved by the stockholders at the
Annual Meeting, the Company expects to implement a Reverse Stock Split only if
the Company believes that it is necessary to comply with the continued listing
requirements of the Nasdaq National Market or otherwise in the best interests of
the Company. Accordingly, notwithstanding approval of the Reverse Stock Split
proposal by the stockholders, the Board of Directors may elect to delay or even
abandon entirely the Reverse Stock Split.

IMPLEMENTATION AND EFFECTS OF THE REVERSE STOCK SPLIT

If the stockholders approve the Reverse Stock Split proposal and the Board
of Directors determines it is necessary to effectuate a Reverse Stock Split, the
Board of Directors would:

1. Determine which Reverse Stock Split of not less than 1-for-3 and
not more than 1-for-10 is advisable, based on market and other relevant
conditions and circumstances and the trading prices of the Company's common
stock at that time; and

2. Direct management to file the Amendment with the Delaware Secretary
of State that would specify that, on the filing of the Amendment, every
three to ten shares (depending on the ratio of the Reverse Stock Split
selected by the Board of Directors) of the Company's common stock
outstanding would automatically be combined and converted into one share.
For example, if the Board of Directors selected a 1-for-5 Reverse Stock
Split, the amendment would specify that every five shares of the Company's
common stock outstanding be combined and converted into a single share.

We estimate that, following the Reverse Stock Split, the Company would have
approximately the same number of stockholders and, except for the effect of cash
payments for fractional shares as described below, the completion of the Reverse
Stock Split would not affect any stockholder's proportionate equity interest in
the Company. By way of example, a stockholder who owns a number of shares that
prior to the Reverse Stock Split represented one-half of a percent of the
outstanding shares of the Company would continue to own one-half of a percent of
its outstanding shares after the Reverse Stock Split.

The Reverse Stock Split also will not affect the number of shares of common
stock that the Board of Directors is authorized to issue by the Third Amended
and Restated Certificate of Incorporation of the Company, which will remain
unchanged at 100,000,000 shares. However, it will have the effect of increasing
the number of shares available for future issuance because of the reduction in
the number of shares that will be outstanding after giving effect to the Reverse
Stock Split.

Based on the 37,017,983 shares of common stock outstanding as of February
1, 2002, the following table reflects that approximate percentage reduction in
the outstanding shares of common stock and the approximate number of shares of
common stock that would be outstanding as a result of the Reverse Stock Split:

PROPOSED REVERSE PERCENTAGE SHARES TO BE
STOCK SPLIT REDUCTION OUTSTANDING
---------------- ---------- ------------

1 for 3 67% 12,339,328
1 for 4 75% 9,254,496
1 for 5 80% 7,403,597
1 for 6 83% 6,169,664
1 for 7 86% 5,288,283
1 for 8 88% 4,627,248
1 for 9 89% 4,113,109
1 for 10 90% 3,701,798

CASH TO BE PAID FOR FRACTIONAL SHARES

If any Reverse Stock Split ratio is selected, implementation of a Reverse
Stock Split would result in some stockholders owning a fractional share of
common stock. For example, if a 1-for-8 Reverse Stock Split were to be
implemented, the shares owned by a stockholder with 100 shares would be
converted into 12.5 shares. To avoid such a result, stockholders that would
otherwise be entitled to receive a fractional share of the Company's common
stock as a consequence of the Reverse Stock Split will, instead, receive from
the Company a cash payment in U.S. dollars equal to the value of that fractional
share, determined on the basis of the average closing price of the Company's
common stock on The Nasdaq National Market for the five trading days immediately
preceding the effective date of the Reverse Stock Split (as adjusted for that
Reverse Stock Split).

If any stockholder owns, in total, fewer than the number of the Company's
shares to be converted into one share as a result of the Reverse Stock Split,
that stockholder's shares would be converted into a fractional share of stock
and, therefore, that stockholder would receive only cash in place of the
fractional share as a result of the implementation of the Reverse Stock Split.
For example, if a 1-for-6 Reverse Stock Split is implemented then stockholders
with fewer than six shares would receive only cash. See "Exchange of Stock
Certificates and Payment for Fractional Shares" below. The interest of such
stockholders in the Company would, therefore, be terminated, and such
stockholders would have no right to share in the assets or future growth of the
Company. Based on the foregoing example, each stockholder that owns six shares
or more of the Company common stock prior to the Reverse Stock Split will
continue to own one or more shares after the Reverse Stock Split and would
continue to share in the assets and future growth of the Company as a
stockholder, and any stockholder that owns less than six shares would receive
only cash in place of the factional share resulting from the Reverse Stock
Split. Because the maximum reverse split under this proposal would be a 1-for-10
Reverse Stock Split, a stockholder could assure his or her continued ownership
of shares of stock of the Company after the reverse split by purchasing a number
of shares sufficient to increase the total number of shares that he or she owns
to 10 or more.

The Reverse Stock Split will result in some stockholders owning "odd lots"
of less than 100 shares of the Company common stock as a result of the Reverse
Stock Split. Brokerage commissions and other costs of transactions in odd lot
shares may be higher, particularly on a per-share basis, than the cost of
transactions in even multiples of 100 shares.

EFFECT OF REVERSE STOCK SPLIT ON OPTIONS

The number of shares subject to outstanding options to purchase shares of
the Company's common stock also would automatically be reduced in the same ratio
as the reduction in the outstanding shares. Correspondingly, the per share
exercise price of those options will be increased in direct proportion to the
Reverse Stock Split ratio, so that the aggregate dollar amount payable for the
purchase of the shares subject to the options will remain unchanged. For
example, assume that a 1-for-5 Reverse Stock Split is implemented and that an
optionee holds options to purchase 1,000 shares at an exercise price of $0.66
per share. On the effectiveness of the 1-for-5 Reverse Stock Split, the number
of shares subject to that option would be reduced to 200 shares and the exercise
price would be proportionately increased to $3.30 per share.

EFFECT OF REVERSE STOCK SPLIT ON WARRANTS

The agreements governing all of the outstanding warrants to purchase shares
of the Company's common stock include provisions requiring adjustments to both
the number of shares issuable upon exercise of such warrants, and the exercise
prices of such warrants, in the event of a reverse stock split. For example,
assume that a 1-for-5 Reverse Stock Split is implemented and a warrantholder
holds a warrant to purchase 10,000 shares of the Company's common stock at an
exercise price of $2.00 per share. On the effectiveness of the Reverse Stock
Split, the number of shares subject to that warrant would be reduced to 2,000
shares and the exercise price would be proportionately increased to $10.00 per
share.

EXCHANGE OF STOCK CERTIFICATES AND PAYMENT FOR FRACTIONAL SHARES

Effective Date. The combination of, and reduction in, the number of the
Company's outstanding shares as a result of the Reverse Stock Split would occur
automatically on the date that the Reverse Stock Split amendment is filed with
the Delaware Secretary of State (the "Effective Date"), without any action on
the part of the Company's stockholders and without regard to the date that stock
certificates representing the shares prior to the Reverse Stock Split are
physically surrendered for new stock certificates.

Exchange of Stock Certificates. As soon as practicable after the Effective
Date, transmittal forms will be mailed to each holder of record of certificates
for shares of the Company's common stock to be used in forwarding such
certificates for surrender and exchange for certificates representing the number
of shares of the Company's common stock such stockholder is entitled to receive
as a result of the Reverse Stock Split. The transmittal forms will be
accompanied by instructions specifying other details of the exchange. Upon
receipt of such transmittal form, each stockholder should surrender the
certificates representing shares of the Company's common stock prior to the
Reverse Stock Split in accordance with the applicable instructions. Each holder
who surrenders certificates will receive new certificates representing the whole
number of shares of the Company's common stock that he or she holds as a result
of the Reverse Stock Split and any cash payable in lieu of a fractional share.
STOCKHOLDERS SHOULD NOT SEND THEIR STOCK CERTIFICATES UNTIL THEY RECEIVE A
TRANSMITTAL FORM.

Effect of Failure to Exchange Stock Certificates. After the Effective
Date, each certificate representing shares of the Company's common stock
outstanding prior to the Effective Date (an "Old Certificate") will, until
surrendered and exchanged as described above, be deemed, for all corporate
purposes, to evidence ownership of the whole number of shares of the Company's
common stock, and the right to receive from the Company the amount of cash for
any fractional shares, into which the shares of the Company's common stock
evidenced by such certificate have been converted by the Reverse Stock Split.
However, the holder of such unexchanged certificates will not be entitled to
receive any dividends or other distributions payable by the Company after the
Effective Date, until the Old Certificates have been surrendered. Such dividends
and distributions, if any, will be accumulated, and at the time of surrender of
the Old Certificates, all such unpaid dividends or distributions will be paid
without interest.

Determination of Amount of Cash Payable for Fractional Shares. If the
number of shares of the Company's common stock to which a holder is entitled as
a result of the Reverse Stock Split would otherwise include a fraction, the
Company will pay to that stockholder, in lieu of issuing fractional shares of
stock, cash in an amount equal to the same fraction multiplied by the average
closing price of the Company's shares on The Nasdaq National Market for the five
days immediately preceding the Effective Date (as adjusted for the Reverse Stock
Split). For example, if the Board of Directors determined to implement a 1-for-8
Reverse Stock Split, the shares of a stockholder that owned 100 shares prior to
the Reverse Stock Split would be converted into 12.5 shares as a result of the
Reverse Stock Split. If the average of the pre-split closing bid prices of
shares of the Company's common stock for the five day trading period immediately
prior to the Effective Date (as adjusted for the Reverse Stock Split) was $1.00
per share, that stockholder would receive, in exchange for his stock
certificates evidencing his 100 shares, a stock certificate for 12 whole shares
and a check in the amount of $4.00 for his .5 fractional share.

CERTAIN FEDERAL INCOME TAX CONSIDERATIONS

The following discussion describes certain federal income tax
considerations relating to the Reverse Stock Split. This discussion is based
upon the Internal Revenue Code of 1986, as amended, final, temporary and
proposed regulations promulgated thereunder, legislative history, judicial
decisions, and current administrative rulings and practices, all as amended and
in effect on the date of this Proxy Statement. Any of these authorities could be
repealed, overruled, or modified at any time and could be retroactive and,
accordingly, could cause the tax consequences to vary substantially from the
consequences described herein. No ruling from the Internal Revenue Service (the
"IRS") with respect to the matters discussed herein has been requested, and
there is no assurance that the IRS would agree with the conclusions set forth in
this discussion. All stockholders should consult with their own tax advisors.

This discussion does not address certain federal income tax consequences
that may be relevant to particular stockholders in light of their personal
circumstances (such as persons subject to the alternative minimum tax) or to
certain types of stockholders (such as dealers in securities, insurance
companies, foreign individuals and entities, financial institutions, and
tax-exempt entities) who may be subject to special treatment under the federal
income tax laws. This discussion also does not address any tax consequences
under state, local, or foreign laws.

STOCKHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISERS AS TO THE PARTICULAR
TAX CONSEQUENCES TO THEM OF THE REVERSE STOCK SPLIT, INCLUDING THE APPLICABILITY
OF ANY STATE, LOCAL, OR FOREIGN TAX LAWS, CHANGES IN APPLICABLE TAX LAWS, AND
ANY PENDING OR PROPOSED LEGISLATION.

Tax Consequences to the Company. The Company should not recognize any gain
or loss as a result of the Reverse Stock Split.

Tax Consequence to Stockholders Generally. A stockholder who receives only
the Company's common stock should not recognize any gain or loss as a result of
the Reverse Stock Split. A stockholder who receives cash in lieu of a fractional
share of the Company's common stock that otherwise would be held as a capital
asset generally should recognize capital gain or loss on an amount equal to the
difference between the cash received and the stockholder's basis in such
fractional share of the Company's common stock. For this purpose, a
stockholder's basis in such fractional share of the Company's common stock will
be determined as if the stockholder actually received such fractional share.

A Stockholder's Tax Basis in Shares Received upon the Reverse Stock
Split. Except as provided above with respect to fractional shares, the
aggregate tax basis of the shares of the Company's common stock held by a
stockholder following the Reverse Stock Split will equal the stockholder's
aggregate tax basis in the shares of the Company's common stock held by the
stockholder immediately prior to the Reverse Stock Split and generally will be
allocated among the shares of the Company's common stock held following the
Reverse Stock Split on a pro rata basis. Stockholders who have used the specific
identification method to identify their basis in shares of the Company's common
stock combined in the Reverse Stock Split should consult their own tax advisors
to determine their basis in the post-Reverse Stock Split shares that they will
receive in exchange therefor.

VOTE REQUIRED FOR APPROVAL

The affirmative vote of the holders of a majority of the outstanding shares
of the Company's common stock is required to approve the Reverse Stock Split
proposal.

RECOMMENDATION OF THE BOARD OF DIRECTORS

THE BOARD OF DIRECTORS HAS DETERMINED THAT THE REVERSE STOCK SPLIT PROPOSAL
IS ADVISABLE AND IN THE BEST INTERESTS OF THE STOCKHOLDERS AND RECOMMENDS THAT
THE STOCKHOLDERS VOTE "FOR" APPROVAL OF THE REVERSE STOCK SPLIT PROPOSAL AND THE
AMENDMENT TO THE THIRD AMENDED AND RESTATED CERTIFICATE OF INCORPORATION.
9

OTHER MATTERS

Neither we nor the Board of Directors intends to propose any matters at the
meeting other than the election of two Class II Directors and the amendment to
the certificate of incorporation to effectuate the reverse stock split at the
discretion of the Board of Directors. If other matters are duly presented,
proxies will be voted in accordance with the best judgment of the proxy holders.

WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON, YOU ARE
REQUESTED TO COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE
ENCLOSED ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.

INFORMATION REGARDING THE BOARD OF DIRECTORS AND EXECUTIVE OFFICERS

MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS

The Board of Directors held seven (7) meetings during Fiscal Year 2001.
During Fiscal Year 2001, each of the incumbent Directors attended at least 75%
of the total number of meetings of the Board of Directors and of the committees
of which he was a member held during his term of office. The Board of Directors
has established an Audit Committee and a Compensation Committee.

The Audit Committee recommends the firm to be appointed as independent
accountants to audit financial statements and to perform services related to the
audit, reviews the scope and results of the audit with the independent
accountants, reviews with management and the independent accountants the
Company's year-end operating results, considers the adequacy of the internal
accounting procedures and considers the effect of such procedures on the
accountants' independence. During Fiscal Year 2001, the Audit Committee
consisted of Paul J. Butare (prior to his resignation from the Board of
Directors on November 1, 2001, at which time he was replaced on the Audit
Committee by Vernon Lawrence Weber), J. Michael Cline and Gerhard Schulmeyer,
none of whom were an officer of the Company, and held four (4) meetings during
Fiscal Year 2001. Assuming the re-election of Vernon Lawrence Weber at the
Annual Meeting, the Audit Committee for Fiscal Year 2002 will consist of John
Cachianes, Gerhard Schulmeyer and Vernon Lawrence Weber.

The Compensation Committee reviews and recommends the compensation
arrangements for all Directors and officers, approves such arrangements for
other senior level employees and administers and takes such other action as may
be required in connection with certain compensation and incentive plans of the
Company. The Compensation Committee also administers the Company's Brightware
Acquisition Stock Option Plan, 1999 Stock Option and Grant Plan, 1999 Director
Plan and 1997 Stock Option Plan (together, the "Stock Plans"), construes and
interprets the Stock Plans, establishes, amends and revokes rules and
regulations for the administration of all such plans, determines the options or
stock to be issued to eligible persons under the Stock Plans, and prescribes the
terms and conditions of such options or stock. During Fiscal Year 2001, the
Compensation Committee consisted of Paul R. Butare and J. Michael Cline, and
held three (3) meetings during Fiscal Year 2001. Assuming the re-election of
William O. Grabe at the Annual Meeting, the Compensation Committee for Fiscal
Year 2002 will consist of J. Michael Cline and William O. Grabe.

Information Regarding Directors

Set forth below is certain information regarding the Directors of the
Company as of February 1, 2002, including the Class II Directors who have been
nominated for election at the Annual Meeting, based on information furnished by
them to the Company.

DIRECTOR
NAME AGE SINCE
---- --- --------------

CLASS I -- TERM EXPIRES 2004
J. Michael Cline............................................ 42 May, 1997
Gerhard Schulmeyer.......................................... 63 November, 1999

CLASS II -- TERM EXPIRES 2005*
William O. Grabe*........................................... 63 May, 1997
Vernon Lawrence Weber*...................................... 47 January, 2000

CLASS III -- TERM EXPIRES 2003
Klaus P. Besier............................................. 50 June, 1997
John Cachianes.............................................. 59 December, 2001

---------------
* Nominee for re-election

The principal occupation and business experience for at least the last five
years of each Director of the Company is set forth below.

Klaus P. Besier has served as the Company's Chief Executive Officer and a
Director since June 1997 and as Chairman since October 1999. From February 1996
to May 1997, Mr. Besier was Chairman, President and Chief Executive Officer of
Primix Solutions, Inc., an internet-enabled software company. From 1994 to 1996,
Mr. Besier was the Chief Executive Officer of SAP America, Inc., a subsidiary of
SAP AG, a leading provider of business application software. From 1992 to 1993,
he was President of SAP America. From 1991 to 1992, Mr. Besier was Vice
President of Sales of SAP America. From 1977 to 1990, Mr. Besier held various
senior management positions including General Manager and Corporate Vice
President with various affiliates of Hoechst Celanese, a chemicals company. Mr.
Besier is also a director of EXE Technologies and Intelligroup.

J. Michael Cline has been a Director of the Company since May 1997. Since
December 1999 Mr. Cline has served as a Managing Member of Accretive Technology
Partners, LLC, a private equity firm, which he founded, focused on building
market leaders in the business process outsourcing, software, and IT services
markets. Mr. Cline had previously spent 10 years as a Managing Member of General
Atlantic Partners, LLC. While at General Atlantic, Mr. Cline played a major role
in the founding of Exult and Xchanging, leading Business Process Outsourcing
companies. Prior to General Atlantic, he was an associate at McKinsey, a leading
global management consulting firm. Mr. Cline has an MBA from Harvard Business
School and obtained his Bachelor of Science degree from Cornell University. He
is a Trustee of the Wildlife Conservation Society (WCS) and serves on the boards
of Manugistics, Exult, Equitant, NewRoads, Fandango and several other leading
private technology companies.

Gerhard Schulmeyer has been a Director of the Company since November 1999.
Mr. Schulmeyer has been a Professor of Practice on the faculty of the Sloan
School at the Massachusetts Institute of Technology since July 2000. Prior to
that, he served as President and Chief Executive Officer of Siemens Corporation
from January 1999 to December 2001. From 1994 to January 1999 Mr. Schulmeyer was
President and Chief Executive Officer of Siemens Nixdorf. Before joining Siemens
Nixdorf, Mr. Schulmeyer was Executive Vice President and a member of the
executive committee of Asea Brown Boveri Ltd. as well as President and Chief
Executive Officer of ABB Inc. From 1980 to 1989, he held various senior
positions with Motorola Inc., the last being Executive Vice President
responsible for European business. He is a member of the boards of Korn Ferry
International, Ingram Micro, Inc., Alcan, Inc., Zurich Financial Services and
Arthur D. Little, Inc., the supervisory board of Theyssen-Burnemisza Holding,
N.V. and Alcan Deutschland, and the international advisory board of Banco
Santander Central Hispano. Also in 2001, he was named a Director of the U.S.
Chamber of Commerce, Poet Holdings and MediaLab Europe.

Vernon Lawrence Weber has been a Director of the Company since January
2000. Mr. Weber is the Chairman and Chief Executive Officer of the Advanced
Marketing Services Group of The Interpublic Group of Companies, the largest
marketing communications and services company in the world. He serves on the
boards of several technology companies and nonprofit organizations, including
the Boston Symphony Orchestra, the Boston Museum of Science and the Isabella
Stewart Gardner Museum.

John Cachianes has been a Director of the Company since December 2001.
Since 1998, Mr. Cachianes has been an independent consultant. Mr. Cachianes
spent more than 30 years with IBM in a number of senior financial posts and
operational positions. Mr. Cachianes was an IBM Vice President and corporate
officer from 1992 to 1996. He also served as General Manager of the company's
Distribution Industry Solutions Business Unit. Previously, he served as IBM's
Chief Financial Officer for Europe, Middle East and Africa as well as for U.S.
operations. In addition, he also held a number of executive positions at the
company's corporate headquarters, in Latin America, and Asia Pacific, where he
served as Controller. Mr. Cachianes has served on the boards of the Foundation
at Virginia Polytechnic Institute and State University (Virginia Tech), State
University of New York at Purchase, Essentus Corporation, and the Rolm
Corporation.

Information Regarding Executive Officers and Key Employees

Set forth below is certain information regarding each of the executive
officers and key employees of the Company as of February 1, 2002.

NAME AGE POSITION
---- --- --------

Klaus P. Besier........... 50 Chairman, Chief Executive Officer and President
Susan W. Ledoux........... 35 Treasurer and Chief Financial Officer
Cem Tanyel................ 32 Chief Operating Officer
John A. Keighley.......... 48 Senior Vice President and General Manager of Europe
Christian J. Misvaer...... 29 Secretary and General Counsel
Sosaburo Shinzo........... 49 President, Firepond Japan K.K.

The principal occupation and business experience for the last five years of
the Company's executive officers, other than such officers who also serve as
Directors, is set forth below.

Susan W. Ledoux has served as the Company's Chief Financial Officer and
Treasurer since February 2002. Before becoming Chief Financial Officer, Ms.
Ledoux served as the Company's Vice President of Finance and Corporate
Controller, overseeing the finance department from September 1999 to February
2002. Before joining Firepond, Ms. Ledoux served as Controller at a number of
public and privately-held technology companies, including Integrated Computing
Engines, a developer of innovative multiprocessing software and hardware from
June 1998 to September 1999, and CIC Systems, a national computer reseller and
technology solutions provider from September 1994 to May 1998.

Cem Tanyel has served as Chief Operating Officer of the Company since
November 2001. Mr. Tanyel came to Firepond from Brightware, Inc. where he served
as the Senior VP of Engineering from November 1999 to February 2001. From June
1992 to November 1999 Mr. Tanyel was the Executive Director of product
development and general manager of the Web/eCommerce Division at Informix.

John A. Keighley has served as the Company's Senior Vice President and
General Manager of Europe since June 2001. Prior to being promoted to his
current position, Mr. Keighley was Vice President, Finance and Administration,
Europe and Asia for the Company from March 1999 to May 2001. Before joining the
Company, Mr. Keighley was General Manager, Europe and International CFO at Astea
International, a CRM software and solutions provider from September 1994 to
February 1999.

Christian J. Misvaer has served as the General Counsel and Secretary of the
Company since December 2001. Mr. Misvaer joined Firepond's legal department in
March 1999 and became the manager in December 2000. In addition to serving on
Firepond's executive team and managing the legal department, Mr. Misvaer is also
responsible for the human resources department and oversees Firepond's
facilities functions. Before joining the Company, Mr. Misvaer worked in various
legal capacities with law firms specializing in corporate law and civil
litigation from 1995 to March 1999.

Sosaburo Shinzo has served as President of Firepond Japan K.K. since
January 1999. Before joining Firepond, Mr. Shinzo was president of SSA Japan, an
ERP software company from 1993 to 1998. Prior to his position with SSA Japan,
Mr. Shinzo worked for Fujitsu for 16 years as a sales professional and manager.

COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS

COMPENSATION OF DIRECTORS

The Company currently pays directors $2,500 for each meeting of the Board
of Directors a director attends, by phone or in person, and $1,000 for each
committee meeting a director attends. In addition, directors are reimbursed for
their reasonable and necessary expenses incurred in connection with attendance
at meetings of the Board of Directors or its committees. The Company's Directors
are eligible to participate in the Company's 1999 Stock Option and Grant Plan,
and the Company's 1997 Stock Option Plan. In addition, pursuant to the terms of
the 1999 Director Plan each non-employee Director who was a member of the Board
of Directors on September 9, 1999 was automatically granted an option to
purchase 50,000 shares of Common Stock on that date and every Director who
joined the Board of Directors after September 9, 1999, or will become a Director
in the future, was or will be granted an option to purchase 50,000 shares of
Common Stock on the date first elected to the Board of Directors.

In addition, on the date of each annual meeting of the stockholders of the
Company, each eligible Director will automatically be granted an additional
option to purchase 12,500 shares of Common Stock, if after such annual meeting
of the stockholders the Director will continue to be an eligible Director.
Options granted under the 1999 Director Plan vest, subject to the grantee's
continued service as a Director of the Company or its subsidiaries, monthly over
a period of 3 years. Unexercisable options terminate when the Director ceases to
be a Director for any reason other than death or permanent disability and
exercisable options may be exercised at any time during a five-year term. In the
event of a change in control of the Company in which the Director is not
retained as a director of the surviving corporation, options granted to that
Director under the 1999 Director Plan will become 100% vested and exercisable in
full. All options granted under the Director Plan shall have an exercise price
equal to 100% of the fair market value of the Common Stock (generally determined
as the closing sales price on the Nasdaq National Market) on the date of grant.

COMPENSATION OF EXECUTIVE OFFICERS

The following sections of this Proxy Statement set forth and describe the
compensation paid or awarded to the Company's Chief Executive Officer and the
four other most highly compensated executive officers who were serving as
executive officers of the Company as of October 31, 2001, and one other most
highly compensated person who served as an executive officer in 2001, each of
whom earned in excess of $100,000 during Fiscal Year 2001. These executives are
referred to as the "Named Executive Officers" elsewhere in this Proxy Statement.

Summary Compensation. The following summary compensation table sets forth
information concerning compensation for services rendered in all capacities
awarded to, earned by or paid to the Company's Chief Executive Officer and the
other Named Executive Officers during each of fiscal years ended October 31,
2001, October 31, 2000 and October 31, 1999.

LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
---------------------- ------------------------
RESTRICTED SECURITIES
STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) AWARDS (#) OPTIONS (#) COMPENSATION ($)
--------------------------- ---- ---------- --------- ---------- ----------- ----------------

Klaus P. Besier...................... 2001 $358,333 $ -- -- 2,418,751(1) $ --
Chairman, President, and Chief 2000 200,000 100,000 -- 1,500,000 --
Executive Officer 1999 200,000 -- -- -- --
Cem Tanyel(2)........................ 2001 194,836 80,000 -- 600,000(3) --
Chief Operating Officer 2000 -- -- -- -- --
Senior Vice President of Product 1999 -- -- -- -- --
Development and Strategy
Paul McDermott(4).................... 2001 190,000 -- -- 309,000(1) --
Chief Financial Officer 2000 160,000 55,000 -- -- --
1999 132,060 25,000 -- 340,001 36,674(5)

Joel Radford(6)...................... 2001 194,583 -- -- 252,550(1) --
Senior Vice President of 2000 140,000 57,500 -- 66,400 123,743(5)
Professional Services 1999 120,000 22,500 -- 13,334 --
John Keighley(7)..................... 2001 125,119 -- -- 146,248(1) 8,290(8)
Senior Vice President 2000 83,658 33,650 -- 26,666 5,100(8)
General Manager of Europe 1999 55,015 4,962 -- 23,334 5,100(8)

---------------
(1) Options granted as part of the stock option exchange program in which
eligible employees were offered the opportunity to receive 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. See
"Option Grants In Last Fiscal Year" Table and "10-Year Option Repricings"
Table.

(2) Mr. Tanyel was promoted to Chief Operating Officer effective November 28,
2001.

(3) Certain options where granted as part of the stock option exchange program
in which eligible employees were offered the opportunity to receive 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. See "Option Grants In Last Fiscal Year" Table and "10-Year Option
Repricings" Table.

(4) On December 20, 2001 Mr. McDermott notified the Company of his election to
terminate his employment with the Company. Mr. McDermott's termination of
employment will be effective on January 31, 2002.

(5) Represents amounts paid to the executive as reimbursement for relocation
expenses.

(6) Mr. Radford's employment with the Company was terminated on November 30,
2001.

(7) Mr. Keighley was promoted to Senior Vice President and General Manager of
Europe effective June 1, 2001.

(8) Represents car allowance.

Option Grants. The following table sets forth certain information
concerning the individual grant of options to purchase Common Stock of the
Company to the Named Executive Officers who received options during Fiscal Year
2001.

OPTION GRANTS IN LAST FISCAL YEAR

POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
NUMBER OF % OF THE STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM(1)
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION --------------------
NAME GRANTED(2) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
---- ---------- ------------- -------------- ---------- -------- --------

Besier, Klaus............. 688,470(3) 6.3% 0.66 7/31/06 125,540 277,410
380,281(3) 3.5% 0.66 7/31/06 69,343 153,229
1,125,000(3) 10.3% 0.66 7/31/06 205,139 453,304
225,000(3)(4) 2.1% 0.66 7/31/06 41,028 90,661
Tanyel, Cem............... 300,000(3) 2.7% 0.93 7/13/06 77,083 170,332
112,500(3)(5) 1.0% 0.66 7/31/06 20,514 45,330
187,500(3)(6) 1.7% 0.66 7/31/06 34,190 75,551
McDermott, Paul........... 42,500(3) 0.4% 0.66 1/31/03 7,750 17,125
210,250(3) 1.9% 0.66 1/31/03 38,338 84,717
56,250(3)(7) 0.5% 0.66 1/31/03 10,257 22,665
Radford, Joel............. 7,500(3) 0.1% 0.66 11/30/02 1,368 3,022
7,500(3) 0.1% 0.66 11/30/02 1,368 3,022
7,750(3) 0.1% 0.66 11/30/02 1,413 3,123
37,500(3) 0.3% 0.66 11/30/02 6,838 15,110
4,800(3) 0.0% 0.66 11/30/02 875 1,934
37,500(3)(8) 0.3% 0.66 11/30/02 6,838 15,110
150,000(3)(9) 1.4% 0.66 11/30/02 27,352 60,440
Keighley, John............ 2,500(3) 0.0% 0.66 7/31/06 456 1,007
2,500(3) 0.0% 0.66 7/31/06 456 1,007
15,000(3) 0.1% 0.66 7/31/06 2,735 6,044
15,830(3) 1.1% 0.66 7/31/06 2,887 6,378
1,668(3) 0.0% 0.66 7/31/06 304 672
15,000(3)(10) 0.1% 0.66 7/31/06 2,735 6,044
93,750(3)(11) 0.9% 0.66 7/31/06 17,095 37,775

---------------
(1) This column shows the hypothetical gain or option spreads of the options
granted based on assumed annual compound stock appreciation rates of 5% and
10% for the exercise price of such options over the full 10-year term of
the options. The 5% and 10% assumed rates of appreciation are mandated by
the rules of the Securities and Exchange Commission and do not represent
the Company's estimate or projection of future Common Stock prices.

(2) Options granted on July 31, 2001, with an exercise price of $0.66 per
share, were part of the stock option exchange program in which eligible
employees were offered the opportunity to receive 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.

(3) The underlying shares vest monthly in equal installments over a three-year
period.

(4) Issued in exchange for the cancellation of an option to purchase 300,000
shares of Common Stock, with an exercise price of $8.88 per share, granted
on November 1, 2000.

(5) Issued in exchange for the cancellation of an option to purchase 150,000
shares of Common Stock, with an exercise price of $1.50 per share, granted
on April 3, 2001.

(6) Issued in exchange for the cancellation of an option to purchase 250,000
shares of Common Stock, with an exercise price of $3.97 per share, granted
on February 15, 2001.

(7) Issued in exchange for the cancellation of an option to purchase 75,000
shares of Common Stock, with an exercise price of $1.50 per share, granted
on April 3, 2001.

(8) Issued in exchange for the cancellation of an option to purchase 50,000
shares of Common Stock, with an exercise price of $8.88 per share, granted
on November 1, 2000.

(9) Issued in exchange for the cancellation of an option to purchase 200,000
shares of Common Stock, with an exercise price of $1.50 per share, granted
on April 3, 2001.

(10) Issued in exchange for the cancellation of an option to purchase 20,000
shares of Common Stock, with an exercise price of $1.50 per share, granted
on April 3, 2001.

(11) Issued in exchange for the cancellation of an option to purchase 125,000
shares of Common Stock, with an exercise price of $1.26 per share, granted
on June 25, 2001.

Option Exercises and Option Values. The following table sets forth
information concerning the number of underlying shares and value of unexercised
options to purchase Common Stock held by the Named Executive Officers as of
October 31, 2001.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES

NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES VALUE OPTIONS AT OCTOBER 31, 2001 OCTOBER 31, 2001(1)
ACQUIRED ON REALIZED --------------------------- ---------------------------
EXERCISE (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------ -------- ----------- ------------- ----------- -------------

Besier, Klaus................ -- -- 887,148 1,531,603 $114,442 $197,577
Tanyel, Cem.................. -- -- 71,508 528,492 9,225 68,175
McDermott, Paul.............. -- -- 80,444 228,556 10,377 29,484
Radford, Joel................ -- -- 35,450 217,100 4,573 28,006
Keighley, John............... -- -- 18,349 127,899 2,367 16,499

---------------
(1) Based on the last reported sale price on The Nasdaq National Market on
October 31, 2001, less the option exercise price.

EMPLOYMENT AGREEMENTS WITH EXECUTIVE OFFICERS

Mr. Besier's employment agreement, dated April 2, 1998, provides for an
initial annual salary of $200,000 and an annual bonus of up to $150,000 based on
Firepond's achievement, during the applicable fiscal year, of performance goals
agreed upon by Mr. Besier and the Company's Board of Directors before the
beginning of each fiscal year. The agreement also provides that he would be
eligible to earn an additional bonus of up to $100,000 if Firepond achieves or
surpasses performance targets in excess of the performance goals. The
Compensation Committee of the Board of Directors increased Mr. Besier's annual
salary to $400,000 effective as of April 1, 2001. In July 1997, Mr. Besier
received stock options to purchase 1,417,960 shares of the Company's Common
Stock at an exercise price of approximately $3.95 per share under the 1997 Stock
Option Plan. These options vested monthly commencing on August 7, 1997 and were
fully vested on July 7, 2001. In July 2001, the Company cancelled Mr. Besier's
existing options and replaced them with new options, partially vested, at an
exercise price of $0.66. Upon the effectiveness of a specified liquidity event,
such as a merger or acquisition of Firepond, unless a provision is made in
connection with the liquidity event for the assumption of the option, or the
substitution of the option with new options of the successor entity or parent
thereof, all of the remaining option shares held by Mr. Besier, shall become
vested. Further, if the options are assumed in connection with the liquidity
event and Mr. Besier's service relationship with such successor entity is, on or
within six (6) months after such liquidity event, (i) terminated by the
successor entity without cause, or (ii) terminated by Mr. Besier for good
reason, all of the shares of Common Stock subject to the option, to the extent
not fully vested and exercisable, shall become fully vested and exercisable. Mr.
Besier was also granted registration rights for all shares of the Company's
Common Stock which he acquires.

In the event of Mr. Besier's death during the term of his employment, his
legal representative will receive Mr. Besier's annual salary for 12 months, an
amount equal to his most recent annual bonus, payable in quarterly installments,
and 75% of Mr. Besier's options to purchase shares of the Company's Common Stock
shall become fully vested and exercisable, with the remaining 25% terminating.
If Mr. Besier is terminated without cause, or he voluntarily resigns for good
reason, he shall receive severance payments equal to his annual salary payable
in equal monthly installments for a period of 12 months and the term of his
vested options shall be extended until the earlier of three months following the
termination, the effectiveness of specified liquidity events, or nine months
after an initial public offering.

Mr. Tanyel's revised offer letter, dated January 23, 2001, provides for an
initial annual salary of $215,000 and an annual bonus of up to 40% of his
annualized base salary based on the Company's performance and individual
performance objectives. In addition, Mr. Tanyel was eligible to receive a
supplemental bonus in the amount of $40,000 in connection with two identified
product development related objectives to be paid out in fiscal 2001. On
February 15, 2001, Mr. Tanyel received stock options to purchase 250,000 shares
of the Company's Common Stock at an exercise price of approximately $3.97 per
share under the Brightware Acquisition Stock Option Plan to be fully vested by
February 1, 2005 or earlier upon the official date of the introduction of the
next generation of the Company's product. In July 2001, the Company cancelled a
majority of Mr. Tanyels existing options and replaced them with new options,
partially vested, at an exercise price of $0.66. Upon the occurrence of a change
of control event, if Mr. Tanyel is not retained as an employee of the surviving
company, with responsibilities similar to his responsibilities with Firepond,
100% of his then unvested options will become immediately vested and
exercisable. In the event Mr. Tanyel is terminated without cause, he shall
receive severance payments equal to 60% of his annual salary, payable in twelve
bimonthly installments. In addition to the standard company benefits, he will
also receive family travel allowance of up to $7,500 each fiscal year.

Mr. McDermott's offer letter, dated December 11, 1998, provides for an
initial salary of $160,000 commencing on January 4, 1999, an initial bonus of
$25,000 and an annual bonus of up to $50,000 based on the Company's performance
and individual performance objectives. In January, 1999, Mr. McDermott received
stock options to purchase 283,334 shares of the Company's Common Stock at an
exercise price of approximately $3.95 per share under the 1997 Stock Option
Plan. These options vest annually over four years commencing on January 4, 1999.
In addition, Mr. McDermott was granted an additional stock option to purchase
56,667 shares of the Company's Common Stock on similar terms in connection with
the Company's initial public offering. In July 2001, the Company cancelled Mr.
McDermott's existing options and replaced them with new options, partially
vested, at an exercise price of $0.66. In connection with the termination of Mr.
McDermott's employment, Mr. McDermott will receive severance payments equal to
one-half his annual salary, payable in twelve bi-monthly installments, and the
term to exercise vested stock options was extended to twelve months from his
separation date.

Mr. Radford's relocation agreement, dated April 17, 2000, and his offer
letter, dated November 21, 2000, together set forth the material terms of Mr.
Radford's employment with the Company. The agreements provide for an initial
annual salary of $180,000 and an annual bonus of up to 40% of Mr. Radford's
annual salary, based upon the Company's performance and individual performance
objectives. In accordance with the terms of the agreements, Mr. Radford was
granted stock options to purchase 50,000 shares of Common Stock on April 17,
2000 and stock options to purchase 50,000 shares of Common Stock on November 1,
2000. In July 2001, the Company cancelled Mr. Radford's existing options and
replaced them with new options, partially vested, at an exercise price of $0.66.
In connection with the termination of Mr. Radford's employment, Mr. Radford was
reimbursed an amount of $123,839 for certain relocation expenses and will
receive severance payments equal to one-half his annual salary, payable in
twelve bi-monthly installments, and the term to exercise vested stock options
was extended to twelve months from his separation date.

Mr. Keighley's offer of employment, dated February 19, 1999, provides for
an initial salary of $95,463 and an annual bonus of up to $25,122 based on the
Company's performance and specific financial objectives. On March 15, 1999, Mr.
Keighley received stock options to purchase 20,000 shares of the Company's
Common Stock at an exercise price of approximately $3.95 per share under the
1997 Stock Option Plan. These options vest annually over four years. In July
2001, the Company cancelled Mr. Keighley's existing options and
18

replaced them with new options, partially vested, at an exercise price of $0.66.
In addition to the standard company benefits, he will also receive $5,024 per
annum covering international schooling fees and a company car allowance of
$1,005 per month.

Under the Company's standard employee agreement, each of the executives is
subject to provisions concerning the ownership, use and disclosure of the
Company's confidential information and intellectual property, and a one-year
restriction on competition with the Company following termination of employment
for any reason.

REPORT OF THE COMPENSATION COMMITTEE OF THE
BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION

The Compensation Committee of the Board of Directors for the 2001 fiscal
year consisted of Paul R. Butare and J. Michael Cline. Mr. Butare and Mr. Cline
were both non-employee directors.

The Compensation Committee ("Committee") is responsible for setting and
administering the policies which determine the compensation of the Chief
Executive Officer and other executive officers of the Company and administering
the stock option grants under our 1997 and 1999 Option Plans, the Director Plan,
and the Brightware Acquisition Stock Option Plan.

COMPENSATION PHILOSOPHY

The goal of the Committee is to correlate executive compensation with our
business objectives and performance. The Company's executive compensation
policies are intended to attract, retain and reward executive officers who
contribute to the achievement of our business objectives and performance. During
2001, the Company used base salary, cash bonus incentives and stock option
incentives to achieve these objectives. When evaluating the executives of the
Company, the Committee considers the level of compensation paid to executive
officers in similar positions of other comparable software companies.

The Committee annually assesses the performance and sets the salary of the
Chief Executive Officer, Klaus P. Besier, and Mr. Besier annually assesses the
performance of all other executive officers and recommends various adjustments
to compensation, which are reviewed and approved by the Committee.

The Company's performance is evaluated by factors such as business and
economic conditions, competitor performance, and the Company's results as
compared to the annual operating plan.

The components of executive compensation are as follows.

Base Salary

Base salaries are established for each executive officer at levels that are
intended to be competitive with salaries for comparable positions at other
similar sized software companies. The Company seeks to pay salaries to executive
officers that are commensurate with their qualifications, duties and
responsibilities and that are competitive in the marketplace.

Cash Bonus Incentive

No cash bonuses were paid in the 2001 fiscal year, with the exception of a
payment to Mr. Tanyel as part of a key employee retention plan in conjunction
with the acquisition of Brightware, Inc. Mr. Tanyel took on an increased role
within the combined organization at a time when there was low visibility in the
Company's future stock price. Therefore, Mr. Tanyel was granted a cash bonus to
ensure that the Company would retain him within the organization. In conjunction
with this retention plan, Mr. Tanyel is also eligible to receive a bonus of
$140,000, to be paid on June 30, 2002, if he is employed by the Company on that
date.

Stock Option Incentives

The Committee believes that stock ownership by management is beneficial in
aligning management and shareholder interests. In connection therewith, stock
options are used to motivate executives to achieve the Company's annual
operating plan. Stock options generally are granted at the then prevailing
market value and have value only if the Company's stock price increases. As part
of its periodic review of compensation, the Compensation Committee reviews the
stock option holdings of Mr. Besier and recommends additional stock option
grants as appropriate. The Committee determines the size and frequency of option
grants for other executive officers, after consideration of recommendations from
Mr. Besier based upon the position and responsibilities of each executive
officer, previous and expected contributions of each officer and previous option
grants.

On June 26, 2001, the Company offered eligible employees and directors the
opportunity to exchange up to all of their outstanding options to purchase
shares of the Company's common stock granted under the Firepond, Inc. 1997 Stock
Plan, as amended, the Firepond, Inc. 1999 Stock Option and Grant Plan, as
amended, the 1999 Director Plan and the Brightware Acquisition Stock Option Plan
for new options that would be granted under the option plans pursuant to which
the corresponding exchanged options were originally granted. At their original
exercise prices, the Company believed that the disparity between the exercise
prices of the options previously held by the Company's employees and the trading
price of the Company's stock did not provide meaningful incentives to such
employees. Accordingly, existing options held by directors and specified
employees were eligible to be cancelled and replaced with new options. The
Company replaced each of these cancelled options with new options at an exchange
ratio of three new options for every four options tendered for cancellation with
all options having an exercise price of $0.66 per share, the fair market value
of the Company's stock on the date of grant.

COMPENSATION OF THE CHIEF EXECUTIVE OFFICER DURING FISCAL YEAR 2001

During the fiscal year ended October 31, 2001, Klaus P. Besier served as
Chairman and Chief Executive Officer throughout the year, and he continues to
hold these offices.

Mr. Besier's base salary, cash bonus incentives and stock option incentives
were determined in accordance with the criteria described in the "Base Salary,"
"Cash Bonus Incentive" and "Stock Option Incentives" sections of this report.
Mr. Besier's base salary at the beginning of fiscal year 2001 was $300,000. Mr.
Besier received an increase in his base salary to $400,000 effective April 1,
2001. No cash bonus incentive was paid to Mr. Besier in fiscal year 2001. In
November 2000, Mr. Besier received a stock option grant of 300,000 shares. On
July 31, 2002, Mr. Besier received stock option grants totaling 2,418,751 in
exchange for grants that were cancelled under the stock option exchange program.
All adjustments to Mr. Besier's total compensation for fiscal year 2001 were
designed to bring his compensation into alignment with compensation levels of
chief executive officers of comparable software companies. See "Summary
Compensation Table."

CONCLUSION

Through the incentive plans described above, a significant portion of the
Company's executive compensation programs and Mr. Besier's compensation are
contingent upon Company performance and realization of benefits closely linked
to increases in long-term stockholder value. Based upon the prevailing economic
environment, the Committee may take such action as is required to continue to
attract and retain highly talented executive staff.

Compensation Committee
for the 2001 Fiscal Year

Paul R. Butare
J. Michael Cline

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During the 2001 fiscal year, all executive officer compensation decisions
were made by the Compensation Committee or the full Board of Directors. The
Compensation Committee reviews and makes recommendations regarding the
compensation for top management and key employees of the Company, including
salaries and bonuses. No member of the Compensation Committee during the 2001
fiscal year was an officer of the Company. The members of the Compensation
Committee during the 2001 fiscal year were Paul R. Butare and J. Michael Cline.

OPTION REPRICING

The following table provides certain information with respect to the
repricing of stock options of the Company's executive officers:

10-YEAR OPTION REPRICINGS

LENGTH OF
NUMBER OF ORIGINAL
SECURITIES MARKET PRICE OPTION TERM
UNDERLYING OF STOCK AT EXERCISE PRICE REMAINING AT
NAME AND PRINCIPLE DATE OF OPTIONS TIME OF AT TIME OF NEW EXERCISE DATE OF
POSITION REPRICING REPRICED REPRICING REPRICING PRICE REPRICING
------------------ --------- ---------- ------------ -------------- ------------ ------------

Besier, Klaus........ 07/31/01 1,417,960 $0.66 $ 3.945 $0.66 72 months
07/31/01 507,042 0.66 3.945 0.66 81 months
07/31/01 1,500,000 0.66 9.900 0.66 99 months
07/31/01 300,000 0.66 8.875 0.66 111 months
Ledoux, Susan........ 07/31/01 26,667 0.66 4.445 0.66 98 months
07/31/01 23,334 0.66 9.900 0.66 99 months
07/31/01 2,500 0.66 11.000 0.66 102 months
07/31/01 20,000 0.66 1.500 0.66 116 months
07/31/01 15,000 0.66 1.260 0.66 119 months
McDermott, Paul...... 07/31/01 280,334 0.66 3.945 0.66 89 months
07/31/01 56,667 0.66 7.215 0.66 99 months
07/31/01 75,000 0.66 1.500 0.66 116 months
Misvaer, Christian... 07/31/01 500 0.66 4.455 0.66 91 months
07/31/01 1,667 0.66 4.455 0.66 95 months
07/31/01 667 0.66 9.900 0.66 100 months
07/31/01 5,000 0.66 11.000 0.66 102 months
07/31/01 1,000 0.66 11.000 0.66 102 months
07/31/01 5,000 0.66 15.813 0.66 108 months
07/31/01 25,000 0.66 1.500 0.66 116 months
07/31/01 25,000 0.66 1.260 0.66 119 months
Radford, Joel........ 07/31/01 10,001 0.66 3.945 0.66 86 months
07/31/01 10,334 0.66 4.455 0.66 94 months
07/31/01 10,000 0.66 9.900 0.66 99 months
07/31/01 6,400 0.66 11.000 0.66 102 months
07/31/01 50,000 0.66 15.875 0.66 105 months
07/31/01 50,000 0.66 8.875 0.66 111 months
07/31/01 200,000 0.66 1.500 0.66 116 months
Tanyel, Cem.......... 07/31/01 250,000 0.66 3.969 0.66 115 months
07/31/01 150,000 0.66 1.500 0.66 116 months
Keighley, John....... 07/31/01 20,000 0.66 1.500 0.66 116 months
07/31/01 125,000 0.66 1.260 0.66 119 months

AUDIT COMMITTEE REPORT

The responsibilities of the Audit Committee, which are set forth in the
Audit Committee Charter adopted by the Board of Directors, include providing
oversight to the Company's financial reporting process through periodic meetings
with the Company's independent auditors and management to review accounting,
auditing, internal controls and financial reporting matters. The management of
the Company is responsible for the preparation and integrity of the financial
reporting information and related systems of internal controls. The Audit
Committee, in carrying out its role, relies on the Company's senior management,
including senior financial management, and its independent auditors.

We have reviewed and discussed with senior management the Company's audited
financial statements included in the 2001 Annual Report to Stockholders.
Management has confirmed to us that such financial statements (i) have been
prepared with integrity and objectivity and are the responsibility of management
and, (ii) have been prepared in conformity with generally accepted accounting
principles.

We have discussed with Arthur Andersen, LLP, our independent auditors, the
matters required to be discussed by SAS 61 (Communications with Audit
Committee). SAS 61 requires our independent auditors to provide us with
additional information regarding the scope and results of their audit of the
Company's financial statements, including with respect to (i) their
responsibility under generally accepted auditing standards, (ii) significant
accounting policies, (iii) management judgments and estimates, (iv) any
significant audit adjustments, (v) any disagreements with management, and (vi)
any difficulties encountered in performing the audit.

We have received from Arthur Andersen, LLP a letter providing the
disclosures required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees) with respect to any
relationships between Arthur Andersen, LLP and the Company that in their
professional judgment may reasonably be thought to bear on independence. Arthur
Andersen, LLP has discussed its independence with us, and has confirmed in such
letter that, in its professional judgment, it is independent of the Company
within the meaning of the federal securities laws.

Based on the review and discussions described above with respect to the
Company's audited financial statements included in the Company's 2001 Annual
Report to Stockholders, we have recommended to the Board of Directors that such
financial statements be included in the Company's Annual Report on Form 10-K.

As specified in the Audit Committee Charter, it is not the duty of the
Audit Committee to plan or conduct audits or to determine that the Company's
financial statements are complete and accurate and in accordance with generally
accepted accounting principles. That is the responsibility of management and the
Company's independent auditors. In giving our recommendation to the Board of
Directors, we have relied on (i) management's representation that such financial
statements have been prepared with integrity and objectivity and in conformity
with generally accepted accounting principals, and (ii) the report of the
Company's independent auditors with respect to such financial statements.

Audit Committee
for the 2001 Fiscal Year

J. Michael Cline
Gerhard Schulmeyer
Lawrence Weber

SHAREHOLDER RETURN PERFORMANCE GRAPH

Set forth below is a line graph comparing the yearly percentage change in
the cumulative total shareholder return on the Company's common stock, based on
the market price of the Company's common stock with the total return of
companies included within the Nasdaq Stock Market Index and the Business
Software and Services Index published by Media General Financial Services, Inc.,
for the period commencing February 4, 2000 and ending October 31, 2001. The
calculation of total cumulative return assumes a $100 investment in the
Company's common stock, the Nasdaq Stock Market Index and the Business Software
and Services Index published by Media General Financial Services, Inc,. on
February 4, 2001, the date of the Company's initial public offering, and the
reinvestment of all dividends.

COMPARE CUMULATIVE TOTAL RETURN
AMONG FIREPOND,
NASDAQ MARKET AND BUSINESS SOFTWARE AND SERVICES INDEX

[PERFORMANCE CHART]

------------------------------------------------------------------------------------------------------
2/03/00 4/30/00 7/31/00 10/31/00 1/31/01 4/30/01 7/31/01 10/31/01
------------------------------------------------------------------------------------------------------

Firepond, Inc. $100.00 $98.84 $130.23 $49.61 $27.71 $14.27 $4.09 $4.89
Business Software
and Services Index $100.00 $90.86 $89.63 $83.72 $73.15 $57.34 $51.87 $44.15
Nasdaq Market Index $100.00 $98.91 $96.53 $86.35 $70.98 $54.47 $52.39 $43.69

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The following describes any transaction or series of transactions, or
currently proposed transaction or series of transactions, between the Company
and any related persons or entities since November 1, 2000.

LOANS TO EXECUTIVE OFFICERS

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 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. 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.

On October 4, 2000, the Company loaned $120,000 to Paul McDermott, the
Company's Chief Financial Officer, bearing interest at the applicable federal
rate in effect during the term of the note. The outstanding principal together
with unpaid interest was due and payable on the earlier of September 30, 2001,
an event of default, or an event of maturity, as defined. The promissory note
was secured by a pledge of 5,000 shares of Common Stock. In connection with the
termination of Mr. McDermott's employment with the Company, the Company acquired
the shares securing the loan from Mr. McDermott in satisfaction of amounts due
under the loan.

CONFLICTS OF INTEREST

Conflicts of interest may arise in the course of business transactions
between the Company, its officers, Directors and principal stockholders, and
their affiliates. The Company believes that the transactions in which it was a
party as described above were at terms no less favorable than the Company would
have obtained from unaffiliated third parties. In connection with the Company's
initial public offering, the Company adopted a policy that all future
transactions between the Company and its officers, Directors or other affiliates
(other than compensation and employment matters) be reviewed by the Board of
Directors on an on-going basis and submitted to the Audit Committee or other
comparable body for review where appropriate.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information regarding the beneficial
ownership of Common Stock as of February 1, 2002 by:

* all persons who own beneficially 5% or more of the Company's Common
Stock;

* the Chief Executive Officer and each of the other Named Executive
Officers;

* each of the Company's Directors; and

* all Directors and executive officers as a group.

Unless otherwise indicated, each of the stockholders has sole voting and
investment power with respect to the shares of Common Stock beneficially owned,
subject to the community property laws, where these rules apply, beneficial
ownership includes any shares which the individual or entity has sole or shared
voting or investment power and shares of Common Stock subject to options held
that are currently exercisable or exercisable within sixty days of February 1,
2002. The applicable percentage of "beneficial ownership" is based upon
37,017,983 shares of Common Stock outstanding.

BENEFICIAL OWNERSHIP
-----------------------
NAME OF BENEFICIAL OWNER SHARES PERCENTAGE
------------------------ ---------- ----------

Entities associated with General Atlantic Partners,
LLC(1).................................................... 17,320,161 46.8%
Entities associated with Technology Crossover Ventures(2)... 3,512,438 9.5%
Klaus P. Besier(3).......................................... 1,655,266 4.3%
Cem Tanyel(4)............................................... 196,501 *
Paul K. McDermott(5)........................................ 104,230 *
Joel D. Radford(6).......................................... 72,991 *
John Keighley(7)............................................ 42,202 *
John Cachianes(8)........................................... 39,170 *
J. Michael Cline(9)......................................... 599,562 1.6%
William O. Grabe(10)........................................ 17,334,223 46.8%
Gerhard Schulmeyer(11)...................................... 14,062 *
Vernon Lawrence Weber(12)................................... 14,062 *
All executive officers and directors as a group (10
persons)(13).............................................. 19,946,050 50.9%

---------------

(*) Represents less than one percent of the outstanding common stock.

(1) Consists of 2,614,398 shares held by GAP Coinvestment Partners, L.P.,
including 96,837 shares underlying warrants exercisable within sixty days
of February 1, 2002; 124,575 shares held by GAP Coinvestment Partners II,
L.P., including 5,303 shares underlying warrants exercisable within sixty
days of February 1, 2002; 11,157,797 shares held by General Atlantic
Partners 40, L.P., including 537,957 shares underlying warrants exercisable
within sixty days of February 1, 2002; 2,822,118 shares held by General
Atlantic Partners 46, L.P.; 576,576 shares held by General Atlantic
Partners 52, L.P. and 24,697 shares underlying warrants held by General
Atlantic Partners 59, L.P. exercisable within sixty days of February 1,
2002. GAP Coinvestment Partners, L.P., GAP Coinvestment Partners II, L.P.,
General Atlantic Partners 40, L.P., General Atlantic Partners 46, L.P.,
General Atlantic Partners 52, L.P. and General Atlantic Partners 59, L.P.
are part of an affiliated group of investment partnerships referred to,
collectively, as entities associated with General Atlantic Partners, LLC.
The address for each of these entities is c/o General Atlantic Service
Corporation, 3 Pickwick Plaza, Greenwich, Connecticut 06830.

(2) Consists of 25,489 shares held by TCV III (GP) including 218 shares
underlying warrants exercisable within sixty days of February 1, 2002,
121,067 shares held by TCV III, L.P., including 1,035 shares underlying
warrants exercisable within sixty days of February 20, 2002, 3,217,797
shares held by TCV III (Q), L.P. including 27,502 shares underlying
warrants exercisable within sixty days of February 20, 2002 and 144,885
shares held by TCV III Strategic Partners, L.P. including 1,245 shares
underlying warrants exercisable within sixty days of February 20, 2001, who
are referred to collectively as the "TCV Funds" and 3,200 shares held by
TCV Franchise Fund, L.P. Jay C. Hoag and Richard H. Kimball are the sole
managing members of Technology Crossover Management III, L.L.C., "TCM III",
the general partner of the TCV Funds. In addition, Messrs. Hoag and Kimball
are the sole managing members of TCVF Management, L.L.C., "TCVF," the
general partner of the TCV Franchise Fund. Consequently, TCM III and
Messrs. Hoag and Kimball may each be deemed to beneficially own all of the
shares held by the TCV Funds and TCVF. TCM III, TCVF, and Messrs. Hoag and
Kimball each disclaim beneficial ownership of such shares, except to the
extent of their respective pecuniary interest in those shares. Based upon
information provided by Technology Crossover Ventures and affiliated
entities' Schedule 13G, filed with the SEC February 6, 2002. The address
for each of these entities is 528 Ramona Street, Palo Alto, California
94301.

(3) Includes 1,119,256 shares underlying options granted to Mr. Besier
exercisable within sixty days of February 1, 2002.

(4) Includes 196,501 shares underlying options granted to Mr. Tanyel
exercisable within sixty days of February 1, 2002.

(5) Includes 101,320 shares underlying options granted to Mr. McDermott
exercisable within sixty days of February 1, 2002.

(6) Includes 59,257 shares underlying options granted to Mr. Radford
exercisable within sixty days of February 1, 2002.

(7) Includes 41,902 shares underlying options granted to Mr. Keighley
exercisable within sixty days of February 1, 2002.

(8) Includes 4,170 shares underlying options granted to Mr. Cachianes
exercisable within sixty days of February 1, 2002.

(9) Consists of 1,000 shares held by Mr. Cline and 584,500 shares held by JMC
Partnership, Ltd., of which Mr. Cline is a general partner, and includes
14,062 shares underlying options granted to Mr. Cline exercisable within
sixty days of February 1, 2002.

(10) Represents shares described in note (1) above, beneficially owned by
entities associated with General Atlantic Partners, LLC. Mr. Grabe
disclaims beneficial ownership of these shares except to the extent of his
pecuniary interest therein, and includes 14,062 shares underlying options
granted to Mr. Grabe exercisable within sixty days of February 1, 2002.

(11) Includes 14,062 shares underlying options granted to Mr. Schulmeyer
exercisable within sixty days of February 1, 2002.

(12) Includes 14,062 shares underlying options granted to Mr. Weber exercisable
within sixty days of February 1, 2002.

(13) Includes 2,604,249 shares underlying options granted to the executive
officers exercisable within sixty days of February 1, 2002.

EXPENSES OF SOLICITATION

The Company will bear the cost of soliciting proxies for the Annual
Meeting. In addition to solicitations by mail, certain Directors, officers and
regular employees of the Company (who will receive no compensation for their
services other than their regular compensation) may solicit proxies by
telephone, telegram or personal interview. Banks, brokerage houses, custodians,
nominees and other fiduciaries have been requested to forward proxy materials to
the beneficial owners of shares held of record by them and such custodians will
be reimbursed for their expenses.

SUBMISSION OF STOCKHOLDER PROPOSALS FOR 2003 ANNUAL MEETING

Stockholder proposals intended to be presented at the Company's 2003 Annual
Meeting of stockholders must be received by the Company on or before November 1,
2002 in order to be considered for inclusion in the Company's proxy statement
and form of proxy for that meeting. The Company's By-laws provide that any
stockholder of record wishing to have a stockholder proposal considered at an
annual meeting must provide written notice of such proposal and appropriate
supporting documentation, as set forth in the By-laws, to the Company at its
principal executive office not less than 90 days or more than 120 days prior to
the first anniversary of the date of the preceding year's annual meeting. In the
event, however, that the annual meeting is scheduled to be held more than 30
days before such anniversary date or more than 60 days after such anniversary
date, notice must be so delivered not later than the later of (i) the 10th day
after the date of public disclosure of the date of such meeting or (ii) the 90th
day prior to the scheduled date of such meeting. Any such proposal should be
mailed to: Secretary, Firepond, Inc., 890 Winter Street, Waltham, MA 02451.

INDEPENDENT AUDITORS

RELATIONSHIP WITH INDEPENDENT AUDITORS

The Board of Directors has reappointed Arthur Andersen, LLP as independent
auditors to audit the financial statements of the Company for Fiscal Year 2002.
The firm of Arthur Andersen, LLP has served as the Company's independent public
auditors since May 1997 Representatives of Arthur Andersen, LLP are expected to
be present at the annual meeting, will be given the opportunity to make a
statement if they desire to do so, and will be available to respond to
appropriate questions.

AUDIT FEES

The Company estimates that the aggregate fees billed by its independent
auditors for professional services rendered in connection with (i) the audit of
the Company's annual financial statements set forth in the Company's Annual
Report on Form 10-K for the year ended October 31, 2001, and (ii) the review of
the Company's quarterly financial statements set forth in the Company's
Quarterly Reports on Form 10-Q for the quarters ended January 31, 2001, April
30, 2001 and July 31, 2001, equal approximately $244,000.

FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES

The Company did not engage Arthur Andersen, LLP to provide advice to the
Company regarding financial information systems design and implementation during
the fiscal year ended October 31, 2001.

ALL OTHER FEES

The Company estimates that the aggregate fees for all other services
rendered by its independent auditors for the Company's most recent fiscal year
equal approximately $290,000. These fees include work performed by the
independent auditors with respect to tax compliance and advisory services, and
financial accounting advisory services as well as $182,000 of fees in connection
with the Company's acquisition of Brightware.

The Audit Committee has advised the Company that it has determined that the
non-audit services rendered by the Company's independent auditors during the
Company's most recent fiscal year are compatible with maintaining the
independence of such auditors.

COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and Directors, and persons who own more than 10% of the Company's
outstanding shares of Common Stock (collectively, "Section 16 Persons"), to file
initial reports of ownership and reports of changes in ownership with the
Commission and Nasdaq. Section 16 Persons are required by Commission regulations
to furnish the Company with copies of all Section 16(a) forms they file.

Based solely on its review of the copies of such forms received by it, or
written representations from certain Section 16 Persons that all Section 16(a)
reports required to be filed for such persons had been filed, the Company
believes that during Fiscal Year 2001 the Section 16 Persons complied with all
Section 16(a) filing requirements applicable to them.

EXHIBIT A

CERTIFICATE OF AMENDMENT OF THE THIRD AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF FIREPOND, INC.

A DELAWARE CORPORATION

Firepond, Inc., a corporation organized and existing under and by virtue of
the General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify that:

FIRST: The name of the Corporation is Firepond, Inc. The date of the
filing of its original Certificate of Incorporation (the "Original
Certificate") with the Secretary of State of the State of Delaware was
November 4, 1999, under the name Firepond Merger Subsidiary, Inc. The
Original Certificate was amended and restated on December 20, 1999, amended
on January 4, 2000, amended and restated on February 4, 2000 and amended
and restated on February 9, 2000.

SECOND: Pursuant to Section 242(b) of the Delaware General Corporation
Law the Board of Directors of the Corporation has duly adopted, and a
majority of the outstanding stock entitled to vote thereon and a majority
of the outstanding stock of each class entitled to vote as a class has
approved, the amendments to the Third Amended and Restated Certificate of
Incorporation of the Corporation set forth in this Certificate of
Amendment.

THIRD: That Article FOURTH of the Third Amended and Restated
Certificate of Incorporation of the Corporation is amended to insert the
following paragraph as the fifth paragraph of Article FOURTH:

"Effective immediately upon the filing of this Certificate of
Amendment with the Delaware Secretary of State, every [ ]
outstanding shares of Common Stock shall without further action by this
Corporation or the holder thereof be combined into and automatically
become one share of Common Stock. The authorized shares of the
Corporation shall remain as set forth in this Certificate of
Incorporation. No fractional share shall be issued in connection with
the foregoing stock split; all shares of Common Stock so split that are
held by a stockholder will be aggregated and each fractional share
resulting from such aggregation shall be rounded down to the nearest
whole share. In lieu of any interest in a fractional share of Common
Stock to which a stockholder would otherwise be entitled as a result of
the foregoing split, the Corporation shall pay a cash amount to such
stockholder equal to the fair value as determined by the Board of
Directors of such fractional share as of the effective date of the
foregoing split."

IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Amendment of the Amended and Restated Certificate of Incorporation on this [ ]
day of [ ], 2002.

FIREPOND, INC.

By:

--------------------------------------
KLAUS P. BESIER
President and Chief Executive Officer

A-1

DETACH HERE

PROXY

FIREPOND, INC.

PROXY SOLICIATED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS, FRIDAY, MARCH 22, 2002

(SEE PROXY STATEMENT FOR DISCUSSION OF ITEMS)

The undersigned hereby appoints each of Klaus P. Besier and Christian J.
Misvaer as proxies, with full power of substitution, to vote all shares of
Firepond, Inc. Common Stock which the undersigned is entitled to vote on all
matters which may properly come before the 2002 Annual Meeting of Stockholders
of Firepond, Inc., or any adjournment thereof.

------------- -------------
SEE REVERSE SEE REVERSE
SIDE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SIDE
------------- -------------

FIREPOND, INC.
C/O EQUISERVE
P.O. BOX 9398
BOSTON, MA 02205-9398

DETACH HERE

[X] PLEASE MARK
VOTES AS IN
THIS EXAMPLE.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL ITEMS.

1. Re-election of two Class II Directors to serve for the ensuing
three-year period, until their successors are duly elected
and qualified or until earlier death or resignation.

NOMINEES: (01) William O. Grabe, (02) Vernon Lawrence Weber.

FOR [ ] [ ] WITHHELD
ALL FROM ALL
NOMINEES NOMINEES

[ ]____________________________________________
For all nominees except as noted above

Signature:__________________________________ Date: ____________

FOR AGAINST ABSTAIN
2. To approve an amendment to the Company's [ ] [ ] [ ]
Certificate of Incorporation to effect a reverse
stock split of the outstanding shares of the
Company's common stock of not less than
1-for-3 and not more than 1-for-10.

The shares represented by this Proxy Card will be voted as specified
above, but if no specification is made they will be voted FOR Items 1 and 2,
and in the discretion of the proxies on any other matter that may properly
come before the meeting.

MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]

MARK HERE IF YOU PLAN TO ATTEND THE MEETING [ ]

NOTE: Please sign exactly as name appears hereon. Joint owners should
each sign. When signing as attorney, executor, administrator, trustee or
guardian, give full name and title as such.

Please sign exactly and return promptly in the accompanying envelope.

Signature:__________________________________ Date: ____________