SCHEDULE 14A INFORMATION

 

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934

                               (Amendment No.   )

 

Filed by the Registrant  [x]

 

Filed by a Party other than the Registrant  [ ]

 

Check the appropriate box:

 

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


 

                            Rainmaker Systems, Inc.

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                (Name of Registrant as Specified in Its Charter)

 

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    (Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

[x]  No fee required.

 

[ ]  Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

  1.   Title of each class of securities to which transaction applies:


 

  


  2.   Aggregate number of securities to which transaction applies:


 

  


         3.   Per unit price or other underlying value of transaction computed     
              pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
              filing fee is calculated and state how it was determined):           


 

  


  4.   Proposed maximum aggregate value of transaction:


 

  


  5.   Total fee paid:


 

  


 

[ ]  Fee paid previously with preliminary materials:

 

    [ ]   Check box if any part of the fee is offset as provided by Exchange Act   
          Rule 0-11(a)(2) and identify the filing for which the offsetting fee was 
          paid previously. Identify the previous filing by registration statement  
          number, or the form or schedule and the date of its filing.              


 

  1.   Amount previously paid:


 

  


  2.   Form, Schedule or Registration Statement No.:


 

  


  3.   Filing Party:


 

  


  4.   Date Filed:


 

  


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                            [[Image Removed: LOGO]]

 

                    NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

                            TO BE HELD MAY 19, 2005

 

TO THE STOCKHOLDERS OF

RAINMAKER SYSTEMS, INC.:

 

NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Rainmaker
Systems, Inc., a Delaware corporation (the “Company”), will be held on Thursday,
May 19, 2005, at 8:00 a.m. Pacific Daylight Savings Time at the Hilton San Jose
South/Scotts Valley, 6001 La Madrona Drive, Scotts Valley, CA 95066, for the
following purposes, as more fully described in the Proxy Statement accompanying
this Notice:

 

    1.  To elect five directors to serve on the Company’s Board of Directors until
        the 2006 Annual Meeting of Stockholders or until each director’s successor
        is duly elected and qualified;                                            


 

    2.  To ratify the appointment of BDO Seidman LLP as independent registered    
        public accountants of the Company for the fiscal year ending December 31, 
        2005;                                                                     


 

    3.  To transact such other business as may properly come before the meeting or
        any adjournment or postponement thereof.                                  


 

Only stockholders of record at the close of business on April 1, 2005, are
entitled to notice of and to vote at the Annual Meeting. The stock transfer
books of the Company will remain open between the record date and the date of
the meeting. A list of stockholders entitled to vote at the Annual Meeting will
be available for inspection at the executive offices of the Company.

 

All stockholders are cordially invited to attend the meeting in person. Whether
or not you plan to attend, please sign and return the enclosed proxy as promptly
as possible in the envelope enclosed for your convenience. Should you receive
more than one proxy because your shares are registered in different names and
addresses, each proxy should be signed and returned to assure that all your
shares will be voted. You may revoke your proxy at any time prior to the Annual
Meeting. If you attend the Annual Meeting and vote by ballot, your proxy will be
revoked automatically and only your vote at the Annual Meeting will be counted.

 

                                           Sincerely,                           
                                           
                                           [[Image Removed: LOGO]]              
                                           Michael Silton                       
                                           President and Chief Executive Officer


 

Scotts Valley, California

April 18, 2005

 

YOUR VOTE IS VERY IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. PLEASE
READ THE ATTACHED PROXY STATEMENT CAREFULLY; COMPLETE, SIGN AND DATE THE
ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE AND RETURN IT IN THE ENCLOSED
ENVELOPE.

 

 

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                            [[Image Removed: LOGO]]

 

                            Rainmaker Systems, Inc.

                             1800 Green Hills Road

                        Scotts Valley, California 95066

 

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                                PROXY STATEMENT

                     FOR THE ANNUAL MEETING OF STOCKHOLDERS

                           TO BE HELD ON MAY 19, 2005

 

General

 

The enclosed proxy (“Proxy”) is solicited on behalf of the Board of Directors of
Rainmaker Systems, Inc., a Delaware corporation (the “Company”), for use at the
Annual Meeting of Stockholders to be held on Thursday, May 19, 2005 (the “Annual
Meeting”). The Annual Meeting will be held at 8:00 a.m. Pacific Daylight Savings
Time at the Hilton San Jose South/Scotts Valley, 6001 La Madrona Drive, Scotts
Valley, CA 95066. These proxy solicitation materials were mailed on or about
April 18, 2005, to all stockholders entitled to vote at the Annual Meeting.

 

Voting; Quorum

 

The specific proposals to be considered and acted upon at the Annual Meeting are
summarized in the accompanying Notice and are described in more detail in this
Proxy Statement. On April 1, 2005, the record date (the “Record Date”) for
determination of stockholders entitled to notice of and to vote at the Annual
Meeting, 47,764,261 shares of the Company’s common stock, par value $0.001 (the
“Common Stock”), were issued and outstanding. No shares of the Company’s
Preferred Stock, par value $0.001, were outstanding.

 

Although the Company is a Delaware corporation, it is subject to Section 2115 of
the California Corporations Code. Section 2115 provides that corporations that
are incorporated in jurisdictions other than California and that meet certain
tests are subject to several provisions of the California Corporations Code, to
the exclusion of the law of the jurisdiction in which the corporation is
incorporated. We became subject to Section 2115 with the transfer of the listing
of our common stock from the Nasdaq National Market to the Nasdaq SmallCap
Market. Consequently, we are now subject to, among other provisions of the
California Corporations Code, Section 708, which provides for cumulative voting.

 

Each holder of shares of Common Stock is entitled to one vote per share held by
such holder on the Record Date. In voting for directors, however, shares may be
voted cumulatively for persons whose names have been placed in nomination prior
to the voting for the election of directors, but only if a stockholder present
at the 2005 Annual Meeting gives notice at the meeting, prior to the voting for
the election of directors, of his or her intention to vote cumulatively. Notice
of intention to vote cumulatively may not be given by simply marking and
returning a proxy.

 

If any stockholder gives proper notice of his or her intention to vote
cumulatively, then each stockholder eligible to vote will be entitled to
cumulate his or her votes and to give any one or more of the nominees whose
names have been placed in nomination prior to the voting a number of votes equal
to the total number of

 

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directors to be elected multiplied by the number of shares that the stockholder
is entitled to vote. In addition, the person or persons holding the proxies
solicited by our Board of Directors will exercise their cumulative voting
rights, at their discretion, to vote the shares they hold in such a way as to
ensure the election of as many of the nominees of the Board of Directors as they
deem possible. This discretion and authority of the proxy holders may be
withheld by checking the box on the proxy card marked “withhold from all
nominees.” However, such an instruction will also deny the proxy holders the
authority to vote for any or all of the nominees of the Board of Directors, even
if cumulative voting is not called for at the 2005 Annual Meeting.

 

In the election of directors, the five nominees receiving the highest number of
affirmative votes shall be elected. Proposal 2 must be approved by the
affirmative vote of holders of outstanding shares of Common Stock representing a
majority of the voting power present in person or represented by proxy at the
Annual Meeting and entitled to vote on the subject matter. The presence at the
Annual Meeting, either in person or by proxy, of holders of shares of
outstanding Common Stock entitled to vote and representing a majority of the
voting power of such shares shall constitute a quorum for the transaction of
business. Abstentions and shares held by brokers that are present in person or
represented by proxy but that are not voted because the brokers were prohibited
from exercising discretionary authority (“broker non-votes”) will be counted for
the purpose of determining if a quorum is present. Abstentions will be counted
towards the tabulation of votes cast on proposals presented to the stockholders
and will have the same effect as negative votes, whereas broker non-votes will
not be counted for purposes of determining whether a proposal has been approved.
The inspector of election appointed for the meeting will tabulate all votes and
will separately tabulate affirmative and negative votes, abstentions and broker
non-votes.

 

Proxies

 

If the enclosed form of Proxy is properly signed and returned, the shares
represented thereby will be voted at the Annual Meeting in accordance with the
instructions specified thereon. If the Proxy does not specify how the shares
represented thereby are to be voted, the Proxy will be voted FOR the election of
the five nominees to the Board of Directors listed in the Proxy, unless the
authority to vote for the election of any such nominee is withheld, and, if no
contrary instructions are given, the Proxy will be voted FOR the approval of
Proposal 2 described in the accompanying Notice and this Proxy Statement. You
may revoke or change your Proxy at any time before the Annual Meeting by filing
with the Secretary of the Company at the Company’s principal executive offices,
located at 1800 Green Hills Road, Scotts Valley, California 95066, a notice of
revocation or another signed Proxy with a later date. You may also revoke your
Company’s Proxy by attending the Annual Meeting and voting in person.

 

Solicitation

 

The Company will bear the entire cost of the solicitation, including the
preparation, assembly, printing and mailing of this Proxy Statement, the Proxy
and any additional solicitation materials furnished to the stockholders. Copies
of solicitation materials will be furnished to brokerage houses, fiduciaries and
custodians holding shares in their names that are beneficially owned by others
so that they may forward this solicitation material to such beneficial owners.
The Company may reimburse such persons for their costs in forwarding the
solicitation materials to such beneficial owners. The original solicitation of
proxies by mail may be supplemented by a solicitation by telephone, telegram or
any other means by directors, officers or employees of the Company. No
additional compensation will be paid to these individuals for any such services.
Except as described above, the Company does not presently intend to solicit
proxies by any process other than by mail.

 

                                       2

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                   MATTERS TO BE CONSIDERED AT ANNUAL MEETING

 

                      PROPOSAL ONE: ELECTION OF DIRECTORS

 

General

 

The Company’s Certificate of Incorporation provides for a classified Board of
Directors consisting of three classes of directors with staggered three-year
terms, with each class consisting, as nearly as possible, of one-third of the
total number of directors. However, as set forth above under the caption
“Voting; Quorum,” the Company is now subject to Section 2115 of the California
Corporations Code which makes it subject to certain provisions of California
General Corporation Law. Accordingly, the Company no longer has a classified
board. As a result, the term of the members of our Board of Directors to be
elected at this year’s Annual Meeting is one year, expiring at the 2006 Annual
Meeting of Stockholders or until each director’s successor has been duly elected
and qualified. The Board currently consists of six persons, however, the Board
of Directors has decided to reduce its size to five members from and after the
Annual Meeting of Stockholders with George de Urioste deciding not to seek
re-election to the Board.

 

Each returned Proxy can only be voted for the number of persons nominated
(five). Unless individual stockholders specify otherwise, each returned Proxy
will be voted FOR the election of the five nominees who are listed below. If,
however, the nominees named herein are unable to serve or decline to serve at
the time of the Annual Meeting, the persons named in the enclosed Proxy will
exercise discretionary authority to vote for substitutes. The nominees for
election have agreed to serve if elected, and management has no reason to
believe that the nominees will be unavailable to serve.

 

The names of the nominees, their ages as of February 28, 2005, and certain other
information about them are set forth below:

 

Nominees for Term Ending Upon the 2006 Annual Meeting of Stockholders

 

    Name                      Age                     Position                  
    -----------------------   ---   --------------------------------------------
    Michael Silton             40   Chief Executive Officer, President, Director
    Robert Leff (1)(4)         58   Director                                    
    Mitchell Levy (3)          44   Director                                    
    Alok Mohan (2)(3)          56   Chairman, Director                          
    Bradford Peppard (1)(2)    49   Director                                    


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(1) Member of the Compensation Committee


 

(2) Member of the Audit Committee


 

(3) Member of the Nominating Committee


 

(4) Mr. Leff will become a member of the Audit Committee after the Annual Meeting
    of Stockholders.                                                             


 

The nominees listed above are currently directors of the Company. The Board has
determined that Messrs. Mohan, Leff, Levy, and Peppard are “independent
directors” as that term is defined by the applicable rules of the SEC and
NASDAQ. The Company does not have a formal policy with respect to director
attendance at annual meetings, however directors are encouraged to attend such
meetings. One director attended last year’s annual meeting.

 

Michael Silton has served as a director of the Company since inception. Mr.
Silton has served as Chief Executive Officer of the Company since October 1997
and also served as the Company’s Chairman of the Board since inception through
July 2003. In 1991, he founded the Company’s former business UniDirect, which
specialized in the direct marketing and sales of business software.

 

                                       3

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Robert Leff has served as a director of the Company since 1996. Mr. Leff
co-founded Merisel, Inc. (formerly Softsel Computer Products, Inc.) in 1980, a
wholesale distributor of computer products, and served as its President from
1980 to 1985 and its Co-Chairman from 1985 until he retired from Merisel, Inc.
in 1994. Since 1994, Mr. Leff has been a strategic and financial consultant to
start-up and growth stage companies in the personal computer industry. In March
2001, while Mr. Leff served on the Board of Directors and as acting Chief
Executive Officer of Hiho Technologies, Inc., Hiho Technologies, Inc. completed
an assignment for the benefit of creditors.

 

Mitchell Levy has served as a director of the Company since 2004. He is the
President and CEO of ECnow.com, a strategic management-consulting firm he
founded in 1997, Executive Editor and CEO of Happy About, and a partner in
CEOnetworking. Mr. Levy is an author, consultant, educator, and evangelist of
strategic management. As president of ECnow.com, he helps companies around the
world change their business processes to fully integrate the Internet into how
they conduct business. Mr. Levy is the author of the books “E-Volve-or-Die.com”
and “Happy About Outsourcing” and is a frequent public speaker on business
trends. Mr. Levy also serves as the Director of the Silicon Valley Executive
Business Program. Previously, he was the conference chair at four Comdex
conferences, founded and operated the E-Commerce Management Program at San Jose
State University and spent nine years at Sun Microsystems, the last four of
which he ran the E-Commerce component of Sun’s Supply Chain

 

Alok Mohan has served as a director of the Company since 1996 and the Company’s
Chairman of the Board since July 2003. Mr. Mohan is currently the Chairman of
the Board of Directors of Tarantella, Inc. Prior to that appointment, he served
as Chief Executive Officer of Santa Cruz Operations, Inc. (“SCO”) from July 1995
until April 1998. Prior to that, from May 1994 to July 1995, Mr. Mohan served as
Senior Vice President, Operations and Chief Financial Officer of SCO. Prior to
joining SCO, Mr. Mohan was employed with NCR Corporation (“NCR”), a business
software and services company, where he served as Vice President of Strategic
Planning and Controller from July 1993 to May 1994. From January 1990 until July
1993, Mr. Mohan served as Vice President and General Manager of the Workstation
Products Division at NCR. Mr. Mohan also serves on the Board of Directors of
ImproveNet, Inc. and Crystal Graphics, Inc.

 

Bradford Peppard has served as a director of the Company since 2004. Since 2003,
Mr. Peppard has been president of LTP, Inc., a consulting firm specializing in
high tech sales & marketing, direct marketing and market research. From 1999 to
2002, Mr. Peppard was president of CinemaScore Online, an online source of movie
rating information. From 1997 to 1999, Mr. Peppard was president of Lime Tree
Productions, a strategic marketing consulting firm. Prior to that, Mr. Peppard
held vice president of marketing positions at Aladdin Systems, Inc. Software
Publishing Corporation, and Quarterdeck Office Systems. Mr. Peppard’s financial
experience includes positions as Treasurer of Trader Joe’s, Director of Finance
and Administration (Controller) for CBS TV and CBS/Fox Studios, an MBA from
Stanford Business School with a concentration in Finance, and prior Audit
Committee experience with a number of public companies, including: Aladdin
Systems, Monterey Bay Technology, and Oppenheimer Industries.

 

Meetings and Committees of the Board of Directors

 

The Board of Directors held six meetings and agreed to take action by unanimous
written consent three times during the fiscal year ended December 31, 2004 (the
“2004 Fiscal Year”). The Board of Directors has an audit committee, a nominating
committee, and a compensation committee. Each director attended or participated
in 75% or more of the aggregate of (i) the total number of meetings of the Board
of Directors and (ii) the total number of meetings held by all committees of the
Board on which such director served during the 2004 Fiscal Year. The Board of
Directors also consulted informally with management.

 

Audit Committee.  The Audit Committee presently consists of Messrs. de Urioste,
Mohan and Peppard. The Audit Committee oversees the Company’s accounting and
financial reporting policies and internal controls, reviews and monitors the
corporate financial reporting and external audit of the Company, including,
among

 

                                       4

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other things, the independent auditors’ qualifications and independence, the
results and scope of the annual audit and other services provided by the
Company’s independent auditors and the Company’s compliance with legal matters
that have a significant impact on the Company’s financial reports. The Audit
Committee also consults with the Company’s management and the Company’s
independent auditors prior to the presentation of financial statements to
stockholders and, as appropriate, initiates inquiries into various aspects of
the Company’s financial affairs. In addition, the Audit Committee is responsible
for considering and recommending the appointment of, and reviewing fee
arrangements with, the Company’s independent auditors. The Audit Committee was
formed in May 1999 and held five meetings during the 2004 Fiscal Year. Members
of the Audit Committee are elected by the Board of Directors and serve one-year
terms. The Annual Report of the Audit Committee appears hereafter under “Report
of the Audit Committee of the Board of Directors.” The Board of Directors
adopted a written charter for the Audit Committee in 2000. A copy of the audit
committee charter, which was amended by the Board of Directors in January 2004,
is attached as Exhibit A hereto.

 

The Board of Directors has determined that each of the members of the Audit
Committee is an “independent director” as defined in Rule 4200 of the
Marketplace Rules of the National Association of Securities Dealers, Inc. The
Board of Directors has determined that each Audit Committee member has
sufficient knowledge in financial and auditing matters to serve on the
Committee. The Board has also determined that George de Urioste, Chairman of the
Audit Committee, is an “audit committee financial expert” as defined under
applicable SEC and NASDAQ rules and regulations. Because Mr. de Urioste has
decided not to seek re-election, the Board has further determined that Mr.
Peppard will be the “audit committee financial expert” as defined under
applicable SEC and NASDAQ rules and regulations after the Annual Meeting of
Stockholders.

 

Nominating Committee.  The Board formed a nominating committee in February 2004.
The Nominating Committee is currently composed of Messrs. Mohan and Levy, with
Mr. Levy as the Chairman of the Nominating Committee. The Nominating Committee
recommends to the Board the persons to be nominated for election as directors at
any meeting of stockholders and oversees the evaluation of the Board. The Board
has determined that Messrs. Mohan and Levy are each “independent,” as that term
is defined by applicable rules of the SEC and NASDAQ. The Nominating Committee
acts pursuant to a written charter that is attached to this Proxy Statement as
Exhibit B.

 

Stockholders may recommend director candidates for inclusion by the Board of
Directors in the slate of nominees that the Board recommends to stockholders for
election. The Nominating Committee will review the qualifications of recommended
candidates. If the Board determines to nominate a stockholder-recommended
candidate and recommends his or her election as a director by the stockholders,
his or her name will be included in the Company’s proxy card for the stockholder
meeting at which his or her election is recommended.

 

Stockholders may recommend individuals to the Nominating Committee for
consideration as potential director candidates by submitting their names and
background to the Chairman of the Nominating Committee, at the address set forth
below under the heading “Stockholder Communications”. The Nominating Committee
will consider a recommendation only if appropriate biographical information and
background material is provided on a timely basis. The process followed by the
Nominating Committee to identify and evaluate candidates includes requests to
Board members and others for recommendations, meetings from time to time to
evaluate biographical information and background material relating to potential
candidates and interviews of selected candidates by members of the Nominating
Committee and the Board. The Nominating Committee is authorized to retain
advisers and consultants and to compensate them for their services.

 

Assuming that appropriate biographical and background material is provided for
candidates recommended by stockholders, the Nominating Committee will evaluate
those candidates by following substantially the same process, and applying
substantially the same criteria, as for candidates submitted by Board members or
by other persons. In considering whether to recommend any candidate for
inclusion in the Board’s slate of recommended director nominees, including
candidates recommended by stockholders, the Nominating Committee will apply the
criteria which are set forth in its written charter. These criteria include the
candidate’s integrity, business

 

                                       5

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acumen, age, experience, diligence, conflicts of interest and the ability to act
in the interests of all stockholders. The Nominating Committee does not assign
specific weights to particular criteria and no particular criterion is
necessarily applicable to all prospective nominees. We believe that the
backgrounds and qualifications of the directors, considered as a group, should
provide a significant composite mix of experience, knowledge and abilities that
will allow the Board to fulfill its responsibilities.

 

Stockholders also have the right to nominate director candidates themselves,
without any prior review or recommendation by the nominating committee or the
Board, by the procedures set forth above under the heading “Deadline for
Submission of Stockholder Proposals.”

 

Compensation Committee.  The Compensation Committee consists of Messrs. Leff and
Peppard, with Mr. Leff as the Chairman of the Compensation Committee. The
Compensation Committee reviews and approves salaries, benefits and bonuses for
the Chief Executive Officer, President, Chief Financial Officer and other
executive officers of the Company. It reviews and recommends to the Board of
Directors on matters relating to employee compensation and benefit plans. The
Compensation Committee also administers the Company’s stock plans.

 

The Compensation Committee was formed in May 1999. The Annual Report of the
Compensation Committee appears hereafter under the heading “Report of the
Compensation Committee of the Board of Directors on Executive Compensation.”

 

Stockholder Communications

 

The Board will give appropriate attention to written communications that are
submitted by stockholders, and will respond if and as appropriate. Absent
unusual circumstances or as contemplated by committee charters and subject to
any required assistance or advice from legal counsel, the Chairman of the
Nominating Committee is primarily responsible for monitoring communications from
stockholders and for providing copies or summaries of such communications to the
other directors as he considers appropriate.

 

Communications are forwarded to all directors if they relate to important
substantive matters and include suggestions or comments that the Chairman of the
Nominating Committee considers to be important to the directors to know. In
general, communications relating to corporate governance and long-term corporate
strategy are more likely to be forwarded than communications relating to
ordinary business affairs, personal grievances and matters as to which we tend
to receive repetitive or duplicative communications.

 

Stockholders who wish to send communications on any topic to the Board should
address such communications to: The Board of Directors, Rainmaker Systems, Inc.,
1800 Green Hills Road, Scotts Valley, California 95066, Attention: Chairman of
the Nominating Committee.

 

Director Compensation

 

On May 6, 2004, Alok Mohan, Robert Leff and George de Urioste were granted
options to purchase 40,000 shares, 20,000 shares, and 20,000 shares,
respectively, of Common Stock at an exercise price of $2.55 per share. Such
grants were inclusive of the automatic annual grant of 20,000 shares described
below. On September 1, 2004, Mitchell Levy was granted options to purchase
100,000 shares of Common Stock at an exercise price of $1.62 per share. On
September 30, 2004, Bradford Peppard was granted options to purchase 100,000
shares of Common Stock at an exercise price of $1.60 per share. For 2004, all
independent outside directors, were paid $5,000 in quarterly fees for each
quarter of service as a director, with the exception of the chairman who is paid
$10,000 in quarterly fees, $1,000 per Board meeting attended during the year and
$500 per committee meeting attended during the year. Annually, each non-employee
independent Board member who continues to serve as a non-employee Board member
after the Annual Meeting of Stockholders, including each of the Company’s

 

                                       6

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current non-employee independent Board members, other than Mr. De Urioste will
automatically be granted an option to purchase 20,000 shares of Common Stock at
an exercise price equal to the fair market value per share of the Common Stock
on the date of such Annual Meeting, provided such individual has served on the
Board for at least six months.

 

Required Vote

 

The five nominees receiving the highest number of affirmative votes of the
outstanding shares of Common Stock, present or represented and entitled to be
voted for such nominees, shall be elected as directors. The Proxies cannot be
voted for a greater number of persons than five.

 

Recommendation of the Board of Directors

 

The Board of Directors recommends that the stockholders vote FOR the election of
the nominees listed above.

 

                 PROPOSAL TWO: RATIFICATION OF BDO SEIDMAN LLP

 

                AS INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

BDO Seidman LLP (“BDO Seidman”) was engaged as the Company’s independent
registered public accounting firm on October 7, 2004. Audit services of BDO
Seidman during the 2004 Fiscal Year included the examination of our financial
statements and services related to filings with the Securities and Exchange
Commission (“SEC”) and other regulatory bodies.

 

Principal Accountant Fees and Services

 

For the fiscal year ended December 31, 2004, BDO Seidman, our independent
registered public accounting firm, billed the approximate fees set forth below:

 

Audit Fees

 

Aggregate fees consist of fees billed for professional services rendered for the
audit of the Company’s consolidated financial statements and reviews of the
interim condensed consolidated financial information included in a footnote to
the annual consolidated financial statements and services that are normally
provided by BDO Seidman in connection with statutory and regulatory filings or
engagements, except those not required by statute or regulation. Aggregate fees
billed for audit services were $192,586 for the year ended December 31, 2004.

 

Audit-Related Fees

 

Audit-related fees consist of fees billed for assurance and related services
that are reasonably related to the performance of the audit or review of the
Company’s consolidated financial statements and are not reported under “Audit
Fees.” These services include accounting consultations and due diligence in
connection with acquisitions and consultations concerning financial accounting
and reporting standards. Aggregate fees billed for audit-related services were
$2,710 for the year ended December 31, 2004.

 

Tax Fees

 

We did not receive professional services for state and international tax
compliance and advice, and planning from BDO Seidman during the year ended
December 31, 2004.

 

                                       7

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All engagements for services by BDO Seidman or other independent registered
public accountants are subject to prior approval by the Audit Committee;
however, de minimis non-audit services may instead be approved in accordance
with applicable SEC rules. The prior approval of the Audit Committee was
obtained for all services provided by BDO Seidman in the 2004 Fiscal Year.

 

The audit committee, composed entirely of independent directors, recommended to
the Board of Directors that BDO Seidman be appointed as our independent
registered public accounting firm for the fiscal year ending December 31, 2005.
As our independent registered public accounting firm, BDO Seidman will audit our
financial statements for the 2005 fiscal year and perform audit-related services
in connection with various accounting and financial reporting matters. BDO
Seidman may perform certain non-audit services for the Company, subject to
pre-approval by the Audit Committee.

 

The Board of Directors approved the selection of BDO Seidman as our independent
registered public accounting firm for the 2005 fiscal year and is asking the
stockholders for ratification of their selection. A representative of BDO
Seidman is expected to be present at the Annual Meeting, will have the
opportunity to make a statement if he or she desires to do so, and will be
available to respond to appropriate questions.

 

Former Principal Accountant Fees and Services

 

For the fiscal years ended December 31, 2004 and December 31, 2003, Ernst &
Young LLP (“E&Y”), our former independent auditors, billed the approximate fees
set forth below:

 

Audit Fees

 

Aggregate fees consist of fees billed for professional services rendered for the
audit of the Company’s consolidated financial statements for the year ended
December 31, 2003 and review of the interim condensed consolidated financial
statements included in quarterly filings and services that are normally provided
by E&Y in connection with statutory and regulatory filings or engagements,
except those not required by statute or regulation. Aggregate fees for audit
services were $42,150 and $259,050 for the years ended December 31, 2004 and
December 2003, respectively.

 

Audit-Related Fees

 

Audit-related fees consist of fees billed for assurance and related services
that are reasonably related to the performance of the audit or review of the
Company’s consolidated financial statements and are not reported under “Audit
Fees.” These services include accounting consultations and due diligence in
connection with acquisitions and consultations concerning financial accounting
and reporting standards. Aggregate fees for audit-related services were $52,400
and $22,500 during the years ended December 31, 2004 and December 31, 2003,
respectively.

 

Tax Fees

 

Tax fees consist of fees billed for professional services rendered for state and
international tax compliance and advice, and planning. Aggregate fees for tax
services were $21,686 and $71,400 during the years ended December 31, 2004 and
December 31, 2003, respectively.

 

On August 23, 2004, E&Y, previously engaged as the principal accountant to audit
the financial statements of Rainmaker Systems, Inc. (the “Company”), informed
the Company that it was resigning effective upon the filing of the Company’s
Quarterly Report on Form 10-Q for the quarter ended September 30, 2004. The
audit reports issued by E&Y for the prior two fiscal years did not contain any
adverse opinion or a disclaimer of opinion, nor were they qualified or modified
as to uncertainty, audit scope, or accounting principles.

 

                                       8

--------------------------------------------------------------------------------
During the Company’s two most recent fiscal years and in the subsequent interim
period, there were no disagreements with E&Y on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of E&Y,
would have caused it to make reference to the subject matter of the
disagreements in connection with its report.

 

During the Company’s two most recent fiscal years and from January 1, 2004
through August 23, 2004, there were no “reportable events” as such term is used
in Item 304(a)(1)(v) of Regulation S-K.

 

The disclosures in the above three paragraphs were included in the Company’s
Form 8-K filing on August 27, 2004. The Company had requested that E&Y furnish
the Company with a letter addressed to the Securities and Exchange Commission
stating whether E&Y agrees with the above statements. E&Y furnished such a
letter, dated August 27, 2004, a copy of which is attached hereto as Exhibit C.

 

On October 7, 2004, the Company engaged BDO Seidman as its independent
registered public accountants effective upon completion of the filing of the
Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended September
30, 2004.

 

During the Company’s two most recent fiscal years ended December 31, 2004, prior
to engaging BDO Seidman, the Company did not consult with BDO Seidman regarding
either (i) the application of accounting principles to a specified transaction,
either completed or proposed, or the type of audit opinion that might be
rendered on the Company’s financial statements, or (ii) any matter that was the
subject of a disagreement, as such term is defined in Item 304(a)(1)(iv), and
the related instructions to Item 304, of Regulation S-K, or a reportable event,
as such term is described in Item 304(a)(1)(v) of Regulation S-K.

 

Required Vote

 

The affirmative vote of a majority of the shares represented and voting at the
Annual Meeting is required to ratify the selection of BDO Seidman. In the event
that the stockholders do not approve the selection of BDO Seidman, the Board of
Directors will reconsider the appointment of the independent auditors. Even if
the selection is ratified, the Board of Directors in its discretion may direct
the appointment of a different independent auditing firm at any time during the
year if the Board of Directors believes that such a change would be in the best
interests of the Company and its stockholders.

 

Recommendation of the Board of Directors

 

The Board of Directors recommends that the stockholders vote FOR the
ratification of the selection of BDO Seidman LLP to serve as the Company’s
independent registered public accounting firm for the fiscal year ending
December 31, 2005.

 

                                 OTHER MATTERS

 

The Company knows of no other matters that will be presented for consideration
at the Annual Meeting. If any other matters properly come before the Annual
Meeting, it is the intention of the persons named in the enclosed form of Proxy
to vote the shares they represent as the Board of Directors may recommend.
Discretionary authority with respect to such other matters is granted by the
execution of the enclosed Proxy.

 

                                       9

--------------------------------------------------------------------------------
                            OWNERSHIP OF SECURITIES

 

The following table sets forth certain information as of February 28, 2005,
regarding the ownership of the Company’s Common Stock by (i) each person who is
known by the Company to beneficially own more than five percent of the Company’s
Common Stock, (ii) each Named Executive Officer (as defined below under
“Executive Compensation”), (iii) each of the Company’s directors, and (iv) all
of the Company’s directors and executive officers as a group. Beneficial
ownership is determined in accordance with the rules and regulations of the
Securities and Exchange Commission. Shares subject to options or warrants that
are exercisable currently or within 60 days of February 28, 2005, are deemed to
be outstanding and beneficially owned by the person for the purpose of computing
share and percentage ownership of that person. They are not deemed to be
outstanding for the purpose of computing the percentage ownership of any other
person. Except as indicated in the footnotes to this table and as affected by
applicable community property laws, all persons listed have sole voting and
investment power for all shares shown as beneficially owned by them. Unless
otherwise indicated, all addresses for the stockholders set forth below is c/o
Rainmaker Systems, Inc., 1800 Green Hills Road, Scotts Valley, California 95066.

 

                                                                    Number of Shares                     
                                        Number of Shares          Owned as a Result of                   
                                       Beneficially Owned             Options and                        
                                     (Including the Number        Warrants Exercisable       Percentage  
                                     of Shares Shown in the        Within 60 Days of          of Shares  
Name of Beneficial Owner                 Second Column)            February 28, 2005         Outstanding 
------------------------------       ----------------------       --------------------       -----------  
Michael Silton                                    6,285,878                    562,500              13.0 %
Special Situations Funds                          3,730,570                    666,680               7.7 %
JP Morgan Chase & Co.                             2,455,600                         —                5.1 %
Martin Hernandez                                    997,849                    981,250               2.0 %
Robert Leff                                         638,583                    226,583               1.3 %
Alok Mohan                                          528,249                    508,249                 *  
Diane Brundage                                      231,376                    225,000                 *  
Brad Peppard                                         47,000                     25,000                 *  
Mitchell Levy                                        46,942                     25,000                 *  
George de Urioste                                   140,000                    135,000                 *  
Michael Davison                                     103,484                    102,083                 *  
All directors, officers and                                                                              
affiliates (9 persons)                            9,019,361                  2,790,665              17.8 %


--------------------------------------------------------------------------------
 * Less than 1%


 

(1) Excludes 15,000 shares held in the Petra Silton Children’s Trust


 

(2) Includes 525,000 common shares held by Special Situations Cayman Fund, L.P., 
    2,397,990 common shares owned by Special Situations Fund III, L.P 140,900    
    common shares and 333,340 common share warrants held by Special Situations   
    Private Equity Fund, L.P., 56,660 common share warrants held by Special      
    Situations Technology Fund, L.P, and 276,680 common share warrants held by   
    Special Situations Technology Fund II, L.P.                                  


 

Section 16(a) Beneficial Ownership Reporting Compliance

 

The members of the Board of Directors, the executive officers of the Company and
persons who hold more than ten percent (10%) of the Company’s outstanding Common
Stock are subject to the reporting requirements of Section 16(a) of the
Securities Exchange Act of 1934 which require them to file reports with respect
to their ownership of the Common Stock and their transactions in such Common
Stock. To the Company’s knowledge, based solely on review of the copies of such
reports furnished to the Company and written representation that no other
reports were required, all Section 16(a) filings requirements applicable to its
officers, directors and greater than ten percent shareholders were complied
with.

 

                                       10

--------------------------------------------------------------------------------
Equity Compensation Plans

 

The following table sets forth information as of December 31, 2004 with respect
to shares of the Company’s common stock that may be issued under the Company’s
existing equity compensation plans, including our 2003 Stock Plan and the 1999
Employee Stock Purchase Plan.

 

                               Number of Securities to be                                                                        
                                Issued Upon Exercise of               Weighted Average Exercise             Number of Securities 
                                  Outstanding Options,              Price of Outstanding Options,           Remaining Available  
Plan Category                     Warrants and Rights                    Warrants and Rights                for Future Issuance  
---------------------          --------------------------          -------------------------------          --------------------    
Equity compensation                                                                                                              
plans approved by                                                                                                                
security holders                                5,489,742          $                          0.95                     8,731,449 (1)


--------------------------------------------------------------------------------
(1) Includes 6,750,861 shares of our common stock remaining available for future 
    issuance under the 2003 Stock Plan, and 1,980,588 shares of our common stock 
    under the 1999 Employee Stock Purchase Stock Plan, all as of December 31,    
    2004.                                                                        


 

                  EXECUTIVE COMPENSATION AND OTHER INFORMATION

 

Executive Officers

 

The following table provides certain information with respect to our executive
officers and certain key employees:

 

    Name               Age                        Position                      
    ----------------   ---   ---------------------------------------------------
    Michael Silton      40   Chief Executive Officer and President              
    Steve Valenzuela    48   Vice President, Finance and Chief Financial Officer
    John Houtsma        46   Vice President, Sales                              
    Edwin Okumura       40   Vice President, Marketing                          
    Larry Schork        54   Vice President, Technology                         


 

Michael Siltonhas served as Chief Executive Officer since October 1997 and also
served as Chairman of the Board since inception through July 2003. In 1991, he
founded Rainmaker’s former business UniDirect, which specialized in the direct
marketing and sales of business software.

 

Steve Valenzuela joined Rainmaker in September 2004 as Vice President of Finance
and Chief Financial Officer and was appointed Corporate Secretary in March 2005.
Prior to joining Rainmaker, from February 2003 to September 2004, Mr. Valenzuela
served as the Vice President of Finance and Chief Financial officer for the
Thomas Kinkade Company, formerly Media Arts Group. From September 2000 to July
2002, Mr. Valenzuela served as the Senior Vice President and Chief Financial
Officer for Silicon Access Networks, and from February 1999 to August 2000 as
Senior Vice President and Chief Financial Officer for PlanetRx. Prior to
PlanetRx, from August 1998 to February 1999, Mr. Valenzuela served as the Chief
Financial Officer for LinkExchange. Mr. Valenzuela earned an MBA from Santa
Clara University and a BS degree in Accounting from San Jose State University.

 

John Houtsma joined Rainmaker in March 2005 as Vice President of Sales,
following the acquisition of Sunset Direct by Rainmaker. Previously, he was the
chief executive officer of Sunset Direct from September 2003 to March 2005.
Prior to Sunset Direct, Mr. Houtsma was Vice President of Sales at Jabber from
June 2002 to August 2003. Mr. Houtsma was Executive Vice President of Sales for
TightLink from June 2001 to June 2002 and Executive Vice President of Sales for
Spider Technologies from January 1998 to June 2001. Prior to that, Mr. Houtsma
held senior-level positions with FRx Software, Informix Software, and NCR
Corporation. Mr. Houtsma holds a bachelors degree in finance, marketing and
mineral land management from the University of Colorado in Boulder, as well as
an M.B.A. from the University of Denver.

 

                                       11

--------------------------------------------------------------------------------
Edwin Okamura joined Rainmaker in March 2005 as Vice President of Marketing
following the acquisition of Sunset Direct by Rainmaker. Previously, Mr. Okamura
was the Vice President of Marketing for Sunset Direct from June 2002 to March
2005. Prior to that, Mr. Okamura held senior-level consulting positions with
TightLink from January 2002 to June 2002, and Agile Software as Director of
Marketing Communications from August 2001 to January 2002. Prior to Agile
Software, Mr. Okamura was the Director of Marketing for Roamware from April 2000
to August 2001. Mr. Okamura holds a B.S. in Marketing and Advertising from San
Francisco State University.

 

Larry Schork joined Rainmaker in June 2004 as Vice President of Technology.
Prior to joining Rainmaker, Mr. Schork was Vice President and General Manager of
Information Technology for Loudcloud, Inc. from September 2000 to July 2002.
Prior to that, Mr. Schork was Chief Information Officer of Metricom from April
1998 through September 2000. Prior to Metricom, he served as Chief Information
Officer at Rational Software from October 1996 thru November of 1998. Mr. Schork
has also held applications development and supply system management roles at Sun
Microsystems and Apple Computer. Mr. Schork earned a BA degree from Golden Gate
University and advanced computing credentials from UC Santa Cruz.

 

                                       12

--------------------------------------------------------------------------------
Summary of Cash and Certain Other Compensation

 

The following table provides certain summary information concerning the
compensation earned by the Company’s Chief Executive Officer and each of the
four other most highly compensated executive officers of the Company whose
aggregate salary and bonus for the 2004 Fiscal Year were in excess of $100,000,
for services rendered in all capacities to the Company for the fiscal years
ended December 31, 2004, 2003 and 2002. The listed individuals are hereinafter
referred to as the “Named Executive Officers.” Mr. Hernandez (former President
and Secretary), Ms. Brundage (former Vice President, Sales and Client Services),
and Mr. Davison (former Vice President, Marketing) are included in the table as
they were among the most highly compensated executives for the 2004 Fiscal Year.
Each terminated employment in March 2005. In addition, Mr. Bronbright is
included in the table because he was among the four most highly compensated
executive officers for the 2004 Fiscal Year despite terminating employment
during the 2004 Fiscal Year. Mr. Valenzuela and Mr. Schork are included in the
table as their annual salaries and bonuses for the 2004 Fiscal Year would have
been in excess of $100,000 had their employment with the Company commenced
earlier in the year and it is presently expected that they will be among the
four most highly compensated officers for the 2005 Fiscal Year.

 

                           Summary Compensation Table

 

                                                                                        Long-Term      
                                               Annual Compensation                     Compensation    
                                   --------------------------------------------        ------------                 
                                                                  Other Annual          Securities       All Other  
                                                                  Compensation          Underlying     Compensation 
                           Year     Salary ($)     Bonus ($)      ($) (9) (11)         Options (#)     ($) (8) (11) 
                           ----    ------------    ----------    --------------        ------------    -------------
Michael Silton             2004    $    275,000    $   37,263    $       32,255 (1)         750,000    $       7,782
Chief Executive Officer    2003         275,000       119,281            27,761 (1)         600,000            6,053
                           2002         275,000       186,120            40,232 (1)         800,000            3,655
                                                                                                    
Steve Valenzuela (2)       2004          57,260            —              3,000 (3)         300,000               — 
Vice President, Finance                                                                                   
Chief Financial Officer                                                                                   
                                                                                                    
Martin Hernandez (4)       2004         210,000        28,488            24,000 (5)       1,127,500            7,611
President and Secretary    2003         210,000        93,089            26,473 (5)       1,000,000            7,397
                           2002         210,000       142,128            32,934 (5)       1,100,000            7,221
                                                                                                    
Larry Schork (6)           2004          84,924            —                 —              175,000               — 
Vice President,                                                                                           
Technology                                                                                                
                                                                                                    
Diane Brundage (4)         2004         187,500        24,728            24,000 (7)         400,000            3,075
Vice President, Sales      2003         174,075        43,376            23,040 (7)         300,000            3,000
                           2002         152,115        34,758            20,862 (7)         300,000            2,285
                                                                                                    
Mike Davison (4)           2004         145,000        12,898                —              250,000               — 
Vice President, Product    2003         142,073        31,790                —              175,000               — 
Management and             2002          25,086         4,690                —              175,000               — 
Marketing                                                                                                 
                                                                                                    
Steven Bronbright (10)     2004         101,478        15,155                —                   —                — 
Vice President, Client     2003         138,872        44,631                —              175,000               — 
Services                                                                                                  


--------------------------------------------------------------------------------
(1) Includes $24,000 for car allowance in each of 2004, 2003, and 2002,          
    respectively.                                                                


 

(2) Mr. Valenzuela’s employment began in September 2004.


 

(3) Amount consists of car allowance.


 

(4) Mr. Hernandez’s, Ms. Brundage’s, and Mr. Davison’s employment with Rainmaker 
    terminated in March 2005.                                                    


 

(5) Includes $24,000 for car allowance in each of 2004, 2003, and 2002 and $2,473
    and $8,900 in 2003, 2002 respectively, related to reimbursement for the      
    payment of taxes.                                                            


 

(6) Mr. Schork’s employment began in July 2004.


 

(7) Amount consists of car allowance.


 

                                       13

--------------------------------------------------------------------------------
(8) Except for Mr. Silton and Mr. Hernandez, amounts consists solely of company  
    matching contributions made to Rainmaker’s 401(k) savings plan. For Mr.      
    Silton amounts include premiums paid for term life insurance policies for the
    benefit of Mr. Silton and for Mr. Hernandez, amounts include premiums paid   
    for term life and disability insurance policies for the benefit of Mr.       
    Hernandez.                                                                   


 

(9) Excludes other annual compensation in the form of perquisites and other      
    personal benefits, for which the aggregate total of such perquisites and     
    other personal benefits are lower than the lesser of $50,000 or 10% of the   
    total annual salary and bonus earned by each named executive officers in the 
    years ended December 31, 2004, 2003, and 2002.                               


 

(10) Mr. Bonbright’s employment with Rainmaker terminated in June 2004.


 

(11) In previous years, amounts shown under the “Other Annual Compensation”      
     column or the “All Other Compensation” column may have been included in the 
     “Salary” column or omitted.                                                 


 

Option/SAR Grants in Last Fiscal Year

 

The following table contains information concerning the stock options granted to
the Named Executive Officers during 2004. Cancellations of options are not
reflected in the table.

 

In accordance with the rules of the Securities and Exchange Commission, the
table below sets forth the hypothetical gains or “option spreads” that would
exist for the options at the end of their respective terms. These gains are
based on assumed annualized rates of stock price appreciation of 5% and 10% from
the closing price on the date an option was granted until the end of the option
term. The 5% and 10% assumed annual rates of stock price appreciation are
mandated by the rules of the Securities and Exchange Commission and do not
represent our estimate or projection of future common stock prices.

 

    •    The exercise price may be paid in cash or in shares of Common Stock valued
         at fair market value on the exercise date. Alternatively, the option may  
         be exercised through a cashless exercise procedure pursuant to which the  
         optionee provides irrevocable instructions to a brokerage firm to sell the
         purchased shares and to remit to us, out of the sale proceeds, an amount  
         equal to the exercise price plus all applicable withholding taxes. The    
         Compensation Committee may also assist an optionee in the exercise of an  
         option by (i) authorizing a loan from us in a principal amount not to     
         exceed the aggregate exercise price plus any tax liability incurred in    
         connection with the exercise or (ii) permitting the optionee to pay the   
         option price in installments over a period of years upon terms established
         by the Compensation Committee. Effective July 30, 2002, as required by the
         Sarbanes-Oxley Act of 2002, no loans are provided to any of the Company’s 
         executive officers in relation to the exercise of an option.              


 

                       OPTION GRANTS IN LAST FISCAL YEAR

 

                                                       Individual Grants                             
                              -------------------------------------------------------------------       Potential Realizable   
                                                   Percent of                                             Value at Assumed     
                                 Number of       Total Options                                         Annual Rates of Stock   
                                Securities         Granted to                                          Price Appreciation For  
                                Underlying         Employees         Exercise Price                         Option Term        
                              Options Granted    in Fiscal Year        Per Share       Expiration    --------------------------
Name                              (#) (1)           (%) (2)              ($/sh)           Date          5%($)         10%($)   
--------------------------    ---------------    --------------      --------------    ----------    -----------    -----------
Michael Silton                        150,000                 7 %              2.04       6/21/14        192,442        487,685
Steve Valenzuela                      300,000                14 %              1.60       9/30/14        301,869        764,996
Larry Schork                          175,000                 8 %              2.04       6/21/14        224,515        568,966
Martin Hernandez                      127,500                 6 %              2.04       6/21/14        163,575        414,532
Diane Brundage                        100,000                 5 %              2.04       6/21/14        128,295        325,123
Michael Davison                        75,000                 4 %              2.04       6/21/14         96,221        243,843
Steven Bronbright                          —                  0 %                —             —              —              — 


--------------------------------------------------------------------------------
(1) Options vest and become exercisable over a four-year schedule, with 25%      
    exercisable one year from the date of grant.                                 


 

                                       14

--------------------------------------------------------------------------------
(2) The Company granted stock options representing approximately 2,127,100 shares
    of Common Stock to employees and directors in the fiscal year ended December 
    31, 2004.                                                                    


 

No stock appreciation rights were granted to the Named Executive Officers during
2004.

 

Aggregated Option Exercises and Fiscal Year End Values

 

The following table provides information, with respect to the Named Executive
Officers, concerning the exercise of options during the 2004 Fiscal Year and
unexercised options held by them at the end of that fiscal year. None of the
Named Executive Officers exercised any stock appreciation rights during the 2004
Fiscal Year and no stock appreciation rights were held by the Named Executive
Officers at the end of such year.

 

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

 

                                                              Number of Securities        Value of Unexercised in-the- 
                                                             Underlying Unexercised         Money Options at Fiscal    
                                   Shares       Value      Options at Fiscal Year-End           Year End ($) (2)       
                                Acquired on    Realized   ----------------------------   ------------------------------
Name                            Exercise (#)   ($) (1)    Exercisable    Unexercisable    Exercisable     Unexercisable
-----------------------------   ------------   --------   ------------   -------------   -------------    -------------
Michael Silton                            —          —         537,498         212,502         542,873           63,127
Steve Valenzuela                          —          —              —          300,000              —                — 
Larry Schork                              —          —              —          175,000              —                — 
Martin Hernandez                          —          —         964,582         162,918         974,228           35,772
Diane Brundage                            —          —         212,500         187,500         199,750           82,250
Michael Davison                           —          —          94,791         155,209          45,000           38,500
Steven Bronbright                     51,041     54,617             —               —               —                — 


--------------------------------------------------------------------------------
(1) Based upon the closing market price of the purchased shares on the exercise  
    less the option exercise price for those shares.                             


 

(2) Based upon a market price of $1.24 per share, determined on the basis of the 
    closing sales price per share of the Company’s Common Stock on the Nasdaq    
    SmallCap Market on December 31, 2004, less the option price payable per      
    share.                                                                       


 

Employment Contracts, Termination of Employment and Change in Control
Arrangements

 

The Company currently has employment agreements with Michael Silton, Chief
Executive Officer and President, and Steve Valenzuela, Vice President, Finance
and Chief Financial Officer.

 

The employment agreement, as amended for Mr. Silton generally provides that if
Mr. Silton’s employment is constructively terminated or terminated by the
Company without cause, then Mr. Silton shall receive, with no duty to mitigate,
the following: (i) an amount equal to one and one-quarter times Mr. Silton’s
base salary and target annual bonus, to be paid in fifteen equal monthly
payments, (ii) up to twelve months of health and life insurance benefits, and
(iii) continued vesting of all unvested stock options up to fifteen months. Mr.
Silton’s stated base salary and target annual bonus as of December 31, 2004 are
each $275,000.

 

The employment agreement for Mr. Valenzuela generally provides that if Mr.
Valenzuela’s employment is constructively terminated or terminated by the
Company without cause, then Mr. Valenzuela shall receive, with no duty to
mitigate, the following: (i) an amount equal to three-quarters times Mr.
Valenzuela’s base salary and target annual bonus, to be paid in nine equal
monthly payments, (ii) nine months of health and life insurance benefits, and
(iii) continued vesting of all unvested stock options for nine months. Mr.
Valenzuela’s stated base salary and target annual bonus as of December 31, 2004
are $225,000 and $25,000 respectively.

 

To the extent not already vested, options to purchase the Company’s Common Stock
held by Mr. Silton, and Mr. Valenzuela will immediately become vested in the
event of a merger or other transaction in which more than

 

                                       15

--------------------------------------------------------------------------------
50% of the Company’s outstanding securities are transferred to persons different
from those persons who are the Company’s stockholders prior to the merger or
other transaction or upon the sale of substantially all the Company’s assets in
complete liquidation or dissolution. Mr. Silton shall have not less than twelve
months to exercise his non-qualified options and Mr. Valenzuela shall have not
less than nine months to exercise his non-qualified options.

 

In addition, in the event of a merger or other transaction in which more than
50% of the Company’s outstanding securities are transferred to persons different
from those persons who are the Company’s stockholders prior to the merger or
other transaction or upon the sale of substantially all the Company’s assets in
complete liquidation or dissolution, certain of our other executive officers
will be entitled to receive severance payments in an amount equal to 6-months
base salary plus any bonus payable during such 6-month period, if within one
year of such change in control either such employee is constructively terminated
or terminated without cause, and, to the extent not already vested, options to
purchase the Company’s Common Stock held by such executive officers will
immediately become vested.

 

Compensation Committee Interlocks and Insider Participation

 

The Compensation Committee of the Company’s Board of Directors currently
consists of non-employee directors Robert Leff and Brad Peppard. None of the
Company’s executive officers serve as a member of the Board of Directors or
compensation committee of any entity that has one or more of its executive
officers serving as a member of the Company’s Board of Directors or Compensation
Committee. No current member of the Company’s Compensation Committee has ever
been an officer or employee of the Company.

 

Introductory Note to Reports and Stock Performance Graph

 

Notwithstanding anything to the contrary set forth in any of the Company’s
filings under the Securities Act of 1933, as amended (the “Securities Act”), or
the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that might
incorporate future filings, including this Proxy Statement, in whole or in part,
the following Report of the Compensation Committee, the Audit Committee Report
and the Stock Performance Graph which follows shall not be deemed to be
“Soliciting Material,” is not deemed “filed” with the SEC and shall not be
incorporated by reference into any filings under the Securities Act or Exchange
Act whether made before or after the date hereof and irrespective of any general
incorporation language in such filing except to the extent that the Company
specifically requests that the information be treated as soliciting material or
specifically incorporates it by reference into a document filed under the
Securities Act or the Exchange Act.

 

Report of the Compensation Committee of the Board of Directors on Executive
Compensation

 

It is the duty of the Compensation Committee to review and determine the
salaries and bonuses of executive officers of the Company, including the Chief
Executive Officer (“CEO”), and to establish the general compensation policies
for such individuals. The Compensation Committee was formed in May 1999.

 

The Compensation Committee believes that the compensation programs for the
Company’s executive officers should reflect the Company’s performance and the
value created for the Company’s stockholders. In addition, the compensation
programs should support the short-term and long-term strategic goals and values
of the Company and should reward individual contributions to the Company’s
success. The Company is engaged in a very competitive industry, and the
Company’s success depends upon its ability to attract and retain qualified
executives through the competitive compensation packages it offers to such
individuals.

 

General Compensation Policy.  The Compensation Committee’s policy is to provide
the Company’s executive officers with compensation opportunities that are based
upon their personal performance, the financial performance of the Company and
their contribution to that performance, and that are competitive enough to
attract and retain highly skilled individuals. Each executive officer’s
compensation package is comprised of two

 

                                       16

--------------------------------------------------------------------------------
elements: (i) salary and bonus that approximates market and (ii) long-term
stock-based incentive awards designed to strengthen the mutuality of interests
between the executive officers and the Company’s stockholders.

 

Factors.  The principal factors that were taken into account in establishing
each executive officer’s compensation package for the 2004 Fiscal Year are
described below. The Compensation Committee may, however, in its discretion
apply entirely different factors, such as different measures of financial
performance, for future fiscal years.

 

Base Salary.  The base salary for each executive officer is established on the
basis of each individual’s personal performance and internal alignment
considerations. The Compensation Committee’s policy is to target base salary
levels that approximate market for similar positions at peer companies. The
Compensation Committee believes that the Company must remain competitive with
technology companies of similar size in order to recruit and attain key
executives.

 

Additionally, each executive officer’s overall compensation includes an equity
interest in the Company, as described in more detail below. The philosophy
behind this strategy is to have a portion of each executive officer’s total
compensation tied to the Company’s performance and stock price appreciation in
order to create a greater incentive to increase value for the Company’s
stockholders.

 

Bonuses.  Certain of the Company’s executive officers, including the CEO, have
entered into employment agreements which provide for, in addition to base salary
and equity incentives, bonuses to be awarded on the basis of the Company’s
attainment of pre-established revenue and net income goals. It is the intent of
the Compensation Committee to use these bonuses, in conjunction with executives’
other equity incentives, to tie a potentially large portion of the executive’s
total compensation to the financial performance of the Company.

 

Long-Term Incentives.  Generally, the Compensation Committee makes stock option
grants annually to certain of the Company’s executive officers. Each grant is
designed to align the interests of the executive officer with those of the
stockholders and provide each individual with a significant incentive to manage
the Company from the perspective of an owner with an equity stake in the
business. Each grant allows the officer to acquire shares of the Company’s
Common Stock at a fixed price per share (the market price on the grant date)
over a specified period of time (up to ten years). Each option generally becomes
exercisable in a series of installments over a four-year period, contingent upon
the officer’s continued employment with the Company. Accordingly, the option
will provide a return to the executive officer only if he remains employed by
the Company during the vesting period, and then only if the market price of the
shares appreciates over the option term.

 

The size of the option grant to each executive officer is set by the
Compensation Committee at a level that is intended to create a meaningful
opportunity for stock ownership based upon the individual’s current position
with the Company, the individual’s personal performance in recent periods and
his or her potential for future responsibility and promotion over the option
term. The Compensation Committee also takes into account the number of unvested
options held by the executive officer in order to maintain an appropriate level
of equity incentive for that individual. The relevant weight given to each of
these factors varies from individual to individual. The Compensation Committee
has established certain guidelines with respect to the option grants made to the
executive officers, but has the flexibility to make adjustments to those
guidelines at its discretion.

 

CEO Compensation.  The Compensation Committee has set the base salary of the CEO
at a level that it believes approximates market for base salary levels of chief
executive officers of those companies with which the Company competes for
executive talent. Additionally, Mr. Silton received a bonus in the amount of
$33,516 on the basis of the Company’s attainment of pre-established revenue and
net income goals for its 2004 fiscal year and $31,797 for amounts previously
earned on the basis of the Company’s attainment of pre-established revenue and
net income goals for its 2003 fiscal year. The Compensation Committee believes
that his total cash compensation approximates market for chief executive
officers of those companies with which the Company competes for executive
talent.

 

                                       17

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Compliance with Internal Revenue Code Section 162(m).  Section 162(m) of the
Internal Revenue Code imposes a limitation on the deductibility for federal
income tax purposes of compensation exceeding $1.0 million paid to certain
executive officers. Compensation above $1 million is not subject to the
limitation if it is “performance-based compensation” within the meaning of the
Internal Revenue Code. The Company anticipates that any compensation deemed paid
by it (whether by the disqualifying disposition of incentive stock options or
the exercise of non-statutory stock options) in connection with options with
exercise prices equal to the fair market value of option shares on the grant
date will qualify as performance-based compensation for purposes of Section
162(m) and will not have to be taken into account for purposes of the $1 million
limitation per covered individual. Because all compensation paid to the
executive officers has not approached the 162(m) limitation, the Compensation
Committee has not had to use any of the available exemptions from the deduction
limit. Going forward, the Compensation Committee remains aware of the Internal
Revenue Code section 162(m) limitations and the available exemptions, and will
address the issue of deductibility when and if circumstances warrant the use of
such exemptions.

 

It is the opinion of the Compensation Committee that the executive compensation
policies and plans provide the necessary total remuneration program to properly
align the interests of each executive officer and the interests of the Company’s
stockholders through the use of competitive and equitable executive compensation
in a balanced and reasonable manner, for both the short and long-term.

 

Submitted by the Compensation Committee of the Company’s Board of Directors:

 

Robert Leff, Chair

Brad Peppard

 

                                       18

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Report of the Audit Committee of the Board of Directors

 

The audit committee oversees the Company’s financial reporting process on behalf
of the board of directors. Management has the primary responsibility for the
financial statements and the reporting process, including the system of internal
control. In fulfilling its oversight responsibilities, the Audit Committee
reviewed the audited financial statements in the Annual Report with management,
including a discussion of the quality, not just the acceptability, of the
accounting principles; the reasonableness of significant judgments; and the
clarity of disclosures in the financial statements.

 

The Audit Committee reviewed with the independent auditors, who are responsible
for expressing an opinion on the conformity of those audited financial
statements with generally accepted accounting principles, their judgment as to
the quality, not just the acceptability, of the Company’s accounting principles
and such other matters as are required to be discussed with the Audit Committee
under generally accepted auditing standards (including Statement on Auditing
Standards No. 61). In addition, the Audit Committee has discussed with the
independent auditors the auditors’ independence from management and the Company
(including the matters in the written disclosure required by the Independence
Standards Board Standard No.1), and considered the compatibility of non-audit
services with the auditors’ independence.

 

The Audit Committee discussed with the Company’s independent auditors the
overall scope and plans for their audit. The Audit Committee meets with the
independent auditors, with and without management present, to discuss the
results of their examinations, their evaluations of the Company’s internal
controls, and the overall quality of the Company’s financial reporting. The
Audit Committee held five meetings during fiscal year 2004.

 

In reliance on the reviews and discussions referred to above, the Audit
Committee recommended to the Board of Directors (and the Board has approved)
that the audited financial statements be included in the Annual Report on Form
10-K for the year ended December 31, 2004 for filing with the Securities and
Exchange Commission. The Audit Committee and the Board have also recommended,
subject to stockholder approval, the selection of the Company’s independent
independent registered public accounting firm.

 

Submitted by the Audit Committee of the Company’s Board of Directors:

 

George de Urioste, Chair

Alok Mohan

Brad Peppard

 

                                       19

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Stock Performance Graph

 

The following graph compares, for the five year period ending December 31, 2004,
the cumulative total stockholder return for the Company, the Nasdaq Stock Market
Index (U.S.), the Nasdaq Computer & Data Processing index, and an index of peer
issuers selected in good faith by the Company that are in a similar line of
business as the Company.

 

                 COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*

      AMONG RAINMAKER SYSTEMS, INC., THE NASDAQ STOCK MARKET (U.S.) INDEX

                AND THE NASDAQ COMPUTER & DATA PROCESSING INDEX

 

                            [[Image Removed: LOGO]]

*  $100 invested on 12/31/99 in stock or index- including reinvestment of        
   dividends. Fiscal year ending December 31.                                    


 

Measurement points are the last trading day of each of the Company’s fiscal
years ended December 31, 1999, December 31, 2000, December 31, 2001, December
31, 2002, December 31, 2003 and December 31, 2004. The graph assumes that $100
was invested on December 31, 1999 in the Common Stock of the Company, the Nasdaq
Market Index, the Nasdaq Computer & Data Processing index, the index of peer
issuers, and assumes reinvestment of any dividends. The stock price performance
on the following graph is not necessarily indicative of future stock price
performance.

 

The companies included in the index of peer issuers for purposes of the
preceding Stock Performance Graph are: Digital Impact, Inc., Digital River,
Inc., @Road, Concur Technologies, Inc., eCollege, and Digital Insight
Corporation. The returns of each component issuer included in the index of peer
issuers are weighted according to the respective issuer’s approximate market
capitalization at December 31, 1999.

 

                                       20

--------------------------------------------------------------------------------
Annual Report

 

A copy of the Annual Report of the Company for the 2004 Fiscal Year has been
mailed concurrently with this Proxy Statement to all stockholders entitled to
notice of and to vote at the Annual Meeting. The Annual Report is not
incorporated into this Proxy Statement and is not considered proxy solicitation
material.

 

Form 10-K

 

The Company filed an Annual Report on Form 10-K with the Commission on March 18,
2005, as amended by an Annual Report on Form 10-K/A filed with the Commission on
March 22, 2005. Stockholders may obtain a copy of this report, free of charge,
by writing to Investor Relations, Rainmaker Systems, Inc., 1800 Green Hills
Road, Scotts Valley, California 95066. In addition, copies of our annual,
quarterly and current reports, and any amendments to those reports are made
available, free of charge, on or through our website, as soon as reasonably
practicable after electronically filing such reports with the Securities and
Exchange Commission. Our website is http://www.rmkr.com

 

Deadline for Receipt Stockholder Proposals for 2006 Annual Meeting

 

The date by which stockholder proposals must be received by the Company for
inclusion in our proxy statement and form of proxy for the 2006 Annual Meeting
is January 19, 2006. Proposals of stockholders of the Company that are intended
to be presented by such stockholders at next year’s Annual Meeting of
Stockholders must also be received by us no later than January 19, 2006, in
order that they may be considered at that meeting. The proxy solicited by the
Board of Directors for the 2006 Annual Meeting of Stockholders will confer
discretionary authority to vote on any proposal presented by a stockholder at
that meeting for which the Company has not been provided with notice on or prior
to this date.

 

It is important that the proxies be returned promptly and that all shares be
represented. Stockholders are urged to mark, date, sign and promptly return the
accompanying proxy card in the enclosed envelope.

 

The form of proxy and this Proxy Statement have been approved by the board of
directors and are being mailed and delivered to stockholders by its authority.

 

                                           BY ORDER OF THE BOARD OF DIRECTORS,  
                                           
                                           [[Image Removed: LOGO]]              
                                           Michael Silton                       
                                           President and Chief Executive Officer


 

Scotts Valley, California

Dated: April 18, 2005

 

                                       21

--------------------------------------------------------------------------------
                                   EXHIBIT A

 

                       CHARTER OF THE AUDIT COMMITTEE OF

                           THE BOARD OF DIRECTORS OF

                            RAINMAKER SYSTEMS, INC.

 

This charter governs the operations of the Audit Committee (the “Committee”) of
the Board of Directors (“Board”) of Rainmaker Systems, Inc. (the “Company”). The
Committee shall review and reassess the charter at least annually and obtain the
approval of the Board of Directors.

 

I. Organization


 

The Committee shall be members of, and appointed by, the Board of Directors and
shall be comprised of at least three directors, each of whom are independent of
management and the Company. Members of the Committee shall be considered
independent as long as they do not accept any consulting, advisory, or other
compensatory fees from the Company and are not an affiliated person of the
Company or its subsidiaries, and meet the independence requirements of the
Nasdaq listing standards. All Committee members shall be financially literate,
and at least one member shall be an “audit committee financial expert,” as
defined by SEC regulations, and shall be so named.

 

II. Purpose


 

The Committee shall provide assistance to the Board of Directors in fulfilling
its oversight responsibility to the stockholders, potential stockholders, the
investment community, and others relating to: the integrity of the Company’s
financial statements; the financial reporting process; the systems of internal
accounting and financial controls; the performance of the Company’s independent
auditors; the independent auditor’s qualifications and independence; and the
Company’s compliance with ethics policies and legal and regulatory requirements.
In so doing, it is the responsibility of the Committee to maintain free and open
communication between the Committee, independent auditors and management of the
Company.

 

In discharging its oversight role, the Committee is empowered to investigate any
matter brought to its attention with full access to all books, records,
facilities, and personnel of the Company and the authority to engage independent
counsel and other advisers as it determines necessary to carry out its duties.

 

III. Duties and Responsibilities


 

The primary responsibility of the Committee is to oversee the Company’s
financial reporting process on behalf of the Board of Directors (“Board”) and
report the results of their activities to the Board. While the Committee has the
responsibilities and powers set forth in this Charter, it is not the duty of the
Committee to plan or conduct audits or to determine that the Company’s financial
statements are complete and accurate and are in accordance with generally
accepted accounting principles. Management is responsible for the preparation,
presentation, and integrity of the Company’s financial statements and for the
appropriateness of the accounting principles and reporting policies that are
used by the Company. The independent auditors are responsible for auditing the
Company’s financial statements and for reviewing the Company’s unaudited interim
financial statements.

 

The Committee, in carrying out its responsibilities, believes its policies and
procedures should remain flexible, in order to best react to changing conditions
and circumstances. The Committee should take appropriate actions to set the
overall corporate “tone” for quality financial reporting, sound business risk
practices, and ethical behavior. The following shall be the principal duties and
responsibilities of the Committee. These are set forth as a guide with the
understanding that the Committee may supplement them as appropriate:

 

A.  The Committee shall be directly responsible for the appointment,             
    compensation, retention, and termination of the independent auditors         
    (subject, if applicable, to shareholder ratification), and the independent   
    auditors                                                                     


 

                                      A-1

--------------------------------------------------------------------------------
    must report directly to the Committee. The Committee also shall be directly  
    responsible for the oversight of the work of the independent auditors,       
    including resolution of disagreements between management and the auditor     
    regarding financial reporting. The Committee shall pre-approve all audit and 
    non-audit services provided by the independent auditors and shall not engage 
    the independent auditors to perform the specific non-audit services          
    proscribed by law or regulation. The Committee may delegate pre-approval     
    authority to a member of the Committee. The decisions of any Committee member
    to whom pre-approval authority is delegated must be presented to the full    
    Committee at its next scheduled meeting. The Committee shall receive a report
    from the independent auditors at the end of each fiscal year delineating     
    final fees charged for all audit and non-audit services.                     


 

B.  In addition, the Committee shall set clear hiring policies for employees or  
    former employees of the independent auditors that meet the SEC regulations   
    and Nasdaq listing standards.                                                


 

C.  The Committee shall discuss with the independent auditors the overall scope  
    and plans for their audits, including the adequacy of staffing and           
    compensation. Also, the Committee shall discuss with management and the      
    independent auditors the adequacy and effectiveness of the accounting and    
    financial controls, including the Company’s policies and procedures to       
    assess, monitor, and manage business risk, and legal and ethical compliance  
    programs (e.g., the Company’s Standards of Business Ethics and Conduct).     


 

D.  At least annually, the Committee shall obtain and review a report by the     
    independent auditors describing:                                             


 

  •   The firm’s internal quality control procedures.


 

    •    Any material issues raised by the most recent internal quality control    
         review, or peer review, of the firm, or by any inquiry or investigation by
         governmental or professional authorities, within the preceding five years,
         respecting one or more independent audits carried out by the firm, and any
         steps taken to deal with any such issues.                                 


 

    •    All relationships between the independent auditor and the Company (to     
         assess the auditor’s independence).                                       


 

E.  The Committee shall receive a report, verbal or written, from the independent
    auditor, prior to the filing of its audit report with the SEC, on all        
    critical accounting policies and practices of the Company, all material      
    alternative treatments of financial information within U.S. generally        
    accepted accounting principles (“US GAAP”) that have been discussed with     
    management, including the ramifications of the use of such alternative       
    treatments and disclosures and the treatment preferred by the independent    
    auditor, and other material written communications between the independent   
    auditor and management.                                                      


 

F.  The Committee shall review and discuss with the independent auditors, prior  
    to the filing of Form 10-K, all items required to be communicated in         
    accordance with SAS-61, including audit adjustments, disagreements with      
    management, consultation with other independent auditors, difficulties in    
    performing the audit, etc.                                                   


 

G.  The Committee shall review management’s assertion on its assessment of the   
    effectiveness of internal controls as of the end of the most recent fiscal   
    quarter. The Committee shall review the independent auditors’ report on      
    management’s assertion as of the end of the most recent fiscal year when     
    implemented under SEC rules and regulations. In connection with and prior to 
    giving any required certifications, the CEO and the CFO must disclose to the 
    independent auditors and the Committee all significant deficiencies and      
    material weaknesses in the design or operation of internal controls which are
    reasonably likely to adversely affect Rainmaker’s ability to record, process,
    summarize and report financial information, and any fraud that involves      
    management or other employees who have a significant role in the Company’s   
    internal controls.                                                           


 

H.  The Committee shall review with management and the independent auditors the  
    financial statements and disclosures under Management’s Discussion and       
    Analysis of Financial Condition and Results of Operations to be included in  
    the Company’s Annual Report on Form 10-K (or the annual report to            
    shareholders if                                                              


 

                                      A-2

--------------------------------------------------------------------------------
    distributed prior to the filing of Form 10-K), including their judgment about
    the quality, not just the acceptability, of accounting principles, the       
    reasonableness of significant judgments, and the clarity of the disclosures  
    in the financial statements. Also, the Committee shall discuss the results of
    the annual audit and any other matters required to be communicated to the    
    Committee by the independent auditors under generally accepted auditing      
    standards.                                                                   


 

I.  The Committee shall prepare its report to be included in the Company’s annual
    proxy statement, as required by SEC regulations.                             


 

J.  The Committee shall review the interim financial statements and disclosures  
    under Management’s Discussion and Analysis of Financial Condition and Results
    of Operations with management and the independent auditors prior to the      
    filing of the Company’s Quarterly Report on Form 10-Q. Also, the Committee   
    shall discuss the results of the quarterly review and any other matters      
    required to be communicated to the Committee by the independent auditors     
    under generally accepted auditing standards.                                 


 

K.  The Committee shall review and discuss earnings press releases, Forms 8-K as 
    appropriate, as well as financial information and earnings guidance provided 
    to analysts and rating agencies.                                             


 

L.  The Committee shall meet separately periodically with management and the     
    independent auditors to discuss issues and concerns warranting Committee     
    attention. The Committee shall provide sufficient opportunity for the        
    independent auditors to meet privately with the members of the Committee. The
    Committee shall review with the independent auditor any audit problems or    
    difficulties and management’s response.                                      


 

M.  The Committee shall establish procedures for the receipt, retention, and     
    treatment of complaints received by the Company regarding accounting,        
    internal accounting controls, or auditing matters, and the confidential,     
    anonymous submission by employees of the Company of concerns regarding       
    questionable accounting, internal accounting controls, auditing or other     
    matters.                                                                     


 

N.  The Committee shall receive corporate attorneys’ reports of evidence of a    
    material violation of securities laws or breaches of fiduciary duty.         


 

O.  The Committee shall review, on at least an annual basis, with the Company’s  
    counsel, any legal matters that could have a significant impact on the       
    Company’s financial statements, the Company’s compliance with applicable laws
    and regulations, and any inquiries received from regulators or governmental  
    agencies.                                                                    


 

P.  The Committee shall review and approve all related-party transactions entered
    into by the Company.                                                         


 

Q.  The Committee shall periodically review the Company’s ethics policy and      
    ensure that management has established a system to enforce and comply with   
    its ethics policy.                                                           


 

R.  The Committee shall perform an evaluation of its performance at least        
    annually to determine whether it is functioning effectively.                 


 

IV. Frequency & Timing


 

The Committee shall meet from time to time, but at least quarterly, whenever
appropriate in order to discharge the functions specified in this charter. The
quarterly meetings shall include separate sessions, with management, the
internal auditor and the independent auditors. A majority of the Committee will
constitute a quorum for the conduct of business.

 

                                      A-3

--------------------------------------------------------------------------------
V. Minutes


 

Minutes will be kept of each meeting of the Committee and will be provided to
each member of the Board. Except for matters reserved exclusively to the
authority of the Committee in accordance with SEC and Nasdaq rules, any action
of the Committee shall be subject to revision, modification, rescission or
alteration by the Board of Directors, provided that no neglect of third parties
shall be affected by any such revision, modification, rescission or alteration.

 

Adopted:   January 28, 2004        
         
Signed:    /s/  GEORGE DEURIOSTE   
           George de Urioste, Chair
         
           /s/  ALOK MOHAN         
           Alok Mohan              
         
           /s/  ROBERT LEFF        
           Robert Leff             


 

                                      A-4

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                                   EXHIBIT B

 

                            RAINMAKER SYSTEMS, INC.

 

                          NOMINATING COMMITTEE CHARTER

 

Purpose

 

The purposes and provisions specified in this Charter are meant to serve as
guidelines, and the Committee is delegated the authority to adopt such
additional procedures and standards as it deems necessary from time to time to
fulfill its responsibilities. Unless otherwise prescribed in this Charter, the
rules and procedures applicable to the operation of the Board shall apply to the
operation of the Committee with any necessary changes.

 

The Nominating Committee is appointed by the Board of Directors to:

 

  •   identify individuals qualified to become board members,


 

    •    select, or recommend that the Board select, the director nominees for the 
         next annual meeting of stockholders, and                                  


 

    •    perform such other functions as the board deems appropriate or as is      
         required under SEC or Nasdaq rules.                                       


 

Committee Membership

 

The Committee will be composed entirely of directors who satisfy the definition
of “independent” under the listing standards of The Nasdaq Stock Market. The
Committee members will be appointed by the Board and may be removed by the Board
in its discretion. The Committee shall have the authority to delegate any of its
responsibilities to subcommittees as the Committee may deem appropriate,
provided the subcommittees are composed entirely of independent directors. A
majority of the members of the Committee shall constitute a quorum for the
transaction of business. The duties and responsibilities of a member of the
Committee are in addition to the duties of a member of the Board.

 

Chairman and Additional Duties

 

The Committee shall elect a Chairman to preside at its meetings. The Chairman is
also primarily responsible for monitoring communications from stockholders and
for providing copies or summaries of such communications to the other directors
as he considers appropriate, absent unusual circumstances or as contemplated by
committee charters and subject to any required assistance or advice from legal
counsel. Communications are forwarded to all directors if they relate to
important substantive matters and include suggestions or comments that the
Chairman considers to be important to the directors to know.

 

Meetings

 

The Committee shall meet at least annually or more frequently as circumstances
dictate. The Committee may ask members of management or others to attend the
meeting and provide pertinent information, as necessary.

 

Committee Authority and Responsibilities

 

The Committee will have the authority, to the extent it deems necessary or
appropriate, to retain a search firm to be used to identify director candidates.
The Committee shall have sole authority to retain and terminate any such search
firm, including sole authority to approve the firm’s fees and other retention
terms. The Committee shall also have authority, to the extent it deems necessary
or appropriate, to retain other advisors. The Company will provide for
appropriate funding, as determined by the Committee, for payment of compensation
to any search firm or other advisors employed by the Committee.

 

                                      B-1

--------------------------------------------------------------------------------
The Committee will make regular reports to the Board and will propose any
necessary action to the Board. The Committee will review and reassess the
adequacy of this charter annually and recommend any proposed changes to the
Board for approval. The Committee will annually evaluate the Committee’s own
performance.

 

The Committee does not assign specific weights to particular criteria and no
particular criterion is necessarily applicable to all prospective nominees. The
backgrounds and qualifications of the directors, considered as a group, provides
a significant composite mix of experience, knowledge and abilities that will
allow the Board to fulfill its responsibilities. In that context, the Committee,
to the extent it deems necessary or appropriate, will:

 

    •    Identify individuals qualified to become members of the Board, taking due 
         consideration of relevant criteria, including the individual’s integrity, 
         business acumen, age, experience, diligence, conflicts of interest and the
         ability to act in the interests of all stockholders.                      


 

    •    Select, or recommend to the Board, director nominees to be presented for  
         stockholder approval at the annual meeting.                               


 

    •    Select, or recommend to the Board, director nominees to fill vacancies on 
         the Board as necessary.                                                   


 

    •    Make recommendations to the Board regarding the size and composition of   
         the Board and develop and recommend to the Board criteria (such as,       
         independence, experience relevant to the needs of the Company, leadership 
         qualities, diversity and ability to represent the stockholders) for the   
         selection of individuals to be considered as candidates for election to   
         the Board.                                                                


 

    •    Review recommendations to the Board submitted by stockholders of the      
         Company – submittals to be made to the Chairman.                          


 

                                      B-2

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                                   EXHIBIT C

 

                            Ernst & Young LLP Letter

 

August 27, 2004

 

Securities and Exchange Commission

450 Fifth Street, N.W.

Washington, DC 20549

 

Gentlemen:

 

We have read Item 4.01 of Form 8-K dated August 27, 2004, of Rainmaker Systems,
Inc. and are in agreement with the statements contained in the four paragraphs
on page two therein.

 

/s/ Ernst & Young LLP

 

                                      C-1

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