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                                                                   EXHIBIT 10.8

                           PERSISTENCE SOFTWARE, INC.

                        1999 DIRECTORS' STOCK OPTION PLAN
                             (Amended June 7, 2001)

         1. PURPOSES OF THE PLAN. The purposes of this Directors' Stock Option
Plan are to attract and retain the best available personnel for service as
Directors of the Company, to provide additional incentive to the Outside
Directors of the Company to serve as Directors, and to encourage their continued
service on the Board.

                  All options granted hereunder shall be nonstatutory stock
options.

         2. DEFINITIONS. As used herein, the following definitions shall apply:

                  (a)      "BOARD" means the Board of Directors of the Company.

                  (b) "CHANGE OF CONTROL" means a sale of all or substantially
all of the Company's assets, or any merger or consolidation of the Company with
or into another corporation other than a merger or consolidation in which the
holders of more than 50% of the shares of capital stock of the Company
outstanding immediately prior to such transaction continue to hold (either by
the voting securities remaining outstanding or by their being converted into
voting securities of the surviving entity) more than 50% of the total voting
power represented by the voting securities of the Company, or such surviving
entity, outstanding immediately after such transaction.

                  (c) "CODE" means the Internal Revenue Code of 1986, as
amended.

                  (d) "COMMON STOCK" means the Common Stock of the Company.

                  (e) "COMPANY" means Persistence Software, Inc., a Delaware
corporation.

                  (f) "CONTINUOUS STATUS AS A DIRECTOR" means the absence of any
interruption or termination of service as a Director.

                  (g) "CORPORATE TRANSACTION" means a dissolution or liquidation
of the Company, a sale of all or substantially all of the Company's assets, or a
merger, consolidation or other capital reorganization of the Company with or
into another corporation.

                  (h)      "DIRECTOR" means a member of the Board.

                  (i) "EMPLOYEE" means any person, including any officer or
Director, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a director's fee by the Company shall not be sufficient in and of
itself to constitute "employment" by the Company.

                  (j) "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.

DIRECTOR
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                  (k) "OPTION" means a stock option granted pursuant to the
Plan. All options shall be nonstatutory stock options (i.e., options that are
not intended to qualify as incentive stock options under Section 422 of the
Code).

                  (l) "OPTIONED STOCK" means the Common Stock subject to an
Option.

                  (m) "OPTIONEE" means an Outside Director who receives an
Option.

                  (n) "OUTSIDE DIRECTOR" means a Director who is not an
Employee.

                  (o) "PARENT" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.

                  (p) "PLAN" means this 1999 Directors' Stock Option Plan.

                  (q) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 10 of the Plan.

                  (r) "SUBSIDIARY" means a "subsidiary corporation," whether now
or hereafter existing, as defined in Section 424(f) of the Code.

         3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 10
of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is 500,000 Shares of Common Stock (the "Pool"). The Shares
may be authorized, but unissued, or reacquired Common Stock.

         If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares which were subject
thereto shall, unless the Plan has been terminated, become available for future
grant under the Plan. In addition, any Shares of Common Stock that are retained
by the Company upon exercise of an Option in order to satisfy the exercise price
for such Option, or any withholding taxes due with respect to such exercise,
shall be treated as not issued and shall continue to be available under the
Plan. If Shares that were acquired upon exercise of an Option are subsequently
repurchased by the Company, such Shares shall not in any event be returned to
the Plan and shall not become available for future grant under the Plan.

         4. ADMINISTRATION OF AND GRANTS OF OPTIONS UNDER THE PLAN.

                  (a) ADMINISTRATOR. Except as otherwise required herein, the
Plan shall be administered by the Board.

                  (b) PROCEDURE FOR GRANTS. All grants of Options hereunder
shall be automatic and nondiscretionary and shall be made strictly in accordance
with the following provisions:

DIRECTOR                              -2-


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                           (i) No person shall have any discretion to select
which Outside Directors shall be granted Options or to determine the number of
Shares to be covered by Options granted to Outside Directors.

                           (ii) Each person who becomes an Outside Director
after the effective date of this Plan (a "New Outside Director") shall
automatically be granted an Option to purchase 20,000 Shares (the "First
Option") on the date on which such person first becomes an Outside Director,
whether through election by the stockholders of the Company or appointment by
the Board to fill a vacancy.

                           (iii) Each New Outside Director shall automatically
be granted an Option to purchase 20,000 Shares (the "Second Option") on the
first anniversary of the date such New Outside Director first became an Outside
Director, provided his or her Continuous Status as a Director has not terminated
on such date.

                           (iv) Each New Outside Director shall thereafter
automatically be granted an Option to purchase 10,000 Shares (a "Subsequent
Option") on the first day of each fiscal year after the date of the Second
Option grant, provided his or her Continuous Status as a Director has not
terminated on such date.

                           (v) Each Outside  Director who was an Outside
Director prior to the effective date of this Plan shall automatically be granted
an Option to purchase 10,000 Shares on the first day of each fiscal year
beginning on and after January 1, 2002, provided his or her Continuous Status as
a Director has not terminated on such date.

                           (vi)     Notwithstanding  the  preceding  provisions
hereof, in the event that a grant would cause the number of Shares subject to
outstanding Options plus the number of Shares previously purchased upon exercise
of Options to exceed the Pool, then each such automatic grant shall be for that
number of Shares determined by dividing the total number of Shares remaining
available for grant by the number of Outside Directors receiving an Option on
the automatic grant date. Any further grants shall then be deferred until such
time, if any, as additional Shares become available for grant under the Plan
through action of the stockholders to increase the number of Shares which may be
issued under the Plan or through cancellation or expiration of Options
previously granted hereunder.

                           (vii) Notwithstanding the provisions of subsections
(ii) and (iii) hereof, any grant of an Option made before the Company has
obtained stockholder approval of the Plan in accordance with Section 16 hereof
shall be conditioned upon obtaining such stockholder approval of the Plan in
accordance with Section 16 hereof.

                  (c) TERMS OF THE OPTIONS. The terms of each Option granted
hereunder shall be as follows:

                           (i)      each Option shall be exercisable only while
the Outside Director remains a Director of the Company, except as set forth in
Section 8 below;

DIRECTOR                              -3-
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                           (ii) the exercise price per Share shall be 100% of
the fair market value per Share on the date of grant of each Option, determined
in accordance with Section 8 hereof;

                           (iii)    each Option shall have a term of ten (10)
years from the date of grant thereof unless an Option terminates sooner pursuant
to Section 8 below; and

                           (iv) each Option shall be exercisable in its entirety
immediately upon grant.

                  (d) POWERS OF THE BOARD. Subject to the provisions and
restrictions of the Plan, the Board shall have the authority, in its discretion:
(i) to determine, upon review of relevant information and in accordance with
Section 7(b) of the Plan, the fair market value of the Common Stock; (ii) to
determine the exercise price per Share of Options to be granted, which exercise
price shall be determined in accordance with Section 7 of the Plan; (iii) to
interpret the Plan; (iv) to prescribe, amend and rescind rules and regulations
relating to the Plan; (v) to authorize any person to execute on behalf of the
Company any instrument required to effectuate the grant of an Option previously
granted hereunder; and (vi) to make all other determinations deemed necessary or
advisable for the administration of the Plan.

                  (e) EFFECT OF BOARD'S DECISION. All decisions, determinations
and interpretations of the Board shall be final and binding on all Optionees and
any other holders of any Options granted under the Plan.

                  (f) SUSPENSION OR TERMINATION OF OPTION. If the Chief
Executive Officer or his or her designee reasonably believes that an Optionee
has committed an act of misconduct, such officer may suspend the Optionee's
right to exercise any option pending a determination by the Board (excluding the
Outside Director accused of such misconduct). If the Board (excluding the
Outside Director accused of such misconduct) determines an Optionee has
committed an act of embezzlement, fraud, dishonesty, nonpayment of an obligation
owed to the Company, breach of fiduciary duty or deliberate disregard of the
Company rules resulting in loss, damage or injury to the Company, or if an
Optionee makes an unauthorized disclosure of any Company trade secret or
confidential information, engages in any conduct constituting unfair
competition, induces any Company customer to breach a contract with the Company
or induces any principal for whom the Company acts as agent to terminate such
agency relationship, neither the Optionee nor his or her estate shall be
entitled to exercise any Option whatsoever. In making such determination, the
Board of Directors (excluding the Outside Director accused of such misconduct)
shall act fairly and shall give the Optionee an opportunity to appear and
present evidence on Optionee's behalf at a hearing before the Board or a
committee of the Board.

         5. ELIGIBILITY. Options may be granted only to Outside Directors. All
Options shall be automatically granted in accordance with the terms set forth in
Section 4(b) above. An Outside Director who has been granted an Option may, if
he or she is otherwise eligible, be granted an additional Option or Options in
accordance with such provisions.

                  The Plan shall not confer upon any Optionee any right with
respect to continuation of service as a Director or nomination to serve as a
Director, nor shall it interfere in

DIRECTOR                              -4-
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any way with any rights which the Director or the Company may have to terminate
his or her directorship at any time.

         6. TERM OF PLAN; EFFECTIVE DATE. The Plan shall become effective on the
effectiveness of the registration statement under the Securities Act of 1933, as
amended, relating to the Company's initial public offering of securities. It
shall continue in effect for a term of ten (10) years unless sooner terminated
under Section 12 of the Plan.

         7.       EXERCISE PRICE AND CONSIDERATION.

                  (a) EXERCISE PRICE. The per Share exercise price for the
Shares to be issued pursuant to exercise of an Option shall be 100% of the fair
market value per Share on the date of grant of the Option.

                  (b) FAIR MARKET VALUE. The fair market value shall be
determined by the Board; provided however that in the event the Common Stock is
traded on the Nasdaq National Market or listed on a stock exchange, the fair
market value per Share shall be the closing sales price on such system or
exchange on the date of grant of the Option (or, in the event that the Common
Stock is not traded on such date, on the immediately preceding trading date), as
reported in The Wall Street Journal, or if there is a public market for the
Common Stock but the Common Stock is not traded on the Nasdaq National Market or
listed on a stock exchange, the fair market value per Share shall be the mean of
the bid and asked prices of the Common Stock in the over-the-counter market on
the date of grant, as reported in The Wall Street Journal (or, if not so
reported, as otherwise reported by the National Association of Securities
Dealers Automated Quotation ("Nasdaq") System).

                  (c) FORM OF CONSIDERATION. The consideration to be paid for
the Shares to be issued upon exercise of an Option shall consist entirely of
cash, check, other Shares of Common Stock having a fair market value on the date
of surrender equal to the aggregate exercise price of the Shares as to which the
Option shall be exercised (which, if acquired from the Company, shall have been
held for at least six months), or any combination of such methods of payment
and/or any other consideration or method of payment as shall be permitted under
applicable corporate law.

         8.       EXERCISE OF OPTION.

                  (a) PROCEDURE FOR EXERCISE; RIGHTS AS A STOCKHOLDER. Any
Option granted hereunder shall be exercisable at such times as are set forth in
Section 4(b) above; provided however that no Options shall be exercisable prior
to stockholder approval of the Plan in accordance with Section 16 below has been
obtained.

                           An Option may not be exercised for a fraction of a
Share.

                           An Option shall be deemed to be exercised when
written notice of such exercise has been given to the Company in accordance with
the terms of the Option by the person entitled to exercise the Option and full
payment for the Shares with respect to which the

DIRECTOR                              -5-
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Option is exercised has been received by the Company. Full payment may consist
of any consideration and method of payment allowable under Section 7(c) of the
Plan. Until the issuance (as evidenced by the appropriate entry on the books of
the Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a stockholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. A share certificate for the number
of Shares so acquired shall be issued to the Optionee as soon as practicable
after exercise of the Option. No adjustment will be made for a dividend or other
right for which the record date is prior to the date the stock certificate is
issued, except as provided in Section 10 of the Plan.

                           Exercise of an Option in any manner shall result in a
decrease in the number of Shares which thereafter may be available, both for
purposes of the Plan and for sale under the Option, by the number of Shares as
to which the Option is exercised.

                  (b) TERMINATION OF CONTINUOUS STATUS AS A DIRECTOR. If an
Outside Director ceases to serve as a Director, he or she may, but only within
ninety (90) days after the date he or she ceases to be a Director of the
Company, exercise his or her Option to the extent that he or she was entitled to
exercise it at the date of such termination. Notwithstanding the foregoing, in
no event may the Option be exercised after its term set forth in Section 4(c)
has expired. To the extent that such Outside Director was not entitled to
exercise an Option at the date of such termination, or does not exercise such
Option (to the extent he or she was entitled to exercise) within the time
specified above, the Option shall terminate and the Shares underlying the
unexercised portion of the Option shall revert to the Plan.

                  (c) DISABILITY OF OPTIONEE. Notwithstanding Section 8(b)
above, in the event a Director is unable to continue his or her service as a
Director with the Company as a result of his or her total and permanent
disability (as defined in Section 22(e)(3) of the Code), he or she may, but only
within twelve (12) months from the date of such termination, exercise his or her
Option to the extent he or she was entitled to exercise it at the date of such
termination. Notwithstanding the foregoing, in no event may the Option be
exercised after its term set forth in Section 4(c) has expired. To the extent
that he or she was not entitled to exercise the Option at the date of
termination, or if he or she does not exercise such Option (to the extent he or
she was entitled to exercise) within the time specified above, the Option shall
terminate and the Shares underlying the unexercised portion of the Option shall
revert to the Plan.

                  (d) DEATH OF OPTIONEE. In the event of the death of an
Optionee: (A) during the term of the Option who is, at the time of his or her
death, a Director of the Company and who shall have been in Continuous Status as
a Director since the date of grant of the Option, or (B) three (3) months after
the termination of Continuous Status as a Director, the Option may be exercised,
at any time within twelve (12) months following the date of death, by the
Optionee's estate or by a person who acquired the right to exercise the Option
by bequest or inheritance, but only to the extent of the right to exercise that
had accrued at the date of death or the date of termination, as applicable.
Notwithstanding the foregoing, in no event may the Option be exercised after its
term set forth in Section 4(c) has expired. To the extent that an Optionee was
not entitled to exercise the Option at the date of death or termination or if he
or she does not

DIRECTOR                              -6-
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exercise such Option (to the extent he or she was entitled to exercise) within
the time specified above, the Option shall terminate and the Shares underlying
the unexercised portion of the Option shall revert to the Plan.

         9. NONTRANSFERABILITY OF OPTIONS. The Option may not be sold, pledged,
assigned, hypothecated, transferred or disposed of in any manner other than by
will or by the laws of descent or distribution or pursuant to a qualified
domestic relations order (as defined by the Code or the rules thereunder). The
designation of a beneficiary by an Optionee does not constitute a transfer. An
Option may be exercised during the lifetime of an Optionee only by the Optionee
or a transferee permitted by this Section.

         10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION; CORPORATE TRANSACTIONS.

                  (a) ADJUSTMENT. Subject to any required action by the
stockholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, the number of Shares of Common Stock set forth in
Sections 4(b) above, and the number of Shares of Common Stock which have been
authorized for issuance under the Plan but as to which no Options have yet been
granted or which have been returned to the Plan upon cancellation or expiration
of an Option, as well as the price per Share of Common Stock covered by each
such outstanding Option, shall be proportionately adjusted for any increase or
decrease in the number of issued Shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock (including any such change in the number of Shares of Common
Stock effected in connection with a change in domicile of the Company) or any
other increase or decrease in the number of issued Shares of Common Stock
effected without receipt of consideration by the Company; provided however that
conversion of any convertible securities of the Company shall not be deemed to
have been "effected without receipt of consideration." Such adjustment shall be
made by the Board, whose determination in that respect shall be final, binding
and conclusive. Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of stock
of any class, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares of Common Stock subject to an
Option.


                  (b) CORPORATE TRANSACTIONS; CHANGE OF CONTROL. In the event of
a Corporate Transaction, each outstanding Option shall be assumed or an
equivalent option shall be substituted by the successor corporation or a Parent
or Subsidiary of such successor corporation, unless the successor corporation
does not agree to assume the outstanding Options or to substitute equivalent
options, in which case the Options shall terminate upon the consummation of the
transaction.


                  For purposes of this Section 10(b), an Option shall be
considered assumed, without limitation, if, at the time of issuance of the stock
or other consideration upon such Corporate Transaction or Change of Control,
each Optionee would be entitled to receive upon

DIRECTOR                              -7-
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exercise of an Option the same number and kind of shares of stock or the same
amount of property, cash or securities as the Optionee would have been entitled
to receive upon the occurrence of such transaction if the Optionee had been,
immediately prior to such transaction, the holder of the number of Shares of
Common Stock covered by the Option at such time (after giving effect to any
adjustments in the number of Shares covered by the Option as provided for in
this Section 10); provided however that if such consideration received in the
transaction was not solely common stock of the successor corporation or its
Parent, the Administrator may, with the consent of the successor corporation,
provide for the consideration to be received upon exercise of the Option to be
solely common stock of the successor corporation or its Parent equal to the Fair
Market Value of the per Share consideration received by holders of Common Stock
in the transaction.

                  (c) CERTAIN DISTRIBUTIONS. In the event of any distribution to
the Company's stockholders of securities of any other entity or other assets
(other than dividends payable in cash or stock of the Company) without receipt
of consideration by the Company, the Administrator may, in its discretion,
appropriately adjust the price per Share of Common Stock covered by each
outstanding Option to reflect the effect of such distribution.

         11. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for
all purposes, be the date determined in accordance with Section 4(b) hereof.
Notice of the determination shall be given to each Outside Director to whom an
Option is so granted within a reasonable time after the date of such grant.

         12.      AMENDMENT AND TERMINATION OF THE PLAN.

                  (a) AMENDMENT AND TERMINATION. The Board may amend or
terminate the Plan from time to time in such respects as the Board may deem
advisable; provided that, to the extent necessary and desirable to comply with
Rule 16b-3 under the Exchange Act (or any other applicable law or regulation),
the Company shall obtain approval of the stockholders of the Company to Plan
amendments to the extent and in the manner required by such law or regulation.

                  (b) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or
termination of the Plan that would impair the rights of any Optionee shall not
affect Options already granted to such Optionee and such Options shall remain in
full force and effect as if this Plan had not been amended or terminated, unless
mutually agreed otherwise between the Optionee and the Board, which agreement
must be in writing and signed by the Optionee and the Company.

         13. CONDITIONS UPON ISSUANCE OF SHARES. Notwithstanding any other
provision of the Plan or any agreement entered into by the Company pursuant to
the Plan, the Company shall not be obligated, and shall have no liability for
failure, to issue or deliver any Shares under the Plan unless such issuance or
delivery would comply with the legal requirements relating to the administration
of stock option plans under applicable U.S. state corporate laws, U.S. federal
and applicable state securities laws, the Code, any stock exchange or Nasdaq
rules or regulations to which the Company may be subject and the applicable laws
of any other country or jurisdiction

DIRECTOR                              -8-
<PAGE>   9
where Options are granted under the Plan, as such laws, rules, regulations and
requirements shall be in place from time to time (the "Applicable Laws"). Such
compliance shall be determined by the Company in consultation with its legal
counsel.

                  As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the time
of any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by law.

         14. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.

         15. OPTION AGREEMENT. Options shall be evidenced by written option
agreements in such form as the Board shall approve.

         16. STOCKHOLDER APPROVAL. If required by the Applicable Laws,
continuance of the Plan shall be subject to approval by the stockholders of the
Company. Such stockholder approval shall be obtained in the manner and to the
degree required under the Applicable Laws.




DIRECTOR                              -9-
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                           PERSISTENCE SOFTWARE, INC.

                        1999 DIRECTORS' STOCK OPTION PLAN

                          NOTICE OF STOCK OPTION GRANT


<<Optionee>>
<<OptioneeAddress1>>
<<OptioneeAddress2>>

         You have been granted an option to purchase Common Stock of Persistence
Software, Inc. (the "Company") as follows:

         Date of Grant                       <<GrantDate>>

         Exercise Price per Share            <<ExercisePrice>>

         Total Number of Shares Granted      <<SharesGranted>>

         Total Exercise Price                <<TotalExercisePrice>>

         Expiration Date                     <<ExpirDate>>

         Vesting Schedule                    This Option may be exercised, in
                                             whole or in part, at any time after
                                             the Date of Grant and prior to the
                                             earlier of the Expiration Date or
                                             the end of the Termination Period.

         Termination Period                  This Option may be exercised for 90
                                             days after termination of
                                             Optionee's Continuous Status as a
                                             Director, or such longer period as
                                             may be applicable upon death or
                                             Disability of Optionee as provided
                                             in the Plan, but in no event later
                                             than the Expiration Date as
                                             provided above.

DIRECTOR
<PAGE>   11
         By your signature and the signature of the Company's representative
below, you and the Company agree that this option is granted under and governed
by the terms and conditions of the 1999 Directors' Stock Option Plan and the
Nonstatutory Stock Option Agreement, all of which are attached and made a part
of this document.

OPTIONEE:                                    PERSISTENCE SOFTWARE, INC.



                                             By:
Signature
                                             Title:

Print Name



DIRECTOR                              -2-
<PAGE>   12
                           PERSISTENCE SOFTWARE, INC.

                       NONSTATUTORY STOCK OPTION AGREEMENT



         1. GRANT OF OPTION. The Board of Directors of the Company hereby grants
to the Optionee named in the Notice of Stock Option Grant attached as Part I of
this Agreement (the "Optionee"), an option (the "Option") to purchase a number
of Shares, as set forth in the Notice of Stock Option Grant, at the exercise
price per share set forth in the Notice of Stock Option Grant (the "Exercise
Price"'), subject to the terms and conditions of the 1999 Directors' Stock
Option Plan (the "Plan"), which is incorporated herein by reference.
(Capitalized terms not defined herein shall have the meanings ascribed to such
terms in the Plan.) In the event of a conflict between the terms and conditions
of the Plan and the terms and conditions of this Nonstatutory Stock Option
Agreement, the terms and conditions of the Plan shall prevail.

         2.       EXERCISE OF OPTION.

                  (a) RIGHT TO EXERCISE. This Option is exercisable during its
term in accordance with the Vesting Schedule set out in the Notice of Stock
Option Grant and the applicable provisions of the Plan and this Nonstatutory
Stock Option Agreement. In the event of Optionee's death, disability or other
termination of Optionee's employment or consulting relationship, the
exercisability of the Option is governed by the applicable provisions of the
Plan and this Nonstatutory Stock Option Agreement.

                  (b) METHOD OF EXERCISE. This Option is exercisable by delivery
of an exercise notice, in the form attached as Exhibit A (the "Exercise
Notice"), which shall state the election to exercise the Option, the number of
Shares in respect of which the Option is being exercised (the "Exercised
Shares"), and such other representations and agreements as may be required by
the Company pursuant to the provisions of the Plan. The Exercise Notice shall be
signed by the Optionee and shall be delivered in person or by certified mail to
the Secretary of the Company. The Exercise Notice shall be accompanied by
payment of the aggregate Exercise Price as to all Exercised Shares. This Option
shall be deemed to be exercised upon receipt by the Company of such fully
executed Exercise Notice accompanied by such aggregate Exercise Price.

                  No Shares shall be issued pursuant to the exercise of this
Option unless such issuance and exercise complies with all relevant provisions
of law and the requirements of any stock exchange or quotation service upon
which the Shares are then listed. Assuming such compliance, for income tax
purposes the Exercised Shares shall be considered transferred to the Optionee on
the date the Option is exercised with respect to such Exercised Shares.

         3. METHOD OF PAYMENT. Payment of the aggregate Exercise Price shall be
by any of the following, or a combination thereof, at the election of the
Optionee:

                  (a)      cash;

DIRECTOR
<PAGE>   13
                  (b)      check;

                  (c) delivery of a properly executed exercise notice together
with such other documentation as the Administrator and the broker, if
applicable, shall require to effect an exercise of the Option and delivery to
the Company of the sale or loan proceeds required to pay the exercise price; or

                  (d) surrender of other Shares which (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of surrender, and (ii) have a Fair Market Value
on the date of surrender equal to the aggregate Exercise Price of the Exercised
Shares.

         4.       SUSPENSION OR TERMINATION OF OPTION.

                  (a) MISCONDUCT. If the Chief Executive Officer or his or her
designee reasonably believes that an Optionee has committed an act of
misconduct, such officer may suspend the Optionee's right to exercise any option
pending a determination by the Board (excluding the Outside Director accused of
such misconduct). If the Board (excluding the Outside Director accused of such
misconduct) determines an Optionee has committed an act of embezzlement, fraud,
dishonesty, nonpayment of an obligation owed to the Company, breach of fiduciary
duty or deliberate disregard of the Company rules resulting in loss, damage or
injury to the Company, or if an Optionee makes an unauthorized disclosure of any
Company trade secret or confidential information, engages in any conduct
constituting unfair competition, induces any Company customer to breach a
contract with the Company or induces any principal for whom the Company acts as
agent to terminate such agency relationship, neither the Optionee nor his or her
estate shall be entitled to exercise any Option whatsoever. In making such
determination, the Board of Directors (excluding the Outside Director accused of
such misconduct) shall act fairly and shall give the Optionee an opportunity to
appear and present evidence on Optionee's behalf at a hearing before the Board
or a committee of the Board.

                  (b) TERMINATION OF CONTINUOUS STATUS AS A DIRECTOR. If an
Outside Director ceases to serve as a Director, he or she may, but only within
ninety (90) days after the date he or she ceases to be a Director of the
Company, exercise his or her Option to the extent that he or she was entitled to
exercise it at the date of such termination. Notwithstanding the foregoing, in
no event may the Option be exercised after its Expiration Date set forth in the
Notice of Stock Option Grant. To the extent that such Outside Director was not
entitled to exercise an Option at the date of such termination, or does not
exercise such Option (to the extent he or she was entitled to exercise) within
the time specified above, the Option shall terminate and the Shares underlying
the unexercised portion of the Option shall revert to the Plan.

                  (c) DISABILITY OF OPTIONEE. Notwithstanding Section 4(b)
above, in the event a Director is unable to continue his or her service as a
Director with the Company as a result of his or her total and permanent
disability (as defined in Section 22(e)(3) of the Code), he or she may, but only
within twelve (12) months from the date of such termination, exercise his or her
Option to the extent he or she was entitled to exercise it at the date of such
termination. Notwithstanding the foregoing, in no event may the Option be
exercised after its Expiration Date

DIRECTOR                              -2-
<PAGE>   14
set forth in the Notice of Stock Option Grant. To the extent that he or she was
not entitled to exercise the Option at the date of termination, or if he or she
does not exercise such Option (to the extent he or she was entitled to exercise)
within the time specified above, the Option shall terminate and the Shares
underlying the unexercised portion of the Option shall revert to the Plan.

                  (d) DEATH OF OPTIONEE. In the event of the death of an
Optionee:

                           (i) During the term of the Option who is, at the time
of his or her death, a Director of the Company and who shall have been in
Continuous Status as a Director since the date of grant of the Option, the
Option may be exercised, at any time within twelve (12) months following the
date of death, by the Optionee's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance, but only to the extent of the
right to exercise that would have accrued had the Optionee continued living and
remained in Continuous Status as Director for six (6) months after the date of
death. Notwithstanding the foregoing, in no event may the Option be exercised
after its Expiration Date set forth in the Notice of Stock Option Grant.

                           (ii) Within three (3) months after the termination of
Continuous Status as a Director, the Option may be exercised, at any time within
twelve (12) months following the date of death, by the Optionee's estate or by a
person who acquired the right to exercise the Option by bequest or inheritance,
but only to the extent of the right to exercise that had accrued at the date of
termination. Notwithstanding the foregoing, in no event may the option be
exercised after its Expiration Date set forth in the Notice of Stock Option
Grant.

                  To the extent that an Optionee was not entitled to exercise
the Option at the date of death or termination, as provided in Section 4(d)(i)
or (ii) above, or if he or she does not exercise such Option (to the extent he
or she was entitled to exercise) within the time specified above, the Option
shall terminate and the Shares underlying the unexercised portion of the Option
shall revert to the Plan.

         5. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution or
pursuant to a domestic relations order (as defined by the Code or the rules
thereunder) and may be exercised during the lifetime of Optionee only by the
Optionee or a transferee permitted by Section 9 of the Plan. The terms of the
Plan and this Nonstatutory Stock Option Agreement shall be binding upon the
executors, administrators, heirs, successors and assigns of the Optionee.

         6. TERM OF OPTION. This Option may be exercised only within the term
set out in the Notice of Stock Option Grant, and may be exercised during such
term only in accordance with the Plan and the terms of this Nonstatutory Stock
Option Agreement.

         7. TAX CONSEQUENCES. Set forth below is a brief summary of certain
federal tax consequences relating to this Option under the law in effect as of
the date of grant. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND
REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT HIS OR

DIRECTOR                              -3-
<PAGE>   15
HER OWN TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.

                  (a) EXERCISING THE OPTION. Since this Option does not qualify
as an incentive stock option under Section 422 of the Code, the Optionee may
incur regular federal (and state) income tax liability upon exercise. The
Optionee will be treated as having received compensation income (taxable at
ordinary income tax rates) equal to the excess, if any, of the fair market value
of the Exercised Shares on the date of exercise over their aggregate Exercise
Price.

                  (b) DISPOSITION OF SHARES. If the Optionee holds the Option
Shares for more than one year, gain realized on disposition of the Shares will
be treated as long-term capital gain for federal income tax purposes. The
long-term capital gain will be taxed for federal income tax and purposes at a
maximum rate of 20% if the Shares are held more than one year after exercise.

         By your signature and the signature of the Company's representative
below, you and the Company agree that this Option is granted under and governed
by the terms and conditions of the Plan and this Nonstatutory Stock Option
Agreement. Optionee has reviewed the Plan and this Nonstatutory Stock Option
Agreement in their entirety, has had an opportunity to obtain the advice of
counsel prior to executing this Nonstatutory Stock Option Agreement and fully
understands all provisions of the Plan and Nonstatutory Stock Option Agreement.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions relating to the Plan
and Nonstatutory Stock Option Agreement.

                                                 PERSISTENCE SOFTWARE, INC.


                                                 By:
<<Optionee>>
                                                 Title:




DIRECTOR                              -4-
<PAGE>   16
                                CONSENT OF SPOUSE


         The undersigned spouse of Optionee has read and hereby approves the
terms and conditions of the Plan and this Nonstatutory Stock Option Agreement.
In consideration of the Company's granting his or her spouse the right to
purchase Shares as set forth in the Plan and this Nonstatutory Stock Option
Agreement, the undersigned hereby agrees to be irrevocably bound by the terms
and conditions of the Plan and this Nonstatutory Stock Option Agreement and
further agrees that any community property interest shall be similarly bound.
The undersigned hereby appoints the undersigned's spouse as attorney-in-fact for
the undersigned with respect to any amendment or exercise of rights under the
Plan or this Nonstatutory Stock Option Agreement.


                                                              ------------------
                                                              Spouse of Optionee


DIRECTOR
<PAGE>   17
                                    EXHIBIT A

                               NOTICE OF EXERCISE



To:               Persistence Software, Inc.

Attn:             Stock Option Administrator

Subject:          Notice of Intention to Exercise Stock Option


         This is official notice that the undersigned ("Optionee") intends to
exercise Optionee's option to purchase __________ shares of Persistence
Software, Inc. Common Stock, under and pursuant to the Company's 1999 Directors'
Stock Option Plan and the Nonstatutory Stock Option Agreement dated
_______________, as follows:

         Grant Number:

         Date of Purchase:

         Number of Shares:

         Purchase Price:

         Method of Payment of
         Purchase Price:

         Social Security No.:

         The shares should be issued as follows:

                  Name:

                  Address:





                  Signed:

                  Date:




DIRECTOR