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                                                                    EXHIBIT 10.3

                                PROMISSORY NOTE
                                ---------------


$150,000                                     May 29, 1998 Billerica, MA


          FOR VALUE RECEIVED, Peter Espinosa (the "Maker"), promises to pay to
Peritus Software Services, Inc. ("Peritus"), or order, at the offices of 2
Federal Street, Billerica, MA or at such other place as the holder of this Note
may designate, the principal sum of $ 150,000, together with simple interest on
the unpaid principal balance of this Note from time to time outstanding at the
rate of 6% per year until paid in full.  Principal and interest shall be paid
as follows: principal shall be paid in two equal installments of $75,000 on each
of  May 29, 1999 and May 29, 2000, together with accrued interest.

          Interest on this Note shall be computed on the basis of a year of 365
days for the actual number of days elapsed.  All payments by the Maker under
this Note shall be in immediately available funds.

          This Note shall become immediately due and payable without notice or
demand upon the occurrence at any time of any of the following events of default
(individually, "an Event of Default" and collectively, "Events of Default"):

          (1)  default in the payment or performance of this or any other
               liability or obligation of the Maker to the holder, including the
               payment when due of any principal, premium or interest under this
               Note;

          (2)  the liquidation, termination of existence, dissolution,
               insolvency or business failure of the Maker, or the appointment
               of a receiver or custodian for the Maker or any part of its
               property;

          (3)  the institution by or against the Maker or any endorser or
               guarantor of this Note of any proceedings under the United States
               Bankruptcy Code or any other federal or state bankruptcy,
               reorganization, receivership, insolvency or other similar law
               affecting the rights of creditors generally or the making by the
               Maker or any endorser or guarantor of this Note of a composition
               or an assignment or trust mortgage for the benefit of creditors;
               or

          (4)  the termination of the Maker's employment with Peritus for
               any reason including, without limitation, death or disability.

          Upon the occurrence of an Event of Default, the holder shall have
then, or at any time thereafter, all of the rights and remedies afforded by the
Uniform Commercial Code as from time to time in effect in the Commonwealth of
Massachusetts or afforded by other applicable law.

          Every amount overdue under this Note shall bear interest from and
after the date on which such amount first became overdue at an annual rate which
is two (2) percentage points above the rate per year specified in the first
paragraph of this Note.  Such interest on overdue amounts under this Note shall
be payable on demand and shall accrue and be compounded monthly until the
obligation of the Maker with respect to the payment of such interest has been
discharged (whether before or after judgment).

          In no event shall any interest charged, collected or reserved under
this Note exceed the maximum rate then permitted by applicable law and if any
such payment is paid by the Maker, then such excess sum shall be credited by the
holder as a payment of principal.

          All payments by the Maker under this Note shall be made without set-
off or counterclaim and be free and clear and without any deduction or
withholding for any taxes or fees of any nature whatever, unless the obligation
to make such deduction or withholding is imposed by law.  The Maker shall pay
and save the holder harmless from all liabilities with respect to or resulting
from any delay or omission to make any such deduction or withholding required by
law.
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          Whenever any amount is paid under this Note, all or part of the amount
paid may be applied to principal, premium or interest in such order and manner
as shall be determined by the holder in its discretion.

          No reference in this note to any guaranty or other document shall
impair the obligation of the Maker, which is absolute and unconditional, to pay
all amounts under this Note strictly in accordance with the terms of this Note.

          The Maker agrees to pay on demand all costs of collection, including
reasonable attorneys' fees, incurred by the holder in enforcing the obligations
of the Maker under this Note.

          No delay or omission on the part of the holder in exercising any right
under this Note shall operate as a waiver of such rights or of any other right
of such holder, nor shall any delay, omission or waiver of any occasion be
deemed a bar to or waiver of the same or any other right on any future occasion.
The Maker and every endorser or guarantor of this Note regardless of the time,
order or place of signing waives presentment, demand, protest and notices of
every kind and assents to any extension or postponement of the time of payment
or any other indulgence, to any substitution, exchange or release of collateral,
and to the addition or release of any other party or person primarily or
secondarily liable.

          This Note may be prepaid in whole or in part at any time or from time
to time upon written notice to the holder.  Any such prepayment shall be without
premium or penalty.

          None of the terms or provisions of this Note may be excluded, modified
or amended except by a written instrument duly executed on behalf of the holder
expressly referring to this Note and setting forth the provision excluded,
modified or amended.

          All rights and obligations hereunder shall be governed by the laws of
the Commonwealth of Massachusetts and this Note is executed as an instrument
under seal.

ATTEST:

                                    __________________________________________ 
                                    Signature
____________________________

                                    Peter Espinosa____________________________
                                    Name