Document:

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EXHIBIT 10.6

                           PERSISTENCE SOFTWARE, INC.

                                 1997 STOCK PLAN

                           (Amended December 11, 1997)
                            (Amended April 30, 1998)
                            (Amended January 3, 1999)
                            (Amended April 21, 1999)
                            (Amended January 6, 2000)
                            (Amended April 13, 2000)
                             (Amended June 7, 2001)
                           (Amended February 12, 2003)

         1. PURPOSES OF THE PLAN. The purposes of this 1997 Stock Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and its Subsidiaries and to promote the success of the Company's
business. Options granted under the Plan may be incentive stock options (as
defined under Section 422 of the Code) or nonstatutory stock options, as
determined by the Administrator at the time of grant of an option and subject to
the applicable provisions of Section 422 of the Code, as amended, and the
regulations promulgated thereunder.

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

                  (a) "ADMINISTRATOR" means the Board or any of its Committees
appointed pursuant to Section 4 of the Plan.

                  (b) "AFFILIATE" means an entity other than a Subsidiary (as
defined below) in which the Company owns a significant interest, directly or
indirectly, as determined in the discretion of the Committee, or which, together
with the Company, is under common control of a third person or entity.

                  (c) "APPLICABLE LAWS" means the legal requirements relating to
the administration of stock option and restricted stock purchase plans under
applicable U.S. state corporate laws, U.S. federal and applicable state
securities laws, the Code, any Stock Exchange rules or regulations and the
applicable laws of any other country or jurisdiction where Options or Stock
Purchase Rights are granted under the Plan, as such laws, rules, regulations and
requirements shall be in place from time to time; provided, however, that to the
extent permitted under such laws, rules, regulations and requirements, the
rights of any participant under the Plan shall be determined in accordance with
the law of the State of California, without giving effect to principles of
conflict of law.

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

                  (e) "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

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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.

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

                  (g) "COMMITTEE" means one or more committees or subcommittees
of the Board appointed by the Board to administer the Plan in accordance with
Section 4 below.

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

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

                  (j) "CONSULTANT" means any person, including an advisor, who
renders services to the Company or any Parent, Subsidiary or Affiliate and is
compensated for such services, and any Director of the Company whether
compensated for such services or not.

                  (k) "CONTINUOUS SERVICE" means the absence of any interruption
or termination of service as an Employee or Consultant to the Company or a
Parent, Subsidiary or Affiliate. Continuous Service shall not be considered
interrupted in the case of (i) sick leave; (ii) military leave; (iii) any other
leave of absence approved by the Administrator, provided that such leave is for
a period of not more than 90 days, unless reemployment upon the expiration of
such leave is guaranteed by contract or statute, or unless provided otherwise
pursuant to Company policy adopted from time to time; or (iv) in the case of
transfers between locations of the Company or between the Company, its
Parent(s), Subsidiaries, Affiliates or their respective successors. Unless
otherwise determined by the Administrator or the Company, a change in status
from an Employee to a Consultant or from a Consultant to an Employee will not
constitute a termination of Continuous Service.

                  (l) "CORPORATE TRANSACTION" means 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.

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

                  (n) "EMPLOYEE" means any person (including, if appropriate,
any Named Executive, Officer or Director) employed by the Company or any Parent,
Subsidiary or Affiliate of the Company. The payment by the Company of a
director's fee to a Director shall not be sufficient to constitute "employment"
of such Director by the Company.

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

                  (p) "FAIR MARKET VALUE" means, as of any date, the value of
Common Stock determined as follows:

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                           (i) If the Common Stock is listed on any established
stock exchange or a national market system including without limitation the
National Market of the National Association of Securities Dealers, Inc.
Automated Quotation ("Nasdaq") System, its Fair Market Value shall be the
closing sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such system or exchange on the date of determination (or
if no trading or bids occurred on the date of determination, on the last trading
day prior to the date of determination), as reported in The Wall Street Journal
or such other source as the Administrator deems reliable;

                           (ii) If the Common Stock is quoted on the Nasdaq
System (but not on the National Market thereof) or regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean between the high bid and low asked prices for the
Common Stock for the date of determination (or if no bids occurred on the date
of determination, on the last trading day prior to the date of determination);
or

                           (iii) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Administrator.

                  (q) "INCENTIVE STOCK OPTION" means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code, as designated in the applicable Option Agreement.

                  (r) "LISTED SECURITY" means any security of the Company that
is listed or approved for listing on a national securities exchange or
designated or approved for designation as a national market system security on
an interdealer quotation system by the National Association of Securities
Dealers, Inc.

                  (s) "NAMED EXECUTIVE" means any individual who, on the last
day of the Company's fiscal year, is the chief executive officer of the Company
(or is acting in such capacity) or among the four most highly compensated
officers of the Company (other than the chief executive officer). Such officer
status shall be determined pursuant to the executive compensation disclosure
rules under the Exchange Act.

                  (t) "NONSTATUTORY STOCK OPTION" means an Option not intended
to qualify as an Incentive Stock Option, as designated in the applicable Option
Agreement.

                  (u) "OFFICER" means a person who is an officer of the Company
within the meaning of Section 16(a) of the Exchange Act and the rules and
regulations promulgated thereunder.

                  (v) "OPTION" means a stock option granted pursuant to the
Plan.

                  (w) "OPTION AGREEMENT" means a written document, the form(s)
of which shall be approved from time to time by the Administrator, reflecting
the terms of an Option granted under the Plan and includes any documents
attached to or incorporated into such Option Agreement, including, but not
limited to, a notice of stock option grant and a form of exercise notice.

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                  (x) "OPTION EXCHANGE PROGRAM" means a program approved by the
Administrator whereby outstanding Options are exchanged for Options with a lower
exercise price.

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

                  (z) "OPTIONEE" means an Employee or Consultant who receives an
Option.

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

                  (bb) "PARTICIPANT" means any holder of one or more Options or
Stock Purchase Rights, or the Shares issuable or issued upon exercise of such
awards, under the Plan.

                  (cc) "PLAN" means this 1997 Stock Plan.

                  (dd) "REPORTING PERSON" means an Officer, Director or greater
than 10% shareholder of the Company within the meaning of Rule 16a-2 of the
Exchange Act, who is required to file reports pursuant to Rule 16a-3 of the
Exchange Act.

                  (ee) "RESTRICTED STOCK" means shares of Common Stock acquired
pursuant to a grant of a Stock Purchase Right under Section 11 below.

                  (ff) "RESTRICTED STOCK PURCHASE AGREEMENT" means a written
document, the form(s) of which shall be approved from time to time by the
Administrator, reflecting the terms of a Stock Purchase Right granted under the
Plan and includes any documents attached to such agreement.

                  (gg) "RULE 16b-3" means Rule 16b-3 promulgated under the
Exchange Act, as amended from time to time, or any successor provision.

                  (hh) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 15 of the Plan.

                  (ii) "STOCK EXCHANGE" means any stock exchange or consolidated
stock price reporting system on which prices for the Common Stock are quoted at
any given time.

                  (jj) "STOCK PURCHASE RIGHT" means the right to purchase Common
Stock pursuant to Section 11 below.

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

                  (ll) "TEN PERCENT HOLDER" means a person who owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary.

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         3. STOCK SUBJECT TO THE PLAN. The maximum aggregate number of shares
that may be sold under the Plan (as amended effective April 13, 2000) is
6,594,652 Shares of Common Stock, plus a maximum of 38,645 additional Shares
that may be transferred to the Plan from the Company's 1994 Stock Purchase Plan
upon return to the 1994 Stock Purchase Plan pursuant to an amendment to the Plan
dated December 10, 1997, plus an annual increase on the first day of each of the
Company's fiscal years beginning in 2002, 2003, 2004 and 2005 equal to the
lesser of (i) 985,000 Shares, (ii) 4.94% of the Shares outstanding on the last
day of the immediately preceding fiscal year, or (iii) such lesser number of
Shares as is determined by the Board. The Shares may be authorized, but
unissued, or reacquired Common Stock. The number of Shares subject to the Plan
set forth in this Section 3 are subject to adjustment in accordance with the
provisions of Section 15 of the Plan.

                  If an Option expires or becomes unexercisable for any reason
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares that 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 or Stock Purchase Right in order to satisfy the exercise
or purchase price for such Option or Stock Purchase Right or any withholding
taxes due with respect to such exercise or purchase shall be treated as not
issued and shall continue to be available under the Plan. Notwithstanding any
other provision of the Plan, Shares issued under the Plan and later repurchased
by the Company pursuant to any repurchase right that the Company may have shall
not be available for future grant under the Plan.

         4. ADMINISTRATION OF THE PLAN.

                  (a) GENERAL. The Plan shall be administered by the Board or a
Committee, or a combination thereof, as determined by the Board. The Plan may be
administered by different administrative bodies with respect to different
classes of Participants and, if permitted by the Applicable Laws, the Board may
authorize one or more officers (who may (but need not) be Officers) to grant
Options or Stock Purchase Rights to Employees and Consultants (other than
Consultants who are Directors).

                  (b) ADMINISTRATION WITH RESPECT TO REPORTING PERSONS AND NAMED
EXECUTIVES. With respect to Options granted to Reporting Persons and Named
Executives, the Plan may (but need not) be administered so as to permit grants
of Options to Reporting Persons to qualify for the exemption set forth in Rule
16b-3 and to permit grants of Options to Named Executives to qualify as
performance-based compensation under Section 162(m) of the Code, and otherwise
so as to satisfy the Applicable Laws.

                  (c) COMMITTEE COMPOSITION. If a Committee has been appointed
pursuant to this Section 4, such Committee shall continue to serve in its
designated capacity until otherwise directed by the Board. From time to time the
Board may increase the size of any Committee and appoint additional members
thereof, remove members (with or without cause) and appoint new members in
substitution therefor, fill vacancies (however caused) and remove all members of
a Committee and thereafter directly administer the Plan, all to the extent

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permitted by the Applicable Laws and, in the case of a Committee administering
the Plan pursuant to Section 4(b) above, to the extent permitted or required by
Rule 16b-3 and Section 162(m) of the Code.

                  (d) POWERS OF THE ADMINISTRATOR. Subject to the provisions of
the Plan and in the case of a Committee, the specific duties delegated by the
Board to such Committee, the Administrator shall have the authority, in its
discretion:

                           (i) to determine the Fair Market Value of the Common
Stock, in accordance with Section 2(p) of the Plan;

                           (ii) to select the Employees and Consultants to whom
Options and Stock Purchase Rights or any combination thereof may from time to
time be granted;

                           (iii) to determine whether and to what extent Options
and Stock Purchase Rights or any combination thereof are granted;

                           (iv) to determine the number of Shares of Common
Stock to be covered by each such award granted;

                           (v) to approve forms of agreement for use under the
Plan;

                           (vi) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any award granted hereunder, which
terms and conditions include but are not limited to the exercise or purchase
price, the time or times when Options or Stock Purchase Rights may be exercised
(which may be based on performance criteria), any vesting acceleration or waiver
of forfeiture restrictions, and any restriction or limitation regarding any
Option, Optioned Stock, Stock Purchase Right or Restricted Stock, based in each
case on such factors as the Administrator, in its sole discretion, shall
determine;

                           (vii) to determine whether and under what
circumstances an Option may be settled in cash under Section 10(f) instead of
Common Stock;

                           (viii) to reduce the exercise price of any Option to
the then current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option shall have declined since the date the Option was granted
and to make any other amendments or adjustments to any Option that the
Administrator determines, in its discretion and under the authority granted to
it under the Plan, to be necessary or advisable, provided however that no
amendment or adjustment to an Option that would materially and adversely affect
the rights of any Optionee shall be made without the prior written consent of
the Optionee;

                           (ix) to determine the terms and restrictions
applicable to Stock Purchase Rights and the Restricted Stock purchased by
exercising such Stock Purchase Rights;

                           (x) to initiate an Option Exchange Program;

                           (xi) to construe and interpret the terms of the Plan
and awards granted under the Plan; and

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                           (xii) in order to fulfill the purposes of the Plan
and without amending the Plan, to modify grants of Options or Stock Purchase
Rights to Participants who are foreign nationals or employed outside of the
United States in order to recognize differences in local law, tax policies or
customs.

                  (e) EFFECT OF ADMINISTRATOR'S DECISION. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all Participants.

         5. ELIGIBILITY.

                  (a) RECIPIENTS OF GRANTS. Nonstatutory Stock Options and Stock
Purchase Rights may be granted to Employees and Consultants. Incentive Stock
Options may be granted only to Employees, provided however that Employees of
Affiliates shall not be eligible to receive Incentive Stock Options. An Employee
or Consultant who has been granted an Option or Stock Option Right may, if he or
she is otherwise eligible, be granted additional Options or Stock Purchase
Rights.

                  (b) TYPE OF OPTION. Each Option shall be designated in the
Option Agreement as either an Incentive Stock Option or a Nonstatutory Stock
Option. However, notwithstanding such designations, to the extent that the
aggregate Fair Market Value of Shares with respect to which Options are
exercisable for the first time by an Optionee during any calendar year (under
all plans of the Company or any Parent or Subsidiary) exceeds $100,000, such
excess Options shall be treated as Nonstatutory Stock Options. For purposes of
this Section 5(b), Incentive Stock Options shall be taken into account in the
order in which they were granted, and the Fair Market Value of the Shares shall
be determined as of the date of grant of such Option. In the event any Option
designated as an Incentive Stock Option fails to meet the requirements set forth
in this Plan for an Incentive Stock Option or as required to qualify as an
incentive stock option within the meaning of Code Section 422, such Option shall
not be void but instead shall be deemed a Nonstatutory Stock Option.

                  (c) NO EMPLOYMENT RIGHTS. The Plan shall not confer upon any
Participant any right with respect to continuation of employment or consulting
relationship with the Company, nor shall it interfere in any way with his or her
right or the Company's right to terminate his or her employment or consulting
relationship at any time, with or without cause.

         6. TERM OF PLAN. The Plan shall become effective upon its adoption by
the Board. It shall continue in effect for a term of ten (10) years unless
sooner terminated under Section 16 of the Plan.

         7. TERM OF OPTION. The term of each Option shall be the term stated in
the Option Agreement; provided however that the term shall be no more than ten
(10) years from the date of grant thereof or such shorter term as may be
provided in the Option Agreement and provided further that, in the case of an
Incentive Stock Option granted to a person who at the time of such grant is a
Ten Percent Holder, the term of such Incentive Stock Option shall be five (5)
years from the date of grant thereof or such shorter term as may be provided in
the Option Agreement.

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         8. LIMITATION ON GRANTS TO EMPLOYEES. Subject to adjustment as provided
in Section 13 below, the maximum number of Shares which may be subject to
Options and Stock Purchase Rights granted to any one Employee under this Plan
for any fiscal year of the Company shall be 2,000,000.

         9. OPTION 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 such price as is
determined by the Administrator and set forth in the Option Agreement, but shall
be subject to the following:

                           (i) In the case of an Incentive Stock Option

                                    (A) granted to an Employee who at the time
of grant is a Ten Percent Holder, the per Share exercise price shall be no less
than 110% of the Fair Market Value per Share on the date of grant; or

                                    (B) granted to any other Employee, the per
Share exercise price shall be no less than 100% of the Fair Market Value per
Share on the date of grant.

                           (ii) In the case of a Nonstatutory Stock Option

                                    (A) granted prior to the date, if any, on
which the Common Stock becomes a Listed Security to a person who is at the time
of grant is a Ten Percent Holder, the per Share exercise price shall be no less
than 110% of the Fair Market Value per Share on the date of grant if required by
the Applicable Laws and, if not so required, shall be such price as is
determined by the Administrator;

                                    (B) granted to a person who, at the time of
the grant of such Option, is a Named Executive of the Company, the per share
Exercise Price shall be no less than 100% of the Fair Market Value on the date
of grant if such Option is intended to qualify as performance-based compensation
under Section 162(m) of the Code; or

                                    (C) granted prior to the date, if any, on
which the Common Stock becomes a Listed Security to any person other than a
Named Executive or a Ten Percent Holder, the per Share exercise price shall be
no less than 85% of the Fair Market Value per Share on the date of grant if
required by Applicable Law and, if not so required, shall be such price as is
determined by the Administrator.

                           (iii) Notwithstanding the foregoing, Options may be
granted with a per Share exercise price other than as required in Sections
9(a)(i) and (ii) above pursuant to a Corporate Transaction; provided that, with
respect to the grant of such Options on any date on which the Common Stock is
not a Listed Security, such Options must be granted with a per Share exercise
price as set forth in Sections 9(a)(i) and (ii) above UNLESS such Options are

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granted to service providers of a party to the transaction other than the
Company in exchange for options or other awards held by such persons that are
assumed, substituted for, cancelled or converted into options or awards to
purchase Common Stock in a manner that preserves the economic value of such
options or awards notwithstanding the assumption, substitution, cancellation or
conversion.

                  (b) PERMISSIBLE CONSIDERATION. The consideration to be paid
for the Shares to be issued upon exercise of an Option, including the method of
payment, shall be determined by the Administrator (and, in the case of an
Incentive Stock Option, shall be determined at the time of grant) and may
consist entirely of (1) cash; (2) check; (3) delivery of Optionee's promissory
note with such recourse, interest, security and redemption provisions as the
Administrator determines to be appropriate; (4) cancellation of indebtedness;
(5) surrender of other Shares that (x) in the case of Shares acquired upon
exercise of an Option either have been owned by the Optionee for more than six
months on the date of surrender (or such other period as may be required to
avoid a charge to the Company's earnings) or were not acquired, directly or
indirectly, from the Company, and (y) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which the
Option is exercised; (6) authorization by the Optionee for the Company to retain
from the total number of Shares as to which the Option is exercised that number
of Shares having a Fair Market Value on the date of exercise equal to the
exercise price for the total number of Shares as to which the Option is
exercised; (7) delivery of a properly executed exercise notice together with
such other documentation as the Administrator and the broker, if applicable,
shall require to effect exercise of the Option and prompt delivery to the
Company of the sale or loan proceeds required to pay the exercise price and any
applicable withholding taxes; (8) any combination of the foregoing methods of
payment; or (9) such other consideration and method of payment for the issuance
of Shares to the extent permitted under the Applicable Laws. In making its
determination as to the type of consideration to accept, the Administrator shall
consider whether acceptance of such consideration may be reasonably expected to
benefit the Company and the Administrator may refuse to accept a particular form
of consideration at the time of any Option exercise if, in its sole discretion,
acceptance of such form of consideration is not in the best interests of the
Company at such time.

         10. EXERCISE OF OPTION.

                  (a) VESTING. Any Option granted hereunder shall be exercisable
at such times and under such conditions as determined by the Administrator,
consistent with the terms of the Plan, and reflected in the Option Agreement,
including vesting requirements and/or performance criteria with respect to the
Company and/or the Optionee; provided however that, if required by the
Applicable Laws, any Option granted prior to the date, if any, upon which the
Common Stock becomes a Listed Security shall become exercisable at a rate of at
least 20% per year over five years from the date the Option is granted. In the
event that any of the Shares issued upon exercise of an Option (which exercise
occurs prior to the date, if any, upon which the Common Stock becomes a Listed
Security) should be subject to a right of repurchase in the Company's favor,
such repurchase right shall, if required by the Applicable Laws, lapse at the
rate of at least 20% per year over five years from the date the Option is
granted. Notwithstanding the above, in the case of an Option granted to an
officer (including but not limited to Officers), Director or Consultant, the
Option may become exercisable, or a repurchase right, if any, in favor of the
Company shall lapse, at any time or during any period established by the

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Administrator. The Administrator shall have the discretion to determine whether
and to what extent the vesting of Options shall be tolled during any unpaid
leave of absence; provided however that in the absence of such determination,
vesting of Options shall be tolled during any such leave.

                  (b) PROCEDURE FOR EXERCISE. An Option may not be exercised for
a fraction of a Share. An Option shall be deemed 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 the Company has
received full payment for the Shares with respect to which the Option is
exercised. Full payment may, as authorized by the Administrator, consist of any
consideration and method of payment allowable under Section 9(b) of the Plan.
Exercise of an Option in any manner shall result in a decrease in the number of
Shares that 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.

                  (c) RIGHTS AS A SHAREHOLDER. 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 shareholder shall
exist with respect to the Optioned Stock, notwithstanding the exercise of the
Option. The Company shall issue (or cause to be issued) such stock certificate
promptly upon 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 15 of the Plan.

                  (d) TERMINATION OF CONTINUOUS SERVICE. In the event of
termination of an Optionee's Continuous Service, such Optionee's right to
exercise the Option shall cease and the Option shall forthwith become void and
cease to have effect, except as set forth specifically in the Option Agreement.
Notwithstanding the foregoing, if required by the Applicable Laws, any Option
granted prior to the date, if any, upon which the Common Stock becomes a Listed
Security shall be exercisable by the Optionee for a period of time following the
termination of the Optionee's Continuous Service as follows:

                           (i) In the event of termination of Continuous Service
for reasons other than the Optionee's disability or death, the Option shall be
exercisable by the Optionee following such termination for a period of not less
than thirty (30) days, as is determined by the Administrator (with such
determination in the case of an Incentive Stock Option being made at the time of
grant of the Option), after the date of such termination of Continuous Service
(but in no event later than the date of expiration of the term of such Option as
set forth in the Option Agreement), to the extent that the Optionee was entitled
to exercise it at the date of such termination. If an Option Agreement provides
that an Incentive Stock Option may be exercised more than three (3) months after
the termination of the Optionee's Continuous Service, to the extent that such
Optionee fails to exercise such Option within three (3) months of the date of
such termination, such Option thereafter shall be treated as a Nonstatutory
Stock Option. To the extent that the Optionee was not entitled to exercise the
Option at the date of such termination, or if the Optionee does not exercise the
Option to the extent so entitled within the time specified above, the Option
shall terminate and the Optioned Stock underlying the unexercised portion of the
Option shall revert to the Plan.

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                           (ii) In the event of termination of Continuous
Service as a result of Optionee's disability, such Optionee may, but only within
six (6) months (or such longer period of time as is determined by the
Administrator, with such determination in the case of an Incentive Stock Option
made at the time of grant of the Option) from the date of such termination (but
in no event later than the date of expiration of the term of such Option as set
forth in the Option Agreement), exercise the Option to the extent he or she was
entitled to exercise it at the date of such termination. To the extent that the
Optionee was not entitled to exercise the Option at the date of termination, or
if the Optionee does not exercise the Option to the extent so entitled within
the time specified herein, the Option shall terminate and the Optioned Stock
underlying the unexercised portion of the Option shall revert to the Plan.

                           (iii) In the event of the death of an Optionee prior
to termination of his or her Continuous Service, the Option may be exercised at
any time within six (6) months (or such longer period of time as is determined
by the Administrator, with such determination in the case of an Incentive Stock
Option being made at the time of grant of the Option) following the date of
death (but in no event later than the expiration date of the term of such Option
as set forth in the Option Agreement) by such 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, if earlier, the date of termination of the Optionee's Continuous
Service. To the extent that the Optionee was not entitled to exercise the Option
at the date of death or termination, as the case may be, or if the Optionee does
not exercise such Option to the extent so entitled within the time specified
above, the Option shall terminate and the Optioned Stock underlying the
unexercised portion of the Option shall revert to the Plan.

                  (e) EXTENSION OF EXERCISE PERIOD. The Administrator shall have
full power and authority to extend the period of time for which an Option is to
remain exercisable following termination of an Optionee's Continuous Service
from the periods set forth in Sections 10(b), 10(c) and 10(d) above or in the
Option Agreement to such greater time as the Board shall deem appropriate,
provided that in no event shall such Option be exercisable later than the date
of expiration of the term of such Option as set forth in the Option Agreement.

                  (f) BUY-OUT PROVISIONS. The Administrator may at any time
offer to buy out for a payment in cash or Shares an Option previously granted
under the Plan based on such terms and conditions as the Administrator shall
establish and communicate to the Optionee at the time such offer is made.

         11. STOCK PURCHASE RIGHTS.

                  (a) RIGHTS TO PURCHASE. Stock Purchase Rights may be issued
either alone, in addition to, or in tandem with other awards granted under the
Plan and/or cash awards made outside of the Plan. After the Administrator
determines that it will offer Stock Purchase Rights under the Plan, it shall
advise the offeree in writing of the terms, conditions and restrictions related
to the offer, including the number of Shares that such person shall be entitled
to purchase, the consideration to be paid, and the time within which such person
must accept such offer, which shall in no event exceed 30 days from the date
upon which the Administrator made the determination to grant the Stock Purchase
Right. In the case of a Stock Purchase Right granted prior to the date, if any,

                                      -11-
<PAGE>

on which the Common Stock becomes a Listed Security and if required by the
Applicable Laws at such time, the purchase price of Shares subject to such Stock
Purchase Rights shall not be less than 85% of the Fair Market Value of the
Shares as of the date of the offer, or, in the case of a Ten Percent Holder, the
price shall not be less than 100% of the Fair Market Value of the Shares as of
the date of the offer. The offer to purchase Shares subject to Stock Purchase
Rights shall be accepted by execution of a Restricted Stock Purchase Agreement
in the form determined by the Administrator.

                  (b) REPURCHASE OPTION. Unless the Administrator determines
otherwise, the Restricted Stock Purchase Agreement shall grant the Company an
irrevocable, exclusive option (the "Repurchase Option") exercisable upon the
termination of the purchaser's Continuous Service for any reason. Subject to any
requirements of the Applicable Laws (including without limitation Section
260.140.42(h) of the Rules of the California Corporations Commissioner), the
Repurchase Option (including without limitation the price at which, and the
consideration for which, it may be exercised, and the events upon which it shall
lapse) shall be as determined by the Administrator in its sole discretion and
reflected in the Restricted Stock Purchase Agreement. In no way limiting the
foregoing, with respect to awards granted to a purchaser who is not an officer
(including an Officer), Director or Consultant of the Company or of any Parent
or Subsidiary of the Company on any date on which the Common Stock is not a
Listed Security, such Repurchase Option shall lapse at a minimum rate of 20% of
the Shares subject to the Stock Purchase Right if required by the Applicable
Laws.

                  (c) OTHER PROVISIONS. The Restricted Stock Purchase Agreement
shall contain such other terms, provisions and conditions not inconsistent with
the Plan as may be determined by the Administrator in its sole discretion. In
addition, the provisions of Restricted Stock Purchase Agreements need not be the
same with respect to each purchaser.

                  (d) RIGHTS AS A SHAREHOLDER. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 15
of the Plan.

         12. TAXES.

                  (a) As a condition of the exercise of an Option or Stock
Purchase Right granted under the Plan, the Participant (or in the case of the
Participant's death, the person exercising the Option or Stock Purchase Right)
shall make such arrangements as the Administrator may require for the
satisfaction of any applicable federal, state, local or foreign withholding tax
obligations that may arise in connection with the exercise of Option or Stock
Purchase Right and the issuance of Shares. The Company shall not be required to
issue any Shares under the Plan until such obligations are satisfied.

                  (b) In the case of an Employee and in the absence of any other
arrangement, the Employee shall be deemed to have directed the Company to
withhold or collect from his or her compensation an amount sufficient to satisfy
such tax obligations from the next payroll payment otherwise payable after the
date of an exercise of the Option or Stock Purchase Right.

                                      -12-
<PAGE>

                  (c) This Section 12(c) shall apply only after the date, if
any, upon which the Common Stock becomes a Listed Security. In the case of
Participant other than an Employee (or in the case of an Employee where the next
payroll payment is not sufficient to satisfy such tax obligations, with respect
to any remaining tax obligations), in the absence of any other arrangement and
to the extent permitted under the Applicable Laws, the Participant shall be
deemed to have elected to have the Company withhold from the Shares to be issued
upon exercise of the Option or Stock Purchase Right that number of Shares having
a Fair Market Value determined as of the applicable Tax Date (as defined below)
equal to the minimum statutory withholding rates for federal and state tax
purposes, including payroll taxes, applicable to the exercise. For purposes of
this Section 12, the Fair Market Value of the Shares to be withheld shall be
determined on the date that the amount of tax to be withheld is to be determined
under the Applicable Laws (the "Tax Date").

                  (d) At the discretion of the Administrator, a Participant may
satisfy his or her tax withholding obligations arising in connection with an
Option by one or some combination of the following methods: (i) by cash payment;
(ii) by payroll deduction out of the Optionee's current compensation; or (iii)
if permitted by the Administrator, in its discretion, a Participant may satisfy
his or her tax withholding obligations upon exercise of an Option or Stock
Purchase Right by surrendering to the Company Shares that (A) in the case of
Shares previously acquired from the Company, have been owned by the Participant
for more than six (6) months on the date of surrender, and (B) have a Fair
Market Value determined as of the applicable Tax Date equal to the minimum
statutory withholding rates for federal and state tax purposes, including
payroll taxes, applicable to the exercise.

                  (e) Any election or deemed election by a Participant to have
Shares withheld to satisfy tax withholding obligations under Section 12(c) or
(d) above shall be irrevocable as to the particular Shares as to which the
election is made and shall be subject to the consent or disapproval of the
Administrator. Any election by a Participant under Section 12(d) above must be
made on or prior to the applicable Tax Date.

                  (f) In the event an election to have Shares withheld is made
by a Participant and the Tax Date is deferred under Section 83 of the Code
because no election is filed under Section 83(b) of the Code, the Participant
shall receive the full number of Shares with respect to which the Option or
Stock Purchase Right is exercised but such Participant shall be unconditionally
obligated to tender back to the Company the proper number of Shares on the Tax
Date.

         13. NON-TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS. Except as
set forth in this Section 13, Options and Stock Purchase Rights 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 domestic
relations order (as defined by the Code or the rules thereunder). The
designation of a beneficiary by an Optionee will not constitute a transfer. An
Option or Stock Purchase Right may be exercised, during the lifetime of the
holder of Option or Stock Purchase Right, only by such holder or a transferee
permitted by this Section 13. Notwithstanding the foregoing:

                                      -13-
<PAGE>

                  (a) with respect to any Options or Stock Purchase Rights
granted on any date on which the Common Stock is a Listed Security, the
Administrator may in its discretion grant transferable Nonstatutory Stock
Options pursuant to Option Agreements specifying (i) the manner in which such
Nonstatutory Stock Options are transferable and (ii) that any such transfer
shall be subject to the Applicable Laws.

                  (b) with respect to any Options or Stock Purchase Rights
granted on any date on which the Common Stock is not a Listed Security, the
Administrator may in its discretion grant Nonstatutory Stock Options that may be
transferred pursuant to Option Agreements specifying such terms as permitted by
Reg. 260.140.41 and Reg. 260.140.42 of Title 10 of the California Code of
Regulations.

         14. TIME OF GRANTING OPTIONS AND STOCK PURCHASE RIGHTS. The date of
grant of an Option or Stock Purchase Right shall, for all purposes, be the date
on which the Administrator makes the determination granting such Option or Stock
Purchase Right, or such later date as is determined by the Administrator;
provided however that in the case of an Incentive Stock Option, the grant date
shall be the later of the date on which the Administrator makes the
determination granting such Incentive Stock Option or the date of commencement
of the Optionee's employment relationship with the Company. Notice of the
determination shall be given to each Employee or Consultant to whom an Option or
Stock Purchase Right is so granted within a reasonable time after the date of
such grant.

         15. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, CORPORATE TRANSACTIONS
AND CERTAIN OTHER TRANSACTIONS.

                  (a) CHANGES IN CAPITALIZATION. Subject to any required action
by the shareholders of the Company, the number of shares of Common Stock covered
by each outstanding Option or Stock Purchase Right, the number of Shares set
forth in Sections 3 and 8 above, and the number of shares of Common Stock that
have been authorized for issuance under the Plan but as to which no Options or
Stock Purchase Rights have yet been granted or that have been returned to the
Plan upon cancellation or expiration of an Option or Stock Purchase Right, as
well as the price per Share of Common Stock covered by each such outstanding
Option or Stock Purchase Right, 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,
recapitalization or reclassification of the Common Stock (including any change
in the number of Shares of Common Stock effected in connection with a change of
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 Administrator, 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 or Stock Purchase
Right.

                                      -14-
<PAGE>

                  (b) DISSOLUTION OR LIQUIDATION. In the event of the
dissolution or liquidation of the Company, the Administrator shall notify the
Optionee at least fifteen (15) days prior to such proposed action. To the extent
it has not previously been exercised, each outstanding Option or Stock Purchase
Right shall terminate immediately prior to the consummation of such action,
unless otherwise provided by the Administrator.

                  (c) CORPORATE TRANSACTIONS; CHANGE OF CONTROL. In the event of
a Corporate Transaction, including a Change of Control, each outstanding Option
and Stock Purchase Right shall be assumed or an equivalent option or right shall
be substituted by the successor corporation or a Parent or Subsidiary of such
successor corporation (such entity, the "Successor Corporation"), unless the
Successor Corporation does not agree to such assumption or substitution, in
which case such Options and Stock Purchase Rights shall terminate upon
consummation of the transaction.

                           For purposes of this Section 15(c), an Option or a
Stock Purchase Right shall be considered assumed, without limitation, if, at the
time of issuance of the stock or other consideration upon a Corporate
Transaction or a Change of Control, as the case may be, each holder of an Option
or Stock Purchase Right would be entitled to receive upon exercise of the Option
or Stock Purchase Right the same number and kind of shares of stock or the same
amount of property, cash or securities as such holder would have been entitled
to receive upon the occurrence of the transaction if the holder had been,
immediately prior to such transaction, the holder of the number of Shares of
Common Stock covered by the Option or the Stock Purchase Right at such time
(after giving effect to any adjustments in the number of Shares covered by the
Option or Stock Purchase Right as provided for in this Section 15); provided
however that if the consideration received in the transaction is not solely
common stock of the Successor Corporation, the Administrator may, with the
consent of the Successor Corporation, provide for the consideration to be
received upon exercise of the Option or Stock Purchase Right to be solely common
stock of the Successor Corporation equal to the Fair Market Value of the per
Share consideration received by holders of Common Stock in the transaction.

                  (d) CERTAIN DISTRIBUTIONS. In the event of any distribution to
the Company's shareholders 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 or Stock Purchase Right to reflect the effect of such
distribution.

         16. AMENDMENT AND TERMINATION OF THE PLAN.

                  (a) AMENDMENT AND TERMINATION. The Board may at any time
amend, alter, suspend, discontinue or terminate the Plan. To the extent
necessary and desirable to comply with the Applicable Laws, the Company shall
obtain shareholder approval of any Plan amendment in such a manner and to such
as degree as required.

                                      -15-
<PAGE>

                  (b) EFFECT OF AMENDMENT OR TERMINATION. Except as provided in
Section 15, no amendment, suspension or termination of the Plan shall materially
and adversely affect Options already granted and such Options shall remain in
full force and effect as if the Plan had not been amended, suspended or
terminated, unless mutually agreed otherwise between the Optionee and the
Company, which agreement must be in writing and signed by such Optionee and the
Company. Except as provided in Section 15, no amendment, suspension or
termination of the Plan shall materially and adversely affect Stock Purchase
Rights already granted, or the holder of Restricted Stock acquired pursuant to a
Stock Purchase Right, unless mutually agreed otherwise between the holder of the
Stock Purchase Right and the Company, which agreement must be in writing and
signed by such holder and the Company.

         17. 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 Applicable Laws, with such compliance determined
by the Company in consultation with its legal counsel.

                  As a condition to the exercise of an Option or Stock Purchase
Right, the Company may require the person exercising such Option or Stock
Purchase Right 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 Applicable Laws.

         18. 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.

         19. AGREEMENTS. Options and Stock Purchase Rights shall be evidenced by
Option Agreements and Restricted Stock Purchase Agreements, respectively, in
such form(s) as the Administrator shall from time to time approve.

         20. SHAREHOLDER APPROVAL. If required by the Applicable Laws,
continuance of the Plan shall be subject to approval by the shareholders of the
Company within twelve (12) months before or after the date the Plan is adopted.
Such shareholder approval shall be obtained in the manner and to the degree
required under the Applicable Laws.

         21. INFORMATION AND DOCUMENTS TO OPTIONEES AND PURCHASERS. Prior to the
date, if any, upon which the Common Stock becomes a Listed Security and if
required by the Applicable Laws, the Company shall provide financial statements
at least annually to each Optionee and to each individual who acquired Shares
pursuant to the Plan, during the period such Optionee or purchaser has one or
more Options or Stock Purchase Rights outstanding, and in the case of an
individual who acquired Shares pursuant to the Plan, during the period such
individual owns such Shares. The Company shall not be required to provide such
information if the issuance of Options or Stock Purchase Rights under the Plan
is limited to key employees whose duties in connection with the Company assure
their access to equivalent information.

                                      -16-
<PAGE>

                           PERSISTENCE SOFTWARE, INC.

                                 1997 STOCK PLAN

                             STOCK OPTION AGREEMENT

         1. GRANT OF OPTION. Persistence Software, Inc., a Delaware corporation
(the "Company"), hereby grants to Optionee an option (the "Option") to purchase
the total number of shares of Common Stock (the "Shares") set forth in the
Notice of Stock Option Grant (the "Notice"), at the exercise price per Share set
forth in the Notice (the "Exercise Price") subject to the terms, definitions and
provisions of the Persistence 1997 Stock Plan (the "Plan") adopted by the
Company, which is incorporated in this Agreement by reference. Unless otherwise
defined in this Agreement, the terms used in this Agreement shall have the
meanings defined in the Plan. This Stock Option Agreement shall be deemed
executed by the Company and Optionee upon execution by such parties of the
Notice.

         2. DESIGNATION OF OPTION. This Option is intended to be an Incentive
Stock Option as defined in Section 422 of the Code only to the extent so
designated in the Notice, and to the extent it is not so designated or to the
extent the Option does not qualify as an Incentive Stock Option, it is intended
to be a Nonstatutory Stock Option.

         Notwithstanding the above, if designated as an Incentive Stock Option,
in the event that the Shares subject to this Option (and all other Incentive
Stock Options granted to Optionee by the Company or any Parent or Subsidiary,
including under other plans of the Company) that first become exercisable in any
calendar year have an aggregate fair market value (determined for each Share as
of the date of grant of the option covering such Share) in excess of $100,000,
the Shares in excess of $100,000 shall be treated as subject to a Nonstatutory
Stock Option, in accordance with Section 5(b) of the Plan.

         3. EXERCISE OF OPTION. This Option shall be exercisable during its term
in accordance with the Vesting/Exercise Schedule set out in the Notice and with
the provisions of Section 10 of the Plan as follows:

                  (a) RIGHT TO EXERCISE.

                           (i) This Option may not be exercised for a fraction
of a share.

                           (ii) In the event of Optionee's death, disability or
other termination of employment, the exercisability of the Option is governed by
Section 5 below, subject to the limitations contained in this Section 3.

                           (iii) In no event may this Option be exercised after
the Expiration Date of the Option as set forth in the Notice.

<PAGE>

                  (b) METHOD OF EXERCISE.

                           (i) This Option shall be exercisable by delivering to
the Company a written notice of exercise (in the form attached as Exhibit A or
in any other form of notice approved by the Plan Administrator) which shall
state Optionee's election to exercise the Option, the number of Shares in
respect of which the Option is being exercised, and such other representations
and agreements as to the holder's investment intent with respect to such Shares
as may be required by the Company pursuant to the provisions of the Plan. Such
written notice shall be signed by Optionee and shall be delivered to the Company
by such means as are determined by the Plan Administrator in its discretion to
constitute adequate delivery. The written notice shall be accompanied by payment
of the Exercise Price. This Option shall be deemed to be exercised upon receipt
by the Company of such written notice accompanied by the Exercise Price.

                           (ii) As a condition to the exercise of this Option
and as further set forth in Section 12 of the Plan, Optionee agrees to make
adequate provision for federal, state or other tax withholding obligations, if
any, which arise upon the vesting or exercise of the Option, or disposition of
Shares, whether by withholding, direct payment to the Company, or otherwise.

                           (iii) The Company is not obligated, and will have no
liability for failure, to issue or deliver any Shares upon exercise of the
Option unless such issuance or delivery would comply with the Applicable Laws,
with such compliance determined by the Company in consultation with its legal
counsel. This Option may not be exercised until such time as the Plan has been
approved by the stockholders of the Company, or if the issuance of such Shares
upon such exercise or the method of payment of consideration for such shares
would constitute a violation of any applicable federal or state securities or
other law or regulation, including any rule under Part 221 of Title 12 of the
Code of Federal Regulations as promulgated by the Federal Reserve Board. As a
condition to the exercise of this Option, the Company may require Optionee to
make any representation and warranty to the Company as may be required by the
Applicable Laws. Assuming such compliance, for income tax purposes the Shares
shall be considered transferred to Optionee on the date on which the Option is
exercised with respect to such Shares.

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

                  (a) cash;

                  (b) check;

                  (c) surrender of other Shares that (x) in the case of Shares
 acquired upon exercise of an Option, have been owned by the Optionee for more
 than six months on the date of surrender or such other period as may be
 required to avoid a charge to the Company's earnings, or were not acquired
 directly or indirectly from the Company and (y) have a Fair Market Value on the
 date of surrender equal to the aggregate exercise price of the Shares as to
 which such Option shall be exercised, or

                                      -2-
<PAGE>

                  (d) if there is a public market for the Shares and they are
registered under the Securities Act of 1933, as amended, delivery of a properly
executed exercise notice together with irrevocable instructions to a broker to
deliver promptly to the Company the amount of sale or loan proceeds required to
pay the exercise price.

         5. TERMINATION OF RELATIONSHIP. Following the date of termination of
Optionee's Continuous Service Status for any reason (the "Termination Date"),
Optionee may exercise the Option only as set forth in the Notice and this
Section 5. To the extent that Optionee is not entitled to exercise this Option
as of the Termination Date, or if Optionee does not exercise this Option within
the Termination Period set forth in the Notice or the termination periods set
forth below, the Option shall terminate in its entirety. In no event, may any
Option be exercised after the Expiration Date of the Option as set forth in the
Notice.

                  (a) TERMINATION. In the event of termination of Optionee's
Continuous Service Status other than as a result of Optionee's disability or
death, Optionee may, to the extent otherwise so entitled at the date of such
termination (the "Termination Date"), exercise this Option during the
Termination Period set forth in the Notice.

                  (b) OTHER TERMINATIONS. In connection with any termination
other than a termination covered by Section 5(a), Optionee may exercise the
Option only as described below:

                           (i) TERMINATION UPON DISABILITY OF OPTIONEE. In the
event of termination of Optionee's Continuous Service Status as a result of
Optionee's total and permanent disability (as defined in Section 22(e)(3) of the
Code), Optionee may, but only within twelve (12) months from the Termination
Date (but in no event later than the Expiration Date set forth in the Notice of
Stock Option Grant), exercise this Option to the extent Optionee was entitled to
exercise it as of such Termination Date; provided, however, that in the event of
termination of Optionee's Continuous Service as a result of disability not
constituting a total and permanent disability, Optionee may, but only within six
(6) months from the Termination Date (but in no event later than the Expiration
Date set forth in the Notice of Stock Option Grant), exercise the Option to the
extent Optionee was entitled to exercise it as of such Termination Date.

                           (ii) DEATH OF OPTIONEE. In the event of the death of
Optionee (a) during the term of this Option and while an Employee or Consultant
of the Company and having been in Continuous Service Status since the date of
grant of the Option, or (b) within thirty (30) days after Optionee's Termination
Date, the Option may be exercised at any time within six (6) months following
the date of death by Optionee's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance, but only to the extent Optionee
was entitled to exercise the Option as of the Termination Date.

         6. NON-TRANSFERABILITY OF OPTION. Except as otherwise set forth in the
Notice, this Option may not be transferred in any manner otherwise than by will
or by the laws of descent or distribution and may be exercised during the
lifetime of Optionee only by him or her. The terms of this Option shall be
binding upon the executors, administrators, heirs, successors and assigns of
Optionee.

                                      -3-
<PAGE>

         7. TAX CONSEQUENCES. Below is a brief summary as of the date of this
Option of certain of the federal tax consequences of exercise of this Option and
disposition of the Shares under the laws in effect as of the Date of Grant. THIS
SUMMARY IS INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.
OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING
OF THE SHARES.

                  (a) INCENTIVE STOCK OPTION.

                           (i) TAX TREATMENT UPON EXERCISE AND SALE OF SHARES.
If this Option qualifies as an Incentive Stock Option, there will be no regular
federal income tax liability upon the exercise of the Option, although the
excess, if any, of the fair market value of the Shares on the date of exercise
over the Exercise Price will be treated as an adjustment to the alternative
minimum tax for federal tax purposes and may subject Optionee to the alternative
minimum tax in the year of exercise. If Shares issued upon exercise of an
Incentive Stock Option are held for at least one year after exercise and are
disposed of at least two years after the Option grant date, any gain realized on
disposition of the Shares will also be treated as long-term capital gain for
federal income tax purposes. If Shares issued upon exercise of an Incentive
Stock Option are disposed of within such one-year period or within two years
after the Option grant date, any gain realized on such disposition will be
treated as compensation income (taxable at ordinary income rates) to the extent
of the difference between the Exercise Price and the lesser of (i) the fair
market value of the Shares on the date of exercise, or (ii) the sale price of
the Shares.

                           (ii) NOTICE OF DISQUALIFYING DISPOSITIONS. With
respect to any Shares issued upon exercise of an Incentive Stock Option, if
Optionee sells or otherwise disposes of such Shares on or before the later of
(i) the date two years after the Option grant date, or (ii) the date one year
after the date of exercise, Optionee shall immediately notify the Company in
writing of such disposition. Optionee acknowledges and agrees that he or she may
be subject to income tax withholding by the Company on the compensation income
recognized by Optionee from the early disposition by payment in cash or out of
the current earnings paid to Optionee.

                  (b) NONSTATUTORY STOCK OPTION. If this Option does not qualify
as an Incentive Stock Option, there may be a regular federal (and state) income
tax liability upon the exercise of the Option. 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 Shares on the date of
exercise over the Exercise Price. If Optionee is an Employee, the Company will
be required to withhold from Optionee's compensation or collect from Optionee
and pay to the applicable taxing authorities an amount equal to a percentage of
this compensation income at the time of exercise. If Shares issued upon exercise
of a Nonstatutory Stock Option are held for at least one year, any gain realized
on disposition of the Shares will be treated as long-term capital gain for
federal income tax purposes.

         8. EFFECT OF AGREEMENT. Optionee acknowledges receipt of a copy of the
Plan and represents that he or she is familiar with the terms and provisions
thereof (and has had an opportunity to consult counsel regarding the Option
terms), and hereby accepts this Option and agrees to be bound by its contractual
terms as set forth herein and in the Plan. Optionee hereby agrees to accept as
binding, conclusive and final all decisions and interpretations of the Plan
Administrator regarding any questions relating to the Option. In the event of a
conflict between the terms and provisions of the Plan and the terms and
provisions of the Notice and this Agreement, the Plan terms and provisions shall
prevail. The Option, including the Plan, constitutes the entire agreement
between Optionee and the Company on the subject matter hereof and supersedes all
proposals, written or oral, and all other communications between the parties
relating to such subject matter.

                                      -4-
<PAGE>

                                    EXHIBIT A
                                    ---------

                           PERSISTENCE SOFTWARE, INC.

                                 1997 STOCK PLAN

                               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 Persistence Software, Inc. 1997 Stock
Plan and the Stock Option Agreement, as follows:

         Date of Grant:                    _____________________________________

         Type of Option (ISO or NSO):      _____________________________________

         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:         __________________________

                                      -5-<PAGE>

EXHIBIT 10.7

                           PERSISTENCE SOFTWARE, INC.

                        1999 EMPLOYEE STOCK PURCHASE PLAN
                        ---------------------------------

         The following constitute the provisions of the Persistence Software,
Inc. 1999 Employee Stock Purchase Plan.

         1. PURPOSE. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company. It is the intention of the Company to have the Plan
qualify as an "Employee Stock Purchase Plan" under Section 423 of the Code. The
provisions of the Plan shall, accordingly, be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.

         2. DEFINITIONS.

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

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

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

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

                  (e) "COMPENSATION" means all regular straight time gross
earnings and commissions, and shall not include payments for overtime, shift
premium, incentive compensation, incentive payments, bonuses and other
compensation.

                  (f) "CONTINUOUS STATUS AS AN EMPLOYEE" means the absence of
any interruption or termination of service as an Employee. Continuous Status as
an Employee shall not be considered interrupted in the case of (i) sick leave;
(ii) military leave; (iii) any other leave of absence approved by the Company,
provided that such leave is for a period of not more than 90 days, unless
reemployment upon the expiration of such leave is guaranteed by contract or
statute or unless provided otherwise pursuant to Company policy adopted from
time to time.

                  (g) "CONTRIBUTIONS" means all amounts credited to the account
of a participant pursuant to the Plan.

                  (h) "CORPORATE TRANSACTION" means 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.

                  (i) "DESIGNATED SUBSIDIARY" means any Subsidiary which has
been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan; provided, however, that the Board shall
only have the discretion to designate a Subsidiary if the issuance of options to
such Subsidiary's Employees pursuant to the Plan would not cause the Company to
incur adverse accounting charges.

<PAGE>

                  (j) "EMPLOYEE" means any person, including an Officer, who is
customarily employed for at least twenty (20) hours per week and more than five
(5) months in a calendar year by the Company or a Designated Subsidiary.

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

                  (l) "FAIR MARKET VALUE" means, as of any date, the value of
Common Stock determined by the Board in its discretion based on the closing
sales price of the Common Stock for such date (or, in the event that the Common
Stock is not traded on such date, on the immediately preceding Trading Day), as
reported by the National Association of Securities Dealers Automated Quotation
(Nasdaq) National Market or, if such price is not reported, the mean of the bid
and asked prices per share of the Common Stock as reported by Nasdaq or, in the
event the Common Stock is listed on a stock exchange, the Fair Market Value per
share shall be the closing sales price on such exchange on such date (or, in the
event that the Common Stock is not traded on such date, on the immediately
preceding Trading Day), as reported in THE WALL STREET JOURNAL. For purposes of
the Offering Date of the first Offering Period under the Plan, the Fair Market
Value of a share of the Common Stock of the Company shall be the initial price
to the public as set forth in the final prospectus included within the
registration statement in Form S-1 filed with the Securities and Exchange
Commission pursuant to Rule 424 under the Securities Act of 1933, as amended,
for the initial public offering of the Company's Common Stock (the "REGISTRATION
STATEMENT").

                  (m) "OFFERING DATE" means the first Trading Day of each
Offering Period of the Plan.

                  (n) "OFFERING PERIOD" means a period of approximately
twenty-four (24) months and not exceeding twenty-seven (27) months, except for
the first Offering Period as set forth in Section 4(a). The duration and timing
of the Offering Periods may be changed pursuant to Section 4 of the Plan.

                  (o) "OFFICER" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.

                  (p) "PLAN" means this Persistence Software, Inc. 1999 Employee
Stock Purchase Plan.

                  (q) "PURCHASE DATE" means the last Trading Day of each
Purchase Period.

                  (r) "PURCHASE PERIOD" means a period of approximately six (6)
months within an Offering Period, except for the first Purchase Period as set
forth in Section 4(b). The duration and timing of the Purchase Periods may be
changed pursuant to Section 4 of the Plan.

                  (s) "PURCHASE PRICE" means with respect to a Purchase Period
an amount equal to 85% of the Fair Market Value (as defined in Section 2(l)
above) of a Share of Common Stock on the Offering Date or on the Purchase Date,
whichever is lower; provided, however, that in the event (i) there is any
increase in the number of Shares available for issuance under the Plan
(including without limitation an automatic increase pursuant to Section 14(a)

                                      -2-
<PAGE>

below or as a result of a stockholder-approved amendment to the Plan), and (ii)
all or a portion of such additional Shares are to be issued with respect to one
or more Offering Periods that are underway at the time of such increase
("ADDITIONAL SHARES"), and (iii) the Fair Market Value of a Share of Common
Stock on the date of such increase is higher than the Fair Market Value on the
Offering Date for any such Offering Period, then in such instance the Purchase
Price with respect to such Additional Shares shall be 85% of the Fair Market
Value of a Share of Common Stock on the date of such increase or the Fair Market
Value of a Share of Common Stock on the Purchase Date, whichever is lower.

                  (t) "SHARE" means a share of Common Stock, as adjusted in
accordance with Section 20 of the Plan.

                  (u) "SUBSIDIARY" means a corporation, domestic or foreign, of
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.

                  (v) "TRADING DAY" means a day on which national stock
exchanges and the Nasdaq System are open for trading.

         3. ELIGIBILITY.

                  (a) Any person who is an Employee as of the Offering Date of a
given Offering Period shall be eligible to participate in such Offering Period
under the Plan, subject to the requirements of Section 5(a) and the limitations
imposed by Section 423(b) of the Code.

                  (b) Any provisions of the Plan to the contrary
notwithstanding, no Employee shall be granted an option under the Plan (i) to
the extent that, immediately after the grant, such Employee (or any other person
whose stock would be attributed to such Employee pursuant to Section 424(d) of
the Code) would own capital stock of the Company and/or hold outstanding options
to purchase stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of stock of the Company or of any
Subsidiary, or (ii) to the extent such option would permit his or her rights to
purchase stock under all employee stock purchase plans (described in Section 423
of the Code) of the Company and its Subsidiaries to accrue at a rate which
exceeds twenty-five thousand dollars ($25,000) of Fair Market Value (as defined
in Section 2(l) above) of such stock (determined at the time such option is
granted) for each calendar year in which such option is outstanding at any time.

         4. OFFERING PERIODS AND PURCHASE PERIODS.

                  (a) OFFERING PERIODS. The Plan shall be implemented by a
series of Offering Periods generally of twenty-four (24) months duration and not
exceeding twenty-seven (27) months duration, with new Offering Periods
commencing on or about February 1 and August 1 of each year, or at such other
time or times as may be determined by the Board of Directors. Offering Periods
shall commence on a continuing and overlapping basis until terminated in
accordance with Section 21 hereof. Notwithstanding the foregoing, the first
Offering Period under the Plan shall commence on the beginning of the effective
date of the Registration Statement on Form S-1 for the initial public offering

                                      -3-
<PAGE>

of the Company's Common (the "IPO DATE") and continue until the last Trading Day
on or before July 31, 2001. The Board of Directors of the Company shall have the
power to change the duration and/or the frequency of Offering Periods with
respect to future offerings without stockholder approval if such change is
announced at least five (5) days prior to the scheduled beginning of the first
Offering Period to be affected.

                  (b) PURCHASE PERIODS. Each Offering Period shall generally
consist of four (4) Purchase Periods of approximately six (6) months duration,
the first commencing on the Offering Date and ending on the July 31 or January
31 next following, and each other Purchase Period in such Offering Period
commencing on the day after the last day of the preceding Purchase Period and
ending on the July 31 or January 31 next following; provided, however, that the
first Purchase Period shall commence on the IPO Date and shall end on January
31, 2000. The Board of Directors of the Company shall have the power to change
the duration and/or frequency of Purchase Periods with respect to future
purchases without stockholder approval if such change is announced at least five
(5) days prior to the otherwise scheduled beginning of the first Purchase Period
to be affected.

         5. PARTICIPATION.

                  (a) An eligible Employee may become a participant in the Plan
by completing a subscription agreement on the form provided by the Company and
filing it with the Company's payroll office prior to the applicable Offering
Date, unless a later time for filing the subscription agreement is set by the
Board for all eligible Employees with respect to a given Offering Period.

                  (b) The subscription agreement shall set forth the Employee's
participation election, either in the form of a designation of the percentage of
the Employee's Compensation the Employee elects to have deducted from his or her
pay on each pay day during the Offering Period and credited to his or her
account under the Plan to be used to purchase shares on the Purchase Date for
each of the relevant Purchase Periods, which percentage shall be not less than
one percent (1%) and not more than twenty percent (20%), or, if permitted by the
Board, in the form of a designation of the number of whole shares the Employee
elects to purchase at the end of each Purchase Period with respect to the
Offering Period, up to such maximum number of shares as the Board may establish
from time to time before an Offering Date; provided that to the extent a
participant is participating in more than one Offering Period and the maximum
contribution amount is designated as a percentage of Compensation, the maximum
aggregate percentage of Compensation that the participant may contribute under
the Plan shall be twenty percent (20%) (or such greater percentage as the Board
may establish from time to time before an Offering Date).

                  (c) A participant's subscription shall be effective for each
successive Offering Period in which he or she is eligible to participate, unless
the participant withdraws in accordance with Section 11(a).

                  (d) In addition to the limits on an Employee's participation
in the Plan set forth herein, the Board may establish limits on the number of
shares an Employee may elect to purchase with respect to any Offering Period if
such limit is announced at least fifteen (15) days prior to the scheduled
beginning of the first Offering Period to be affected.

                                      -4-
<PAGE>

         6. GRANT OF OPTION. On the Offering Date of each Offering Period, each
eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Purchase Date a number of Shares of the Company's
Common Stock determined by dividing such Employee's Contributions accumulated
prior to such Purchase Date and retained in the participant's account as of the
Purchase Date by the applicable Purchase Price, provided, however, that the
maximum number of Shares an Employee may purchase on any Purchase Date under the
Plan (without regard to how many Offering Periods in which the participant is
participating) shall be 2,500 Shares (subject to adjustment pursuant to Section
20 below and subject to allocation among Offering Periods so that Shares are
first allocated to that Offering Period having the lowest applicable Purchase
Price, and then thereafter to that Offering Period with the next-lowest
applicable Purchase Price, and so forth), and provided further that such
purchase shall be subject to the limitations set forth in Sections 3(b) and
9(b).

         7. METHOD OF PAYMENT OF CONTRIBUTIONS.

                  (a) PAYROLL DEDUCTIONS.

                           (i) If an Employee's participation election is in the
form of an election to contribute a percentage of his or her Compensation
through payroll deductions, or if an Employee otherwise elects to make
contributions to the Plan through payroll deductions of a specified percentage
of his or her Compensation as permitted by the Board with respect to an
Employee's participation election in the form of an election to purchase a
designated number of shares at the end of each Purchase Period, such payroll
deductions shall commence on the first payroll following the Offering Date and
shall end on the last payroll paid in the Offering Period to which such
subscription agreement and payroll deduction authorization is applicable, unless
sooner terminated by the participant as provided in Section 11. All payroll
deductions made by a participant shall be credited to his or her account under
the Plan.

                           (ii) A participant may discontinue his or her
participation in the Plan as provided in Section 11, or on one occasion only
during an Offering Period may increase and on one occasion only during an
Offering Period decrease the rate of his or her payroll deductions with respect
to the Offering Period by completing and filing with the Company a new
subscription agreement authorizing a change in payroll deduction rate. The
change in rate shall be effective as of the beginning of the next calendar month
commencing ten (10) or more business days after the date the new subscription is
filed.

                           (iii) Notwithstanding the foregoing, to the extent
necessary to comply with Section 423(b)(8) of the Code and Section 3(b) herein,
a participant's payroll deductions may be decreased by the Company to zero
percent (0%) at any time during a Purchase Period. Payroll deductions shall
re-commence at the rate provided in such participant's subscription agreement at
the beginning of the first Purchase Period which is scheduled to end in the
following calendar year, unless terminated by the participant as provided in
Section 11.

                                      -5-
<PAGE>

                  (b) CASH OR STOCK CONTRIBUTIONS. To the extent permitted by
the Board, a participant may make contributions to the Plan for purchase of
shares in cash or by tendering Company stock or by election to receive shares
representing the difference between the Purchase Price and the Fair Market Value
of the shares, less applicable withholding. Any such cash or stock contribution,
or any election to receive net shares, must be received by the Company in
accordance with procedures and at such times as established by the Board, and a
participant's failure to make such contributions or such an election within the
time required, to the extent the aggregate Purchase Price of the number of
shares the participant has an option to purchase on the Purchase Date exceeds
payroll deduction contributions made by the participant as of the Purchase Date,
shall be deemed a withdrawal from the Offering Period with respect to shares
subject to the option not purchased on the applicable Purchase Date and with
respect to all other Purchase Periods in such Offering Period.

         8. WITHHOLDING TAX OBLIGATIONS. At the time the option is exercised, in
whole or in part, or at the time some or all of the Company's Common Stock
issued under the Plan is disposed of, the participant must make adequate
provision for payment to the Company of the Company's federal, state or other
tax withholding obligations, if any, which arise upon the exercise of the option
or the disposition of the Common Stock. At any time, the Company may, but shall
not be obligated to, withhold from the participant's compensation the amount
necessary for the Company to meet applicable withholding obligations, including
any withholding required to make available to the Company any tax deductions or
benefits attributable to the sale or early disposition of Common Stock by the
participant.

         9. EXERCISE OF OPTION.

                  (a) Unless a participant withdraws from the Plan as provided
in Section 11, his or her option for the purchase of Shares will be exercised
automatically on each Purchase Date of an Offering Period, and the maximum
number of full Shares subject to the option will be purchased at the applicable
Purchase Price with the accumulated Contributions in his or her account. The
Shares purchased upon exercise of an option hereunder shall be deemed to be
transferred to the participant on the Purchase Date. During his or her lifetime,
a participant's option to purchase Shares hereunder is exercisable only by him
or her.

                  (b) If the Board determines that, on a given Purchase Date,
the number of Shares with respect to which options are to be exercised may
exceed (i) the number of Shares of Common Stock that were available for sale
under the Plan on the Offering Date of the applicable Offering Period (after
deduction of all Shares for which options have been exercised or are then
outstanding), or (ii) the number of shares available for sale under the Plan on
such Purchase Date (after deduction of all Shares for which options have been
exercised or are then outstanding), the Board may, in its sole discretion,
provide that the Shares of Common Stock available for purchase on such Offering
Date or Purchase Date, as applicable, shall be allocated pro rata, in as uniform
a manner as shall be practicable and as it shall determine in its sole
discretion to be equitable among all participants exercising options to purchase
Common Stock on such Purchase Date and (x) continue all Offering Periods then in
effect or (y) pursuant to Section 21 below, terminate any or all Offering
Periods then in effect. The Board may direct that the Shares available on the
Offering Date of any applicable Offering Period pursuant to the preceding
sentence be allocated pro rata, notwithstanding any authorization of additional
Shares for issuance under the Plan by the Company's stockholders subsequent to
such Offering Date.

                                      -6-
<PAGE>

                  (c) Any cash remaining to the credit of a participant's
account under the Plan after a purchase by him or her of Shares at the
termination of each Purchase Period which is insufficient to purchase a full
Share shall be carried over to the next Purchase Period if the Employee
continues to participate in the Plan, or if the Employee does not continue to
participate, shall be returned to the participant. Any other amounts left over
in a participant's account after a Purchase Date shall be returned to the
participant.

         10. RIGHTS AS STOCKHOLDER; DELIVERY OF CERTIFICATE.

                  (a) The participant shall have no interest or voting right in
Shares covered by his or her option until such option has been exercised.

                  (b) Shares to be delivered to a participant under the Plan
will be registered in the name of the participant or in the name of the
participant and his or her spouse.

                  (c) As promptly as practicable after each Purchase Date of
each Offering Period, the Company shall arrange the delivery to each
participant, as appropriate, of a certificate representing the Shares purchased
upon exercise of his or her option.

         11. VOLUNTARY WITHDRAWAL.

                  (a) A participant may withdraw all but not less than all the
Contributions credited to his or her account under the Plan at any time prior to
each Purchase Date by giving written notice to the Company. All of the
participant's Contributions credited to his or her account will be paid to him
or her promptly after receipt of his or her notice of withdrawal and his or her
option for the current Offering Period will be automatically terminated, and no
further Contributions for the purchase of Shares will be made during and with
respect to such Offering Period.

                  (b) A participant's voluntary withdrawal from the Plan with
respect to an Offering Period will not have any effect upon his or her
eligibility to participate in a succeeding Offering Period or in any similar
plan which may hereafter be adopted by the Company.

         12. AUTOMATIC WITHDRAWAL.

                  (a) REDUCTION OF HOURS. In the event an Employee fails to
remain in Continuous Status as an Employee of the Company for at least twenty
(20) hours per week during the Offering Period in which the employee is a
participant, he or she will be deemed to have elected to withdraw from the Plan
and the Contributions credited to his or her account will be returned to him or
her and his or her option terminated.

                  (b) TERMINATION OF EMPLOYMENT. Upon termination of the
participant's Continuous Status as an Employee prior to the Purchase Date of an
Offering Period (other than on account of death), he or she will be
automatically withdrawn from the Plan effective as of the date of such

                                      -7-
<PAGE>

termination of his or her Continuous Status as an Employee, the Contributions
credited to his or her account will be returned to him or her, and his or her
option will be automatically terminated.

                  (c) DEATH OF PARTICIPANT. Upon the death of a participant
prior to the Purchase Date of an Offering Period, he or she will be
automatically withdrawn from the Plan, the Contributions credited to his or her
account will be returned to the person or persons entitled thereto under Section
16, and his or her option will be automatically terminated.

                  (d) REDUCTION IN FAIR MARKET VALUE. To the extent permitted by
any applicable laws, regulations or stock exchange rules, if the Fair Market
Value of the Shares on a Purchase Date of an Offering Period (other than the
final Purchase Date of such Offering Period) is less than the Fair Market Value
of the Shares on the Offering Date for such Offering Period, then every
participant shall automatically (i) be withdrawn from such Offering Period at
the close of such Purchase Date and after the acquisition of Shares for such
Purchase Period, and (ii) be enrolled in the first Offering Period commencing
subsequent to such Purchase Date. Participants shall automatically be withdrawn
as of July 31, 1999 from the Offering Period beginning on the IPO Date and
re-enrolled in the Offering Period beginning on August 1, 1999 if the Fair
Market Value of the Shares on the IPO Date is greater than the Fair Market Value
of the Shares on July 31, 1999, unless a participant notifies the Administrator
prior to July 31, 1999 that he or she does not wish to be withdrawn and
re-enrolled. All payroll deductions accumulated in a participant's account as of
a withdrawal date pursuant to this Section 12(d) shall be returned to the
participant.

         13. INTEREST. No interest shall accrue on the Contributions of a
participant in the Plan.

         14. STOCK. The maximum number of Shares which shall be made available
for sale under the Plan shall be 600,000 Shares, plus an annual increase on the
first day of each of the Company's fiscal years beginning in 2000, 2001, 2002,
2003 and 2004, equal to the lesser of (A) 250,000 Shares, (B) 1% of the Shares
outstanding on the last day of the immediately preceding fiscal year, or (C)
such lesser number of Shares as is determined by the Board, subject to
adjustment upon changes in capitalization of the Company as provided in Section
20.

         15. ADMINISTRATION. The Board, or a committee named by the Board, shall
supervise and administer the Plan and shall have full power to adopt, amend and
rescind any rules deemed desirable and appropriate for the administration of the
Plan and not inconsistent with the Plan, to construe and interpret the Plan, and
to make all other determinations necessary or advisable for the administration
of the Plan. Every finding, decision and determination made by the Board or its
committee shall, to the full extent permitted by law, be final and binding upon
all parties.

         16. DESIGNATION OF BENEFICIARY.

                  (a) A participant may file a written designation of a
beneficiary who is to receive any Shares and cash, if any, from the
participant's account under the Plan in the event of such participant's death
subsequent to the end of a Purchase Period but prior to delivery to him or her
of such Shares and cash. In addition, a participant may file a written
designation of a beneficiary who is to receive any cash from the participant's
account under the Plan in the event of such participant's death prior to the

                                      -8-
<PAGE>

Purchase Date of an Offering Period. If a participant is married and the
designated beneficiary is not the spouse, spousal consent shall be required for
such designation to be effective. Such designation of beneficiary may be changed
by the participant (with the consent of his or her spouse, if any) at any time
by written notice effective upon receipt by the Company of such notice.

                  (b) In the absence of a beneficiary validly designated in
accordance with Section 16(a) who is living at the time of such participant's
death, upon the death of the participant the Company shall deliver such Shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its discretion, may deliver such Shares and/or
cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.

         17. TRANSFERABILITY. Neither Contributions credited to a participant's
account nor any rights with regard to the exercise of an option or to receive
Shares under the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way by the participant (other than by will, the laws of
descent and distribution, or as provided in Section 16). Any such attempt at
assignment, transfer, pledge or other disposition shall be without effect,
except that the Company may treat such act as an election to withdraw funds in
accordance with Section 11.

         18. USE OF FUNDS. All Contributions received or held by the Company
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such Contributions.

         19. REPORTS. Individual accounts will be maintained for each
participant in the Plan. Statements of account will be given to participating
Employees at least annually, which statements will set forth the amounts of
Contributions, the per Share Purchase Price, the number of Shares purchased and
the remaining cash balance, if any.

         20. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION; CORPORATE TRANSACTIONS.

                  (a) ADJUSTMENT. Subject to any required action by the
stockholders of the Company, the number of Shares covered by each option under
the Plan which has not yet been exercised and the number of Shares which have
been authorized for issuance under the Plan but have not yet been placed under
option (collectively, the "RESERVES"), as well as the maximum number of shares
of Common Stock which may be purchased by a participant in a Purchase Period,
the number of shares of Common Stock set forth in Section 14 above, and the
price per Share of Common Stock covered by each option under the Plan which has
not yet been exercised, shall be proportionately adjusted for any increase or
decrease in the number of issued Shares 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 Shares effected without receipt of consideration by
the Company, which such increase or decrease occurs after the effective date of

                                      -9-
<PAGE>

this Plan; 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 issue 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 subject to an option.

                  (b) CORPORATE TRANSACTIONS. In the event of a dissolution or
liquidation of the Company, any Purchase Period and Offering Period then in
progress will terminate immediately prior to the consummation of such action,
unless otherwise provided by the Board. In the event of a Corporate Transaction,
each option outstanding under the Plan shall be assumed or an equivalent option
shall be substituted by the successor corporation or a parent or subsidiary of
such successor corporation. In the event that the successor corporation refuses
to assume or substitute for outstanding options, each Purchase Period and
Offering Period then in progress shall be shortened and a new Purchase Date
shall be set (the "NEW PURCHASE DATE"), as of which date any Purchase Period and
Offering Period then in progress will terminate. The New Purchase Date shall be
on or before the date of consummation of the transaction and the Board shall
notify each participant in writing, at least ten (10) days prior to the New
Purchase Date, that the Purchase Date for his or her option has been changed to
the New Purchase Date and that his or her option will be exercised automatically
on the New Purchase Date, unless prior to such date he or she has withdrawn from
the Offering Period as provided in Section 11. For purposes of this Section
20(b), an option granted under the Plan shall be deemed to be assumed, without
limitation, if, at the time of issuance of the stock or other consideration upon
a Corporate Transaction, each holder of an option under the Plan would be
entitled to receive upon exercise of the option the same number and kind of
shares of stock or the same amount of property, cash or securities as such
holder would have been entitled to receive upon the occurrence of the Corporate
Transaction if the holder had been, immediately prior to the Corporate
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 in Section 20(a)); provided however
that if the consideration received in the transaction is not solely common stock
of the successor corporation or its parent (as defined in Section 424(e) of the
Code), the Board 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 in Fair Market Value to
the per Share consideration received by holders of Common Stock in the Corporate
Transaction.

         The Board may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the Reserves, as well as the price
per Share of Common Stock covered by each outstanding option, in the event that
the Company effects one or more reorganizations, recapitalizations, rights
offerings or other increases or reductions of Shares of its outstanding Common
Stock, and in the event of the Company's being consolidated with or merged into
any other corporation.

                                      -10-
<PAGE>

         21. AMENDMENT AND TERMINATION.

                  (a) The Board may at any time and for any reason terminate or
amend the Plan. Except as provided in Section 20, no such amendment or
termination of the Plan may materially and adversely affect either options
previously granted or the rights of any then-current participant. In addition,
to the extent necessary to comply with Section 423 of the Code (or any successor
rule or provision or any other applicable law or regulation) or Rule 16b-3 under
the Exchange Act, the Company shall obtain stockholder approval in such a manner
and to such a degree as so required.

                  (b) Without stockholder consent and provided that outstanding
options and participant rights are not materially and adversely affected by such
action, the Board (or its committee) shall be entitled to change the Offering
Periods and Purchase Periods, limit the frequency and/or number of changes in
the amount withheld from a participant's Compensation during an Offering Period,
establish the exchange ratio applicable to amounts withheld in a currency other
than U.S. dollars, permit payroll withholding in excess of the amount designated
by a participant in order to adjust for delays or mistakes in the Company's
processing of properly completed withholding elections, establish reasonable
waiting and adjustment periods and/or accounting and crediting procedures to
ensure that amounts applied toward the purchase of Common Stock for each
participant properly correspond with amounts withheld from the participant's
Compensation, establish such other limitations or procedures as the Board (or
its committee) determines in its sole discretion advisable which are consistent
with the Plan.

         22. NOTICES. All notices or other communications by a participant to
the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.

         23. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such Shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, applicable state securities laws and the requirements of
any stock exchange upon which the Shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.

         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 any of
the aforementioned applicable provisions of law.

         24. TERM OF PLAN; EFFECTIVE DATE. The Plan shall become effective upon
the IPO Date. It shall continue in effect for a term of ten (10) years unless
sooner terminated under Section 21.

                                      -11-
<PAGE>

         25. ADDITIONAL RESTRICTIONS OF RULE 16B-3. The terms and conditions of
options granted hereunder to, and the purchase of Shares by, persons subject to
Section 16 of the Exchange Act shall comply with the applicable provisions of
Rule 16b-3. This Plan shall be deemed to contain, and such options shall
contain, and the Shares issued upon exercise thereof shall be subject to, such
additional conditions and restrictions as may be required by Rule 16b-3 to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.

                                      -12-
<PAGE>

                           PERSISTENCE SOFTWARE, INC.

                        1999 EMPLOYEE STOCK PURCHASE PLAN

                             SUBSCRIPTION AGREEMENT
                             ----------------------

                                                             New Election ______
                                                       Change of Election ______

         1. I, ________________________, hereby elect to participate in the
Persistence Software, Inc. 1999 Employee Stock Purchase Plan (the "PLAN")
commencing with the Offering Period ______________, ____ to _______________,
____, and subscribe to purchase shares of the Company's Common Stock in
accordance with this Subscription Agreement and the Plan.

         2. I elect to have Contributions in the amount of ____% of my
Compensation, as those terms are defined in the Plan, applied to this purchase.
I understand that the total aggregate amount of my Compensation contributed to
the Plan under all Offering Periods in which I am participating must not be less
than 1% and not more than 20% of my Compensation at any point in time. (Please
note that no fractional percentages are permitted).

         3. I hereby authorize payroll deductions from each paycheck during the
Offering Period at the rate stated in Item 2 of this Subscription Agreement. I
understand that all payroll deductions made by me shall be credited to my
account under the Plan and that I may not make any additional payments into such
account. I understand that all payments made by me shall be accumulated for the
purchase of shares of Common Stock at the applicable purchase price determined
in accordance with the Plan. I further understand that, except as otherwise set
forth in the Plan, shares will be purchased for me automatically on each
Purchase Date of an Offering Period unless I otherwise withdraw from the
Offering Period prior to a Purchase Date by giving written notice to the Company
for such purpose.

         4. I understand that I may decrease the rate of my Contributions on one
occasion only during any Offering Period, and that I may increase the rate of my
Contributions on one occasion only during any Offering Period, by completing and
filing a new Subscription Agreement with such decrease or increase, as the case
may be, taking effect as of the beginning of the calendar month following the
date of filing of the new Subscription Agreement, if filed at least ten (10)
business days prior to the beginning of such month. I also understand that I may
change the rate of deductions for future Offering Periods by filing a new
Subscription Agreement, and any such change will be effective as of the
beginning of the next Offering Period in which I am eligible to participate
commencing after the new Subscription Agreement is filed.

         5. I understand that I may discontinue my participation in an Offering
Period at any time prior to a Purchase Date as provided in Section 11 of the
Plan, and that if I do so I will not be permitted to renew participation in such
Offering Period.

<PAGE>

         I UNDERSTAND THAT UNLESS I DISCONTINUE MY PARTICIPATION IN AN OFFERING
PERIOD AS PROVIDED IN SECTION 11 OF THE PLAN OR CHANGE THE RATE OF DEDUCTIONS BY
FILING A NEW SUBSCRIPTION AGREEMENT, MY ELECTION MADE UNDER THIS SUBSCRIPTION
AGREEMENT WILL CONTINUE TO BE EFFECTIVE FOR EACH SUCCESSIVE OFFERING PERIOD
COMMENCING AFTER THE TERMINATION OF AN OFFERING PERIOD IN WHICH I HAVE
PARTICIPATED.

         6. I have received a copy of the Company's most recent description of
the Plan and a copy of the complete "Persistence Software, Inc. 1999 Employee
Stock Purchase Plan." I understand that my participation in the Plan is in all
respects subject to the terms of the Plan.

         7. Shares purchased for me under the Plan should be issued in the
name(s) of (name of employee or employee and spouse only):

                                            ____________________________________

                                            ____________________________________

         8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due to me under the Plan:

NAME:  (Please print)                      _____________________________________
                                           (First)       (Middle)        (Last)

____________________                       _____________________________________
(Relationship)                             (Address)

                                           _____________________________________

                   Summary of Tax Treatment On Sale of Shares
                   ------------------------------------------

         THE FOLLOWING INFORMATION REGARDING THE FEDERAL TAX TREATMENT ON SALE
OF SHARES ACQUIRED UNDER THE PLAN IS ONLY A SUMMARY AND IS SUBJECT TO CHANGE,
AND IS NOT INTENDED TO REPRESENT OR PROVIDE TAX ADVICE TO THE PARTICIPANT, HIS
OR HER SPOUSE OR BENEFICIARIES. YOU SHOULD CONSULT A TAX ADVISOR CONCERNING THE
TAX IMPLICATIONS OF THE PURCHASE AND SALE OF STOCK UNDER THE PLAN.

         If any shares received pursuant to the Plan are sold or otherwise
disposed of within two (2) years after the first day of the Offering Period
during which I purchased such shares or within one (1) year after the Purchase
Date, the excess of the fair market value of the shares on the Purchase Date
over the price paid for the shares on such Purchase Date will be treated for
federal income tax purposes as ordinary compensation income at the time of such
disposition, regardless of the amount received on sale or other disposition of
the shares, even if such amount is less than their fair market value at the
Purchase Date. The remainder of the gain or loss, if any, recognized on such
disposition will be treated as capital gain or loss.

                                      -2-
<PAGE>

         If any shares received pursuant to the Plan are sold or otherwise
disposed of at any time after expiration of the 2-year and 1-year holding
periods, the lesser of 15% of the fair market value of the shares on the
Offering Date or the excess of the fair market value of the shares at the time
of such sale or disposition over the price paid for the shares on the Purchase
Date will be treated for federal income tax purposes as ordinary compensation
income. The remainder of the gain or loss, if any, recognized on such
disposition will be treated as capital gain or loss.

         9. I hereby agree to notify the Company in writing within 30 days after
the date of any disposition of shares within two (2) years after the first day
of the Offering Period during which I purchased such shares or within one (1)
year after the Purchase Date, and I will make adequate provision for federal,
state or other tax withholding obligations, if any, which arise upon the
disposition of the Common Stock. The Company may, but will not be obligated to,
withhold from my compensation the amount necessary to meet any applicable
withholding obligation including any withholding necessary to make available to
the Company any tax deductions or benefits attributable to the sale or early
disposition of Common Stock by me.

         10. I hereby agree to be bound by the terms of the Plan. The
effectiveness of this Subscription Agreement is dependent upon my eligibility to
participate in the Plan.

SIGNATURE: ____________________________________________

SOCIAL SECURITY #: ____________________________________

DATE:__________________________________________________

SPOUSE'S SIGNATURE (necessary if beneficiary is not spouse):

_______________________________________________________
(Signature)

_______________________________________________________
(Print name)

                                      -3-
<PAGE>

                           PERSISTENCE SOFTWARE, INC.

                        1999 EMPLOYEE STOCK PURCHASE PLAN

                              NOTICE OF WITHDRAWAL
                              --------------------

         I, __________________________, hereby elect to withdraw my
participation in the Persistence Software, Inc. 1999 Employee Stock Purchase
Plan (the "PLAN") for the Offering Period commencing ____________. This
withdrawal covers all Contributions credited to my account and is effective on
the date designated below.

         I understand that all Contributions credited to my account will be paid
to me within ten (10) business days of receipt by the Company of this Notice of
Withdrawal and that my option for the current period will automatically
terminate, and that no further Contributions for the purchase of shares can be
made by me with respect to the Offering Period from which I have hereby
withdrawn.

         I further understand and agree that I will be eligible to participate
in succeeding Offering Periods only by delivering to the Company a new
Subscription Agreement prior to the commencement of such Offering Period in
accordance with procedures established by the Company.

Dated:___________________                       ________________________________
                                                Signature of Employee

                                                ________________________________
                                                Social Security Number

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