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 April 13, 2000)
                             (Amended June 7, 2001)

         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
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
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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:

                      (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
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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 June 7, 2001) 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 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
permitted by the
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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 above pursuant to
a Corporate Transaction.

                  (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
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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
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
<PAGE>   10
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.

                       (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
<PAGE>   11
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,
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
<PAGE>   12
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. The purchase price for Shares
repurchased pursuant to the Restricted Stock Purchase Agreement shall be the
original purchase price paid by the purchaser and may be paid by cash, check or
cancellation of any indebtedness of the purchaser to the Company, at the
Company's option. The Repurchase Option shall lapse at such rate as the
Administrator may determine; provided however that with respect to a Stock
Purchase Right granted prior to the date, if any, on which the Common Stock
becomes a Listed Security 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, 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.

                  (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
<PAGE>   13
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 amount required to be withheld. 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 amount
required to be withheld.

                  (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.
Options and Stock Purchase Rights may not be 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);
provided that, after the date, if any, upon which the Common Stock becomes 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. 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.
<PAGE>   14
         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.

                  (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
<PAGE>   15

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.

                  (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
<PAGE>   16
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.
<PAGE>   17
                           PERSISTENCE SOFTWARE, INC.
                                 1997 STOCK PLAN

                          NOTICE OF STOCK OPTION GRANT
                            [Forms for Use Post-IPO]

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

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

<TABLE>
<S>                                                <C>
         Board Approval Date:                      <<BoardApprovDate>>

         Date of Grant (Later of Board
         Approval Date or Commence-
         ment of Employment/Consulting):           <<GrantDate>>

         Exercise Price per Share:                 $<<ExercisePrice>>

         Total Number of Shares Granted:           <<NoofShares>>

         Total Exercise Price:                     $<<TotalExercisePrice>>

         Type of Option:                           <<NoSharesISO>> Incentive Stock Option

                                                   <<NoSharesNSO>> Nonstatutory Stock Option

         Term/Expiration Date:                     <<Term/ExpirDate>>

         Vesting Commencement Date:                <<VestingCommenceDate>>

         Vesting Schedule:                         This Option may be exercised, in whole or in part, in accordance with the
                                                   following schedule: <<Vesting>>
</TABLE>
<PAGE>   18
<TABLE>
<S>                                                <C>
         Termination                               Period: Option may be
                                                   exercised for 30 days after
                                                   termination of employment or
                                                   consulting relationship
                                                   except as set out in Sections
                                                   6 and 7 of the Stock Option
                                                   Agreement (but in no event
                                                   later than the Expiration
                                                   Date).

         Transferability:                          [Not Transferable.] [Transferable as follows: ]
</TABLE>

         By your signature and the signature of the Company's representative
below, you and the Company agree that this option is granted under and governed
by the terms and conditions of the 1997 Stock Plan and the Stock Option
Agreement, both of which are attached and made a part of this document.

<<OPTIONEE>>:                               PERSISTENCE SOFTWARE, INc.

                                            By:
Signature

Print Name                                  Print Name and Title

Address (if different from above):          Address:

                                            1720 South Amphlett Blvd., Suite 300
                                            San Mateo, CA  94402
<PAGE>   19
                           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>> ("Optionee"), an option (the
"Option") to purchase a total number of shares of Common Stock (the "Shares")
set forth in the Notice of Stock Option Grant, at the exercise price per share
set forth in the Notice of Stock Option Grant (the "Exercise Price") subject to
the terms, definitions and provisions of the Persistence Software, Inc. Stock
Option Plan (the "Plan") adopted by the Company, which is incorporated herein by
reference. Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Option Agreement. In the event of a
conflict between the terms and conditions of the Plan and the terms and
conditions of this Option Agreement, the terms and conditions of the Plan shall
prevail.

                  To the extent designated an Incentive Stock Option in the
Notice of Stock Option Grant, this Option is intended to qualify as an Incentive
Stock Option as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code") and, to the extent not so designated, this Option is
intended to be a Nonstatutory Stock Option. Notwithstanding the foregoing, 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) 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.

         2.       EXERCISE OF OPTION.

                  (a) RIGHT TO EXERCISE. This Option is exercisable during its
Term in accordance with the Vesting Schedule set out in the Notice of Stock
Option Grant and the applicable provisions of the Plan and this Stock Option
Agreement. In the event of Optionee's death, disability or the termination of
Optionee's Continuous Service, the exercisability of the Option is governed by
the applicable provisions of the Plan and this Stock Option Agreement. This
Option may not be exercised for a fraction of a Share.

                  (b)      METHOD OF EXERCISE.

                           (i) This Option shall be exercisable in whole or in
part as to Shares which have vested under the Vesting Schedule indicated on the
Notice of Stock Option Grant by execution and delivery to the Company a written
notice of exercise in the form attached as Exhibit A (the "Exercise Notice"),
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the "Exercised Shares"), and
such other representations and agreements as to the holder's
<PAGE>   20
investment intent with respect to such Shares of Common Stock as may be required
by the Company pursuant to the provisions of the Plan. Such written notice of
exercise shall be signed by Optionee and shall be delivered in person or by
certified mail to the Secretary of the Company. The written notice of exercise
shall be accompanied by payment of the aggregate Exercise Price as to all
Exercised Shares. This Option shall be deemed to be exercised upon receipt by
the Company of such fully executed written notice of exercise, accompanied by
such aggregate Exercise Price.

                           (ii) As a condition to the exercise of this Option,
Optionee agrees to make adequate provision for
federal, state or other tax withholding obligations, if any, which arise upon
the exercise of the Option or disposition of Shares, whether by withholding,
direct payment to the Company, or otherwise, as set forth in Section 11 of this
Agreement.

                           (iii) No Shares will be issued pursuant to the
exercise of an Option unless such issuance and such exercise shall comply with
all relevant provisions of applicable law and the requirements of any stock
exchange upon which the Shares may then be listed. 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.

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

                  (a) cash;

                  (b) check;

                  (c) surrender of other Shares of Common Stock of the Company
that (i) in the case of Shares acquired upon exercise of an Option, have either
been owned by Optionee for more than six (6) 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
(ii) have a fair market value on the date of surrender equal to the Exercise
Price of the Shares as to which the Option is being exercised; or

                  (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.

         4. RESTRICTIONS ON EXERCISE. 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 207 of Title 12 of the Code of Federal Regulations ("Regulation G") 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 any applicable law or regulation.

                                      -2-
<PAGE>   21
         5. TERMINATION OF CONTINUOUS SERVICE. In the event of termination of
Optionee's Continuous Service, 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 of Stock Option Grant. To
the extent that Optionee was not entitled to exercise this Option at such
Termination Date, or if Optionee does not exercise this Option within the
Termination Period, the Option shall terminate.

         6. DISABILITY OF OPTIONEE.

                  (a) Notwithstanding the provisions of Section 5 above, in the
event of termination of Optionee's Continuous Service 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. To the extent that Optionee was not
entitled to exercise the Option as of the Termination Date, or if Optionee does
not exercise such Option (to the extent so entitled) within the time specified
in this Section 6(a), the Option shall terminate.

                  (b) Notwithstanding the provisions of Section 5 above, in the
event of termination of Optionee's Continuous Service as a result of disability
not constituting a total and permanent disability (as set forth in Section
22(e)(3) of the Code), 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; provided, however, that
if this is an Incentive Stock Option and Optionee fails to exercise this
Incentive Stock Option within three (3) months from the Termination Date, this
Option will cease to qualify as an Incentive Stock Option (as defined in Section
422 of the Code) and Optionee will be treated for federal income tax purposes as
having received ordinary income at the time of such exercise in an amount
generally measured by the difference between the Exercise Price for the Shares
and the fair market value of the Shares on the date of exercise. To the extent
that Optionee was not entitled to exercise the Option at the Termination Date,
or if Optionee does not exercise such Option to the extent so entitled within
the time specified in this Section 6(b), the Option shall terminate.

         7. 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 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 (but in
no event later than the Expiration Date set forth in the Notice of Stock Option
Grant), 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 of the right to
exercise that had accrued at the Termination Date.

         8. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution or
pursuant to a

                                      -3-
<PAGE>   22
domestic relations order (as defined by the Code or rules thereunder), except as
set forth in the Notice of Stock Option Grant and subject to Applicable Laws.
This Option may be exercised during the lifetime of Optionee only by him or her
or by a transferee permitted by this Section 8. The terms of this Option shall
be binding upon the executors, administrators, heirs, successors and assigns of
Optionee.

         9. TERM OF OPTION. This Option may be exercised only within the Term
set forth in the Notice of Stock Option Grant, subject to the limitations set
forth in Section 7 of the Plan.

         10. TAX CONSEQUENCES. Optionee acknowledges that he or she has read the
brief summary set forth below 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 NECESSARILY 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) EXERCISE OF INCENTIVE STOCK OPTION. 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 item of alternative minimum taxable income for
federal tax purposes and may subject Optionee to the alternative minimum tax in
the year of exercise.

                  (b) EXERCISE OF NONSTATUTORY STOCK OPTION. If this Option does
not qualify as an Incentive Stock Option, Optionee may incur 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.

                  (c) DISPOSITION OF SHARES. In the case of a Nonstatutory Stock
Option, if Shares are held for more than 12 months, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes. In the case of an Incentive Stock Option, if Shares
transferred pursuant to the Option are held for more than one year after
exercise and more than two years after the Date of Grant, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes. If Shares purchased under an Incentive Stock Option are
disposed of within either of such two holding periods, then 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 sales proceeds of the Shares.

                                      -4-
<PAGE>   23
                  (d) NOTICE OF DISQUALIFYING DISPOSITION OF INCENTIVE STOCK
OPTION SHARES. If the Option granted to Optionee herein is an Incentive Stock
Option, and if Optionee sells or otherwise disposes of any of the Shares
acquired pursuant to the Incentive Stock Option on or before the later of (i)
the date two years after the Date of Grant, or (ii) the date one year after the
date of exercise, Optionee shall notify the Company in writing within thirty
(30) days after the date of any 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.

         11. WITHHOLDING TAX OBLIGATIONS. Optionee acknowledges and agrees that
the delivery of any Shares under the Plan is conditioned on satisfaction by the
Optionee of applicable federal, state, local or foreign withholding tax
obligations that may arise in connection with the exercise of an Option. Such
withholding obligations shall be satisfied in accordance with the provisions of
Section 12 of the Plan.

         12. MARKET STANDOFF AGREEMENT. In connection with the initial public
offering of the Company's securities and upon request of the Company or the
underwriters managing any underwritten offering of the Company's securities,
Optionee hereby agrees not to sell, make any short sale of, loan, grant any
option for the purchase of, or otherwise dispose of any Shares (other than those
included in the registration) without the prior written consent of the Company
or such underwriters, as the case may be, for such period of time (not to exceed
180 days) from the effective date of such registration as may be requested by
the Company or such managing underwriters and to execute an agreement reflecting
the foregoing as may be requested by the underwriters at the time of the public
offering.

                            [Signature Page Follows]

                                      -5-
<PAGE>   24
         This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original and all of which together shall constitute one
document.

                                        PERSISTENCE SOFTWARE, INC.

                                        By:

                                        (Print name and title)

         OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO
THE OPTION HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS AN EMPLOYEE OR
CONSULTANT AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING
GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER
ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S
STOCK OPTION PLAN WHICH IS INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON
OPTIONEE ANY RIGHT WITH RESPECT TO CONTINUATION OF SUCH EMPLOYMENT OR CONSULTING
RELATIONSHIP BY THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH OPTIONEE'S
RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTING
RELATIONSHIP AT ANY TIME, WITH OR WITHOUT CAUSE.

         Optionee acknowledges receipt of a copy of the Plan and represents that
he or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option.

Dated:
                                                 <<Optionee>>

                                      -6-
<PAGE>   25
                                    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 dated                , as
follows:

         Date of Grant (or Grant Number):

         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:
<PAGE>   26
                           PERSISTENCE SOFTWARE, INC.

                                 1997 STOCK PLAN

                         COMMON STOCK PURCHASE AGREEMENT

         This Restricted Stock Purchase Agreement (the "Agreement") is made as
of __________________, 19__, by and between Persistence Software, Inc., a
Delaware corporation (the "Company"), and ____________________ ("Purchaser")
pursuant to the Company's 1997 Stock Plan.

         1. SALE OF STOCK. Subject to the terms and conditions of this
Agreement, on the Purchase Date (as defined below) the Company will issue and
sell to Purchaser, and Purchaser agrees to purchase from the Company,
_______________ shares of the Company's Common Stock (the "Shares") at a
purchase price of $_____ per Share for a total purchase price of
$_________________. The term "Shares" refers to the purchased Shares and all
securities received in replacement of or in connection with the Shares pursuant
to stock dividends or splits, all securities received in replacement of the
Shares in a recapitalization, merger, reorganization, exchange or the like, and
all new, substituted or additional securities or other properties to which
Purchaser is entitled by reason of Purchaser's ownership of the Shares.

         2. PURCHASE. The purchase and sale of the Shares under this Agreement
shall occur at the principal office of the Company, in accordance with Section
11 of the Plan, simultaneously with the execution of this Agreement by the
parties or on such other date as the Company and Purchaser shall agree (the
"Purchase Date"). On the Purchase Date, the Company will deliver to Purchaser a
certificate representing the Shares to be purchased by Purchaser (which shall be
issued in Purchaser's name) against payment of the purchase price therefor by
Purchaser by check made payable to the Company.

         3. LIMITATIONS ON TRANSFER. In addition to any other limitation on
transfer created by applicable securities laws, Purchaser shall not assign,
encumber or dispose of any interest in the Shares while the Shares are subject
to the Company's Repurchase Option (as defined below). After any Shares have
been released from the Repurchase Option, Purchaser shall not assign, encumber
or dispose of any interest in such Shares except in compliance with the
provisions below and applicable securities laws.

                  (a)      REPURCHASE OPTION.

                            (i) In the event of the voluntary or involuntary
termination of Purchaser's Continuous Service for any reason (including death or
disability), with or without cause, the Company shall upon the date of such
termination (the "Termination Date") have an irrevocable, exclusive option (the
"Repurchase Option") for a period of 60 days from such date to repurchase all or
any portion of the Shares held by Purchaser as of the Termination Date which
have not yet been released from the Company's Repurchase Option at the original
purchase price per Share specified in Section 1 (adjusted for any stock splits,
stock dividends and the like).
<PAGE>   27
                            (ii) The Repurchase Option shall be exercised by the
Company by written notice to Purchaser or Purchaser's executor and, at the
Company's option, (A) by delivery to Purchaser or Purchaser's executor with such
notice of a check in the amount of the purchase price for the Shares being
purchased, or (B) in the event Purchaser is indebted to the Company, by
cancellation by the Company of an amount of such indebtedness equal to the
purchase price for the Shares being repurchased, or (C) by a combination of (A)
and (B) so that the combined payment and cancellation of indebtedness equals
such purchase price. Upon delivery of such notice and payment of the purchase
price in any of the ways described above, the Company shall become the legal and
beneficial owner of the Shares being repurchased and all rights and interest
therein or related thereto, and the Company shall have the right to transfer to
its own name the number of Shares being repurchased by the Company, without
further action by Purchaser.

                            (iii) _______ percent (___%) of the Shares shall
initially be subject to the Repurchase Option. The Shares shall be released from
the Repurchase Option in accordance with the following Vesting Schedule:
[Example:): __ of the total number of Shares shall be released from the
Repurchase Option on the __-month anniversary of the Vesting Commencement Date
(as set forth on the signature page of this Agreement), and an additional __ of
the total number of Shares shall be released from the Repurchase Option each
month thereafter, until all Shares are released from the Repurchase Option]
(provided in each case that Purchaser's Continuous Service has not been
terminated prior to the date of any such release). Fractional shares shall be
rounded to the nearest whole share.

                  (b) RESTRICTIONS BINDING ON TRANSFEREES. All transferees of
Shares or any interest therein will receive and hold such Shares or interest
subject to the provisions of this Agreement, including insofar as applicable the
Company's Repurchase Option. Any sale or transfer of the Shares shall be void
unless the provisions of this Agreement are satisfied.

                  (c) TERMINATION OF RIGHTS. Upon the expiration or exercise of
the Repurchase Option, a new certificate or certificates representing the Shares
not repurchased shall be issued, on request, without the legend referred to in
Section 5(a) below and delivered to Purchaser.

         4. ESCROW OF UNVESTED SHARES. For purposes of facilitating the
enforcement of the provisions of Section 3 above, Purchaser agrees, immediately
upon receipt of the certificate(s) for the Shares subject to the Repurchase
Option, to deliver such certificate(s), together with an Assignment Separate
from Certificate in the form attached to this Agreement as Exhibit A executed by
Purchaser and by Purchaser's spouse (if required for transfer), in blank, to the
Secretary of the Company, or the Secretary's designee, to hold such
certificate(s) and Assignment Separate from Certificate in escrow and to take
all such actions and to effectuate all such transfers and/or releases as are in
accordance with the terms of this Agreement. Purchaser hereby acknowledges that
the Secretary of the Company, or the Secretary's designee, is so appointed as
the escrow holder with the foregoing authorities as a material inducement to
make this Agreement and that said appointment is coupled with an interest and is
accordingly irrevocable. Purchaser agrees that said escrow holder shall not be
liable to any party hereof (or

                                      -3-
<PAGE>   28
to any other party). The escrow holder may rely upon any letter, notice or other
document executed by any signature purported to be genuine and may resign at any
time. Purchaser agrees that if the Secretary of the Company, or the Secretary's
designee, resigns as escrow holder for any or no reason, the Board of Directors
of the Company shall have the power to appoint a successor to serve as escrow
holder pursuant to the terms of this Agreement.

         5.       RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.

                  (a) LEGENDS. The certificate or certificates representing the
Shares shall bear the following legend (as well as any legends required by
applicable state and federal corporate and securities laws):

                                    THE SHARES REPRESENTED BY THIS CERTIFICATE
                                    MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH
                                    THE TERMS OF AN AGREEMENT BETWEEN THE
                                    COMPANY AND THE SHAREHOLDER, A COPY OF WHICH
                                    IS ON FILE WITH THE SECRETARY OF THE
                                    COMPANY.

                  (b) STOP-TRANSFER NOTICES. Purchaser agrees that, in order to
ensure compliance with the restrictions referred to herein, the Company may
issue appropriate "stop transfer" instructions to its transfer agent, if any,
and that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.

                  (c) REFUSAL TO TRANSFER. The Company shall not be required (i)
to transfer on its books any Shares that have been sold or otherwise transferred
in violation of any of the provisions of this Agreement or (ii) to treat as
owner of such Shares or to accord the right to vote or pay dividends to any
purchaser or other transferee to whom such Shares shall have been so
transferred.

         6. NO EMPLOYMENT RIGHTS. Nothing in this Agreement shall affect in any
manner whatsoever the right or power of the Company, or a parent or subsidiary
of the Company, to terminate Purchaser's employment or consulting relationship,
for any reason, with or without cause.

         7. SECTION 83(B) ELECTION. Purchaser understands that Section 83(a) of
the Internal Revenue Code of 1986, as amended (the "Code"), taxes as ordinary
income the difference between the amount paid for the Shares and the fair market
value of the Shares as of the date any restrictions on the Shares lapse. In this
context, "restriction" means the right of the Company to buy back the Shares
pursuant to the Repurchase Option set forth in Section 3(a) of this Agreement.
Purchaser understands that Purchaser may elect to be taxed at the time the
Shares are purchased, rather than when and as the Repurchase Option expires, by
filing an election under Section 83(b) (an "83(b) Election") of the Code with
the Internal Revenue Service within 30 days from the date of purchase. Even if
the fair market value of the Shares at the time of the execution of this
Agreement equals the amount paid for the Shares, the election must be made to
avoid income under Section 83(a) in the future. Purchaser understands that
failure to file such an

                                      -4-
<PAGE>   29
election in a timely manner may result in adverse tax consequences for
Purchaser. Purchaser further understands that an additional copy of such
election form should be filed with his or her federal income tax return for the
calendar year in which the date of this Agreement falls. Purchaser acknowledges
that the foregoing is only a summary of the effect of United States federal
income taxation with respect to purchase of the Shares hereunder, and does not
purport to be complete. Purchaser further acknowledges that the Company has
directed Purchaser to seek independent advice regarding the applicable
provisions of the Code, the income tax laws of any municipality, state or
foreign country in which Purchaser may reside, the tax consequences of
Purchaser's death and the decision as to whether or not to file an 83(b)
Election in connection with the acquisition of the Shares.

         Purchaser agrees that he will execute and deliver to the Company with
this executed Agreement a copy of the Acknowledgment and Statement of Decision
Regarding Section 83(b) Election (the "Acknowledgment"), attached hereto as
Exhibit B. Purchaser further agrees that Purchaser will execute and submit with
the Acknowledgment a copy of the 83(b) Election, attached hereto as Exhibit C,
if Purchaser has indicated in the Acknowledgment his or her decision to make
such an election.

         8.       MISCELLANEOUS.

                  (a) GOVERNING LAW. This Agreement and all acts and
transactions pursuant hereto and the rights and obligations of the parties
hereto shall be governed, construed and interpreted in accordance with the laws
of the State of California, without giving effect to principles of conflicts of
law.

                  (b) ENTIRE AGREEMENT; ENFORCEMENT OF RIGHTS. This Agreement
sets forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.

                  (c) SEVERABILITY. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, the parties agree to
renegotiate such provision in good faith. In the event that the parties cannot
reach a mutually agreeable and enforceable replacement for such provision, then
(i) such provision shall be excluded from this Agreement, (ii) the balance of
this Agreement shall be interpreted as if such provision were so excluded and
(iii) the balance of this Agreement shall be enforceable in accordance with its
terms.

                  (d) CONSTRUCTION. This Agreement is the result of negotiations
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.

                  (e) NOTICES. Any notice required or permitted by this
Agreement shall be in writing and shall be deemed sufficient when delivered
personally or sent by telegram or fax or 48

                                      -5-
<PAGE>   30
hours after being deposited in the U.S. mail, as certified or registered mail,
with postage prepaid, and addressed to the party to be notified at such party's
address or fax number as set forth below or as subsequently modified by written
notice.

                  (f) COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.

                  (g) SUCCESSORS AND ASSIGNS. The rights and benefits of this
Agreement shall inure to the benefit of, and be enforceable by the Company's
successors and assigns. The rights and obligations of Purchaser under this
Agreement may only be assigned with the prior written consent of the Company.

                            [Signature Page Follows]

                                      -6-
<PAGE>   31
         The parties have executed this Agreement as of the date first set forth
above.

                                      PERSISTENCE SOFTWARE, INC.

                                      By:

                                      Title:

                                      Address:

         PURCHASER ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT
TO SECTION 3 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS AN EMPLOYEE OR
CONSULTANT AT THE WILL OF THE COMPANY. PURCHASER FURTHER ACKNOWLEDGES AND AGREES
THAT NOTHING IN THIS AGREEMENT SHALL CONFER UPON PURCHASER ANY RIGHT WITH
RESPECT TO CONTINUATION OF SUCH EMPLOYMENT OR CONSULTING RELATIONSHIP WITH THE
COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH PURCHASER'S RIGHT OR THE
COMPANY'S RIGHT TO TERMINATE PURCHASER'S EMPLOYMENT OR CONSULTING RELATIONSHIP
AT ANY TIME, WITH OR WITHOUT CAUSE.

                                      PURCHASER:

                                      [PURCHASER NAME]

                                      (Signature)

                                      Address:

Vesting Commencement
Date:

I,                                 , spouse of [Purchaser], have read and hereby
approve the foregoing Agreement. In consideration of the Company's granting my
spouse the right to purchase the Shares as set forth in the Agreement, I hereby
agree to be irrevocably bound by the Agreement and further agree that any
community property or similar interest that I may have in the Shares shall be
similarly bound by the Agreement. I hereby appoint my spouse as my
attorney-in-fact with respect to any amendment or exercise of any rights under
the Agreement.

                                      Spouse of [Purchaser]

                                      -7-
<PAGE>   32
                                    EXHIBIT C

                                    EXHIBIT A

                      ASSIGNMENT SEPARATE FROM CERTIFICATE

         FOR VALUE RECEIVED and pursuant to that certain Common Stock Purchase
Agreement between the undersigned ("Purchaser") and Persistence Software, Inc.
(the "Company") dated _______________ (the "Agreement"), Purchaser hereby sells,
assigns and transfers unto the Company _________________________________
(________) shares of the Common Stock of the Company standing in Purchaser's
name on the Company's books and represented by Certificate No. _____, and does
hereby irrevocably constitute and appoint ______________________ to transfer
said stock on the books of the Company with full power of substitution in the
premises. THIS ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT AND
THE EXHIBITS THERETO.

Dated: ______________________

                                           Signature:

                                           _____________________________________
                                           [Purchaser]

                                           _____________________________________
                                           Spouse of [Purchaser] (if applicable)

Instruction: Please do not fill in any blanks other than the signature line. The
purpose of this assignment is to enable the Company to exercise its repurchase
option set forth in the Agreement without requiring additional signatures on the
part of Purchaser.
<PAGE>   33
                                     RECEIPT

         Persistence Software, Inc. hereby acknowledges receipt of a check in
the amount of $__________ given by [______________, Purchaser] as consideration
for Certificate No. ___________ for ____________ shares of Common Stock of
Persistence Software, Inc.

Dated:  ________________

                                    Persistence Software, Inc.

                                    By:_________________________________________

                                    Title:______________________________________
<PAGE>   34
                               RECEIPT AND CONSENT

         The undersigned hereby acknowledges receipt of a photocopy of
Certificate No. ______ for _____________ shares of Common Stock of Persistence
Software, Inc. (the "Company").

         The undersigned further acknowledges that the Secretary of the Company,
or his or her designee, is acting as escrow holder pursuant to the Restricted
Stock Purchase Agreement Purchaser has previously entered into with the Company.
As escrow holder, the Secretary of the Company, or his or her designee, holds
the original of the aforementioned certificate issued in the undersigned's name.

Dated:  _________________________

                                              ___________________________
                                              [Purchaser]
<PAGE>   35
                                    EXHIBIT B

                    ACKNOWLEDGMENT AND STATEMENT OF DECISION
                        REGARDING SECTION 83(b) ELECTION

         The undersigned has entered a stock purchase agreement with Persistence
Software, Inc., a Delaware corporation (the "Company"), pursuant to which the
undersigned is purchasing ______________ shares of Common Stock of the Company
(the "Shares"). In connection with the purchase of the Shares, the undersigned
hereby represents as follows:

         1. The undersigned has carefully reviewed the stock purchase
agreement pursuant to which the undersigned is purchasing the Shares.

         2. The undersigned either [check and complete as applicable]:

         (a) ____ has consulted, and has been fully advised by, the
                  undersigned's own tax advisor, __________________________,
                  whose business address is _____________________________,
                  regarding the federal, state and local tax consequences of
                  purchasing the Shares, and particularly regarding the
                  advisability of making elections pursuant to Section 83(b) of
                  the Internal Revenue Code of 1986, as amended (the "Code") and
                  pursuant to the corresponding provisions, if any, of
                  applicable state law; or

         (b) ____ has knowingly chosen not to consult such a tax advisor.

         3.       The undersigned hereby states that the undersigned has decided
                  [check as applicable]:

         (a) ____ to make an election pursuant to Section 83(b) of the
                  Code, and is submitting to the Company, together with the
                  undersigned's executed Common Stock Purchase Agreement, an
                  executed form entitled "Election Under Section 83(b) of the
                  Internal Revenue Code of 1986"; or

         (b) ____ not to make an election pursuant to Section 83(b) of the Code.
<PAGE>   36
         4._______Neither the Company nor any subsidiary or representative of
the Company has made any warranty or representation to the undersigned with
respect to the tax consequences of the undersigned's purchase of the Shares or
of the making or failure to make an election pursuant to Section 83(b) of the
Code or the corresponding provisions, if any, of applicable state law.

Date:    __________________                    _________________________________
                                               [Purchaser]

Date:    __________________                    _________________________________
                                               Spouse of [Purchaser]
<PAGE>   37
                          ELECTION UNDER SECTION 83(b)
                      OF THE INTERNAL REVENUE CODE OF 1986

         The undersigned taxpayer hereby elects, pursuant to Section 83(b) of
the Internal Revenue Code, to include in taxpayer's gross income for the current
taxable year, the amount of any compensation taxable to taxpayer in connection
with taxpayer's receipt of the property described below:

1. The name, address, taxpayer identification number and taxable year of the
   undersigned are as follows:

   NAME OF TAXPAYER:  [Purchaser]

   NAME OF SPOUSE:

   ADDRESS:

   IDENTIFICATION NO. OF TAXPAYER:

   IDENTIFICATION NO. OF SPOUSE:

   TAXABLE YEAR:

2. The property with respect to which the election is made is described as
   follows:

   ______________ shares of the Common Stock $0.001 par value, of Persistence
   Software, Inc., a Delaware corporation (the "Company").

3. The date on which the property was transferred is: __________________

4. The property is subject to the following restrictions:

   Repurchase option at cost in favor of the Company upon termination of
   taxpayer's employment or consulting relationship.

5. The fair market value at the time of transfer, determined without regard to
   any restriction other than a restriction which by its terms will never lapse,
   of such property is: $_____________.

6. The amount (if any) paid for such property: $______________

The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.

The undersigned understands that the foregoing election may not be revoked
except with the consent of the Commissioner.

Dated: ______________________            ________________________________
                                         Taxpayer
Dated: ______________________            ________________________________
                                         Spouse of Taxpayer<PAGE>   1
                                                                   EXHIBIT 10.8

                           PERSISTENCE SOFTWARE, INC.

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

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

                  All options granted hereunder shall be nonstatutory stock
options.

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

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

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

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

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

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

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

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

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

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

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

DIRECTOR
<PAGE>   2
                  (k) "OPTION" means a stock option granted pursuant to the
Plan. All options shall be nonstatutory stock options (i.e., options that are
not intended to qualify as incentive stock options under Section 422 of the
Code).

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

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

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

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

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

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

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

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

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

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

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

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

DIRECTOR                              -2-

<PAGE>   3
                           (i) No person shall have any discretion to select
which Outside Directors shall be granted Options or to determine the number of
Shares to be covered by Options granted to Outside Directors.

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

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

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

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

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

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

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

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

DIRECTOR                              -3-
<PAGE>   4
                           (ii) the exercise price per Share shall be 100% of
the fair market value per Share on the date of grant of each Option, determined
in accordance with Section 8 hereof;

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

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

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

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

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

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

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

DIRECTOR                              -4-
<PAGE>   5
any way with any rights which the Director or the Company may have to terminate
his or her directorship at any time.

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

         7.       EXERCISE PRICE AND CONSIDERATION.

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

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

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

         8.       EXERCISE OF OPTION.

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

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

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

DIRECTOR                              -5-
<PAGE>   6
Option is exercised has been received by the Company. Full payment may consist
of any consideration and method of payment allowable under Section 7(c) of the
Plan. Until the issuance (as evidenced by the appropriate entry on the books of
the Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a stockholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. A share certificate for the number
of Shares so acquired shall be issued to the Optionee as soon as practicable
after exercise of the Option. No adjustment will be made for a dividend or other
right for which the record date is prior to the date the stock certificate is
issued, except as provided in Section 10 of the Plan.

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

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

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

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

DIRECTOR                              -6-
<PAGE>   7
exercise such Option (to the extent he or she was entitled to exercise) within
the time specified above, the Option shall terminate and the Shares underlying
the unexercised portion of the Option shall revert to the Plan.

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

         10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION; CORPORATE TRANSACTIONS.

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

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

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

DIRECTOR                              -7-
<PAGE>   8
exercise of an Option the same number and kind of shares of stock or the same
amount of property, cash or securities as the Optionee would have been entitled
to receive upon the occurrence of such transaction if the Optionee had been,
immediately prior to such transaction, the holder of the number of Shares of
Common Stock covered by the Option at such time (after giving effect to any
adjustments in the number of Shares covered by the Option as provided for in
this Section 10); provided however that if such consideration received in the
transaction was not solely common stock of the successor corporation or its
Parent, the Administrator may, with the consent of the successor corporation,
provide for the consideration to be received upon exercise of the Option to be
solely common stock of the successor corporation or its Parent equal to the Fair
Market Value of the per Share consideration received by holders of Common Stock
in the transaction.

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

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

         12.      AMENDMENT AND TERMINATION OF THE PLAN.

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

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

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

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

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

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

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

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

DIRECTOR                              -9-
<PAGE>   10
                           PERSISTENCE SOFTWARE, INC.

                        1999 DIRECTORS' STOCK OPTION PLAN

                          NOTICE OF STOCK OPTION GRANT

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

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

         Date of Grant                       <<GrantDate>>

         Exercise Price per Share            <<ExercisePrice>>

         Total Number of Shares Granted      <<SharesGranted>>

         Total Exercise Price                <<TotalExercisePrice>>

         Expiration Date                     <<ExpirDate>>

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

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

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

OPTIONEE:                                    PERSISTENCE SOFTWARE, INC.

                                             By:
Signature
                                             Title:

Print Name

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

                       NONSTATUTORY STOCK OPTION AGREEMENT

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

         2.       EXERCISE OF OPTION.

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

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

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

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

                  (a)      cash;

DIRECTOR
<PAGE>   13
                  (b)      check;

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

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

         4.       SUSPENSION OR TERMINATION OF OPTION.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                                                 PERSISTENCE SOFTWARE, INC.

                                                 By:
<<Optionee>>
                                                 Title:

DIRECTOR                              -4-
<PAGE>   16
                                CONSENT OF SPOUSE

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

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

DIRECTOR
<PAGE>   17
                                    EXHIBIT A

                               NOTICE OF EXERCISE

To:               Persistence Software, Inc.

Attn:             Stock Option Administrator

Subject:          Notice of Intention to Exercise Stock Option

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

         Grant Number:

         Date of Purchase:

         Number of Shares:

         Purchase Price:

         Method of Payment of
         Purchase Price:

         Social Security No.:

         The shares should be issued as follows:

                  Name:

                  Address:

                  Signed:

                  Date:

DIRECTOR

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