SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )

Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]

Check the appropriate box:

[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of Commission Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12

TEKNOWLEDGE CORPORATION
(Name of Registrant as Specified in Its Charter)

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[x] No fee required.

[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

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previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.

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4) Date Filed:

TEKNOWLEDGE CORPORATION

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 24, 2001

The 2001 Annual Meeting of the Stockholders of Teknowledge Corporation (the
"Company") will be held on Friday August 24, 2001 at 10:00 a.m., local time, at
the executive offices of the Company, located at 1810 Embarcadero Road, Palo
Alto, California 94303 for the following purposes:

1. To elect two Class I Directors of the Company to serve for a three-year term;

2. To ratify the selection of Arthur Andersen LLP as independent public
accountants for the Company for the fiscal year ending December 31, 2001;

3. To transact such other business as may properly come before the 2001 Annual
Meeting and any and all adjournments and postponements thereof.

The Board of Directors has fixed the close of business on June 15, 2001 as
the record date for the determination of stockholders entitled to notice of and
to vote at the 2001 Annual Meeting and any adjournments thereof. A complete list
of stockholders entitled to vote at the 2001 Annual Meeting is available for
inspection at the Company's executive offices. Stockholders may examine the list
during ordinary business hours in the 10-day period prior to the meeting. The
list will also be available for inspection at the meeting for any purpose
relating to the meeting.

YOU ARE URGED TO COMPLETE AND SIGN THE ACCOMPANYING PROXY CARD AND RETURN
IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU EXPECT TO ATTEND THE
MEETING.

THE BOARD OF DIRECTORS

/s/ D.A. Bugbee

By: D. A. Bugbee
Secretary

Palo Alto, California
August 3, 2001

TEKNOWLEDGE CORPORATION
1810 Embarcadero Road
Palo Alto, California 94303

ANNUAL MEETING OF STOCKHOLDERS
August 24, 2001

----------------------
PROXY STATEMENT
---------------------

This Proxy Statement and the accompanying proxy card are being mailed on or
about August 3, 2001 in connection with the solicitation of proxies by the Board
of Directors of Teknowledge Corporation, a Delaware Corporation, (the "Company")
for use at the 2001 Annual Meeting of Stockholders of the Company to be held on
Friday, August 24, 2001 or any adjournment thereof, for purposes set forth in
the accompanying Notice of Annual Meeting.

The cost of soliciting proxies will be borne by the Company, in addition to
soliciting stockholders by mail through its regular employees. The Company will
request banks, brokers, custodians, nominees and other fiduciaries to solicit
customers who have stock in the Company registered in the names of such persons
and will reimburse them for their reasonable out-of-pocket costs. The Company
may use the services of its officers, directors, and others to solicit proxies,
personally or by telephone, without additional compensation

Only holders of the Company's Common Stock, par value $.01 per share
("Common Stock"), of record at the close of business on June 15, 2001 will be
entitled to vote at the 2001 Annual Meeting. On that date, there were
outstanding 5,690,835 shares of Common Stock, all of which are entitled to vote
with respect to all matters to be acted upon at the 2001 Annual Meeting.

Shares of Common Stock may be voted by stockholders in person or by proxy.
Each holder of shares of Common Stock is entitled to one vote for each share of
Common Stock held on the proposals presented in this Proxy Statement. The
Company's By-laws provide that a majority of all of the shares of the stock
entitled to vote, whether present in person, or represented by proxy, shall
constitute a quorum for the transaction of business at the meeting. Any person
giving a proxy may revoke it at any time before it is voted by giving written
notice to the Secretary of the Company or by attending the meeting and voting in
person. The presence at the 2001 Annual Meeting of a stockholder who has signed
a proxy will not in itself revoke that proxy.

All shares of Common Stock represented by a properly completed proxy
received prior to the taking of any vote at the 2001 Annual Meeting will be
voted as directed therein. If no direction is made on the proxy, shares
represented by the proxy will be voted "FOR" (i) the election of Dr. Larry E.
Druffel and James C. Workman to serve as Class I directors for a three-year
term; and (ii) the ratification of the selection of Arthur Andersen LLP as
independent public accountants for the Company for the fiscal year ended
December 31, 2001. The Board of Directors knows of no other matters, which are
to be brought before the 2001 Annual Meeting. If any other matter properly comes
before the 2001 Annual Meeting, the persons named in the enclosed proxy, or
their duly appointed substitutes acting at the 2001 Annual Meeting, will be
authorized to vote or otherwise act thereon in accordance with their best
judgment.

Your vote is important. We urge you to sign, date and mail your proxy card
promptly to make certain that your shares will be voted at the meeting.

PROPOSAL 1: ELECTION OF DIRECTORS

The Board of Directors currently consists of six members: Neil A.
Jacobstein, Dr. Larry E. Druffel, Ivan Lustig, General Robert T. Marsh (Ret.),
Benedict O'Mahoney, and James C. Workman. Ivan Lustig was elected to the Board
in March 2001, which increased the size of the Board from five to six members.
The Board of Directors is comprised of three classes of directors, each class
consisting as nearly as possible of one-third of the Board, with one class of
the Board being elected each year. At each annual meeting thereafter, nominees
for directors in the class whose term is expiring are voted upon, and upon
election, such director would serve a three-year term.

At the 2000 Annual Meeting, Gen. Robert T. Marsh was elected as a Class III
director to serve a three-year term. At the 1999 Annual Meeting, Neil A.
Jacobstein and William G. Roth were elected as Class II directors to serve a
three-year term. Subsequent to the 1999 election, William G. Roth resigned his
position on the Board and was replaced by Benedict O'Mahoney. At the 2001 Annual
Meeting, the terms of the Class I directors will expire. Dr. Larry E. Druffel
and James C. Workman are management's nominees for Class I directors, to be
elected for a three-year term and until their successors are duly elected and
qualified. If either of the nominees decline to serve or become unavailable for
any reason, or if a vacancy occurs before the election (although the Company
knows of no reason to anticipate that this will occur), the proxies may be voted
for such substitute nominees as the Company may designate.

Positions Director
Name Age With the Company Since
---- --- ---------------- -----

Class I Directors nominated for election at the 2001 Annual Meeting

Dr. Larry E. Druffel 60 Director 1997
James C. Workman 58 Director 1992

Class II Directors whose term expires at the 2002 Annual Meeting

Neil A. Jacobstein 46 Chairman of the Board, 1993
President and CEO
Benedict O'Mahoney 41 V.P. Adm., Corp Counsel 1999

Class III Directors whose term expires at the 2003 Annual Meeting

Gen. Robert T. Marsh 76 Director 1987
Ivan L. Lustig 42 Director 2001

Class I Nominees for a Term Expiring in 2001

Dr. Larry E. Druffel. Dr. Druffel, 60, was appointed to the Board of
Directors in April 1997. Since 1996, he has served as President and a Director
of the South Carolina Research Authority (SCRA), a public non-profit
organization. He holds a doctorate degree in computer science from Vanderbilt
University and a master's degree in computer science from the University of
London, and was a director of the Software Engineering Institute at
Carnegie-Mellon University from 1986 to 1996. He also served on the Board of
Rational Software Corp. from 1986 to 1993. He is Chairman of the Board of the
Advanced Technology Institute, and a member of the Board of the South Carolina
Technology Alliance, both private non-profit corporations; and a director of
Knowledge Sentry, a Greenville South Carolina Company since 2000. He served as
Director of Computer Software and Systems, Office of Deputy Undersecretary of
Defense for Research and Advanced Technology, Washington, DC.

James C. Workman. Mr. Workman, 58, has served on the Board since October
20, 1992. He was appointed Chairman of the Board, Chief Executive Officer and
President of the Company on an interim basis effective October 20, 1992,
however, with the appointment of Dr. Hayes-Roth and Mr. Jacobstein to executive
positions in 1993, Mr. Workman resigned from his interim executive officer
position but retained a seat on the Board. Mr. Workman is active in several
community organizations in Wisconsin. He is a member of the Executive Council
and Board of Trustees of the Diocese of Fond Du Lac. His primary employment is
as a self-employed attorney/consultant. Mr. Workman is Chairman of the Human
Resources Committee.

Continuing Class II Directors for a Term Expiring in 2002

Neil A. Jacobstein. Mr. Jacobstein, 46, has served as Chairman of the
Board, Chief Executive Officer and President of Teknowledge since November 22,
1999. He served as President and Chief Operating Officer and a Director of the
Company from January 1993 to November 22, 1999. After joining Teknowledge in
1984, Mr. Jacobstein was promoted over a nine year period to: Senior Knowledge
Engineer, Manager of the Research and Advanced Development Group, Vice President
and General Manager of Research and Advanced Systems Development, and Vice
President and General Manager of the Knowledge Systems Division. Mr. Jacobstein
initiated Teknowledge's eCommerce business unit in 1996. In 1998, he was
appointed to the Technology Advisory Board of the U.S. Army's Simulation,
Training, and Instrumentation Command (STRICOM). Prior to joining Teknowledge,
Mr. Jacobstein was a Graduate Research Intern and consultant at Xerox PARC, and
a Research Associate at CBNS. Since 1992, he has served as the Chairman of the
Board of Directors of the Institute for Molecular Manufacturing, a nonprofit
organization. He serves as a Director of GlobalStake.com. In 1999, Mr.
Jacobstein was elected a Henry Crown Fellow in the Aspen Institute's executive
leadership program. Benedict O'Mahoney. Mr. O'Mahoney, 41, is Vice President,
Administration and Legal Affairs of the Company. Mr. O'Mahoney was elected to
the Board in November 1999. Mr. O'Mahoney joined the Company in 1996 as
Corporate Counsel. From 1991 to 1996, Mr. O'Mahoney practiced intellectual
property law and he served as General Counsel for Slatt Mortgage Company from
1988 to 1995. Mr. O'Mahoney serves on the Board of Directors of the Virtual
Reality Education Foundation, a nonprofit organization.

Continuing Class III Directors for a Term Expiring in 2003

Ivan Lustig. Mr. Lustig, 42, was elected to the Board in March 2001. Mr.
Lustig has served as Managing Director and Head of Media Investment Banking of
ABN AMRO Inc. since 1999. Prior to that time he spent 11 years at Schroder &
Co., the last four years as Managing Director and Head of US Media and
Communications Investment Banking. Before joining Schroder & Co., he was Vice
President at L.F. Rothschild & Co., Inc. Mr. Lustig is a Trustee of the American
Museum of the Moving Image and a member of the Socrates Society of the Aspen
Institute. Mr. Lustig holds a B.S., Master of Engineering, and M.B.A degrees
from Cornell University.

General Robert T. Marsh. General Marsh (Retired), 76, was elected a
director of American Cimflex Corporation (a predecessor to the Company) in 1987.
He served as Chairman of the Board of Thiokol Corporation until his retirement
in 1991. On April 20, 2001, General Marsh retired as Executive Director of the
Air Force Aid Society, a non-profit charitable organization serving the Air
Force community, a position he had held since 1995. In 1997 he served as
Chairman of the President's Commission on Critical Infrastructure Protection.
General Marsh joined the Board of SI International in December 1998 and
continues to serve on the Board. General Marsh also serves on the Board of
Comverse Infosys Technologies, Inc. and he is a trustee emeritus of MITRE
Corporation. General Marsh is Chairman of the Company's Finance and Audit
Committee.

Vote Required

If a quorum is present and voting, the two nominees for Class I Directors
receiving the highest number of votes will be elected directors. Abstentions
will have no effect on the vote. It is intended that shares represented by the
enclosed form of proxy will be voted "FOR" the election of the nominees
identified above, unless otherwise directed.

Board Recommendation

The Board of Directors recommends that the Company's stockholders vote
"FOR" the election of Mr. Druffel and Mr. Workman.

Committees and Meetings

The Board of Directors of Teknowledge has two standing committees: the
Finance and Audit Committee and the Human Resources Committee. The Board of
Directors has no standing nominating committee.

The primary responsibility of the Finance and Audit Committee is to oversee
the annual audit of the Company and to monitor the Company's internal accounting
controls and procedures. The Finance and Audit Committee also reviews with the
independent public accountants the scope and results of their annual audit,
including their audited financial statements. The current members of the Finance
and Audit Committee are Messrs. Druffel, Marsh, and Workman. The Finance and
Audit Committee held one meeting in 2000.

The Human Resources Committee serves as the Compensation Committee and is
responsible for assuring that executive officers and other key personnel of the
Company are effectively compensated in terms of salary, incentive compensation
and benefits. The current members of the Human Resources Committee are Messrs.
Druffel, Marsh, and Workman. The Human Resources Committee held one meeting in
2000.

The Company's Board of Directors held six meetings during 2000. In 2000,
all members of the Board of Directors attended more than 75% of the meetings of
the Board of Directors and the committees on which they served.

Directors' Compensation

Directors' Fees. Each non-employee member of the Board of Directors
receives cash compensation totaling $10,000, which is paid in quarterly
increments of $2,500. Effective April 1, 2001, the Board elected to receive
quarterly compensation in Common Stock of the Company in lieu of cash. In
addition to their regular compensation, directors are entitled to be reimbursed
for related travel, lodging, and other expenses in attending board and committee
meetings.

Directors' Option Plan. The Company maintains a stock option plan for
non-employee directors. The Directors' Option Plan, as amended at the 1995
Annual Meeting of Stockholders, provides that each Eligible Director shall be
granted, on the date such director becomes an Eligible Director, an initial
option to purchase 3,000 shares of Common Stock, and on the date of each annual
meeting thereafter, each continuing Eligible Director shall be granted an
additional option to purchase 3,000 shares of Common Stock. Options to purchase
68,000 shares of Common Stock, net of cancellations, have been granted since the
inception of the Directors' Option Plan and 32,000 shares remain to be granted.

For information regarding the compensation of executives see "Summary
Compensation."

Executive Officers

The following is certain information regarding the Company's other
executive officer who is not a member of the Board of Directors.

Dennis A. Bugbee, 54, has served as Vice President of Finance, CFO, and
Secretary for the Company since April 2000. Mr. Bugbee joined the Company in
1990 as the Division Controller for the Knowledge Systems Division in Palo Alto,
California. He was promoted to Director of Finance in March 1993 and shortly
thereafter to the positions of Treasurer and Corporate Secretary. Prior to
joining the Company, Mr. Bugbee held the position of Accounting Manager with
TRW's Space and Defense Sector.

PROPOSAL 2: RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS

The Board of Directors has selected the accounting firm of Arthur Andersen
LLP as independent public accountants to examine and report upon the Company's
consolidated financial statements for the year ended December 31, 2001, and has
directed that this selection be submitted to the stockholders for ratification
at the 2001 Annual Meeting. Arthur Andersen LLP has acted in such capacity since
its appointment during fiscal year ending December 31, 1994. Stockholder
ratification of the selection of Arthur Andersen LLP as the Company's
independent public accountants is not required by the By-Laws or otherwise. If
the stockholders do not ratify the selection of Arthur Andersen LLP, the Board
of Directors will reconsider the selection of independent public accountants for
the Company.

The following table sets forth the aggregate fees billed to the Company for
the fiscal year ended December 31, 2000 by Arthur Andersen LLP.

Audit Fees $117,700
Financial Information Systems Design & Implementation Fees -
All Other Fees $ 19,250

The Finance and Audit Committee has considered the role of Arthur Andersen
LLP in providing consulting, tax services and other non-audit services to the
Company and has concluded that such services are compatible with Arthur
Andersen's independence as the Company's auditors.

Representatives of Arthur Andersen LLP are expected to be present at the
2001 Annual Meeting and will have the opportunity to make a statement if they
desire. The representatives will also be available to respond to appropriate
questions from the stockholders. The affirmative vote of a majority of the votes
cast at the annual meeting of stockholders at which a quorum representing a
majority of all the attending shares of Common Stock of the Company is present
and voting, either in person or by proxy, is required for approval of this
proposal.

Board Recommendation

The Board of Directors recommends that the Company's stockholders vote
"FOR" the ratification of the selection of Arthur Andersen LLP as the Company's
independent public accountants for the fiscal year ending December 31, 2001.

REPORT OF THE FINANCE AND AUDIT COMMITTEE

The Finance and Audit Committee oversees the Company's financial reporting
process on behalf of the Board of Directors. Management has the primary
responsibility for the financial statements and the reporting process, including
internal control systems. Arthur Andersen is responsible for expressing an
opinion as to the conformity of our audited financial statements with generally
accepted accounting principles.

The Finance and Audit Committee consists of three directors each of whom,
in the judgment of the Board, is an "independent director" as defined in the
listing standards for The Nasdaq Stock Market. The Finance and Audit Committee
acts pursuant to a written charter that has been adopted by the Board of
Directors. [A copy of this charter is attached to this Proxy Statement as
Appendix A.]

The Committee has discussed and reviewed with the auditors all matters
required to be discussed Statement on Auditing Standards No. 61 (Communication
with Audit Committees). The Committee has met with Arthur Andersen, with and
without management present, to discuss the overall scope of Arthur Andersen's
audit, the results of its examinations, its evaluations of the Company's
internal controls and the overall quality of its financial reporting.

The Committee has received from the auditors a formal written statement
describing all relationships between the auditors and the Company that might
bear on the auditors' independence consistent with Independence Standards Board
Standard No. 1 (Independence Discussions with Audit Committees),

discussed with the auditors any relationships that may impact their objectivity
and independence, and satisfied itself as to the auditors' independence.

Based on the review and discussions referred to above, the committee
recommended to the Board of Directors that the Company's audited financial
statements be included in the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 2000.

FINANCE AND AUDIT COMMITTEE

Larry E. Druffel
Robert T. Marsh (Chairman)
James C. Workman

STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information concerning the
beneficial ownership of Common Stock as of June 1, 2001 by persons known to the
Company to own beneficially more than 5% of the Common Stock, by each of the
directors of the Company, by each of the executive officers named in the Summary
Compensation Table, and by all directors and executive officers of the Company
as a group.

Name and Address of Common Stock Owned Percent of
Beneficial Owner(1) Beneficially(2) Class
- ------------------- ------------------ ----------
Mark J. Hanna 385,000(4) 6.8%
3800 S. Ocean Dr.
Hollywood, FL 33019

Dennis A. Bugbee(3) 69,098(5) 1.21%

Larry E. Druffel(3) 20,000(6) *

Frederick Hayes-Roth 542,552(7) 9.5%
1810 Embarcadero Road
Palo Alto, CA 94303

Neil A. Jacobstein(3) 700,857(8) 12.3%

Ivan L. Lustig(3)(9) -- --

Robert T. Marsh(3) 22,000(10) *

Benedict O'Mahoney(3) 31,666(11) *

James C. Workman(3) 22,000(12) *

All Directors and Executive 865,621(13) 15.2%
Officers of the
Company as a Group (7 Persons)

* Less than 1%

(1) Except as otherwise indicated, the persons named in this table have sole
voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them, subject to community property laws
where applicable and to the information contained in the footnotes to this
table.

(2) All share numbers have been adjusted to give effect to a one-for-five
reverse stock split on December 22, 1998. Under the rules of the Securities
and Exchange Commission, a person is deemed to be the beneficial owner of
shares that can be acquired by such person within 60 days upon the exercise
of options.

(3) The address of all directors and executive officers is the Company's
Executive Offices located at 1810 Embarcadero Road, Palo Alto, California
94303.

(4) The information concerning the Common Stock owned beneficially by Mark J.
Hanna was obtained from a Schedule 13G filed with the Securities and
Exchange Commission on June 14, 2001.

(5) Includes 22,916 shares, which may be purchased upon the exercise of
employee stock ptions that are currently exercisable or will become
exercisable within 60 days of June 1, 2001.

(6) Includes 12,000 shares, which may be purchased upon the exercise of
director stock options that are currently exercisable or will become
exercisable within 60 days of June 1, 2001.

(7) Dr. Hayes-Roth resigned his positions as Chairman and CEO of Teknowledge on
November 22, 1999. The information concerning the Common Stock owned
beneficially by Dr. Hayes-Roth was obtained from a Form 4 filed with the
Securities and Exchange Commission on March 28, 2000.

(8) Mr. Jacobstein has exercised all of his stock options. Includes 20,000
shares owned by Mr. Jacobstein's spouse; however, Mr. Jacobstein disclaims
beneficial ownership.

(9) Ivan Lustig was elected to the Board on March 12, 2001. Mr. Lustig received
a grant to purchase 3,000 shares on his election to the Board that may be
exercised one year from the date of the grant.

(10) Includes 22,000 shares, which may be purchased upon the exercise of
director stock options that are currently exercisable or will become
exercisable within 60 days of June 1, 2001.

(11) Includes 24,666 shares, which may be purchased upon the exercise of
employee stock options that are currently exercisable or will become
exercisable within 60 days of June 1, 2001.

(12) Includes 18,000 shares, which may be purchased upon the exercise of
director stock options that are currently exercisable or will become
exercisable within 60 days of June 1, 2001. Mr. Workman's spouse owns 4,000
shares beneficially.

(13) Includes options for 99,582 shares, which are currently exercisable or will
become exercisable within 60 days of June 1, 2001.

EXECUTIVE COMPENSATION AND OTHER MATTERS

Executive Compensation

The following table sets forth the cash compensation paid to the Chief
Executive Officer and the two most highly compensated executive officers of the
Company whose annual salary and bonus exceeded $100,000 for all services to the
Company in the years ended December 31, 2000, 1999, and 1998.

SUMMARY COMPENSATION TABLE

Annual Compensation
---------------------------------
Year Salary Bonus
Name and Principal Position $(1) $(2)
- --------------------------- ---- ------- -------

Neil Jacobstein, Chair, Pres, CEO(3) 2000 205,040 114,000
Neil Jacobstein, Chair, Pres, CEO(3) 1999 162,770 64,891
Neil Jacobstein, Pres, COO 1998 152,784 97,585

Benedict O'Mahoney, VP Adm&Legal 2000 126,800 25,087
Benedict O'Mahoney, VP Adm&Legal 1999 107,086 36,710
Benedict O'Mahoney, VP Adm&Legal 1998 93,608 16,700

Dennis Bugbee, VP and CFO(4) 2000 134,162 16,061
Dennis Bugbee, Director of Finance 1999 116,383 12,843
Dennis Bugbee, Director of Finance 1998 109,172 9,000

(1) Includes 401(k) deferred compensation and 5% Company matching provision.

(2) The bonuses set forth in this column are generally paid after the
conclusion of the annual audit following the year to which they relate.

(3) Mr. Jacobstein was elected Chairman of the Board and Chief Executive
Officer on November 22, 1999.

(4) Mr. Bugbee was appointed Vice President Finance and CFO on April 14, 2000

Stock Option Grants and Exercises in 2000

The following tables set forth information regarding the value of options
held by the executive officers named in the Summary Compensation Table at
December 31, 2000. A total of 628,500 options were granted to employees in 2000.

OPTION GRANTS IN LAST FISCAL YEAR(1)

% of Total
Number of Options
Securities Granted to
Underlying Employees in Exercise or
Options Fiscal Year Base Price Expiration
Name Granted (#) (%) ($/Sh) Date
- ---- ----------- ------------ ----------- ----------

Neil Jacobstein, Chair, Pres, CEO -- -- -- --
Benedict O'Mahoney, VP Adm & Legal 27,000 4.2% 3.81 11/23/09
Dennis Bugbee, VP and CFO 20,000 3.1% 3.81 11/23/09

(1) Generally, the right to exercise an option under the Company's 1998 Stock
Option Plan (the "Option Plan") vests in quarterly increments over a
four-year period commencing on the date of grant. The Option Plan permits
the grant of both incentive stock options within the meaning of Section 422
of the Internal Revenue Code, as amended, and nonstatutory stock options.
The exercise price of incentive stock options must at least equal the fair
value of the Common Stock of the Company on the date of grant. The exercise
price of nonstatutory stock options must equal at least 85% of the fair
market value of the Common Stock of the Company on the date of grant. The
exercise price of options granted to any person who at the time of grant
owns stock representing more than 10% of the voting power of all classes of
stock of the Company or any parent or subsidiary corporations must be at
least 110% of the fair market value of the Common Stock on the date of
grant and term of such options cannot exceed ten years.

AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL
YEAR-END OPTION VALUE

The following table provides the specified information concerning exercises
of options to purchase the Company's Common Stock in the fiscal year ended
December 31, 2000, and unexercised options held as of December 31, 2000, by the
persons named in the summary compensation table above.

Number of Value of
Securities Unexercised
Underlying In-the-Money
Shares Unexercised Options at FYE
Acquired Value at FYE (Exercisable/
on Exercise Realized (Exercisable/ Unexercisable)
Name (#) (1) Unexercisable) (2)
- ---- ----------- -------- -------------- --------------

Neil Jacobstein, Chair, Pres, CEO 390,854 $1,570,793 -/- -/-
Benedict O'Mahoney, VP Adm &Legal -- -- 21,333/50,667 -/-
Dennis Bugbee, VP and CFO -- -- 19,583/45,417 -/-

(1) The value realized upon exercise is the difference between the exercise
price and the closing bid price at the close of business on the date the
stock is exercised.

(2) The value of unexercised in-the-money options is determined by multiplying
the number of shares under the option by the difference between the
December 31, 2000 closing price of $1.69 and the grant price. None of the
options granted to executives were in-the-money as of December 31, 2000.

Employment Contracts and Termination of Employment and Change of Control
Arrangements

Neil Jacobstein, Chairman of the Board, Chief Executive Officer, and
President, has an employment agreement with the Company that provides for an
annual base salary of $195,000. In May 2001, in light of prevailing general
market conditions, Mr. Jacobstein recommended to the Teknowledge Board of
Directors that they freeze his base salary for the time being. The Board agreed
to not implement a planned 2001 salary increase for Mr. Jacobstein. Mr.
Jacobstein's employment agreement includes an incentive compensation plan that
provides for additional compensation when certain target objectives are achieved
in six strategic categories that have been determined and assessed by the Board
of Directors to a maximum of 120% of his annual base salary. Mr. Jacobstein has
not accumulated incentive stock options for several years. Mr. Jacobstein earned
a bonus in 2000 of $120,892 to be paid in 2001. In addition to his earned 2000
bonus, Mr. Jacobstein received compensation of $114,000 as a consequence of his
consolidating the roles of Chairman, President, and Chief Executive Officer of
the Company in November 1999. This consolidation of roles resulted in a
considerable net savings to Teknowledge. Mr. Jacobstein has a severance package
that entitles him to severance benefits equal to his most recent twelve-month
salary and bonus. In the event of a change of control, defined as any
consolidation or merger of the Company in which the Company is not the
continuing or surviving corporation, Mr. Jacobstein will be entitled to
severance benefits to include: (i) full accrued salaries and vacation pay, (ii)
accrued incentive compensation awarded or determined to be awarded by the Board
of Directors, (iii) insurance coverage, (iv) retirement benefits and (v) a lump
sum severance payment equal to two times total cash compensation.

Related Party Transactions

In November 1999, Teknowledge agreed to provide seed money for a new
web-based company, GlobalStake.com, which was spun off from Teknowledge
Corporation. GlobalStake.com began by offering full service, discounted consumer
real estate transactions on the Internet, but in December 2000 it modified its
strategy to focus on a business-to-business model for conducting commercial real
estate mortgages. The Company has reviewed the revised business plan and cash
flow projections of GlobalStake.com, and has determined that its investment has
not been impaired. However, as GlobalStake.com is a business with limited cash
and all the associated risks of a start-up business, its success is dependent on
market demand for mortgage loans, fluctuations in interest rates, the ability to
hire qualified brokers, the ability to secure mortgage-financing sources and to
negotiate a competitive arrangement. The Company intends to periodically review
performance of GlobalStake.com in accordance with the business plan and SFAS121.

To Date Teknowledge has provided: (1) approximately $1,134,000 (including
approximately $923,000 during 2000- see details below) in cumulative seed cash
and services; (2) the proprietary information and technology developed in
support of the GlobalStake.com business plan; and (3) license to practice
Teknowledge's patent portfolio.

The Company's CEO maintains one out of six seats on the Board of Directors
of GlobalStake.com and own approximately 12% of the common shares at December
31, 2000 and 7.4% on a fully diluted basis. These are non-voting shares.

The Company's investment in GlobalStake.com during 2000 of approximately
$923,000 was in the form of funding GlobalStake.com payroll and operating
expenses ($572,000) as well as consulting services rendered by the Company at
normal billing rates ($351,000).

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers, directors, and persons who beneficially own more than 10% of
the Company's Common Stock to file initial reports of ownership and reports of
changes in ownership with the Securities and Exchange Commission ("SEC"). Such
persons are required by SEC regulations to furnish the Company with copies of
all Section 16(a) forms filed by such persons

Based solely on the Company's review of such forms, furnished to the
Company and written representations from certain reporting persons, the Company
believes that all filing requirements applicable to the Company's executive
officers, directors, and more than 10% stockholders were in compliance with
government regulations.

ADDITIONAL INFORMATION

Methods and Expenses of Solicitation

The cost of solicitation of the enclosed form of proxy will be borne by the
Company. Solicitation will be made primarily through the use of the mail,
although directors, officers and employees of the Company may, for no additional
compensation, solicit proxies personally, by mail, by telephone, or by
facsimile. Upon request, the Company will reimburse banks, brokers, and other
custodians, nominees and fiduciaries for their reasonable expenses incurred in
sending proxy materials to beneficial owners and obtaining their proxies.

Submission of Stockholder Proposals

The Company must receive proposals for action at the 2002 Annual Meeting of
Stockholders at its offices at 1810 Embarcadero Road, Palo Alto, California
94303, no later than March 22, 2002. Any such submission must conform to the
regulations of the Securities and Exchange Commission concerning stockholder
proposals.

Annual Report

Accompanying this Proxy Statement is a copy of the Company's Annual Report
for the year ended December 31, 2000. A complete copy of the 10-KSB (without
exhibits) as filed with the Securities and Exchange Commission, including the
financial statements and the financial statement schedules, can be obtained
without charge from the Company upon receipt of a written request from the
security holder addressed to the Secretary. The Company will also furnish a copy
of any exhibit included in the 10-KSB upon payment of a $5.00 fee and receipt of
a written request for such exhibit. The written request should be directed to
Dennis Bugbee, Secretary, Teknowledge Corporation, 1810 Embarcadero Road, Palo
Alto, California 94303.

Other Matters

The Board of Directors knows of no other business that will be presented in
the meeting. If matters other than those described herein should properly come
before the meeting, it is the intention of those named in the accompanying proxy
to vote such proxy in accordance with their judgment on such matters.

WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.

Appendix A

CHARTER
FINANCE AND AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
TEKNOWLEDGE CORPORATION

August 9, 2000

PURPOSE

The primary function of the Audit Committee is to assist the Board of
Directors in fulfilling its oversight responsibilities by: (1) serving as an
independent and objective party to monitor the Corporation's financial reporting
processes and internal control system, and (2) reviewing and appraising the
audit efforts of the Corporation's independent accountants and internal
accounting department.

The Audit Committee will primarily fulfill these responsibilities by
carrying out the activities enumerated in Section IV, of this Charter.

COMPOSITION

The Audit Committee shall be comprised of three or more directors as
determined by the Board, each of whom hall be independent directors, and free
from any relationship that, in the opinion of the Board, would interfere with
the exercise of his or her independent judgment as a member of the Committee.
All members of the Committee shall have a working familiarity with basic finance
and accounting practices, or will become able to do so within a reasonable
period of time after his or her appointment to the Audit Committee, and at least
one member of the Audit Committee shall have past employment experience in
finance or accounting, requisite professional certification in accounting, or
any other comparable experience or background which results in the individual's
financial sophistication, including being or having been a chief executive
officer, chief financial officer or other senior officer with financial
oversight responsibilities. A director will not be judged independent if any of
the following conditions exist:

o A director who is employed by the corporation or any of its affiliates
for the current year or any of the past three years

o A director who accepts any compensation from the corporation or any of
its affiliates in excess of $60,000 during the previous fiscal year

o A director who is a member of the immediate family of an individual
who is, or has been in any of the past three years, employed by the
corporation or any of its affiliates as an executive officer

o A director who is employed as an executive of another entity where any
of the company's executives serve on that entity's compensation
committee

o A director who is a partner in, or a controlling shareholder or an
executive officer of, any for-profit business organization to which
the corporation made, or from which the corporation received, payments

The members of the Committee shall be elected by the Board at the annual
organizational meeting of the Board or until their successors shall be duly
elected and qualified. The members of the Committee will elect a Chair by
majority vote of Audit Committee.

MEETINGS

The Audit Committee shall meet at least once annually, or more frequently
as circumstances dictate. Members of the Committee may fulfill most of these
requirements as regular members of the Board, which meets at least four times
per year.

RESPONSIBILITIES AND DUTIES

To fulfill its responsibilities and duties the Audit Committee shall:

1. Review and update this Charter periodically, at least annually, as
conditions dictate.

2. Review the Company's financial reporting processes to ensure that they
meet legal and SEC requirements.

3. Review the Company's internal financial control system with the
independent financial accountants to ensure that the Company's
controls are sufficient and its assets are properly protected.

4. On an annual basis, the Committee should review the independence of
the Company's independent financial accountants, including a review of
a written statement from the accountants that they are free from any
conflicts of interests with respect to the Company.

5. On an annual basis, the Committee should review the performance of the
Company's independent financial accountants, including their
responsiveness to questions, quality of financial advice and business
judgment. The Committee should approve any proposed discharge of the
independent accountants when circumstances warrant.

6. Conduct an annual review with the independent accountants out of the
presence of management about internal financial controls and the
accuracy of the organization's financial statements.

7. Recommend any changes or improvements in financial or accounting
practices that may be needed to assure adequate financial reporting
and controls.

TEKNOWLEDGE CORPORATION
1810 Embarcadero Road
Palo Alto, California 94303
Proxy for Annual Meeting of Stockholders on August 24, 2001
This Proxy is Solicited on Behalf of the Board of Directors

The Undersigned hereby appoints Neil Jacobstein and Dennis Bugbee, and each
or either of them as proxies, each with the power to appoint his substitute, and
hereby authorizes any of them to represent and to vote all the shares of the
Common Stock, par value $.01 per share (the "Common Stock"), of Teknowledge
Corporation (the "Company"), which the undersigned is entitled to vote at the
Annual Meeting of Stockholders of the Company to be held on August 24, 2001,
commencing at 10:00 a.m., local time, at the Company's executive offices located
at 1810 Embarcadero Road, Palo Alto, California or any adjournment of
postponement thereof (1) as hereafter specified upon the proposals listed below
and as particularly described in the Company's Proxy Statement and (2) in their
discretion upon such other matters as may properly come before the meeting.

The undersign hereby acknowledges receipt of (1) Notice of Annual Meeting
of Stockholders of the Company, (2) accompanying Proxy Statement, and (3) Annual
Report for the fiscal year ended December 31, 2000.

CONTINUED AND TO BE SIGNED ON REVERSE SIDE

Please mark
votes as in
this example.

This proxy when properly executed will be voted in the manner directed herein by
the undersigned stockholder. If no directions are specified, this Proxy will be
voted FOR Proposals 1 and 2.

1. Election of Directors:

The Board has nominated Dr. Larry E. Druffel and James C. Workman as Class I
directors to serve a term of three years or until his successors are duly
elected and qualified.

For Withhold
Nominee: Dr. Larry E. Druffel [_] [_]

For Withhold

Nominee: James C. Workman [_] [_]

For Against Abstain

2. To ratify the selection of Arthur [_] [_] [_]
Andersen LLP as the Company's
independent public accountants
for the fiscal year ending
December 31, 2001.

In their discretion, the proxy holders are authorized to vote upon such other
business as may properly come before the meeting.

Please sign exactly as the name(s) appear on your stock certificate. If shares
of stock stand on record in the names of two or more persons or in the name of
husband and wife, whether as joint tenants or otherwise, both or all such
persons should sign the Proxy. When signing as attorney, executor,
administrator, trustee or guardian, please give your full title. If a
corporation holds shares of stock, the president or other authorized officer, on
behalf of the corporation, should execute the Proxy. If a partnership, the Proxy
should be executed in the partnership name by an authorized individual.

Signature: ______________________ Date ________________________

Mark Here
For Address

Change and
Note Below.

Please complete, date, sign and mail this proxy in the enclosed postage prepaid
envelope.