SCHEDULE 14A
(RULE 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934

Filed by the Registrant [ X ]
Filed by a party other than the Registrant [ ]
Check the appropriate box:

[ X ] Preliminary Proxy Statement [ ] Confidential, For Use of
the Commission Only (as
[ ] Definitive Proxy Statement permitted by Rule
14a-6(e)(2))
[ ] Definitive Additional Materials

[ ] Soliciting Material Under Rule 14a-12

PERSISTENCE SOFTWARE, INC.
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(Name of Registrant as Specified in Its Charter)

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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:

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(2) Aggregate number of securities to which transactions applies:

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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):

(4) Proposed maximum aggregate value of transaction:

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(5) Total fee paid:

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[ ] Fee paid previously with preliminary materials:

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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.

(1) Amount previously paid:

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(2) Form, Schedule or Registration Statement No.:

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(3) Filing Party:

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(4) Date Filed:

PERSISTENCE SOFTWARE, INC.
________________

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 5, 2003

The Annual Meeting of Stockholders for the year ended December 31, 2002 (the
"ANNUAL MEETING") of Persistence Software, Inc., a Delaware corporation (the
"COMPANY"), will be held at the Company's principal executive offices, located
at 1720 South Amphlett Boulevard, Suite 230, San Mateo, California, 94402, on
Thursday, June 5, 2003, 2:00 p.m. local time, for the following purposes:

1. To approve proposals to amend the Company's Certificate of
Incorporation to enable the Company to effect one of five different
reverse stock splits during the 12 months following approval by the
stockholders of such proposals, if the Board of Directors determines
that any such action is necessary and appropriate, and in the best
interests of the Company and its stockholders, to seek to maintain the
listing of the Company's Common Stock on the Nasdaq SmallCap Market.
The proposals would enable the Board of Directors to determine whether
to amend the Company's Certificate of Incorporation to effect one of
the following reverse stock splits:

a. a 1-for-5 a reverse stock split of the Company's issued and
outstanding shares of Common Stock;

b. a 1-for-8 a reverse stock split of the Company's issued and
outstanding shares of Common Stock;

c. a 1-for-10 a reverse stock split of the Company's issued and
outstanding shares of Common Stock;

d. a 1-for-12 a reverse stock split of the Company's issued and
outstanding shares of Common Stock; or

e. a 1-for-15 a reverse stock split of the Company's issued and
outstanding shares of Common Stock.

2. To elect two (2) Class I directors to serve until the Annual Meeting of
the Stockholders for the year ending December 31, 2005.

3. To ratify the appointment of Deloitte & Touche LLP as the independent
auditors of the Company for the fiscal year ending December 31, 2003.

4. To transact such other business as may properly come before the Annual
Meeting and any adjournment or postponement thereof.

The foregoing items of business, including the nominees for directors, are
more fully described in the proxy statement which is attached to and made a part
of this Notice.

The Board of Directors has fixed the close of business on April 11, 2003 as
the record date for determining the stockholders entitled to notice of and to
vote at the Annual Meeting and any adjournment or postponement thereof.

All stockholders are cordially invited to attend the Annual Meeting in
person. However, whether or not you expect to attend the Annual Meeting in
person, you are urged to mark, date, sign and return the enclosed proxy card as
promptly as possible in the postage-prepaid envelope provided to ensure your
representation and the presence of a quorum at the Annual Meeting. If you send
in your proxy card and then decide to attend the Annual Meeting to vote your
shares in person, you may still do so. Your proxy is revocable in accordance
with the procedures set forth in the Proxy Statement.

By Order of the Board of Directors,

/s/ Christine Russell

Christine Russell
San Mateo, California Chief Financial Officer and Secretary
April 28, 2003

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IMPORTANT

WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE SIGN AND RETURN THE
ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE ENCLOSED POSTAGE-PREPAID
ENVELOPE. IF A QUORUM IS NOT REACHED, THE COMPANY WILL HAVE THE ADDED EXPENSE OF
RE-ISSUING THESE PROXY MATERIALS. IF YOU ATTEND THE ANNUAL MEETING AND SO
DESIRE, YOU MAY WITHDRAW YOUR PROXY AND VOTE IN PERSON.

THANK YOU FOR ACTING PROMPTLY.

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PERSISTENCE SOFTWARE, INC.
1720 SOUTH AMPHLETT BOULEVARD, SUITE 230
SAN MATEO, CA 94402
________________

PROXY STATEMENT
________________

GENERAL

This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors (the "BOARD") of Persistence Software, Inc., a Delaware
corporation (the "COMPANY"), of proxies in the enclosed form for use in voting
at the Annual Meeting of Stockholders for the year ended December 31, 2002 (the
"ANNUAL MEETING") to be held at the Company's principal executive offices,
located at 1720 South Amphlett Boulevard, Suite 230, San Mateo, California
94402, on Thursday, June 5, 2003, 2:00 p.m. local time, and any adjournment or
postponement thereof.

This Proxy Statement, the enclosed proxy card and the Company's Annual
Report on Form 10-K for the year ended December 31, 2002, including financial
statements, were first mailed to stockholders entitled to vote at the meeting on
or about May 5, 2003.

REVOCABILITY OF PROXIES

Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Company (Attention:
Christine Russell) a written notice of revocation or a duly executed proxy
bearing a later date, or by attending the Annual Meeting and voting in person.

RECORD DATE; VOTING SECURITIES

The close of business on April 11, 2003 has been fixed as the record date
(the "RECORD DATE") for determining the holders of shares of Common Stock of the
Company entitled to notice of and to vote at the Annual Meeting. At the close of
business on the Record Date, the Company had approximately 24,044,735 shares of
Common Stock outstanding and held of record by approximately 160 stockholders.

VOTING AND SOLICITATION

Each outstanding share of Common Stock on the Record Date is entitled to one
vote on all matters. Shares of Common Stock may not be voted cumulatively. The
Company will mail a copy of the Annual Report to each stockholder of record; if
a stockholder has received more than one proxy card, it means that such
stockholder holds shares in more than one account. Please sign and return all
proxy cards to ensure that all such shares are voted.

Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the Inspector of Elections (the "INSPECTOR") with the assistance of the
Company's transfer agent. In general, Delaware law provides that a quorum
consists of a majority of the shares entitled to vote and present in person or
represented by proxy. The Inspector will determine whether or not a quorum is
present. Each of the proposals to amend the Company's Certificate of
Incorporation to effect a reverse stock split requires affirmative votes from
the holders of a majority of the outstanding Common Stock of the Company. The
nominees for election as directors at the Annual Meeting will be elected by a
plurality of the votes of the shares of Common Stock present in person or
represented by proxy at the Annual Meeting, which means that the two nominees
receiving the greatest number of affirmative votes will be elected. The
ratification of the independent accountants will require the affirmative vote of
a majority of shares of Common Stock present in person or represented by proxy
at the Annual Meeting. All other matters submitted to the stockholders will
require the affirmative vote of a majority of shares present in person or
represented by proxy at a duly held meeting at which a quorum is present, as
required under Delaware law for approval of proposals presented to stockholders.
The Inspector will treat abstentions as shares that are present and entitled to
vote for purposes of determining the presence of a quorum and as negative votes
for purposes of determining the approval of any matter submitted to the
stockholders for a vote.

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The shares represented by the proxies received properly marked, dated,
signed and not revoked, will be voted at the Annual Meeting. Any proxy which is
returned using the form of proxy enclosed and which is not marked as to a
particular item will be voted FOR each of the proposals to approve a reverse
stock split, FOR the election of directors, FOR ratification of the appointment
of the designated independent auditors, and as the proxy holders deem advisable
on other matters that may come before the Annual Meeting, as the case may be
with respect to the item not marked. If a broker indicates on the enclosed proxy
or its substitute that it does not have discretionary authority as to certain
shares to vote on a particular matter ("BROKER NON-VOTES"), those shares will be
counted for determining the presence or absence of a quorum for the Annual
Meeting but will not be counted for the purpose of determining the number of
votes cast for that particular matter. The Company believes that the tabulation
procedures to be followed by the Inspector are consistent with the general
requirements of Delaware law concerning voting of shares and determination of a
quorum.

The solicitation of proxies will be conducted by mail, and the Company will
bear all attendant costs. These costs will include the expense of preparing and
mailing proxy solicitation materials for the Annual Meeting and reimbursements
paid to brokerage firms and others for their expenses incurred in forwarding
solicitation materials regarding the Annual Meeting to beneficial owners of the
Company's Common Stock. The Company may conduct further solicitation personally,
telephonically, or by the Internet or facsimile through its officers, directors
and employees, none of whom will receive additional compensation for assisting
with the solicitation.

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PROPOSALS NO. 1(a) THROUGH 1(e)

APPROVAL OF PROPOSALS TO EFFECT REVERSE STOCK SPLIT

INTRODUCTION

In Proposals 1(a) through 1(e), the Company's stockholders are being asked
to approve five different reverse stock split proposals to amend the Company's
Certificate of Incorporation, with exchange ratios of 1-for-5, 1-for-8,
1-for-10, 1-for-12 and 1-for-15, respectively. In addition, the proposals would
enable the Board, in its sole discretion, to effect one of the reverse stock
splits at any time during the 12 months following approval by the stockholders
of such proposals, if the Board determines that any such action is necessary and
appropriate, and in the best interests of the Company and its stockholders, to
seek to maintain the listing of the Company's Common Stock on the Nasdaq
SmallCap Market. The Board is seeking stockholder approval for the five
different reverse stock split proposals in order to give the Board the
flexibility, in its sole discretion, to implement the one reverse stock split
that would provide the Company with the best opportunity to comply with the
$1.00 minimum bid price requirement for continued listing on the Nasdaq SmallCap
Market, based on the recent and historical trading prices of the Company's
Common Stock. The Board has unanimously approved all of the reverse stock split
proposals as options that should be available to the Company to seek to maintain
its listing on the Nasdaq SmallCap Market.

A reverse stock split will take effect, if at all, only after at least one
of the proposals is approved by the stockholders of the Company holding a
majority of the shares of Common Stock outstanding and after the Board selects
the most appropriate reverse stock split among those approved by the
stockholders and elects to make it effective by approving the filing of an
appropriate amendment to the Company's Certificate of Incorporation with the
Secretary of State of the State of Delaware. The Board may only effect one of
the proposed reverse stock splits, even if the Company's stockholders approve
more than one of the reverse stock split proposals. Moreover, even if one or
more of the reverse stock split proposals are approved by the stockholders, the
Board may abandon the proposals in its sole discretion if it determines that a
reverse stock split is unnecessary to comply with the Nasdaq SmallCap Market
listing requirements or that the maintenance of the Nasdaq listing is not in the
best interests of the Company and its stockholders.

The reverse stock split would become effective by the filing of a
Certificate of Amendment to the Certificate of Incorporation of the Company and
would be effective as of the date specified in the amendment. As of the
effective date of the reverse stock split, each outstanding share of the
Company's Common Stock as of the record date chosen by the Board will,
immediately and automatically, be changed as of the effective date of the
reverse split, into either one-fifth (1/5), one eighth (1/8), one tenth (1/10),
one twelfth (1/12) or one fifteenth (1/15) of a share of the Company's Common
Stock. In addition, the number of shares of the Company's Common Stock subject
to outstanding options, warrants and other convertible securities issued by the
Company would be immediately and automatically reduced by a factor of either
five, eight, ten, twelve or fifteen and the exercise or conversion price thereof
would be immediately and automatically proportionately increased by the same
factor.

BACKGROUND: THREAT OF NASDAQ DELISTING

On June 5, 2002, the Company received a notice from the Nasdaq Stock Market
that its Common Stock listed on the Nasdaq National Market had failed to
maintain a minimum bid price of $1.00 over the previous 30 consecutive trading
days, and as a result its stock would be delisted if the stock failed to
maintain a minimum bid price of $1.00 for the requisite 10 day period during the
90 calendar day grace period after June 5, 2002. The Company subsequently
transferred its listing from the Nasdaq National Market to the Nasdaq SmallCap
Market on September 12, 2002. On December 3, 2002, the Company received a notice
from the Nasdaq Stock Market that the Company's stock would be delisted from the
Nasdaq SmallCap Market if the stock failed to maintain a minimum bid price of
$1.00 for the requisite 10 day period during the 180 calendar day grace period
beginning December 3, 2002 and ending June 1, 2003. If the stock fails to
maintain a minimum bid price of $1.00 for the requisite 10 day period by June 1,
2003 and the Company receives a notice from the Nasdaq Stock Market that the
Company's stock will be delisted from the Nasdaq SmallCap Market, the Company
may appeal that determination to a Nasdaq Listing Qualifications Panel.

In order for the Company's Common Stock to be quoted on the Nasdaq SmallCap
Market, the Company must satisfy various listing maintenance standards

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established by the Nasdaq Stock Market. Among other things, (i) the stock must
have a public float of at least $1 million, which means that the market value of
the stock held by persons other than officers, directors and 10% stockholders
must be equal to at least $1 million, (ii) at least 500,000 shares must be
publicly held (e.g., by non-affiliates), (iii) there must be at least 300
stockholders who own at least 100 shares, (iv) the stock must have a minimum bid
price of at least $1.00 per share and (v) the Company must have stockholders'
equity equal to at least $2.5 million. If the Company is not able to meet these
requirements for listing on the Nasdaq SmallCap Market, the Company's Common
Stock would trade on the OTC Bulletin Board or in the "Pink Sheets" maintained
by the National Quotation Bureau. The OTC Bulletin Board handles
over-the-counter stocks that do not meet the minimum stockholders' equity and
other requirements of the Nasdaq stock listing system. Securities on the OTC
Bulletin Board are governed by the Securities and Exchange Commission (the
"SEC") and must report certain regulatory filings to maintain OTC status. The
Pink Sheets trading system handles high-risk ventures and is not regulated by
the SEC. Such alternatives are generally considered to be less efficient markets
and not as broad as the Nasdaq SmallCap Market or the Nasdaq National Market.

In addition, if the Company's Common Stock were to become delisted from
trading on the Nasdaq SmallCap Market and the trading price of the stock were to
remain below $5.00 per share, trading in the stock would also be subject to the
requirements of certain rules promulgated under the Securities Exchange Act of
1934, as amended, which require additional disclosure by broker-dealers in
connection with any trades involving a stock defined as a "penny stock"
(generally, any non-Nasdaq equity security that has a market price of less than
$5.00 per share, subject to certain exceptions). The additional burdens imposed
upon broker-dealers by such requirements could discourage broker-dealers from
effecting transactions in the Company's Common Stock, which could severely limit
the market liquidity of the stock and the ability of investors to trade the
stock.

The Company may also lose its ability to rely upon certain exemptions from
qualification under state securities laws, including those of California, if the
Company's securities were to become delisted from the Nasdaq SmallCap Market.
Although the Company may be able to use alternatives to such exemptions, there
can be no assurances that they will be available to the Company if necessary.
Additionally, some of these alternatives may require the Company to incur
material legal costs and other expenses, and may cause significant delays in the
Company's ability to issue securities, including employee options to purchase
Common Stock, or may preclude the Company from issuing securities at all in
certain states. Such delays or prohibitions may significantly impair the
Company's ability to raise capital through the sale of the Company's securities,
and may impair the Company's ability to attract and retain employees, either of
which could have a material adverse effect on its business.

The Board considered the potential harm to the Company of a delisting from
the Nasdaq SmallCap Market and determined that a reverse stock split may be the
best way to achieve compliance with Nasdaq's minimum bid price listing standard.
Accordingly, the Board adopted resolutions, subject to approval by the Company's
stockholders, to approve proposals to amend the Company's Certificate of
Incorporation to enable the Company to effect one of five different reverse
stock splits, during the 12 months following approval by the stockholders of
such proposals, if the Board determines that any such action is necessary and
appropriate, and in the best interests of, the Company and its stockholders to
seek to maintain the listing of the Company's Common Stock on the Nasdaq
SmallCap Market.

PRINCIPAL EFFECTS OF THE REVERSE STOCK SPLIT

As explained above, one of the key requirements for continued listing on the
Nasdaq SmallCap Market is that the Company's Common Stock must maintain a
minimum bid price above $1.00 per share. The Company believes that the immediate
effect of a reverse split should be to increase the trading price of the
Company's Common Stock so that the Company would be able to maintain compliance
with the Nasdaq Stock Market minimum bid price listing standard. In addition,
the immediate effect of a reverse stock split would be to reduce the number of
shares of the Company's Common Stock outstanding.

In addition, because the Company will cash out any fractional shares, the
number of stockholders will decrease. The cash amount to be paid to each
stockholder would be equal to the resulting fractional interest in one share of
the Company's Common Stock to which the stockholder would otherwise be entitled,
multiplied by the average closing sale price of the Common Stock for the 10
trading days immediately prior to on the effective date of the reverse stock
split, or, if no such sale takes place on such days, the average of the closing
bid and asked prices for such days as reported by the Nasdaq SmallCap Market.
The Company estimates that it would pay less than $50,000 to cash out fractional

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holders. The cash out of fractional shares will effect neither the Company's
reporting requirements under the federal securities laws nor its listing
requirements under applicable rules of Nasdaq SmallCap Market.

The effect of any reverse stock split upon the market price of the Company's
Common Stock cannot be predicted, and the history of reverse stock splits for
companies in similar circumstances is varied. The trading price of the Company's
stock after the reverse stock split may not rise in exact proportion to the
reduction in the number of shares of stock outstanding as a result of the
reverse stock split. Also, as stated above, a reverse stock split may not lead
to a sustained increase in the trading price of the Company's stock and the bid
price may again fall below the $1.00 minimum bid threshold required by the
Nasdaq SmallCap Market. The trading price of the Common Stock may change due to
a variety of other factors, including the Company's operating results, other
factors related to its business and general market conditions. The proposals to
implement a reverse stock split are not the first step in a going private
transaction.

The reverse stock split, if implemented, would not change the number of
authorized shares of the Company's Common Stock as designated by its Company's
Certificate of Incorporation. Therefore, because the number of issued and
outstanding shares of stock would decrease, the number of shares of Common Stock
remaining available for issuance would increase. The Company does not, as of the
date of this proxy statement, have any plans, proposals or understandings to
issue any portion of the additional shares of stock that will be available if
the reverse stock split is approved and implemented.

EFFECTS ON OWNERSHIP BY INDIVIDUAL STOCKHOLDERS. If the Company implements a
reverse stock split, the number of shares of Common Stock held by each
stockholder would be immediately and automatically reduced as of the record date
chosen by the Board by dividing the number of shares held immediately before the
reverse split by the number selected for the reverse split by the Board, (by
either one-fifth (1/5), one eighth (1/8), one tenth (1/10), one twelfth (1/12)
or one fifteenth (1/15)) and then rounding down to the nearest whole share. The
Company will pay cash to each stockholder in lieu of any fractional interest in
a share to which such stockholder would otherwise be entitled as a result of the
reverse split, as described in further detail below. The reverse stock split
would affect the Common Stock uniformly and would not affect any stockholder's
percentage ownership interests in the Company or proportionate voting power,
except to the extent that interests in fractional shares would be paid in cash.

EFFECT ON OPTIONS AND WARRANTS. In addition, all the terms of outstanding
options, warrants to purchase Common Stock and other convertible securities
issued by the Company would be adjusted as a result of the reverse stock split,
as required by the terms of those securities. In particular, the number of
shares of the Company's Common Stock subject to outstanding options, warrants
and other convertible securities issued by the Company would be reduced by a
factor of either five, eight, ten, twelve or fifteen and the exercise or
conversion price thereof would be proportionately increased by the same factor.

OTHER EFFECTS ON OUTSTANDING SHARES. If a reverse stock split is
implemented, the rights and preferences of the outstanding shares of Common
Stock would remain the same after the reverse stock split. Each share of Common
Stock issued pursuant to the reverse stock split would be fully paid and
nonassessable. The reverse stock split would result in some stockholders owning
"odd-lots" of less than 100 shares of stock. Brokerage commissions and other
costs of transactions in odd-lots may be higher than the costs of transactions
in "round-lots" of even multiples of 100 shares.

PROCEDURE FOR EFFECTING THE REVERSE STOCK SPLIT AND EXCHANGE OF STOCK
CERTIFICATES

If any of the five proposed reverse stock splits is approved at the Annual
Meeting, the Board may elect, at any time within 12 months following approval by
the stockholders, to implement one of the reverse stock splits approved by the
stockholders, based on the recent and historical trading prices of the Company's
Common Stock if it determines that the action is necessary or appropriate in
order to seek to maintain the listing of the Company's Common Stock on the
Nasdaq SmallCap Market by effecting a split that will satisfy Nasdaq's $1.00
minimum bid price requirement. If the Board elects to make the reverse stock
split effective, the Board will select the most appropriate reverse stock split
among those approved by the stockholders and then the Board must approve the
filing of an appropriate amendment to the Company's Certificate of Incorporation
with the Secretary of State of the State of Delaware. As of the effective date
of the reverse stock split, each outstanding share of the Company's Common Stock

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as of the record date chosen by the Board would, immediately and automatically,
be changed as of the effective date of the reverse split, into either one-fifth
(1/5), one eighth (1/8), one tenth (1/10), one twelfth (1/12) or one fifteenth
(1/15) of a share of the Company's Common Stock. In addition, the number of
shares of the Company's Common Stock subject to outstanding options, warrants
and other convertible securities issued by the Company would be immediately and
automatically reduced by a factor of either five, eight, ten, twelve or fifteen
and the exercise or conversion price thereof would be immediately and
automatically proportionately increased by the same factor.

The Company's transfer agent would likely act as the exchange agent for
purposes of implementing the exchange of stock certificates. As soon as
practicable after the effective date, stockholders and holders of securities
convertible into the Company's Common Stock would be notified of the
effectiveness of the reverse split. Stockholders of record would receive a
letter of transmittal requesting them to surrender their stock certificates for
stock certificates reflecting the adjusted number of shares as a result of the
reverse stock split. Stockholders who hold their shares in brokerage accounts or
"street name" would not be required to take any further actions to effect the
exchange of their certificates. No new certificate(s) would be issued to a
stockholder until the stockholder has surrendered the stockholder's outstanding
certificate(s) together with the properly completed and executed letter of
transmittal to the exchange agent. Until surrender, each certificate
representing shares before the reverse stock split would continue to be valid
and would represent the adjusted number of shares based on the exchange ratio of
the reverse stock split, rounded down to the nearest whole share. Stockholders
should not destroy any stock certificate and should not submit any certificates
until they receive a letter of transmittal.

FRACTIONAL SHARES

The Company would not issue fractional shares in connection with the reverse
stock split. Stockholders who otherwise would be entitled to receive fractional
shares because they hold a number of shares not evenly divisible by the exchange
ratio would instead receive cash upon surrender to the exchange agent of the
certificates and a properly completed and executed letter of transmittal. The
cash amount to be paid to each stockholder would be equal to the resulting
fractional interest in one share of the Company's Common Stock to which the
stockholder would otherwise be entitled, multiplied by the average closing sale
price of the Common Stock for the 10 trading days immediately prior to on the
effective date of the reverse stock split, or, if no such sale takes place on
such days, the average of the closing bid and asked prices for such days as
reported by the Nasdaq SmallCap Market. The Company estimates that it would pay
less than $50,000 to cash out fractional holders. No cash payment for fractional
shares will be made to any stockholder until that stockholder has surrendered
all of his, her or its stock certificates to the exchange agent.

ACCOUNTING CONSEQUENCES

The reverse stock split will not affect the par value of the Common Stock on
the Common Stock account in the Company's financial statements. The per share
net income or loss and net book value of the Company's Common Stock will be
increased because there will be fewer shares of Common Stock outstanding.

NO APPRAISAL RIGHTS

Stockholders do not have appraisal rights under Delaware General Corporate
Law or under the Company's Certificate of Incorporation in connection with the
reverse stock split.

RESERVATION OF RIGHT TO ABANDON REVERSE STOCK SPLIT

The Company reserves the right to abandon the reverse stock split without
further action by the stockholders at any time before the effectiveness of the
filing of an amendment to the Company's Certificate of Incorporation with the
Secretary of State of the State of Delaware, even if all of the five different
reverse stock split proposals have been authorized and approved by the
stockholders at the Annual Meeting.

U.S. FEDERAL INCOME TAX CONSEQUENCES

The following summary discusses the material federal income tax consequences
of the reverse stock split. The summary is based on the Internal Revenue Code of
1986, as amended, referred to in this section as the Internal Revenue Code,
applicable U.S. Treasury regulations under the Internal Revenue Code,

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administrative rulings and judicial authority, all as of the date of this proxy
statement. All of the foregoing authorities are subject to change, and any
change could affect the continuing validity of this summary. The summary assumes
that the holders of shares of the Company's Common Stock hold their shares as a
capital asset. The summary does not address the tax consequences that may be
applicable to particular stockholders in light of their individual circumstances
or to stockholders who are subject to special tax rules, like tax-exempt
organizations, dealers in securities, financial institutions, mutual funds,
insurance companies, non-United States persons, stockholders who acquired shares
of the Common Stock from the exercise of options or otherwise as compensation or
through a qualified retirement plan and stockholders who hold shares of the
Common Stock as part of a straddle, hedge, or conversion transaction,
stockholders who are subject to the alternative minimum tax provisions of the
Internal Revenue Code and stockholders whose shares are qualified small business
stock for purposes of Section 1202 of the Internal Revenue Code. This summary
also does not address any consequences arising under the tax laws of any state,
locality, or foreign jurisdiction. Furthermore, the following discussion does
not address the tax consequences of transactions effected before, after or at
the same time as the reverse stock split, whether or not they are in connection
with the reverse stock split.

ACCORDINGLY, STOCKHOLDERS ARE ADVISED AND EXPECTED TO CONSULT THEIR OWN TAX
ADVISERS REGARDING THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE REVERSE STOCK
SPLIT IN LIGHT OF THEIR PERSONAL CIRCUMSTANCES AND THE CONSEQUENCES UNDER STATE,
LOCAL AND FOREIGN TAX LAWS.

Other than the cash payments made in exchange for fractional shares
discussed above, no gain or loss should be recognized by a stockholder upon the
stockholder's exchange of shares pursuant to the reverse stock split. The
aggregate tax basis of the shares received in the reverse stock split, including
any fraction of a share deemed to have been received, would be the same as the
stockholder's aggregate tax basis in the shares exchanged. Stockholders who
receive cash upon redemption of their fractional share interests in the shares
as a result of the reverse stock split should recognize gain or loss equal to
the difference, if any, between the amount of cash received and the
stockholder's adjusted basis in the fractional share interests redeemed. The
U.S. federal income tax liabilities for any stockholder generated by the receipt
of cash in lieu of a fractional interest are not expected to be significant in
amount in view of the relatively low value of the fractional interest. The
stockholder's holding period for the shares received pursuant to the reverse
stock split would include the period during which the stockholder held the
shares surrendered in the stock split.

The Company's beliefs regarding the tax consequence of the reverse stock
split are not binding upon the Internal Revenue Service or the courts, and the
Internal Revenue Service or the courts may not accept the positions expressed
above. The state and local tax consequences of the reverse stock split may vary
significantly as to each stockholder, depending upon the state in which he or
she resides.

PROPOSAL NO. 1(a)

TO AMEND THE COMPANY'S CERTIFICATE OF INCORPORATION TO EFFECT
A 1-FOR-5 REVERSE STOCK SPLIT OF
THE ISSUED AND OUTSTANDING SHARES OF COMMON STOCK

In this Proposal 1(a), the Company's stockholders are being asked to
authorize the Board, in its sole discretion, to amend the Company's Certificate
of Incorporation to effect a 1-for-5 reverse stock split of the Company's issued
and outstanding Common Stock at any time within 12 months following approval by
the stockholders of such proposal. If the proposed 1-for-5 reverse stock split
is approved at the Annual Meeting, the Board may, in its sole discretion, at any
time within 12 months following approval by the stockholders of such proposal,
authorize the filing of an amendment to the Company's Certificate of
Incorporation effecting the 1-for-5 reverse stock split with the Secretary of
State of the State of Delaware. Notwithstanding the approval of the 1-for-5
reverse stock split at the Annual Meeting, the Board may, in its sole
discretion, determine not to implement the 1-for-5 reverse stock split. For the
avoidance of doubt, at any time within 12 months following approval by the
stockholders of any of Proposals 1(a) through 1(e), the Board may, in its sole
discretion, authorize the filing of an amendment to the Company's Certificate of
Incorporation to effect only one of the reverse stock splits that are approved
by the stockholders at the Annual Meeting.

-9-

RECOMMENDATIONS OF THE BOARD OF DIRECTORS:

THE BOARD RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE PROPOSAL TO EFFECT
A 1-FOR-5 REVERSE STOCK SPLIT
OF THE ISSUED AND OUTSTANDING SHARES OF COMMON STOCK.

PROPOSAL NO. 1(b)

TO AMEND THE COMPANY'S CERTIFICATE OF INCORPORATION TO EFFECT
A 1-FOR-8 REVERSE STOCK SPLIT
OF THE ISSUED AND OUTSTANDING SHARES OF COMMON STOCK.

In this Proposal 1(b), the Company's stockholders are being asked to authorize
the Board, in its sole discretion, to amend the Company's Certificate of
Incorporation to effect a 1-for-8 reverse stock split of the Company's issued
and outstanding Common Stock at any time within 12 months following approval by
the stockholders of such proposal. If the proposed 1-for-8 reverse stock split
is approved at the Annual Meeting, the Board may, in its sole discretion, at any
time within 12 months following approval by the stockholders of such proposal,
authorize the filing of an amendment to the Company's Certificate of
Incorporation effecting the 1-for-8 reverse stock split with the Secretary of
State of the State of Delaware. Notwithstanding the approval of the 1-for-8
reverse stock split at the Annual Meeting, the Board may, in its sole
discretion, determine not to implement the 1-for-8 reverse stock split. For the
avoidance of doubt, at any time within 12 months following approval by the
stockholders of any of Proposals 1(a) through 1(e), the Board may, in its sole
discretion, authorize the filing of an amendment to the Company's Certificate of
Incorporation to effect only one of the reverse stock splits that are approved
by the stockholders at the Annual Meeting.

RECOMMENDATIONS OF THE BOARD OF DIRECTORS:

THE BOARD RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE PROPOSAL TO EFFECT
A 1-FOR-8 REVERSE STOCK SPLIT
OF THE ISSUED AND OUTSTANDING SHARES OF COMMON STOCK.

PROPOSAL NO. 1(c)

TO AMEND THE COMPANY'S CERTIFICATE OF INCORPORATION TO EFFECT
A 1-FOR-10 REVERSE STOCK SPLIT
OF THE ISSUED AND OUTSTANDING SHARES OF COMMON STOCK.

In this Proposal 1(c), the Company's stockholders are being asked to authorize
the Board, in its sole discretion, to amend the Company's Certificate of
Incorporation to effect a 1-for-10 reverse stock split of the Company's issued
and outstanding Common Stock at any time within 12 months following approval by
the stockholders of such proposal. If the proposed 1-for-10 reverse stock split
is approved at the Annual Meeting, the Board may, in its sole discretion, at any
time within 12 months following approval by the stockholders of such proposal,
authorize the filing of an amendment to the Company's Certificate of
Incorporation effecting the 1-for-10 reverse stock split with the Secretary of
State of the State of Delaware. Notwithstanding the approval of the 1-for-10
reverse stock split at the Annual Meeting, the Board may, in its sole
discretion, determine not to implement the 1-for-10 reverse stock split. For the
avoidance of doubt, at any time within 12 months following approval by the
stockholders of any of Proposals 1(a) through 1(e), the Board may, in its sole
discretion, authorize the filing of an amendment to the Company's Certificate of
Incorporation to effect only one of the reverse stock splits that are approved
by the stockholders at the Annual Meeting.

-10-

RECOMMENDATIONS OF THE BOARD OF DIRECTORS:

THE BOARD RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE PROPOSAL TO EFFECT
A 1-FOR-10 REVERSE STOCK SPLIT
OF THE ISSUED AND OUTSTANDING SHARES OF COMMON STOCK.

PROPOSAL NO. 1(d)

TO AMEND THE COMPANY'S CERTIFICATE OF INCORPORATION TO EFFECT
A 1-FOR-12 REVERSE STOCK SPLIT
OF THE ISSUED AND OUTSTANDING SHARES OF COMMON STOCK.

In this Proposal 1(d), the Company's stockholders are being asked to authorize
the Board, in its sole discretion, to amend the Company's Certificate of
Incorporation to effect a 1-for-12 reverse stock split of the Company's issued
and outstanding Common Stock at any time within 12 months following approval by
the stockholders of such proposal. If the proposed 1-for-12 reverse stock split
is approved at the Annual Meeting, the Board may, in its sole discretion, at any
time within 12 months following approval by the stockholders of such proposal,
authorize the filing of an amendment to the Company's Certificate of
Incorporation effecting the 1-for-12 reverse stock split with the Secretary of
State of the State of Delaware. Notwithstanding the approval of the 1-for-12
reverse stock split at the Annual Meeting, the Board may, in its sole
discretion, determine not to implement the 1-for-12 reverse stock split. For the
avoidance of doubt, at any time within 12 months following approval by the
stockholders of any of Proposals 1(a) through 1(e), the Board may, in its sole
discretion, authorize the filing of an amendment to the Company's Certificate of
Incorporation to effect only one of the reverse stock splits that are approved
by the stockholders at the Annual Meeting.

RECOMMENDATIONS OF THE BOARD OF DIRECTORS:

THE BOARD RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE PROPOSAL TO EFFECT
A 1-FOR-12 REVERSE STOCK SPLIT
OF THE ISSUED AND OUTSTANDING SHARES OF COMMON STOCK.

PROPOSAL NO. 1(e)

TO AMEND THE COMPANY'S CERTIFICATE OF INCORPORATION TO EFFECT
A 1-FOR-15 REVERSE STOCK SPLIT
OF THE ISSUED AND OUTSTANDING SHARES OF COMMON STOCK.

In this Proposal 1(e), the Company's stockholders are being asked to authorize
the Board, in its sole discretion, to amend the Company's Certificate of
Incorporation to effect a 1-for-15 reverse stock split of the Company's issued
and outstanding Common Stock at any time within 12 months following approval by
the stockholders of such proposal. If the proposed 1-for-15 reverse stock split
is approved at the Annual Meeting, the Board may, in its sole discretion, at any
time within 12 months following approval by the stockholders of such proposal,
authorize the filing of an amendment to the Company's Certificate of
Incorporation effecting the 1-for-15 reverse stock split with the Secretary of
State of the State of Delaware. Notwithstanding the approval of the 1-for-15
reverse stock split at the Annual Meeting, the Board may, in its sole
discretion, determine not to implement the 1-for-15 reverse stock split. For the
avoidance of doubt, at any time within 12 months following approval by the
stockholders of any of Proposals 1(a) through 1(e), the Board may, in its sole
discretion, authorize the filing of an amendment to the Company's Certificate of
Incorporation to effect only one of the reverse stock splits that are approved
by the stockholders at the Annual Meeting.

RECOMMENDATIONS OF THE BOARD OF DIRECTORS:

THE BOARD RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE PROPOSAL TO EFFECT
A 1-FOR-15 REVERSE STOCK SPLIT
OF THE ISSUED AND OUTSTANDING SHARES OF COMMON STOCK.

-11-

PROPOSAL NO. 2

ELECTION OF CLASS I DIRECTORS

NOMINEES

At the Annual Meeting, the stockholders will elect two Class I directors to
a three year term to serve until the Annual Meeting of Stockholders for the year
ending December 31, 2005 or until his respective successor is elected and
qualified. In the event any Class I nominee is unable or unwilling to serve as a
director at the time of the Annual Meeting, the proxies may be voted for any
substitute nominee designated by the present Board or the proxy holders to fill
such vacancy, or the size of the Board may be reduced in accordance with the
Bylaws of the Company. The Board has no reason to believe that any of the
individuals named below will be unable or unwilling to serve as a nominee or as
a Class I director if elected.

Assuming a quorum is present, the two nominees receiving the highest number
of affirmative votes of shares entitled to be voted for them will be elected as
Class I directors of the Company. Unless marked otherwise, proxies received will
be voted FOR the election of the Class I nominees named below. In the event that
additional persons are nominated for election as Class I directors, the proxy
holders intend to vote all proxies received by them in such a manner as will
ensure the election of the Class I nominees listed below, and, in such event,
the specific nominees to be voted for will be determined by the proxy holders.

The name of the nominees, their ages as of February 28, 2003 and certain
other information about them are set forth below:

NAME OF NOMINEE AGE POSITION WITH THE COMPANY DIRECTOR SINCE CLASS
- --------------- --- ------------------------- -------------- -----

Christopher Paisley (1)........... 50 Director Apr. 2002 I
Lawrence Owen Brown (2)........... 61 Director Jan. 2003 I

(1) Member of Audit Committee.
(2) Member of the Compensation Committee.

CHRISTOPHER PAISLEY has served as a director since April 2002. Mr. Paisley
serves as the Dean's Executive Professor of Accounting and Finance at the Leavey
School of Business at Santa Clara University. Previously, Mr. Paisley served as
the Senior Vice President of Finance and Chief Financial Officer for 3Com
Corporation, a computer networking hardware company, from 1985 to 2000. Mr.
Paisley has an M.B.A from the University of California at Los Angeles and a B.A.
in economics from the University of California at Santa Barbara. He is a member
of the Financial Executives Institute and a member of the Board of Directors for
Aspect Communications, Legato Corporation, Riverstone Networks, and Brocade
Communications.

LAWRENCE OWEN BROWN has served as a director since January 2003. Mr. Brown
contributes 34 years of experience in the high technology industry to the
Company. Mr. Brown has executive experience in several companies, including most
recently acting as President and Chief Operating Officer of Sun Microsystems, a
networking hardware and software company, during its start-up phase, Vice
President of Xerox Corporation, a business equipment company, and as the Chief
Executive Officer of three companies in Silicon Valley. Mr. Brown also served as
a managing partner at Technology Strategies and Alliances, an investment banking
firm. Mr. Brown holds an B.S.M.E. degree from Auburn University.

In addition, the Company has two other classes of directors: Class II, which
consists of James F. Sutter and Sanjay Vaswani, each of whose term expires at
the Annual Meeting of Stockholders for the year ending December 31, 2003, and
Class III, which consists of Christopher Keene and Thomas P. Shanahan, each of
whose term expires at the Annual Meeting of Stockholders for the year ending
December 31, 2004.

The names of the Class II and Class III directors, their ages as of February
28, 2003 and certain other information about them are set forth below:

-12-

NAME OF DIRECTOR AGE POSITION WITH THE COMPANY DIRECTOR SINCE CLASS
- ---------------- --- ------------------------------------ -------------- -----

James F. Sutter (1)............... 66 Director Apr. 2003 II
Sanjay Vaswani (1)................ 42 Director Oct. 2000 II
Christopher Keene................. 42 Chief Executive Officer and Director June 1991 III
Thomas P. Shanahan (2)............ 56 Director Nov. 2002 III

(1) Member of Audit Committee.
(2) Member of the Compensation Committee.

CHRISTOPHER KEENE co-founded the Company and has served as Chief Executive
Officer and a director since June 1991. From June 1991 to April 1999, Mr. Keene
also served as President. Before founding the Company, Mr. Keene was a Manager
at McKinsey & Company, a management consulting firm, from July 1987 to June
1991. Mr. Keene holds a B.S. degree in Mathematical Sciences with honors from
Stanford University and an M.B.A. degree from The Wharton School at the
University of Pennsylvania.

THOMAS P. SHANAHAN has served as a director since November 2002. Since 2002,
Mr. Shanahan has served as a General Partner for Needham Capital Partners in
Menlo Park, California. Prior to Needham Capital Partners, Mr. Shanahan served
as Co-founder, Chief Financial Officer and Director for Agile Software
Corporation, a provider of supply chain management software, from 1997 to 2001.
From 1992 to 1997, he served as Chief Financial Officer for several companies
including Digital Generation Systems, Inc, a digital distribution services
company, and Sherpa Corporation, a product data management software company. Mr.
Shanahan holds an M.B.A. from Harvard University and a B.A. from Stanford
University. He currently is a member of the boards of directors for two
privately held enterprise software companies: CenterRun, Inc. and diCarta, Inc.

JAMES F. SUTTER has served as a director since April 2003. Since 1997, Mr.
Sutter has served as a management consultant with Peer Consulting Group,
specializing in information technology, where he has acted as a Chief
Information Officer advisor to The Dow Chemical Company, a chemical company, and
E&J Gallo Winery, a producer of wines and distilled spirits, and has also
consulted for various companies, including Hughes Electronics Corporation, a
telecommunications company, Intellisys Group, a developer of integrated
audio-visual media systems (acquired by MCSi), and Teradyne, a manufacturer of
automatic test equipment and interconnection systems. From 1983 to 1997, Mr.
Sutter served as Vice President, Chief Information Officer and General Manager
for Rockwell International, an aerospace and electronics manufacturer. Mr.
Sutter holds an M.B.A. from Marquette University and a B.Sc. from the University
of Notre Dame. He currently is a member of the boards of directors for two
privately held companies: Entcomm, Inc., an enterprise software company, and
Trinus Corporation, an information technology consulting company.

SANJAY VASWANI has served as a director since October 2000. Since 1990, Mr.
Vaswani has been a partner at Center For Corporate Innovation (CCI), where he
co-leads CCI's Chief Executive Officer summits. From 1987 to 1990, Mr. Vaswani
was an associate at McKinsey & Company, a management consulting firm. From 1981
to 1985, Mr. Vaswani was employed by Intel Corporation, a semiconductor
manufacturer, where he concentrated on finance and strategic planning. Mr.
Vaswani holds an M.B.A. from the Wharton School of Business at the University of
Pennsylvania, and a B.B.A., summa cum laude, from the University of Texas at
Austin.

There are no family relationships among any of the directors or executive
officers of the Company.

BOARD RESIGNATIONS

Joseph Roebuck, one of the Company's Class I directors, resigned from the
Board in January 2003, and the Board elected Lawrence Owen Brown in January 2003
to fill such vacancy. Additionally, Alan King, one of the Company's Class II
directors, resigned from the Board in March 2003, and the Board elected James F.
Sutter to the Board on April 9, 2003 to fill such vacancy. Both resignations
from the Board were for reasons unrelated to the Company's business.

-13-

MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS

During the period from January 1, 2002 through December 31, 2002, the Board
met five times and no director attended fewer than 75% of the aggregate number
of eligible meetings of the Board and meetings of the committees of the Board on
which he served.

The Board has an Audit Committee and a Compensation Committee. The Board
does not have a nominating committee or a committee performing the functions of
a nominating committee. A nomination for a director made by a stockholder must
be received by Christine Russell, the Chief Financial Officer and Secretary, at
the address of the Company's executive offices set forth above by May 16, 2003
in order to be considered for election to the Board at this Annual Meeting. If
the Company is not notified of a nomination for director or any other
stockholder proposal by May 16, 2003, then the proxies held by management of the
Company provide discretionary authority to vote against such stockholder
proposal, even though such proposal is not discussed in the Proxy Statement.

The Audit Committee's functions are, among other things: (i) to monitor the
corporate financial reporting and the internal and external audits of the
Company; (ii) to provide to the Board of Directors the results of its
examinations and recommendations derived therefrom; (iii) to outline to the
Board improvements made, or to be made, in internal accounting controls; (iv) to
appoint, compensate and oversee the Company's independent accountants; (v) to
supervise the finance function of the Company (which will include, among other
matters, the Company's investment activities); (vi) to engage and compensate
independent counsel and other advisors as it deems necessary to carry out its
duties; (vii) to pre-approve all audit services and permitted non-audit services
to be provided by the Company's independent accountants; and (viii) to provide
the Board such additional information and materials as it may deem necessary to
make the Board aware of significant financial matters which require Board
attention. The Audit Committee undertakes these specific duties and other
responsibilities listed in the Audit Committee's charter, included as Appendix A
to this Proxy Statement, and such other duties as the Board may prescribe from
time to time. See also "Report of the Audit Committee of the Board of
Directors." During the fiscal year ended December 31, 2002, the Audit Committee,
consisting of Alan King, Joseph Roebuck and Sanjay Vaswani, held five meetings.
In April 2002, Mr. Roebuck resigned as a member of the Audit Committee and
Christopher Paisley was elected as a member of the Audit Committee, and in March
2003 Mr. King resigned from the Board, and has been replaced by James F. Sutter
as a member of the Audit Committee in April 2003.

The Compensation Committee's functions are (i) to establish and review at
least annually the Company's general compensation policies applicable to the
Company's Chief Executive Officer and other executive officers, (ii) to review
and approve the level of compensation of the Company's Chief Executive Officer
and other executive officers, (iii) to review and advise the Board concerning
the performance of the Chief Executive Officer, (iv) to review (and, if deemed
appropriate by the Committee, retain consultants regarding) and advise the Board
concerning both regional and industry-wide compensation practices and trends in
order to assess the adequacy and competitiveness of the Company's executive
compensation programs, and (v) to administer the Company's 1997 Stock Plan, 1999
Directors' Stock Option Plan (the "DIRECTORS PLAN") and 1999 Employee Stock
Purchase Plan (the "ESPP"). During the fiscal year ended December 31, 2002, the
Compensation Committee held two meetings. The Compensation Committee initially
consisted of Alan King, Joseph Roebuck and Sanjay Vaswani. In January 2003, Mr.
Roebuck resigned from the Board and Mr. Vaswani resigned as a member of the
Compensation Committee, and Lawrence Owen Brown and Thomas P. Shanahan were
appointed as members of the Compensation Committee.

COMPENSATION OF DIRECTORS

Directors do not currently receive cash compensation for their services as
members of the Board except for periodic reimbursement of travel expenses.
Employee directors are eligible to participate in the 1997 Stock Plan and the
ESPP. Non-employee directors are eligible to participate in the 1997 Stock Plan
and the Directors Plan.

The Directors Plan currently provides that each non-employee director who
joined the Board prior to June 24, 1999, the date of the Company's initial
public offering (a "PREEXISTING OUTSIDE DIRECTOR") is automatically granted an
option to purchase 10,000 shares of Common Stock on the first day of each fiscal
year, starting on January 1, 2002. In addition, the Directors Plan currently
provides that each non-employee director who joins the Board after June 24, 1999
(a "NEW OUTSIDE DIRECTOR") is automatically granted: (i) an option to purchase
20,000 shares of Common Stock (the "FIRST OPTION") on the date of his or her

-14-

election or appointment to the Board of Directors, (ii) an additional option to
purchase 20,000 shares of Common Stock (the "SECOND OPTION") on the one year
anniversary of his or her election or appointment as a director, and (iii) an
additional option (each, a "SUBSEQUENT OPTION") to purchase 10,000 shares of
Common Stock on the first day of each fiscal year after the date of grant of the
Second Option. All such options granted to Preexisting Outside Directors and New
Outside Directors are fully vested at the date of the grant, have an exercise
price per share equal to the fair market value of the Common Stock on the date
of grant and have a term of 10 years.

Pursuant to the Directors Plan, Mr. Shanahan, who qualifies as a New Outside
Director, was automatically granted an option to purchase 20,000 shares of
Common Stock on November 26, 2002, the date he was appointed to the Board. This
option grant was subsequently declined and therefore cancelled. Mr. Brown, who
qualifies as a New Outside Director, was automatically granted an option to
purchase 20,000 shares of Common Stock on January 15, 2003, the date he was
appointed to the Board. This option is fully vested and has an exercise price of
$0.37 per share. James F. Sutter, who qualifies as a New Outside Director, was
automatically granted an option to purchase 20,000 shares of Common Stock on
April 9, 2003, the date he was appointed to the Board. This option is fully
vested and has an exercise price of $0.25 per share.

In April 2003, the Board granted options to purchase 100,000 shares of
Common Stock to each of Lawrence Owen Brown, James F. Sutter and Sanjay Vaswani,
and 150,000 shares of Common Stock to Christopher Paisley. Each such option was
issued from the 1997 Stock Plan and has a term of 10 years. The options granted
to Messrs. Brown, Paisley and Vaswani each have an exercise price of $0.24 per
share and a vesting commencement date of April 1, 2003, and the option granted
to Mr. Sutter has an exercise price of $0.25 per share and a vesting
commencement date of April 9, 2003. Mr. Brown's option vests at the rate of
1/4th of the total shares underlying the option on the first anniversary of the
vesting commencement date, and 1/48th of the total shares on each monthly
anniversary of the vesting commencement date thereafter. Mr. Paisley's option
vests at the rate of 1/4th of the total shares underlying the option on the
first anniversary of the vesting commencement date, and 1/36th of the total
shares on each monthly anniversary of the vesting commencement date thereafter.
Mr. Sutter's option vests at the rate of 1/4th of the total shares underlying
the option on the first anniversary of the vesting commencement date, and 1/36th
of the total shares on each monthly anniversary of the vesting commencement date
thereafter. Mr. Vaswani's option vests at the rate of 1/4th of the total shares
underlying the option on the first anniversary of the vesting commencement date,
and 1/24th of the total shares on each monthly anniversary of the vesting
commencement date thereafter. In addition, each such option will have its
vesting accelerate and become fully exercisable upon a change of control of the
Company.

RECOMMENDATION OF THE BOARD OF DIRECTORS:

THE BOARD RECOMMENDS A VOTE "FOR"
THE ELECTION OF THE CLASS I NOMINEES NAMED ABOVE.

-15-

PROPOSAL NO. 3

RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS

Deloitte & Touche LLP has served as the Company's independent auditors since
January 1993 and has been appointed by the Audit Committee to continue as the
Company's independent auditors for the year ending December 31, 2003. In the
event that ratification of this selection of auditors is not approved by a
majority of the shares of Common Stock voting at the Annual Meeting in person or
by proxy, the Audit Committee will reconsider its selection of auditors.

A representative of Deloitte & Touche LLP is expected to be present at the
Annual Meeting. This representative will have an opportunity to make a statement
and will be available to respond to appropriate questions.

RECOMMENDATION OF THE BOARD OF DIRECTORS:

THE BOARD RECOMMENDS A VOTE "FOR" RATIFICATION OF THE
APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE COMPANY'S
INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31, 2003.

-16-

COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information that has been provided to the
Company with respect to beneficial ownership of shares of the Company's Common
Stock as of February 28, 2003 for (i) each person who is known by the Company to
own beneficially five percent or more of the outstanding shares of Common Stock,
(ii) each director of the Company, (iii) each of the executive officers named in
the Summary Compensation Table of this proxy statement (the "NAMED EXECUTIVE
OFFICERS"), and (iv) all directors and executive officers of the Company as a
group. The applicable percentage of ownership for each stockholder is based on
24,044,735 shares of Common Stock outstanding as of February 28, 2003, in each
case together with applicable options for that stockholder. Shares of Common
Stock issuable upon exercise of options and other rights beneficially owned that
are exercisable on or before April 29, 2003 are deemed outstanding for the
purpose of computing the percentage ownership of the person holding those
options and other rights but are not deemed outstanding for computing the
percentage ownership of any other person.

Except as otherwise noted, the address of each person listed in the table is
c/o Persistence Software, Inc., 1720 South Amphlett Boulevard, Third Floor, San
Mateo, California, 94402. Beneficial ownership is determined in accordance with
the rules of the Securities and Exchange Commission and is based on the
individual's ability to exercise voting and investment power with respect to
shares. To our knowledge, except under applicable community property laws or as
otherwise indicated, the persons named in the table have sole voting and sole
investment control with respect to all shares beneficially owned.

NUMBER OF
SHARES
BENEFICIALLY PERCENTAGE
NAME AND ADDRESS OWNED OWNERSHIP
---------------- ----- ---------
Needham Capital Partners (1)..................... 5,013,822 19.86%
445 Park Avenue
New York, NY 10022

Christopher T. Keene (2)......................... 2,771,150 11.52

Eastbourne Capital Management, L.L.C. (3)(4)..... 1,465,300 6.09
1101 Fifth Avenue, Suite 160,
San Rafael, CA 94901

Thompson Clive Investments PLC (3)............... 1,255,355 5.22
24 Old Bond Street
London WIX 4JD, United Kingdom

Derek Henninger (5).............................. 1,254,717 5.21

Christine Russell (6)............................ 379,688 1.57

Ed Murrer (7).................................... 87,500 *

Keith Zaky (8)................................... 58,333 *

Sanjay Vaswani (9)............................... 100,500 *

Christopher Paisley (10)......................... 40,000 *

Alan King (11)................................... 40,000 *

Thomas P. Shanahan (12).......................... 4,963,822 19.66
445 Park Avenue
New York, NY 10022

Lawrence Owen Brown (13)......................... 20,000 *

James F. Sutter (14)............................. 20,000 *

All directors and executive officers as a group
(12 persons) (15)............................ 9,910,378 38.28
_____________________
* Less than 1%.

-17-

(1) Includes 2,891,761 shares held by Needham Capital Partners III, L.P.,
296,949 shares held by Needham Capital Partners IIIA, L.P., immediately
exercisable warrants to purchase 927,171 shares held by Needham Capital
Partners III, L.P and immediately exercisable warrants to purchase 95,209
shares held by Needham Capital Partners IIIA, L.P. Needham Capital
Management, L.L.C. is the general partner of each of the above private
limited partnerships. Also includes 569,982 shares held by Needham Capital
Partners III (Bermuda), L.P. and immediately exercisable warrants to
purchase 182,750 shares held by Needham Capital Partners III (Bermuda),
L.P. Needham Capital Management (Bermuda), L.L.C. is the general partner
of such entity. Thomas P. Shanahan, a director of the Company, George A.
Needham, John C. Michaelson and John J. Prior are each managing members of
Needham Capital Management, L.L.C. and Needham Capital Management
(Bermuda), L.L.C., and share voting and dispositive power with respect to
the shares held by such entities. Also includes 50,000 shares held by
Needham Contrarian Fund, L.P. Mr. George A. Needham is the Managing
General Partner of Needham Management Partners, L.P., the general partner
of such entity. Each managing partner or member disclaims beneficial
ownership of these shares except to the extent of its or his respective
pecuniary interests.

(2) Includes 2,582,150 shares held in the name of "Christopher Keene and
Yvonne Keene Community Property," and shares held by the following trusts:
92,000 shares held by The Alexander Allan Keene Trust and 92,000 shares
held by The Austen Foster Keene Trust. Mr. Keene disclaims beneficial
ownership of all shares held by such trusts except to the extent of his
pecuniary interest.

(3) Beneficial ownership calculation is based solely on a review of Schedule
13G filings made with the Securities and Exchange Commission. Such filings
set forth beneficial ownership as of December 31, 2002.

(4) Per Schedule 13G filing made with the Securities and Exchange Commission,
Richard Jon Berry is the controlling member of Eastbourne Capital
Management, L.L.C.

(5) Includes 16,666 shares issuable upon exercise of options that are
exercisable on or before April 29, 2003. Also includes shares held by the
following trusts, of which Mr. Henninger and Elizabeth W. Henninger share
voting and dispositive power as trustees: 1,065,748 shares held by The
Henninger Family Trust, 83,901 shares held by The Henninger Family
Irrevocable Trust fbo Grant Larson Henninger uad 04/03/2000 and 83,901
shares held by The Henninger Family Irrevocable Trust fbo Webb Ryan
Henninger uad 04/03/2000. Mr. and Mrs. Henninger each disclaim beneficial
ownership of the shares held by such trusts except to the extent of their
respective pecuniary interests.

(6) Includes 109,688 shares issuable upon exercise of options that are
exercisable on or before April 29, 2003.

(7) Consists of 87,500 shares issuable upon exercise of options that are
exercisable on or before April 29, 2003.

(8) Consists of 58,333 shares issuable upon exercise of options that are
exercisable on or before April 29, 2003. Mr. Zaky resigned from the
Company in January 2003.

(9) Includes 100,000 shares issuable upon exercise of options that are
exercisable on or before April 29, 2003.

(10) Consists of 40,000 shares issuable upon exercise of options that are
exercisable on or before April 29, 2003.

(11) Consists of 40,000 shares issuable upon exercise of options that are
exercisable on or before April 29, 2003. Mr. King resigned from the Board
of Directors in March 2003 for reasons unrelated to the Company's
business.

(12) See Note 1. Excludes 50,000 shares held by Needham Contrarian Fund, L.P.

-18-

(13) Consists of 20,000 shares issuable upon exercise of options that are
exercisable on or before April 29, 2003.

(14) Consists of 20,000 shares that are issuable upon exercise of options that
are exercisable on or before April 29, 2003. Mr. Sutter was appointed to
the Board on April 9, 2003.

(15) Includes 233,001 shares beneficially owned by Vivek Singhal, the Company's
Vice President of Engineering. Also includes an aggregate of 1,842,274
shares issuable upon exercise of options and warrants held by all
directors and executive officers that are exercisable on or before April
29, 2003.

-19-

COMPENSATION OF EXECUTIVE OFFICERS

The following table shows the compensation paid during each of the last
three years to (a) the individual who served as the Company's Chief Executive
Officer during the year ended December 31, 2002 and (b) the four other most
highly compensated individuals who were serving as executive officers of the
Company at December 31, 2002.

SUMMARY COMPENSATION TABLE

ANNUAL COMPENSATION
----------------------
FISCAL SALARY BONUS UNDERLYING
NAME AND PRINCIPAL POSITION YEAR ($) (1) ($) OPTIONS (#)
--------------------------- ---- --------- --------- -----------

Christopher T. Keene .................. 2002 $243,750(2) $ 14,400 100,000
Chairman of the Board 2001 211,519(3) 25,000 --
and Chief Executive Officer ..... 2000 186,672 43,000 --

Derek Henninger ....................... 2002 165,750 10,800 50,000
Vice President of Worldwide 2001 166,077 -- 50,000
Field Operations 2000 170,000 40,000 --

Christine Russell ..................... 2002 165,750 10,560 50,000
Chief Financial Officer 2001 166,077 -- 140,000(4)
2000 167,786 40,000 70,000(5)

Ed Murrer ............................. 2002 226,904 40,980 50,000
Vice President of Marketing 2001 105,269 20,000 200,000
2000 -- -- --

Keith Zaky ............................ 2002 220,000 81,573 37,500
Former Vice President of Sales (6).. 2001 44,846 -- 400,000
2000 -- -- --

________________
(1) Includes income deferred under Company 401(k) plan.
(2) Effective January 1, 2002, Mr. Keene's base salary was increased back
to $250,000 on an annualized basis. On September 30, 2002, in
connection with a Company-wide reduction in salaries, Mr. Keene's base
salary was decreased by 10% to $225,000 on an annualized basis. As a
result of the foregoing, Mr. Keene's base salary on an annualized
basis for the year ended December 31, 2002 was $243,750.
(3) On July 2, 2001, Mr. Keene's base salary was increased from $187,000
to $250,000, which represented a 33.7% increase. As of October 1,
2001, Mr. Keene's base salary was temporarily decreased by 10% to
$225,000 on an annualized basis. As a result of this decrease, Mr.
Keene's base salary on an annualized basis for the year ended December
31, 2001 was $211,519.
(4) Includes options to purchase 35,000 shares of Common Stock which were
cancelled in 2001 in connection with the Company's repricing of
certain options outstanding under its 1997 Stock Plan.
(5) This option to purchase 70,000 shares of Common Stock was cancelled in
2001 in connection with the Company's repricing of certain options
outstanding under its 1997 Stock Plan.
(6) Mr. Zaky resigned from the Company in January 2003.

The Company has a change of control agreement with Ed Murrer, which provides
that a specified portion of the restricted stock or stock options granted to
such officer under the 1997 Stock Plan will immediately vest if such officer is
terminated without cause or resigns for good reason within 12 months after a
change of control of the Company. The agreement terminates at the earliest of:
(1) four years after the date of the agreement, (2) termination of employment
with the Company other than within 12 months after a change of control or (3) a
written agreement between the individual officer and the Company to terminate
the agreement.

-20-

OPTION GRANTS IN 2002

The following table provides certain information with respect to stock
options granted to the Named Executive Officers in the year ended December 31,
2002. In addition, as required by Securities and Exchange Commission rules, the
table sets forth the hypothetical gains that would exist for the options based
on assumed rates of annual compound stock price appreciation during the option
term. No stock appreciation rights were granted by the Company.

INDIVIDUAL GRANTS
-------------------------------------
POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
NUMBER OF TOTAL OPTIONS ANNUAL RATES OF STOCK
SECURITIES GRANTED PRICE APPRECIATION
UNDERLYING TO EMPLOYEES EXERCISE FOR OPTION TERM(1)
OPTIONS IN FISCAL PRICE EXPIRATION ----------------------
NAME GRANTED (#) YEAR (%)(2) ($/SH)(3) DATE 5% ($) 10% ($)
- ---- ----------- ------------- --------- ---------- ---------- ---------

Christopher Keene.......... 100,000 (4) 11% $0.6002 7/9/2012 $37,746 $95,656

Derek Henninger............ 50,000 (4) 5% 0.6002 7/9/2012 18,873 47,828

Christine Russell ......... 50,000 (4) 5% 0.6002 7/9/2012 18,873 47,828

Ed Murrer.................. 50,000 (4) 5% 0.6002 7/9/2012 18,873 47,828

Keith Zaky (5)............. 37,500 (4) 4% 0.6002 7/9/2012 14,154 35,871

___________________
(1) The potential realizable value illustrates a value that might be realized
upon exercise of the options immediately prior to the expiration of their
terms, assuming the specified compounded rates of appreciation of the
market price per share from the date of grant to the end of the option
term, less the exercise price. Actual gains, if any, on stock option
exercise are dependent upon a number of factors, including the future
performance of the Common Stock and the timing of option exercises, as
well as the optionees' continued employment throughout the vesting period.
There can be no assurance that the amounts reflected in this table will be
achieved.
(2) The Company granted stock options representing 929,000 shares to employees
in 2002. All grants were made under the 1997 Stock Plan.
(3) The exercise price may be paid in cash, in shares of Common Stock valued
at fair market value on the exercise date or through a cashless exercise
procedure involving a same-day sale of the purchased shares.
(4) This option vests at the rate of 1/4th of the total number of shares on
the first anniversary of July 9, 2003, the vesting commencement date, and
1/48th of the total shares on each monthly anniversary of the vesting
commencement date thereafter.
(5) Mr. Zaky resigned from the Company in January 2003.

-21-

EQUITY COMPENSATION PLAN INFORMATION

The following table gives information about the Company's Common Stock that
may be issued upon the exercise of options, warrants and rights under all of the
Company's existing equity compensation plans as of December 31, 2002, including
the 1994 Stock Purchase Plan, 1997 Stock Plan, the Directors Plan and the ESPP.

NUMBER OF SECURITIES
REMAINING
WEIGHTED AVAILABLE FOR
NUMBER OF SECURITIES AVERAGE FUTURE ISSUANCE UNDER
TO BE ISSUED UPON EXERCISE PRICE EQUITY COMPENSATION
EXERCISE OF OF OUTSTANDING PLANS (EXCLUDING
OUTSTANDING OPTIONS, OPTIONS, WARRANTS AND SECURITIES REFLECTED IN
PLAN CATEGORY WARRANTS AND RIGHTS RIGHTS COLUMNS (a))
(a) (b) (c)
- ------------------------------- -------------------- --------------------- -----------------------

Equity compensation plans
approved by stockholders 3,507,088 (1) $1.33 (1) 2,361,806 (1)
148,000 (2) 2.64 (2) 352,000 (2)
-- -- 1,191,850 (3)
Equity compensation plans 130,000 (4) 0.50 (4) --
not approved by stockholders
TOTAL 3,785,088 3,905,656

___________________
(1) Comprises outstanding options, weighted average exercise price and
securities available for issuance under the 1997 Stock Plan as of December
31, 2002, including a maximum of 38,645 additional shares that may be
transferred from the 1994 Stock Purchase Plan. The 1997 Stock Plan
includes an "evergreen" feature, which provides for an automatic annual
increase in the number of shares available under the plan on the first day
of each fiscal year through 2005, equal to the lesser of 985,000 shares or
4.94% of the Company's outstanding Common Stock on the last day of the
immediately preceding fiscal year.
(2) Comprises outstanding options, weighted average exercise price and
securities available for issuance under the Directors Plan as of December
31, 2002.
(3) Available for issuance under the ESPP as of December 31, 2002. The ESPP,
designed to comply with Internal Revenue Code Section 423, includes an
"evergreen" feature, which provides for an automatic annual increase in
the number of shares available under the plan on the first day of each
fiscal year through 2004, equal to the lesser of 250,000 shares or 1% of
the Company's outstanding Common Stock on the last day of the immediately
preceding fiscal year.
(4) Comprises options issued to non-employees for consulting services.

During 2002, the Company issued warrants to purchase up to 50,000 shares of
Common Stock to RTX Securities Corporation at an exercise price of $0.38 in
partial consideration for consulting services. Such warrants are fully vested as
of the date of grant. In addition, the Company issued warrants to purchase up to
80,000 shares of Common Stock to RCG Capital Markets at an exercise price of
$0.57 in partial consideration for consulting services. Such warrants vest over
a period of four years.

-22-

AGGREGATED OPTION EXERCISES IN 2002
AND VALUE OF UNEXERCISED OPTIONS HELD AS OF DECEMBER 31, 2002

The following table sets forth the number of shares covered by stock options
held by Named Executive Officers as of December 31, 2002, and the value of
"in-the-money" stock options, which represents the difference between the
exercise price of a stock option and the market price of the shares subject to
such option on December 31, 2002. No stock appreciation rights were outstanding
during the year ended December 31, 2002, and no stock options were exercised by
Named Executive Officers during the year ended December 31, 2002.

NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
YEAR END (#) AT FISCAL YEAR END ($)(1)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE (2)/UNEXERCISABLE
---- ------------------------- -----------------------------

Christopher Keene................. 0/100,000 --
Derek Henninger................... 12,500 / 37,500 --
0/50,000 --
Christine Russell................. 86,771 / 18,229 --
19,166 / 834 --
0 / 50,000 --
Ed Murrer......................... 70,833 / 129,167 --
0 / 50,000 --
Keith Zaky (3).................... 58,333 / 141,667 $583 / 1,417
0 / 200,000 --
0 / 37,500 --

___________________
(1) Value is based on the closing price of the Company's Common Stock on the
Nasdaq SmallCap Market on December 31, 2002 of $0.48 per share, less the
aggregate exercise price of the options.
(2) Does not include options that had an exercise price greater than the per
share closing price of $0.48 on December 31, 2002 as reported on the Nasdaq
SmallCap Market.
(3) Mr. Zaky resigned from the Company in January 2003.

-23-

NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE COMPANY'S
FILINGS UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED, THAT MIGHT INCORPORATE FUTURE FILINGS, INCLUDING THIS
PROXY STATEMENT, IN WHOLE OR IN PART, THE FOLLOWING REPORTS AND THE STOCK
PERFORMANCE GRAPH HEREIN SHALL NOT BE DEEMED TO BE INCORPORATED BY REFERENCE
INTO ANY SUCH FILINGS.

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

The Compensation Committee of the Board of Directors of Persistence
Software was formed in 1999. In 2002, the Compensation Committee consisted
initially of non-employee directors Alan King, Joseph Roebuck and Sanjay
Vaswani. In January 2003, Messrs. Roebuck and Vaswani resigned from the
Compensation Committee and Lawrence Owen Brown and Thomas P. Shanahan were
appointed as members. The Compensation Committee held two meetings during 2002.
Its functions are (i) to establish and review at least annually the Company's
general compensation policies applicable to the Company's Chief Executive
Officer and other executive officers, (ii) to review and approve the level of
compensation of the Company's Chief Executive Officer and other executive
officers, (iii) to review and advise the Board concerning the performance of the
Chief Executive Officer, (iv) to review (and, if deemed appropriate by the
Committee, retain consultants regarding) and advise the Board concerning both
regional and industry-wide compensation practices and trends in order to assess
the adequacy and competitiveness of the Company's executive compensation
programs, and (v) to administer the Company's 1997 Stock Plan, 1999 Directors'
Stock Option Plan and 1999 Employee Stock Purchase Plan. Decisions concerning
the compensation of the Company's executive officers are made by the
Compensation Committee and reviewed by the full Board of Directors (excluding
any interested director).

EXECUTIVE OFFICER COMPENSATION PROGRAMS. The objectives of the executive
officer compensation program are to attract, retain and motivate qualified
executives who possess the necessary leadership and management skills critical
to the Company's growth and long-term success. Executive officers' compensation
includes four main components: competitive base salary, annual cash bonus
incentives, long-term stock-based incentive compensation and other benefits,
including medical and life insurance plans. The goal of these executive
compensation policies of the Compensation Committee is to encourage and reward
the highest quality performance through attractive compensation to accomplish
key business objectives and increase stockholder value. The Compensation
Committee believes that stock ownership by management is beneficial in aligning
management and stockholder interests, thereby enhancing stockholder value.

BASE SALARIES. The Compensation Committee sets salaries for the Company's
executive officers based on each individual officer's responsibility, salary
levels seen in the industry for similar positions, general salary practices of
peer companies and the officer's individual qualifications and experience. The
base salaries are reviewed annually and may be adjusted to reflect the
Compensation Committee assessment of the executive's individual performance, the
functions performed by the executive officer, the scope of the executive
officer's on-going duties, trends in executive compensation among the talent
pool of comparable organizations and the Company's overall financial condition.
The weight given each such factor by the Compensation Committee may vary from
individual to individual.

INCENTIVE BONUSES. The Compensation Committee's policy is to grant cash
incentive bonuses to directly encourage and reward the achievement of specific
annual performance goals, which might not be immediately reflected in the
appreciation in value of stock options. The Compensation Committee sets the
bonuses using recommendations from management and a strong assessment of factors
including such officer's level of responsibility, individual performance,
contributions to the Company's success and the Company's financial performance
generally. The incentive bonus makes a significant portion of the executive's
compensation dependent on the Company's performance, giving such executive
incentive to achieve the Company's goals. It also recognizes such executive's
individual contributions to the Company.

STOCK OPTION GRANTS. Stock options may be granted to executive officers and
other employees under the 1997 Stock Plan. The Compensation Committee believes
that employee equity ownership helps to align employee goals with those of
stockholders because the value of stock option grants increase as the stock
price increases. The level of individual stock option grants to executives is
set based on competitive market practices for executives of similar position and
responsibility within the Company and expected contributions to the Company's

-24-

overall performance. Stock option grants to executives create an interest in the
future success of the Company, which helps retention of executives and long-term
stockholder value. The Compensation Committee makes a subjective evaluation
based on past and future expected performance since the 1997 Stock Plan does not
provide a specific formula for calculating the weight of the factors used to
determine stock option grants.

Upon recommendation of management and approval of the Compensation
Committee, each of the executive officers (other than the Chief Executive
Officer) was granted options to purchase 37,500 or 50,000 shares of the
Company's Common Stock on July 9, 2002 at an exercise price of $0.6002 and with
a maximum term of ten years. Each such stock option vests at the rate of 1/4th
of the total shares underlying the option on the first anniversary of July 9,
2003, the vesting commencement date, and 1/48th of the total shares on each
monthly anniversary of the vesting commencement date thereafter.

OTHER COMPENSATION PLANS. Executives also participate in other general
employee benefit plans instituted by the Company. The Company also provides a
401(k) deferred compensation pension plan. Benefits under these general plans
are indirectly tied to the Company's performance.

DEDUCTIBILITY OF COMPENSATION. Section 162(m) of the Code disallows a
deduction by the Company for compensation exceeding $1.0 million paid to certain
executive officers, excluding, among other things, performance-based
compensation. Because the compensation paid to the executive officers has not
approached the limitation, the Compensation Committee has not had to use any of
the available exemptions from the deduction limit. The Compensation Committee
remains aware of the Section 162(m) limitations, and the available exemptions,
and will address the issue of deductibility when and if circumstances warrant
the use of such exemptions.

CHIEF EXECUTIVE OFFICER COMPENSATION. Since June 1991, Christopher T. Keene
has served as Chief Executive Officer of the Company. Each year the Compensation
Committee determines his compensation considering the factors used for all
executives which are described above. In addition, the Compensation Committee
surveys salaries paid to chief executive officers at peer companies. Mr. Keene's
base salary during the year ended December 31, 2002 of $250,000 was the same as
his base salary that had been set in July 2001. On September 30, 2002, in
connection with a Company-wide reduction in salaries, Mr. Keene's base salary
was decreased by 10% to $225,000 on an annualized basis. As a result of the
foregoing, Mr. Keene's base salary on an annualized basis for the year ended
December 31, 2002 was $243,750. Mr. Keene received a bonus of $14,400 during
2002 based on his individual contribution to the Company's overall performance
and accomplishment of individual productivity goals.Mr. Keene was also awarded
an option on July 9, 2002 to purchase 100,000 shares of Common Stock at an
exercise price of $0.6002 and with a maximum term of ten years. Such option
vests at the rate of 1/4th of the total shares underlying the option on the
first anniversary of July 9, 2003, the vesting commencement date, and 1/48th of
the total shares on each monthly anniversary of the vesting commencement date
thereafter.

Compensation Committee of the Board of Directors
of Persistence Software:*

/s/ Lawrence Owen Brown
/s/ Alan King
/s/ Joseph Roebuck
/s/ Thomas P. Shanahan
/s/ Sanjay Vaswani

* In January 2003, Messrs. King, Roebuck and Vaswani resigned from the
Compensation Committee and Lawrence Owen Brown and Thomas P. Shanahan were
appointed as members, and thus Messrs. Brown and Shanahan did not participate in
the Compensation Committee process regarding compensation of the Company's
executive officers during the year ended December 31, 2002.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

None of the members of the Compensation Committee is an officer or employee
of the Company, nor has any member formerly served as an officer of the Company.
No executive officer of the Company serves as a member of a board of directors
or compensation committee of any entity that has one or more executive officers
serving on the Company's Board or Compensation Committee.

-25-

AUDIT COMMITTEE REPORT

The Audit Committee of the Board of Directors of Persistence Software is
composed of three independent directors and operates under a written charter,
which was originally adopted by the Board of Directors in 1999 and subsequently
has been amended and restated, most recently in January 2003, a copy of which is
attached as Appendix A. In 2002, the Audit Committee initially consisted of Alan
King, Joseph Roebuck and Sanjay Vaswani. In April 2002, Mr. Roebuck resigned
from the Audit Committee and Christopher Paisley was elected as a member. In
March 2003, Mr. King resigned from the Board of Directors and James F. Sutter
was elected as a member in April 2003. Each of the members of the Audit
Committee is independent as defined by the Nasdaq Marketplace Rules.

The Audit Committee held five meetings during 2002. These meetings were
designed to facilitate and encourage communication between the Audit Committee,
management, and the Company's independent public accountants, Deloitte & Touche
LLP. Management represented to the Audit Committee that the Company's financial
statements were prepared in accordance with generally accepted accounting
principles. The Audit Committee reviewed and discussed the audited consolidated
financial statements for the year ended December 31, 2002 with management and
the independent accountants.

The Audit Committee discussed with the independent accountants the matters
required to be discussed by Statement on Auditing Standards No. 61,
COMMUNICATION WITH AUDIT COMMITTEES, as amended.

The Audit Committee has received and reviewed the written disclosures and
the letter from the independent accountants, Deloitte & Touche LLP as required
by Independence Standards Board Standard No. 1, INDEPENDENCE DISCUSSIONS WITH
AUDIT COMMITTEES. Additionally, the Audit Committee has discussed with Deloitte
& Touche LLP the issue of its independence from Persistence Software.

Based on the Committee's discussions with management and the independent
accountants and the Committee's review of the audited consolidated financial
statements, the representations of management and the report of the independent
accountants to the Committee, all as noted above, the Audit Committee
recommended to the Board of Directors that the audited consolidated financial
statements be included in our Annual Report on Form 10-K for the fiscal year
ended December 31, 2002, filed with the Securities and Exchange Commission.

Audit Committee of the Board of Directors of
Persistence Software:*

/s/ Alan King
/s/ Joseph Roebuck
/s/ Christopher Paisley
/s/ James F. Sutter
/s/ Sanjay Vaswani

* Mr. Roebuck resigned from the Audit Committee in April 2002, and Mr. Paisley
was appointed to the Audit Committee in April 2002. Mr. King resigned from the
Board of Directors in March 2003 and James F. Sutter was appointed as a member
in April 2003. Messrs. Roebuck and Sutter did not participate in any discussions
regarding the audited consolidated financial statements for the year ended

-26-

December 31, 2002 to be included in the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 2002, as filed with the Securities and
Exchange Commission.

FEES BILLED FOR SERVICES RENDERED BY PRINCIPAL ACCOUNTANT

AUDIT FEES

The aggregate fees billed by Deloitte & Touche LLP, the member firms of
Deloitte Touche Tohmatsu, and their respective affiliates (collectively,
"DELOITTE & Touche") for professional services rendered for the audit of the
Company's annual financial statements for the fiscal year ended December 31,
2002 and for the reviews of the financial statements included in the Company's
Quarterly Reports on Form 10-Q for that fiscal year were $148,600.

FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES

The Company did not engage Deloitte & Touche to provide advice to the
Company regarding information technology services relating to financial
information systems design and implementation for the fiscal year ended December
31, 2002.

ALL OTHER FEES

The Company did not engage Deloitte & Touche for services other than the
services described above under "Audit Fees" for the fiscal year ended December
31, 2002.

TRANSACTIONS WITH MANAGEMENT

On November 26, 2002, the Company issued 3,758,692 shares of its Common
Stock at a price of $0.5321 per share, and warrants to purchase up to 1,205,130
shares of its Common Stock at an exercise price of $0.75 per share to certain
purchasers affiliated with Needham Capital Partners. In connection with the
issuance of these securities, the Company also appointed Thomas P. Shanahan to
the Board as a Class III director.

The Company has entered into indemnification agreements with its officers
and directors containing provisions that may require it to indemnify its
officers and directors against liabilities that may arise by reason of their
status or service as officers or directors, other than liabilities arising from
willful misconduct of a culpable nature, and to advance their expenses incurred
as a result of any proceeding against them.

-27-

STOCK PERFORMANCE GRAPH

The Company's Common Stock was traded on the Nasdaq National Market under
the symbol PRSW from the effective date of our initial public offering on June
24, 1999 until September 12, 2002, at which time the Company moved its stock
listing to the Nasdaq SmallCap Market. The following graph compares the
cumulative total stockholder return data for the Company's Common Stock since
June 24, 1999 (the effective date of the Company's initial public offering) to
the cumulative return over such period of (i) the Nasdaq Stock Market (U.S.)
Index and (ii) the Nasdaq Computer Composite Index. The graph assumes that $100
was invested on June 24, 1999 in the Common Stock of the Company and in each of
the comparative indices and assumes reinvestment of dividends. The graph further
assumes that such amount was initially invested in the Common Stock of the
Company at a per share price of $11.00, the price at which such stock was first
offered to the public by the Company on the date of its initial public offering.
The stock price performance on the following graph is not necessarily indicative
of future stock price performance.

[GRAPH HERE]

6/24/99 12/31/99 12/31/00 12/31/01 12/31/02
------- -------- -------- -------- --------

Persistence Software, Inc............... $ 100 $ 205 $ 40 $ 11 $ 4
The Nasdaq Stock Market (U.S.) Index.... 100 160 96 76 53
The Nasdaq Computer Composite Index..... 100 179 100 79 48

-28-

DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS FOR
ANNUAL MEETING FOR THE YEAR ENDING DECEMBER 31, 2003

Proposals of stockholders intended to be included in the Company's proxy
statement for the Annual Meeting of Stockholders for the year ending December
31, 2003 must be received by Christine Russell, Chief Financial Officer,
Persistence Software, Inc., 1720 South Amphlett Boulevard, Suite 230, San Mateo,
California, 94402, by December 28, 2003. If the Company is not notified of a
stockholder proposal between March 8, 2004 and May 17, 2004, then the proxies
held by management of the Company provide discretionary authority to vote
against such stockholder proposal, even though such proposal is not discussed in
the Proxy Statement.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires the Company's directors,
executive officers and persons who own more than 10% of the Company's Common
Stock (collectively, "Reporting Persons") to file with the Securities and
Exchange Commission initial reports of ownership and changes in ownership of the
Company's Common Stock. Reporting Persons are required by SEC regulations to
furnish the Company with copies of all Section 16(a) reports they file. To the
Company's knowledge, based solely on its review of the copies of such reports
received or written representations from certain Reporting Persons that no other
reports were required, the Company believes that during the year ended December
31, 2002, except for Thomas P. Shanahan, a director of the Company, and Vivek
Singhal, the Company's Vice President of Engineering, all Reporting Persons
complied with all applicable filing requirements. Mr. Shanahan filed one late
report regarding the automatic grant of an option to purchase 20,000 shares of
Common Stock pursuant to the Directors Plan. Mr. Singhal filed one late report
regarding his beneficial ownership in the Company upon his initial attainment of
status as a Reporting Person under Section 16(a).

INCORPORATION OF CERTAIN INFORMATION BY REFERENCE

This Proxy Statement incorporates certain documents of the Company by
reference that are not presented herein or delivered herewith. Such documents
are available to any person, including any beneficial owner, to whom this Proxy
Statement is delivered, upon oral or written request, without charge, directed
to Christine Russell, Chief Financial Officer, Persistence Software, Inc., 1720
South Amphlett Blvd., Third Floor, San Mateo, California, 94402, telephone
number (650) 372-3600. In order to ensure timely delivery of the documents, such
requests should be made by May 18, 2003.

OTHER MATTERS

The Board knows of no other business that will be presented to the Annual
Meeting. If any other business is properly brought before the Annual Meeting,
proxies in the enclosed form will be voted in respect thereof as the proxy
holders, or either of them, deem advisable.

It is important that the proxies be returned promptly and that your shares
be represented. Stockholders are urged to mark, date, execute and promptly
return the accompanying proxy card in the enclosed envelope.

By Order of the Board of Directors,

/s/ Christine Russell

Christine Russell
Chief Financial Officer and Secretary

April 28, 2003
San Mateo, California

-29-

APPENDIX A

PERSISTENCE SOFTWARE, INC.

CHARTER FOR THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS

PURPOSE AND POWERS
- ------------------

The purpose of the Audit Committee is: to make such examinations as are
necessary to monitor the corporate financial reporting and the internal and
external audits of Persistence Software, Inc. (the "Company"); to provide to the
Board of Directors (the "Board") the results of its examinations and
recommendations derived therefrom; to outline to the Board improvements made, or
to be made, in internal accounting controls; to appoint, compensate and oversee
the Company's independent accountants; to supervise the finance function of the
Company (which will include, among other matters, the Company's investment
activities); to engage and compensate independent counsel and other advisors as
it deems necessary to carry out its duties; to the extent permitted under
applicable laws, rules and regulations, and the Company's bylaws and Certificate
of Incorporation, delegate to one or more members of the Audit Committee the
authority to grant pre-approvals of audit services and non-audit services
provided such decisions are presented to the full Audit Committee at regularly
scheduled meetings; and to provide the Board such additional information and
materials as it may deem necessary to make the Board aware of significant
financial matters which require Board attention.

The Audit Committee will undertake those specific duties and
responsibilities listed below, and such other duties as the Board from time to
time may prescribe.

CHARTER REVIEW
- --------------

The Audit Committee will review and reassess the adequacy of this
charter at least once per year. This review is initially intended to be
conducted at the first Audit Committee meeting following the Company's Annual
Meeting of Stockholders, but may be conducted at any time the Audit Committee
desires to do so. Additionally, to the extent and in the manner that the Company
is legally required to do by the rules of the Securities and Exchange Commission
(the "SEC"), this charter (as then constituted) shall be publicly filed.

MEMBERSHIP
- ----------

The Audit Committee shall consist of at least three members of the
Board. Such members will be elected and serve at the pleasure of the Board. The
members of the Audit Committee will not be employees of the Company. Each member
of the Audit Committee shall meet the independence standards and have the
financial expertise as required by the Rules of the National Association of
Securities Dealers, Inc., the Securities Exchange Act of 1934 and the rules
promulgated thereunder (collectively, the "Exchange Act"), the Sarbanes-Oxley
Act of 2002 and all other applicable rules and regulations.

MEETINGS
- --------

The Audit Committee will meet separately with the Chief Executive
Officer and separately with the Chief Financial Officer of the Company at least
quarterly to review the financial affairs of the Company. The Audit Committee
will meet with the independent accountants of the Company at least once
quarterly, including upon the completion of the annual audit, outside the
presence of management, and at such other times as it deems appropriate to
review the independent accountants' examination and management report.

RESPONSIBILITIES
- ----------------

To fulfill its responsibilities and duties, the Audit Committee shall:

1. Appoint the independent accountants for ratification by the
stockholders and approve the compensation of and oversee the
independent accountants.

-30-

2. Review the plan for and the scope of the audit and related
services at least annually.
3. Confirm that the proposed audit engagement team for the
independent public accountants complies with the applicable
auditor rotation rules.
4. Pre-approve all audit services and permitted non-audit
services to be provided by the independent accountants as
required by the Exchange Act.
5. Inquire of Finance management of the Company and the
independent accountants about significant risks or exposures
and assess the steps management has taken to minimize such
risk to the Company.
6. Review with Finance management any significant changes to
GAAP, SEC and other accounting policies or standards that will
impact or could impact the financial reports under review.
7. Review with Finance management and the independent accountants
at the completion of the annual audit:
a. The Company's annual financial statements and related
footnotes;
b. The independent accountant's audit of the financial
statements;
c. Any significant changes required in the independent
accountant's audit plan;
d. Any serious difficulties or disputes with management
encountered during the course of the audit;
e. Other matters related to the conduct of the audit
which are to be communicated to the Committee under
generally accepted auditing standards.
8. Ensure the receipt of, and review, a report from the
independent accountant required by Section 10A of the Exchange
Act.
9. Ensure the receipt of, and review, a written statement from
the Company's independent accountants delineating all
relationships between the accountants and the Company,
consistent with Independence Standards Board Standard 1.
10. Review with the Company's independent accountants any
disclosed relationship or service that may impact the
objectivity and independence of the accountant.
11. Take, or recommend that the Board take, appropriate action to
oversee the independence of the outside accountants.
12. Review with Finance management and the independent accountants
at least annually the Company's application of critical
accounting policies and its consistency from period to period,
and the compatibility of these accounting policies with
generally accepted accounting principles, and (where
appropriate) the Company's provisions for future occurrences
which may have a material impact on the financial statements
of the Company.
13. Consider and approve, if appropriate, significant changes to
the Company's accounting principles and financial disclosure
practices as suggested by the independent accountants, and
Finance management. Review with the independent accountants
and Finance management, at appropriate intervals, the extent
to which any changes or improvements in accounting or
financial practices, as approved by the Committee, have been
implemented.
14. Review and discuss with Finance management all material
off-balance sheet transactions, arrangements, obligations
(including contingent obligations) and other relationships of
the Company with unconsolidated entities or other persons,
that may have a material current or future effect on financial
condition, changes in financial condition, results of
operations, liquidity, capital resources, capital reserves or
significant components of revenues or expenses.
15. Oversee the adequacy of the Company's system of internal
accounting controls. Obtain from the independent accountants
management letters or summaries on such internal accounting
controls. Review any related significant findings and
recommendations of the independent accountants together with
management's responses thereto.
16. Oversee the effectiveness of the internal audit function and
obtain from the officers that certify the Company's financial
reports an assessment of the internal controls, a report of
any fraud in connection with the preparation of reports and
any other reports required by applicable laws, rules or
regulations.
17. Oversee the Company's compliance with the Foreign Corrupt
Practices Act.
18. Oversee the Company's compliance with SEC requirements for
disclosure of accountant's services and Audit Committee
members and activities.
19. Oversee the Company's finance function, which may include the
adoption from time to time of a policy with regard to the
investment of the Company's assets.

20. Review and approve all related party transactions other than
compensation transactions.
21. Review the periodic reports of the Company with Finance
management and the independent accountants prior to filing of
the reports with the SEC.
22. In connection with each periodic report of the Company,
review:
a. Management's disclosure to the Committee under
Section 302 of the Sarbanes-Oxley Act;
b. The contents of the Chief Executive Officer and the
Chief Financial Officer certificates to be filed
under Sections 302 and 906 of the Act.
23. Periodically discuss with the independent accountants, without
Management being present, (i) their judgments about the
quality, appropriateness, and acceptability of the Company's
accounting principles and financial disclosure practices, as
applied in its financial reporting, and (ii) the completeness
and accuracy of the Company's financial statements.
24. Review and discuss with Finance management the Company's
earnings press releases (including the use of "pro forma" or
"adjusted" non-GAAP information) as well as financial
information and earnings guidance provided to analysts.

25. Establish procedures for the receipt, retention and treatment
of complaints received by the Company regarding accounting,
internal accounting controls or auditing matters.

26. Establish procedures for the confidential, anonymous
submission by employees of the Company of concerns regarding
questionable accounting or auditing matters.

In addition to the above responsibilities, the Audit Committee will
undertake such other duties as the Board delegates to it or that are required by
applicable laws, rules and regulations.

Finally, the Audit Committee shall ensure that the Company's
independent accountants understand both (i) their ultimate accountability to the
Board and the Audit Committee, as representatives of the Company's stockholders
and (ii) the Board's and the Audit Committee's ultimate authority and
responsibility to select, evaluate and, where appropriate, replace the Company's
independent accountants (or to nominate the outside accountant to be proposed
for stockholder approval in any proxy statement).

REPORTS
- -------

The Audit Committee will to the extent deemed appropriate record its
summaries of recommendations to the Board in written form that will be
incorporated as a part of the minutes of the Board. To the extent required, the
Audit Committee will also prepare and sign a Report of the Audit Committee for
inclusion in the Company's proxy statement for its Annual Meeting of
Stockholders.

PERSISTENCE SOFTWARE, INC.

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF PERSISTENCE SOFTWARE, INC.
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD JUNE 5, 2003

The undersigned stockholder of Persistence Software, Inc., a Delaware
corporation, (the "Company"), hereby acknowledges receipt of the Notice of
Annual Meeting of Stockholders and Proxy Statement, each dated April 28, 2002,
and hereby appoints Christopher T. Keene and Christine Russell, or either of
them, proxies and attorneys-in-fact, with full power to each of substitution, on
behalf and in the name of the undersigned, to represent the undersigned at the
Annual Meeting of Stockholders of Persistence Software, Inc. to be held on
Thursday, June 5, 2003, at 2:00 p.m., local time, at Persistence Software, Inc.,
1720 South Amphlett Boulevard, Suite 230, San Mateo, California, 94402, and at
any adjournment or postponement thereof, and to vote all shares of Common Stock
which the undersigned would be entitled to vote if then and there personally
present, on the matters set forth below:

1. To approve proposals to amend the Company's Certificate of Incorporation
to enable the Company to effect one of five different reverse stock
splits, during the 12 months following approval by the stockholders of
such proposals, if the Board of Directors determines that any such action
is necessary and appropriate, and in the best interests of, the Company
and its stockholders to seek to maintain the listing of the Company's
Common Stock on the Nasdaq SmallCap Market. The proposals would enable
the Board of Directors to determine whether to amend the Company's
Certificate of Incorporation to effect one of the following reverse stock
splits:

a. a 1-for-5 a reverse stock split of the Company's issued and
outstanding shares of Common Stock;