<PAGE>
 
                                                                   EXHIBIT 10.21
                                                                                
                               IKOS SYSTEMS, INC.
                             1995 STOCK OPTION PLAN
                                        
              (As Amended by the Board through November 12, 1997)


  1.  ESTABLISHMENT, PURPOSE AND TERM OF PLAN.
      --------------------------------------- 

      1.1  ESTABLISHMENT.  The IKOS Systems, Inc. 1988 Stock Option Plan was
initially established effective as of January 19, 1988 (the "INITIAL PLAN").
The Initial Plan is hereby amended and restated in its entirety as the IKOS
Systems, Inc. 1995 Stock Option Plan (the "PLAN") effective as of October 26,
1995 (the "EFFECTIVE DATE").

      1.2  PURPOSE.  The purpose of the Plan is to advance the interests of the
Participating Company Group and its stockholders by providing an incentive to
attract, retain and reward persons performing services for the Participating
Company Group and by motivating such persons to contribute to the growth and
profitability of the Participating Company Group.

      1.3  TERM OF PLAN.  The Plan shall continue in effect until the earlier of
its termination by the Board or the date on which all of the shares of Stock
available for issuance under the Plan have been issued and all restrictions on
such shares under the terms of the Plan and the agreements evidencing Options
granted under the Plan have lapsed. However, all Incentive Stock Options shall
be granted, if at all, within ten (10) years from the Effective Date.
Notwithstanding the foregoing, if the maximum number of shares of Stock issuable
pursuant to the Plan as provided in Section 4.1 has been increased at any time,
all Incentive Stock Options shall be granted, if at all, no later than the last
day preceding the tenth (10th) anniversary of the earlier of (a) the date on
which the latest such increase in the maximum number of shares of Stock issuable
under the Plan was approved by the stockholders of the Company or (b) the date
such amendment was adopted by the Board.

  2.  DEFINITIONS AND CONSTRUCTION.
      ---------------------------- 

      2.1  DEFINITIONS.  Whenever used herein, the following terms shall have
their respective meanings set forth below:

        (a)  "BOARD" means the Board of Directors of the Company. If one or more
     Committees have been appointed by the Board to administer the Plan, "Board"
     also means such Committee(s).

        (b)  "CODE" means the Internal Revenue Code of 1986, as amended, and any
     applicable regulations promulgated thereunder.

        (c)  "COMMITTEE" means the Compensation Committee or other committee of
     the Board duly appointed to administer the Plan and having such powers as
     shall be specified by the Board. Unless the powers of the Committee have
     been specifically limited, the Committee shall have all of the powers of
     the Board granted herein, including, without limitation, the power to amend
     or terminate the Plan at any time, subject to the terms of the Plan and any
     applicable limitations imposed by law.

        (d)  "COMPANY" means IKOS Systems, Inc., a Delaware corporation, or any
     successor corporation thereto.

        (e)  "CONSULTANT" means any person, including an advisor, engaged by a
     Participating Company to render services other than as an Employee or a
     Director.
<PAGE>
 
        (f)  "DIRECTOR" means a member of the Board or of the board of directors
     of any other Participating Company.

        (g)  "EMPLOYEE" means any person treated as an employee (including an
     officer or a Director who is also treated as an employee) in the records of
     a Participating Company; provided, however, that neither service as a
     Director nor payment of a director's fee shall be sufficient to constitute
     employment for purposes of the Plan.

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

        (i)  "FAIR MARKET VALUE" means, as of any date, the value of a share of
     stock or other property as determined by the Board, in its sole discretion,
     or by the Company, in its sole discretion, if such determination is
     expressly allocated to the Company herein.

        (j)  "INCENTIVE STOCK OPTION" means an Option intended to be (as set
     forth in the Option Agreement) and which qualifies as an incentive stock
     option within the meaning of Section 422(b) of the Code.

        (k)  "INSIDER" means an officer or a Director of the Company or any
     other person whose transactions in Stock are subject to Section 16 of the
     Exchange Act.

        (l)  "NONSTATUTORY STOCK OPTION" means an Option not intended to be (as
     set forth in the Option Agreement) or which does not qualify as an
     Incentive Stock Option.

        (m)  "OPTION" means a right to purchase Stock (subject to adjustment as
     provided in Section 4.2) pursuant to the terms and conditions of the Plan.
     An Option may be either an Incentive Stock Option or a Nonstatutory Stock
     Option.

        (n)  "OPTION AGREEMENT" means a written agreement between the Company
     and an Optionee setting forth the terms, conditions and restrictions of the
     Option granted to the Optionee and any shares acquired upon the exercise
     thereof.

        (o) "OPTIONEE" means a person who has been granted one or more Options.

        (p)  "PARENT CORPORATION" means any present or future "parent
     corporation" of the Company, as defined in Section 424(e) of the Code.

        (q)  "PARTICIPATING COMPANY" means the Company or any Parent Corporation
     or Subsidiary Corporation.

        (r)  "PARTICIPATING COMPANY GROUP" means, at any point in time, all
     corporations collectively which are then Participating Companies.

        (s)  "RULE 16B-3" means Rule 16b-3 under the Exchange Act, as amended
     from time to time, or any successor rule or regulation.

        (t)  "SECTION 162(M)" means Section 162(m) of the Code, as amended by
     the Revenue Reconciliation Act of 1993 (P.L. 103-66).

        (u)  "STOCK" means the common stock of the Company, as adjusted from
     time to time in accordance with Section 4.2.

        (v)  "SUBSIDIARY CORPORATION" means any present or future "subsidiary
     corporation" of the Company, as defined in Section 424(f) of the Code.
<PAGE>
 
        (w)  "TEN PERCENT OWNER OPTIONEE" means an Optionee who, at the time an
     Option is granted to the Optionee, owns stock possessing more than ten
     percent (10%) of the total combined voting power of all classes of stock of
     a Participating Company within the meaning of Section 422(b)(6) of the
     Code.

      2.2  CONSTRUCTION.  Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of the Plan. Except when otherwise indicated by the context, the
singular shall include the plural, the plural shall include the singular, and
the term "or" shall include the conjunctive as well as the disjunctive.

  3.  ADMINISTRATION.
      -------------- 

      3.1  ADMINISTRATION BY THE BOARD.  The Plan shall be administered by the
Board, including any duly appointed Committee of the Board.  All questions of
interpretation of the Plan or of any Option shall be determined by the Board,
and such determinations shall be final and binding upon all persons having an
interest in the Plan or such Option.  Any officer of a Participating Company
shall have the authority to act on behalf of the Company with respect to any
matter, right, obligation, determination or election which is the responsibility
of or which is allocated to the Company herein, provided the officer has
apparent authority with respect to such matter, right, obligation, determination
or election.

      3.2  POWERS OF THE BOARD.  In addition to any other powers set forth in
the Plan and subject to the provisions of the Plan, the Board shall have the
full and final power and authority, in its sole discretion:

        (a)  to determine the persons to whom, and the time or times at which,
Options shall be granted and the number of shares of Stock to be subject to each
Option;

        (b)  to designate Options as Incentive Stock Options or Nonstatutory
Stock Options;

        (c)  to determine the Fair Market Value of shares of Stock or other
property;

        (d)  to determine the terms, conditions and restrictions applicable to
each Option (which need not be identical) and any shares acquired upon the
exercise thereof, including, without limitation, (i) the exercise price of the
Option, (ii) the method of payment for shares purchased upon the exercise of the
Option, (iii) the method for satisfaction of any tax withholding obligation
arising in connection with the Option or such shares, including by the
withholding or delivery of shares of stock, (iv) the timing, terms and
conditions of the exercisability of the Option or the vesting of any shares
acquired upon the exercise thereof, (v) the time of the expiration of the
Option, (vi) the effect of the Optionee's termination of employment or service
with the Participating Company Group on any of the foregoing, and (vii) all
other terms, conditions and restrictions applicable to the Option or such shares
not inconsistent with the terms of the Plan;

        (e)  to approve one or more forms of Option Agreement;

        (f)  to amend, modify, extend, or renew, or grant a new Option in
substitution for, any Option or to waive any restrictions or conditions
applicable to any Option or any shares acquired upon the exercise thereof;

        (g)  to accelerate, continue, extend or defer the exercisability of any
Option or the vesting of any shares acquired upon the exercise thereof,
including with respect to the period following an Optionee's termination of
employment or service with the Participating Company Group;
<PAGE>
 
        (h)  to delegate to the Chief Executive Officer or the Chief Financial
Officer of the Company the authority to grant one or more Options, without
further approval of the Board, to any person eligible pursuant to Section 5,
other than a person who, at the time of such grant, is an Insider; provided,
however, that (i) such Options shall not be granted to any one person within any
fiscal year of the Company for more than 2,000 shares in the aggregate, (ii) the
exercise price per share of each such Option shall be equal to 100% of the
closing price per share of the Stock on the date of grant (or, if no price is
reported for such date, on the last day preceding the date of grant on which
such price is reported) as quoted on the National Association of Securities
Dealers Automated Quotation System (or the average of the closing bid and asked
prices if the shares of Stock are so quoted instead), or as reported on such
other stock exchange or market system which constitutes the primary market for
the Stock, and (iii) each such Option shall be subject to the terms and
conditions of the appropriate standard form of Option Agreement approved by the
Board and shall conform to the provisions of the Plan and such other guidelines
as shall be established from time to time by the Board;

        (i)  to prescribe, amend or rescind rules, guidelines and policies
relating to the Plan, or to adopt supplements to, or alternative versions of,
the Plan, including, without limitation, as the Board deems necessary or
desirable to comply with the laws of, or to accommodate the tax policy or custom
of, foreign jurisdictions whose citizens may be granted Options; and

        (j)  to correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Option Agreement and to make all other
determinations and take such other actions with respect to the Plan or any
Option as the Board may deem advisable to the extent consistent with the Plan
and applicable law.

     3.3  DISINTERESTED ADMINISTRATION.  With respect to participation by
Insiders in the Plan, at any time that any class of equity security of the
Company is registered pursuant to Section 12 of the Exchange Act, the Plan shall
be administered in compliance with the "disinterested administration"
requirements of Rule 16b-3, if any.

     3.4  COMMITTEE COMPLYING WITH SECTION 162(m).  If a Participating Company
is a "publicly held corporation" within the meaning of Section 162(m), the Board
may establish a Committee of "outside directors" within the meaning of Section
162(m) to approve the grant of any Option which might reasonably be anticipated
to result in the payment of employee remuneration that would otherwise exceed
the limit on employee remuneration deductible for income tax purposes pursuant
to Section 162(m).

  4. SHARES SUBJECT TO PLAN.
     ---------------------- 

     4.1  MAXIMUM NUMBER OF SHARES ISSUABLE.  Subject to adjustment as provided
in Section 4.2, the maximum aggregate number of shares of Stock that may be
issued under the Plan shall be three million seven hundred seventy-two thousand
eight hundred fifty-seven (3,772,857), increased on the first day of each fiscal
year of the Company beginning on and after October 4, 1998 by a number of shares
equal to four and nine tenths percent (4.9%) of the number of shares of Stock
issued and outstanding on the last day of the immediately preceding fiscal year,
and shall consist of authorized but unissued or reacquired shares of Stock or
any combination thereof. Notwithstanding the foregoing, except as adjusted
pursuant to Section 4.2, in no event shall more than three million seven hundred
seventy-two thousand eight hundred fifty-seven (3,772,857) shares of Stock be
cumulatively available for issuance pursuant to the exercise of Incentive Stock
Options (the "ISO SHARE ISSUANCE LIMIT"). If an outstanding Option for any
reason expires or is terminated or canceled or shares of Stock acquired, subject
to repurchase, upon the exercise of an Option are repurchased by the Company,
the shares of Stock allocable to the unexercised portion of such Option, or such
repurchased shares of Stock, shall again be available for issuance under the
Plan.

     4.2  ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE.  In the event of any
stock dividend, stock split, reverse stock split, recapitalization, combination,
reclassification or similar change in the capital structure of the Company,
appropriate adjustments shall be made in the number and class of shares subject
to the Plan, to the ISO Share Issuance Limit, to the Section 162(m) Grant Limit
set forth in Section 5.4 and to any outstanding Options, in the Section 162(m)
Grant Limit set forth in Section 5.5, in 
<PAGE>
 
the ISO Share Issuance Limit set forth in Section 4.1, and in the exercise price
per share of any outstanding Options. If a majority of the shares which are of
the same class as the shares that are subject to outstanding Options are
exchanged for, converted into, or otherwise become (whether or not pursuant to
an Ownership Change Event, as defined in Section 8.1) shares of another
corporation (the "NEW SHARES"), the Board may unilaterally amend the outstanding
Options to provide that such Options are exercisable for New Shares. In the
event of any such amendment, the number of shares subject to, and the exercise
price per share of, the outstanding Options shall be adjusted in a fair and
equitable manner as determined by the Board, in its sole discretion.
Notwithstanding the foregoing, any fractional share resulting from an adjustment
pursuant to this Section 4.2 shall be rounded up or down to the nearest whole
number, as determined by the Board, and in no event may the exercise price of
any Option be decreased to an amount less than the par value, if any, of the
stock subject to the Option. The adjustments determined by the Board pursuant to
this Section 4.2 shall be final, binding and conclusive.

  5. ELIGIBILITY AND OPTION LIMITATIONS.
     ---------------------------------- 

     5.1  PERSONS ELIGIBLE FOR OPTIONS.  Options may be granted only to
Employees, Consultants, and Directors. For purposes of the foregoing sentence,
"Employees" shall include prospective Employees to whom Options are granted in
connection with written offers of employment with the Participating Company
Group, and "Consultants" shall include prospective Consultants to whom Options
are granted in connection with written offers of engagement with the
Participating Company Group. Eligible persons may be granted more than one (1)
Option.

     5.2  DIRECTORS SERVING ON COMMITTEE.  At any time that any class of equity
security of the Company is registered pursuant to Section 12 of the Exchange
Act, no member of a Committee established to administer the Plan in compliance
with the "disinterested administration" requirements of Rule 16b-3, if any,
while a member, shall be eligible to be granted an Option.

     5.3  OPTION GRANT RESTRICTIONS.  Any person who is not an Employee on the
effective date of the grant of an Option to such person may be granted only a
Nonstatutory Stock Option.  An Incentive Stock Option granted to a prospective
Employee upon the condition that such person become an Employee shall be deemed
granted effective on the date such person commences service with a Participating
Company, with an exercise price determined as of such date in accordance with
Section 6.1.

     5.4  FAIR MARKET VALUE LIMITATION.  To the extent that the aggregate Fair
Market Value of stock with respect to which options designated as Incentive
Stock Options are exercisable by an Optionee for the first time during any
calendar year (under all stock option plans of the Participating Company Group,
including the Plan) exceeds One Hundred Thousand Dollars ($100,000), the portion
of such options which exceeds such amount shall be treated as Nonstatutory Stock
Options.  For purposes of this Section 5.4, options designated as Incentive
Stock Options shall be taken into account in the order in which they were
granted, and the Fair Market Value of stock shall be determined as of the time
the option with respect to such stock is granted.  If the Code is amended to
provide for a different limitation from that set forth in this Section 5.4, such
different limitation shall be deemed incorporated herein effective as of the
date and with respect to such Options as required or permitted by such amendment
to the Code.  If an Option is treated as an Incentive Stock Option in part and
as a Nonstatutory Stock Option in part by reason of the limitation set forth in
this Section 5.4, the Optionee may designate which portion of such Option the
Optionee is exercising and may request that separate certificates representing
each such portion be issued upon the exercise of the Option.  In the absence of
such designation, the Optionee shall be deemed to have exercised the Incentive
Stock Option portion of the Option first.

     5.5  SECTION 162(m) GRANT LIMIT.  Subject to adjustment as provided in
Section 4.2, no Employee shall be granted one or more Options within any fiscal
year of the Company which in the aggregate are for the purchase of more than
seven hundred fifty thousand (750,000) shares (the "SECTION 162(M) GRANT
LIMIT"). An Option which is canceled in the same fiscal year of the Company in
which it was granted shall continue to be counted against the Section 162(m)
Grant Limit for such period.
<PAGE>
 
  6. TERMS AND CONDITIONS OF OPTIONS.  Options shall be evidenced by Option
     -------------------------------                                       
Agreements specifying the number of shares of Stock covered thereby, in such
form as the Board shall from time to time establish.  Option Agreements may
incorporate all or any of the terms of the Plan by reference and shall comply
with and be subject to the following terms and conditions:

     6.1  EXERCISE PRICE.  The exercise price for each Option shall be
established in the sole discretion of the Board; provided, however, that (a) the
exercise price per share for an Option shall be not less than the Fair Market
Value of a share of Stock on the effective date of grant of the Option and (b)
no Incentive Stock Option granted to a Ten Percent Owner Optionee shall have an
exercise price per share less than one hundred ten percent (110%) of the Fair
Market Value of a share of Stock on the effective date of grant of the Option.
Notwithstanding the foregoing, an Option (whether an Incentive Stock Option or a
Nonstatutory Stock Option) may be granted with an exercise price lower than the
minimum exercise price set forth above if (a) such Option is granted pursuant to
an assumption or substitution for another option in a manner qualifying under
the provisions of Section 424(a) of the Code, or (b) such Option is deemed to
have been granted as a consequence of an amendment (other than an amendment of
the exercise price) made to an outstanding Option, the exercise price of which
is less than the minimum exercise price set forth above on the date of such
deemed option grant.

     6.2  EXERCISE PERIOD.  Options shall be exercisable at such time or times,
or upon such event or events, and subject to such terms, conditions, performance
criteria, and restrictions as shall be determined by the Board and set forth in
the Option Agreement evidencing such Option; provided, however, that (a) no
Incentive Stock Option shall be exercisable after the expiration of ten (10)
years after the effective date of grant of such Option, (b) no Incentive Stock
Option granted to a Ten Percent Owner Optionee shall be exercisable after the
expiration of five (5) years after the effective date of grant of such Option,
and (c) no Option granted to a prospective Employee or prospective Consultant
may become exercisable prior to the date on which such person commences service
with a Participating Company.

     6.3  PAYMENT OF EXERCISE PRICE.

        (a)  FORMS OF CONSIDERATION AUTHORIZED.  Except as otherwise provided
below, payment of the exercise price for the number of shares of Stock being
purchased pursuant to any Option shall be made (i) in cash, by check, or cash
equivalent, (ii) by tender to the Company of shares of Stock owned by the
Optionee having a Fair Market Value (as determined by the Company without regard
to any restrictions on transferability applicable to such stock by reason of
federal or state securities laws or agreements with an underwriter for the
Company) not less than the exercise price, (iii) by the assignment of the
proceeds of a sale or loan with respect to some or all of the shares being
acquired upon the exercise of the Option (including, without limitation, through
an exercise complying with the provisions of Regulation T as promulgated from
time to time by the Board of Governors of the Federal Reserve System) (a
"CASHLESS EXERCISE"), (iv) by the Optionee's promissory note in a form approved
by the Company, (v) by such other consideration as may be approved by the Board
from time to time to the extent permitted by applicable law, or (vi) by any
combination thereof. The Board may at any time or from time to time, by adoption
of or by amendment to the standard forms of Option Agreement described in
Section 7, or by other means, grant Options which do not permit all of the
foregoing forms of consideration to be used in payment of the exercise price or
which otherwise restrict one or more forms of consideration.

        (b)  TENDER OF STOCK.  Notwithstanding the foregoing, an Option may not
be exercised by tender to the Company of shares of Stock to the extent such
ender of Stock would constitute a violation of the provisions of any law,
regulation or agreement restricting the redemption of the Company's stock.
Unless otherwise provided by the Board, an Option may not be exercised by tender
to the Company of shares of Stock unless such shares either have been owned by
the Optionee for more than six (6) months or were not acquired, directly or
indirectly, from the Company.

        (c)  CASHLESS EXERCISE.  The Company reserves, at any and all times, the
right, in the Company's sole and absolute discretion, to establish, decline to
approve or terminate any program or procedures for the exercise of Options by
means of a Cashless Exercise.
<PAGE>
 
        (d)  PAYMENT BY PROMISSORY NOTE.  No promissory note shall be permitted
if the exercise of an Option using a promissory note would be a violation of any
law. Any permitted promissory note shall be on such terms as the Board shall
determine at the time the Option is granted. The Board shall have the authority
to permit or require the Optionee to secure any promissory note used to exercise
an Option with the shares of Stock acquired upon the exercise of the Option or
with other collateral acceptable to the Company. Unless otherwise provided by
the Board, if the Company at any time is subject to the regulations promulgated
by the Board of Governors of the Federal Reserve System or any other
governmental entity affecting the extension of credit in connection with the
Company's securities, any promissory note shall comply with such applicable
regulations, and the Optionee shall pay the unpaid principal and accrued
interest, if any, to the extent necessary to comply with such applicable
regulations.

     6.4  TAX WITHHOLDING.  The Company shall have the right, but not the
obligation, to deduct from the shares of Stock issuable upon the exercise of an
Option, or to accept from the Optionee the tender of, a number of whole shares
of Stock having a Fair Market Value, as determined by the Company, equal to all
or any part of the federal, state, local and foreign taxes, if any, required by
law to be withheld by the Participating Company Group with respect to such
Option or the shares acquired upon the exercise thereof.  Alternatively or in
addition, in its sole discretion, the Company shall have the right to require
the Optionee, through payroll withholding, cash payment or otherwise, including
by means of a Cashless Exercise, to make adequate provision for any such tax
withholding obligations of the Participating Company Group arising in connection
with the Option or the shares acquired upon the exercise thereof.  The Company
shall have no obligation to deliver shares of Stock or to release shares of
Stock from an escrow established pursuant to the Option Agreement until the
Participating Company Group's tax withholding obligations have been satisfied by
the Optionee.

     6.5  REPURCHASE RIGHTS.  Shares issued under the Plan may be subject to a
right of first refusal, one or more repurchase options, or other conditions and
restrictions as determined by the Board in its sole discretion at the time the
Option is granted.  The Company shall have the right to assign at any time any
repurchase right it may have, whether or not such right is then exercisable, to
one or more persons as may be selected by the Company.  Upon request by the
Company, each Optionee shall execute any agreement evidencing such transfer
restrictions prior to the receipt of shares of Stock hereunder and shall
promptly present to the Company any and all certificates representing shares of
Stock acquired hereunder for the placement on such certificates of appropriate
legends evidencing any such transfer restrictions.

  7. STANDARD FORMS OF OPTION AGREEMENT.
     ---------------------------------- 

     7.1  INCENTIVE STOCK OPTIONS.  Unless otherwise provided by the Board at
the time the Option is granted, an Option designated as an "Incentive Stock
Option" shall comply with and be subject to the terms and conditions set forth
in the form of Incentive Stock Option Agreement adopted by the Board
concurrently with its adoption of the Plan and as amended from time to time.

     7.2  NONSTATUTORY STOCK OPTIONS.  Unless otherwise provided by the Board at
the time the Option is granted, an Option designated as a "Nonstatutory Stock
Option" shall comply with and be subject to the terms and conditions set forth
in the form of Nonstatutory Stock Option Agreement adopted by the Board
concurrently with its adoption of the Plan and as amended from time to time.

     7.3  STANDARD TERM OF OPTIONS.  Except as otherwise provided in Section 6.2
or by the Board in the grant of an Option, any Incentive Stock Option granted
hereunder shall have a term of ten (10) years from the effective date of grant
of the Option.

     7.4  AUTHORITY TO VARY TERMS.  The Board shall have the authority from time
to time to vary the terms of any of the standard forms of Option Agreement
described in this Section 7 either in connection with the grant or amendment of
an individual Option or in connection with the authorization of a new standard
form or forms; provided, however, that the terms and conditions of any such new,
revised or amended standard form or forms of Option Agreement are not
inconsistent with the terms of the Plan. Such authority shall include, but not
by way of limitation, the authority to grant Options which are 
<PAGE>
 
immediately exercisable subject to the Company's right to repurchase any
unvested shares of Stock acquired by an Optionee upon the exercise of an Option
in the event such Optionee's employment or service with the Participating
Company Group is terminated for any reason, with or without cause.

  8. TRANSFER OF CONTROL.
     ------------------- 

     8.1  DEFINITIONS.

        (a)  An "OWNERSHIP CHANGE EVENT" shall be deemed to have occurred if any
of the following occurs with respect to the Company:

             (i)        the direct or indirect sale or exchange in a single or
series of related transactions by the stockholders of the Company of more than
fifty percent (50%) of the voting stock of the Company;

             (ii)       a merger or consolidation in which the Company is a
party;

             (iii)      the sale, exchange, or transfer of all or substantially
all of the assets of the Company; or

             (iv)       a liquidation or dissolution of the Company.

        (b)  A "TRANSFER OF CONTROL" shall mean an Ownership Change Event or a
series of related Ownership Change Events (collectively, the "TRANSACTION")
wherein the stockholders of the Company immediately before the Transaction do
not retain immediately after the Transaction, in substantially the same
proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "TRANSFEREE
CORPORATION(S)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board shall have the right to determine whether
multiple sales or exchanges of the voting stock of the Company or multiple
Ownership Change Events are related, and its determination shall be final,
binding and conclusive.

     8.2  EFFECT OF TRANSFER OF CONTROL ON OPTIONS.  In the event of a Transfer
of Control, the surviving, continuing, successor, or purchasing corporation or
parent corporation thereof, as the case may be (the "ACQUIRING CORPORATION"),
may either assume the Company's rights and obligations under outstanding Options
or substitute for outstanding Options substantially equivalent options for the
Acquiring Corporation's stock. In the event the Acquiring Corporation elects not
to assume or substitute for outstanding Options in connection with a Transfer of
Control, any unexercisable or unvested portion of the outstanding Options shall
be immediately exercisable and vested in full as of the date ten (10) days prior
to the date of the Transfer of Control. The exercise or vesting of any Option
that was permissible solely by reason of this Section 8.2 shall be conditioned
upon the consummation of the Transfer of Control. Any Options which are neither
assumed or substituted for by the Acquiring Corporation in connection with the
Transfer of Control nor exercised as of the date of the Transfer of Control
shall terminate and cease to be outstanding effective as of the date of the
Transfer of Control. Notwithstanding the foregoing, shares acquired upon
exercise of an Option prior to the Transfer of Control and any consideration
received pursuant to the Transfer of Control with respect to such shares shall
continue to be subject to all applicable provisions of the Option Agreement
evidencing such Option except as otherwise provided in such Option Agreement.
Furthermore, notwithstanding the foregoing, if the corporation the stock of
which is subject to the outstanding Options immediately prior to an Ownership
Change Event described in Section 8.1(a)(i) constituting a Transfer of Control
is the surviving or continuing corporation and immediately after such Ownership
Change Event less than fifty percent (50%) of the total combined voting power of
its voting stock is held by another corporation or by other corporations that
are members of an affiliated group within 
<PAGE>
 
the meaning of Section 1504(a) of the Code without regard to the provisions of
Section 1504(b) of the Code, the outstanding Options shall not terminate unless
the Board otherwise provides in its sole discretion.

  9.  PROVISION OF INFORMATION.  Each Optionee shall be given access to
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information concerning the Company equivalent to that information generally made
available to the Company's common stockholders.

  10.  NONTRANSFERABILITY OF OPTIONS.  During the lifetime of the Optionee, an
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Option shall be exercisable only by the Optionee or the Optionee's guardian or
legal representative.  No Option shall be assignable or transferable by the
Optionee, except by will or by the laws of descent and distribution.
Notwithstanding the foregoing, a Nonstatutory Stock Option shall be assignable
or transferable to the extent permitted by the Board and set forth in the Option
Agreement evidencing such Option.

  11.  INDEMNIFICATION.  In addition to such other rights of indemnification as
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they may have as members of the Board or officers or employees of the
Participating Company Group, members of the Board and any officers or employees
of the Participating Company Group to whom authority to act for the Board is
delegated shall be indemnified by the Company against all reasonable expenses,
including attorneys' fees, actually and necessarily incurred in connection with
the defense of any action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan, or any right
granted hereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by independent legal counsel selected by
the Company) or paid by them in satisfaction of a judgment in any such action,
suit or proceeding, except in relation to matters as to which it shall be
adjudged in such action, suit or proceeding that such person is liable for gross
negligence, bad faith or intentional misconduct in duties; provided, however,
that within sixty (60) days after the institution of such action, suit or
proceeding, such person shall offer to the Company, in writing, the opportunity
at its own expense to handle and defend the same.

  12.  TERMINATION OR AMENDMENT OF PLAN.  The Board may terminate or amend the
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Plan at any time.  However, subject to changes in the law or other legal
requirements that would permit otherwise, without the approval of the Company's
stockholders, there shall be (a) no increase in the maximum aggregate number of
shares of Stock that may be issued under the Plan (except by operation of the
provisions of Section 4.2), (b) no change in the class of persons eligible to
receive Incentive Stock Options, and (c) no expansion in the class of persons
eligible to receive Nonstatutory Stock Options.  In any event, no termination or
amendment of the Plan may adversely affect any then outstanding Option or any
unexercised portion thereof, without the consent of the Optionee, unless such
termination or amendment is required to enable an Option designated as an
Incentive Stock Option to qualify as an Incentive Stock Option or is necessary
to comply with any applicable law or government regulation.

  13.  CONTINUATION OF INITIAL PLAN AS TO OUTSTANDING OPTIONS.  Any other
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provision of the Plan to the contrary notwithstanding, the terms of the Initial
Plan shall remain in effect and apply to all Options granted pursuant to the
Initial Plan.

  IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies that
the foregoing is the IKOS Systems, Inc. 1995 Stock Option Plan as duly adopted
by the Board on October 26, 1995 and amended by the Board through November 12,
1997.



                                    /s/ Joseph W. Rockom
                                    -----------------------------             
                                    Secretary