Document:

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                                                                  EXHIBIT 10.24
                                                                  -------------
                             Stock Option Agreement
                            Under the Verisity Ltd.
                          1996 U.S. Stock Option Plan
                           (as amended October 1999)

          This Agreement is made effective as of December 1, 1999 (the "Grant
Date" being the date the option referred to herein was authorized to be granted
by the Administrator of the Option Plan), between Verisity Ltd., a Company
organized under the laws of the State of Israel (the "Company"), and Moshe
Gavrielov ("Optionee"). Capitalized terms not otherwise defined in this
Agreement will have the meanings set forth in the Company's 1996 U.S. Stock
Option Plan (as amended October 1999), a copy of which is attached hereto and
incorporated by reference (the "Option Plan").

          Whereas, Optionee was originally employed by Verisity Design, Inc.
     (the "U.S. Subsidiary") and he assumed the position of Chief Executive
     Officer of the Company in March 1998, pursuant to that certain Executive
     Employment Agreement by and among Optionee, the Company and the U.S.
     Subsidiary, dated as of March 23, 1998 (the "Employment Agreement"); and

          Whereas, the Board of Directors of the Company, serving as the
     Administrator of the Option Plan, has determined that it is in the best
     interest of the Company to grant an Option to Optionee for the purchase of
     up to 159,618 of the Company's ordinary shares (the "Shares") pursuant to
     the Option Plan and this Agreement.

          Now Therefore, the parties Agree as Follows:

1.   Option Grant. Subject to all of the terms and conditions set forth herein
     ------------
and in the Option Plan, the Company hereby grants to Optionee an option (the
"Option") to purchase the following number of Shares, for an exercise price per
share (the "Option Price") and based upon the Grant Date set forth above and an
Expiration Date of the tenth anniversary of the Grant Date (subject to earlier
termination as provided in the Option Plan) as set forth below:

          Number of Shares
               subject to the Option:  159,618
                                       -------
          Option Price per Share:      $1.10
                                       -----

          Vesting Start Date:          the Grant Date
                                       --------------

The Option is intended to be an Incentive Stock Option ("ISO") within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended.

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2.  Vesting and Exercise.
    --------------------

    (a)   Vesting.  Initially, the entire Option (and the Shares issued upon the
          -------
exercise thereof) will be "Unvested" within the meaning of the Option Plan (and,
with respect to the Shares, as provided in Section 2(a)(3) below); portions of
the Option (and such Shares) will become "Vested" within the meaning of the
Option Plan (and, with respect to the Shares, as provided in Section 2(a)(3)
below) on the following schedule:

          (1)  Twenty-five percent (25%) of the Shares subject to the Option
               (approximately 39,905 shares) shall become Vested as of the
               first anniversary of the Vesting Start Date.

          (2)  The remaining seventy-five percent (75%) of the Shares subject to
               the Option shall become Vested monthly ratably (approximately
               3,325 shares/month) on a cumulative basis over the 36 month
               period commencing on the first day of each calendar month
               following the first anniversary of the Vesting Start Date,
               subject to the condition that Optionee does not suffer a prior
               Cessation of Services (as defined below).

          (3)  Notwithstanding that a portion of the Option is Unvested,
               Optionee may first exercise portions of the Option representing a
               specified number of Shares in two (2) installments, on and after
               the following dates, in cumulative fashion: (a) as of the Grant
               Date, 79,809 Shares, and (b) on and after January 1, 2000, the
               remaining 79,809 Shares, provided that if any portion of the
               Option is exercised before the same is Vested as provided above,
               then the Shares which represent the Unvested portion of the
               Option shall be deemed "Unvested Shares" and thus subject to the
               Repurchase Option set forth in Section 2(b) below, and such
               Unvested Shares shall become Vested Shares (i.e., they will no
               longer be subject to such Repurchase Option) on the schedule set
               forth in subparagraphs (1) and (2) of this Section 2(a), but
               subject to acceleration as provided in subparagraphs (1) and (2)
               of Section 2(b) below.

     (b)  Repurchase Option Upon Cessation of Services. If Optionee ceases to
          --------------------------------------------
serve the Company or the U.S. Subsidiary as an officer, director, employee or
consultant for any reason whatsoever (whether due to death, disability,
voluntary resignation, involuntary termination, or any other reason, a
"Cessation of Services"), then the U.S. Subsidiary will have an assignable right
and option (the "Repurchase Option"), but not an obligation, to repurchase that
number of the Shares which are then deemed "Unvested Shares" (as defined
herein), to be exercised as provided below, after giving effect to any
accelerated vesting provided below, for a total purchase price equal to the
product of (x) the number of Unvested Shares to be purchased and (b) the
original Option Price paid per Share (as appropriately adjusted for any stock
dividend, stock bonus, stock split, or

                                      -2-
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similar changes in the outstanding Ordinary Shares of the Company).
Notwithstanding the foregoing:

          (1)  In the event that either (A) the Company or the U.S. Subsidiary
               (or any Successor Entity, as that term is defined in the Option
               Plan) terminates the employment of Optionee other than for
               "Cause" (as that term is defined in Section 6.3 of the Employment
               Agreement), or (B) Optionee voluntarily terminates his employment
               with the Company or the U.S. Subsidiary (or any Successor Entity)
               following any Constructive Termination Event (as defined in
               Section 6.4(b) of the Employment Agreement), with any such
               termination in either case occurring during the 12-month period
               following the Closing of a Change of Control Transaction (as that
               term is defined in the Option Plan), then the Unvested Shares
               which would have become Vested Shares over the 24-month period
               beginning on the effective date of such termination will
               immediately become Vested Shares, and thereafter, the remaining
               Unvested Shares, if any, shall continue to become Vested Shares
               on the schedule set forth in Section 2(a) above.

          (2)  In the event that either (A) the Company or the U.S. Subsidiary
               terminates the employment of Optionee other than for "Cause" (as
               that term is defined in Section 6.3 of the Employment Agreement),
               or (B) Optionee voluntarily terminates his employment with the
               Company or the U.S. Subsidiary following any Constructive
               Termination Event (as defined in Section 6.4(b) of the Employment
               Agreement), in each case other than under the circumstances
               described in subparagraph (1) of this Section 2(b), then the
               Unvested Shares which would have become Vested Shares over the
               12-month period beginning on the effective date of such
               termination will immediately become Vested Shares, and
               thereafter, the remaining Unvested Shares, if any, shall continue
               to become Vested Shares on the schedule set forth in Section 2(a)
               above.

        The U.S. Subsidiary (or any Successor Entity or assignee of either) may
        exercise the Repurchase Option under this Section 2(b) at any time not
        more than ninety (90) days after the effective date of the Cessation of
        Services of the Optionee as determined in good faith by the Board of
        Directors of the Company (or if such Cessation of Services results from
        the Optionee's death or disability, a period of ninety (90) days after
        the expiration of the Grace Period determined by the Administrator
        during which the Optionee would be able to exercise the Option), but in
        any event prior to an Initial Public Offering, by delivering to the
        Holder of the Unvested Shares a notice of such election, specifying the
        number of Unvested Shares to be purchased and a closing date that is no
        less than ten (10) days prior to the proposed closing date; provided
        that at such closing the U.S. Subsidiary (or Successor Entity or
        assignee, as the case may be) will pay the Holder of the Unvested Shares

                                      -3-
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          the purchase price, as specified in this Section 2(b), in cash, [or by
          cancellation of indebtedness to the U.S. Subsidiary (or any Successor
          Entity), if any, incurred by Optionee to the Company (or the U.S.
          Subsidiary) upon the original exercise of the Option to purchase such
          Shares, or a combination thereof,] at a closing to be held at the U.S.
          Subsidiary's (or any Successor Entity's) principal executive offices
          on the date specified in such notice.

          (c)  Minimum Number of Shares. Any exercise of the Option must be for
               -------------------------
at least one hundred (100) Shares (without regard to adjustments to the number
of Shares subject to the Option pursuant to section 8 of the Option Plan) or, if
less, all of the remaining Shares subject to the Option.

          (d)  Notice of Exercise. Optionee or Optionee's representative may
               ------------------
exercise the Option by giving written notice to the Company pursuant to section
6.5(a) of the Option Plan using the specified form of notice of exercise
attached to this Agreement as Exhibit A. The notice will be signed by the person
                              ---------
or persons exercising the Option. In the event that the Option is being
exercised by the representative of Optionee, the notice will be accompanied by
proof reasonably satisfactory to the Company of the representative's right to
exercise the Option. Payment of the Option Price will accompany the notice and
will be in any of the following forms acceptable to the Company, or combination
thereof: (i) cash or a check made payable to the Company; or (ii) by the
delivery of one or more certificate(s) representing shares of the Company with a
Fair Market Value on the date of exercise equal to the Option Price, together
with a stock power executed in blank [or (iii) by the delivery of a promissory
note payable to the Company and/or the U.S. Subsidiary in form and substance
acceptable to the Company in its sole discretion, secured by a pledge to the
U.S. Subsidiary of the Shares being acquired with such note]. Notwithstanding
anything in this Agreement to the contrary, the time within which Optionee has
the right to exercise the Option following a Cessation of Services is limited as
set forth in the Option Plan.

          (e)  Withholding Taxes. To the extent required by applicable federal,
               -----------------
state, local or foreign law, and as a condition to the Company's obligation to
issue any Shares upon the exercise of the Option in full or in part, Optionee
will make arrangements reasonably satisfactory to the Company for the payment of
any withholding tax obligations that arise by reason of such exercise.

          (f)  Issuance of Shares. Subject to the provisions of the Option Plan,
               ----------------
after receiving a proper notice of exercise and payment of the applicable Option
Price and withholding taxes, the Company will cause to be issued a certificate
or certificates for the Shares as to which the Option has been exercised,
registered in the name of the person rightfully exercising the Option. The
Company will cause such certificate or certificates to be delivered to such
person.

                                      -4-
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3.   Representations and Warranties of Optionee.  Optionee hereby represents and
     ------------------------------------------
warrants that:

     (a)  Optionee is acquiring the Option granted hereby, and will acquire any
Shares obtained upon exercise of the Option, for investment purposes only, for
Optionee's own account, and with no view to the distribution thereof.

     (b)  Optionee understands that the Option and the Shares have not been
registered under the Securities Act of 1933, as amended (the "1933 Act"), and
that the Option and the Shares are not freely tradeable and must be held
indefinitely unless they are either registered under the 1933 Act or an
exemption from such registration is available. Optionee understands that the
Company is under no obligation to register the Option or the Shares. Optionee
also understands that the Option and the Shares have not been qualified under
the securities laws of any state and are to be offered and sold pursuant to an
exception from qualification under applicable state securities laws.

4.   No Shareholder Rights. No rights or privileges of a shareholder in the
     ---------------------
Company are conferred by reason of the granting of the Option. Optionee will not
become a shareholder in the Company with respect to any Shares unless and until
the Option has been properly exercised and the Option Price fully paid as to the
portion of the Option exercised.

5.   No Employment Rights. Nothing in this Agreement will be construed as giving
     --------------------
Optionee the right to be retained as an employee of the Company and/or its
Subsidiaries.

6.   Terms of the Option Plan and Tax Matters.
     ----------------------------------------

     (a)  Terms of the Option Plan. Optionee understands that the Option Plan
          ------------------------
includes important terms and conditions that apply to the Option. Those terms
include (without limitation): important conditions to the right of Optionee to
exercise the Option; important restrictions on the ability of Optionee to
transfer the Option or to Transfer any of the Shares received upon exercise of
the Option; and early termination of the Option following the occurrence of
certain events, including Optionee no longer being an employee, director,
consultant or independent contractor to or of the Company or its Subsidiaries.
Optionee acknowledges that he or she has read the Option Plan, agrees to be
bound by its terms, and makes each of the representations required to be made by
Optionee under it. Optionee further acknowledges that there is no established
market for the Shares.

     (b)  Tax Matters:   OPTIONEE ACKNOWLEDGES THAT THE COMPANY HAS GIVEN NO TAX
          -----------
ADVICE CONCERNING THE OPTION AND HAS ADVISED OPTIONEE TO CONSULT WITH HIS OR HER
OWN TAX OR FINANCIAL ADVISOR ABOUT THE TAX TREATMENT OF THE OPTION AND ITS
EXERCISE, WHICH ADVICE SHOULD BE SOUGHT PARTICULARLY WITH RESPECT TO AND
INCLUDING, BUT NOT LIMITED TO, THE ALTERNATIVE MINIMUM TAX CONSEQUENCES WHICH
MAY RESULT AT THE TIME OF EXERCISE OF AN ISO OR THE INCOME TAX CONSEQUENCES

                                      -5-
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RESULTING FROM FAILURE TO MEET THE REQUISITE HOLDING PERIODS SET FORTH IN
SECTION 422(A)(1) OF THE Code.

7.   Miscellaneous.
     -------------

     (a)  Assignment.  Neither this Agreement nor the Option is assignable by
          ----------
either party, except as expressly provided herein.  All of the covenants and
provisions of this Agreement by or for the benefit of the Company or Optionee
shall bind and inure to the benefit of their respective successors.

     (b)  Entire Agreement; Amendments. This Agreement constitutes the final and
          ----------------------------
complete expression of all of the terms of the understanding and agreement
between the parties hereto concerning the subject matter hereof. This Agreement
may not be modified, amended, altered or supplemented except by means of the
execution and delivery of a written instrument mutually executed by the Company
and Optionee.

     (c)  Governing Law.  This Agreement shall be construed and governed by the
          -------------
substantive laws of the State of Israel.

                                      -6-
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     (d)  Counterparts.  This Agreement may be executed in any number of
          ------------
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.

The parties hereby have entered into this Agreement as of the Grant Date.

                                       Verisity Ltd.

                                       By:  /s/ Charles Alvarez
                                            --------------------------------
                                            Charles Alvarez, Chief Financial
                                            Officer

                                       "Optionee"

                                       /s/ Moshe Gavrielov
                                       -------------------------------------
                                       Moshe Gavrielov

                                       Address:

                                       _____________________________________

                                       _____________________________________

                                       Social Security No.:_________________

Attachments:  (1)  Consent of Spouse

              (2) 1996 U.S. Stock Option Plan (as amended October 1999)

Exhibit A:    Form of Notice of Exercise of Stock Option

                                      -7-
<PAGE>

                               CONSENT OF SPOUSE

        I am the spouse of Moshe Gavrielov, who together with Verisity Ltd.,
have entered into the Stock Option Agreement, to which this Consent is attached.
Capitalized terms not defined herein will have the meaning set forth in such
Agreement, or in the Verisity Ltd. 1996 U.S. Stock Option Plan, which forms a
part of such Agreement (the "Option Plan").

        I have read and understand the Stock Option Agreement and the Option
Plan. I acknowledge that, by execution hereof, I am bound by the Stock Option
Agreement and the Option Plan as to any and all interests I may have in the
Option and the Shares issuable under the Agreement and the Option Plan. In
particular, I understand and agree that the Shares (including any interest that
I may have therein) is subject to certain repurchase rights in Verisity Design,
Inc., a subsidiary of the Company and certain restrictions on transfer.

        I also agree with my spouse and the Company that if my spouse and I ever
get divorced or enter into any marital property settlement agreement, or if my
spouse or I ever seek a decree of separate maintenance, to the extent my spouse
has or can obtain assets other than the Shares in amounts and of value
sufficient to settle or satisfy any marital property claims I may have in the
value of the Shares, I will accept such other assets in settlement of those
claims.

        I agree that I will not do anything to try to prevent the operation of
any part of the Stock Option Agreement or the Option Plan. I acknowledge that I
have had an opportunity to obtain independent counsel to advise me concerning
the matters contained herein.

Dated:_____________      Signature:  /s/ Ewa Gavrielov
                                     -----------------

                        Print Name:  Ewa Gavrielov
                                     -------------

                                      -8-
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                                                                       Exhibit A
                                                                       ---------

                      NOTICE OF EXERCISE OF STOCK OPTION
                                 Verisity Ltd.

To The General Manager of Verisity Ltd.

        The undersigned, the holder of an Option to purchase ordinary shares of
Verisity Ltd. (the "Company"), hereby irrevocably elects to exercise the
purchase rights represented by such Option, and to purchase thereunder _________
ordinary shares of the Company, herewith makes payment of $_____________
therefor in the form of a check made payable to the Company, and requests that
the certificates for such shares be issued in the name of and delivered to the
undersigned at the address set forth below.

        The undersigned acknowledges that the shares being purchased by him or
her (the "Shares") are subject to substantial restrictions on sale or transfer
set forth in the Company's Articles of Association and in the Company's 1996
U.S. Stock Option Plan (the "Plan") and agrees to be bound by the terms and
conditions of said Plan and the Stock Option Agreement entered into by and
between the Company and the undersigned on December ______, 1999. The
undersigned further represents, warrants and acknowledges that, unless a
registration statement is in effect with respect to the sale of Shares: (i)
those Shares are not freely tradeable and must be held indefinitely unless such
Shares are either registered under the Securities Act of 1933, as amended, (the
"Act"), or an exemption from such registration is available; (ii) the Company is
under no obligation to register those Shares; (iii) the undersigned is
purchasing the Shares for his or her own account and not with a view to or for
sale in connection with any distribution within the meaning of the Act, other
than as may be effected in compliance with the Act and the rules and regulations
promulgated thereunder; (iv) no one else will have any beneficial interest in
the Shares; and (v) he or she has no present intention of disposing of the
Shares or any interest therein at any particular time.

DATED:  _______________

                        _______________________________________________
                        Signature

                        _______________________________________________
                        Print name exactly as to be shown on certificate

                        Address:

                        ________________________________________

                        ________________________________________

                                      -9-<PAGE>

                                                                   EXHIBIT 10.26
                                                                   -------------
                                 VERISITY LTD.
                                 -------------

                       THE 1999 ISRAELI SHARE OPTION PLAN
                       ----------------------------------
I.   NAME

    This Plan, as amended from time to time, shall be known as the VERISITY Ltd.
    1999 Israeli Share Option Plan ("the Option Plan").

II.  PURPOSE OF THE OPTION PLAN

    The Option Plan is intended as an incentive to retain, in the employment of
    VERISITY Ltd. ("the Company") or a Subsidiary of the Company which now
    exists or hereafter is organized or acquired by the Company, persons of
    training, experience, and ability, to attract employees, directors or
    consultants, whose services are considered valuable, to encourage the sense
    of proprietorship of such persons, and to stimulate the active interest of
    such persons in the development and financial success of the Company by
    providing them with opportunities to purchase shares in the Company,
    pursuant to the Option Plan approved by the board of directors of the
    Company ("the Board") (each such employee, director or consultant shall be
    referred to herein as "Optionee"). Options granted under the Option Plan may
    or may not contain such terms as will qualify such Options for the special
    tax treatment under section 102 of the Israeli Income Tax Ordinance
    ("Section 102").

    Options containing such terms as will qualify them for the special tax
    treatment under section 102 of the Israeli Income Tax Ordinance, shall be
    referred to herein as "102 Options". Options that do not contain such terms
    as will qualify them for the special tax treatment under section 102 of the
    Israeli Income Tax Ordinance, shall be referred to herein as "3(i) Options".

    All Options granted hereunder, whether together or separately, shall be
    hereinafter referred to as "the Options".

    The term "Subsidiary" shall mean for the purposes of the Plan any company
    (other than the Company) in an unbroken chain of companies beginning with
    the Company if, at the time of granting an option, each of the companies
    other than the last company in the unbroken chain owns stock possessing
    fifty percent (50%) or more of

                                      -1-
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    the total combined voting power of all classes of stock in one of the other
    companies in such chains.

III.  ADMINISTRATION OF THE OPTION PLAN

    The Board or a committee appointed and maintained by the Board for such
    purpose ("the Committee") shall have the power to administer the Option
    Plan. Notwithstanding the above, the Board shall automatically have a
    residual authority if no Committee shall be constituted or if such Committee
    shall cease to operate for any reason whatsoever.

    The Committee shall consist of such number of members (not less than two (2)
    in number) as may be fixed by the Board. The Committee shall select one of
    its members as its chairman ("the Chairman") and shall hold its meetings at
    such times and places as the Chairman shall determine. The Committee shall
    keep records of its meetings and shall make such rules and regulations for
    the conduct of its business as it shall deem advisable.

    No member of such Committee shall be prevented from receiving Options under
    the Option Plan while serving on the Committee by virtue of his or her being
    a member as per the above, unless otherwise specified herein.

    The Committee shall have full power and authority to:

                                      -2-
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IV.   Designate participants as per Section 4 below;

V.    Designate Options as 102 Options or 3(i) Options;

VI.   Determine the terms and provisions of respective Option agreements (which
      need not be identical) including, but not limited to, the number of
      Ordinary Shares in the Company to be covered by each Option, the vesting
      periods in respect thereof including but without limitation provisions
      concerning the time or times when and the extent to which the Options may
      be exercised and the nature and duration of restrictions as to
      transferability;

VII.  Accelerate the right of an Optionee (as defined in Section 1 above) to
      exercise, in whole or in part, any previously granted Option;

VIII. Interpret the provisions and supervise the administration of the Option
      Plan;

IX.   Determine the Fair Market Value (as defined below) of the Shares (as
      defined below);

X.    Determine any other matter which is necessary or desirable for, or
      incidental to administration of the Option Plan;

XI.   Appoint in its absolute discretion the Trustee and replace it at any time
      in the future; and

XII.  Suspend, terminate or cancel the Option Plan or any part thereof, replace
      and/or determine further provisions and sub-plans in addition to the
      Option Plan, determine any other plan in lieu of the Option Plan and
      determine any provision and do anything in connection with this Option
      Plan.

     The Committee shall have the authority to grant, in its discretion, to the
     holder of an outstanding Option, in exchange for the surrender and
     cancellation of such Option, a new Option having a purchase price equal to,
     lower than or higher than the purchase price provided in the Option so
     surrendered and canceled, and containing such other terms and conditions as
     the Committee may prescribe in accordance with the provisions of the Option
     Plan.

     All decisions made or resolutions passed by the Board or the Committee
     pursuant to the provisions of the Option Plan shall be made by a majority
     of its members except that no member of the Board or the Committee shall
     vote on, or be counted for quorum purposes, with respect to any proposed
     action of the Board or the

                                      -3-
<PAGE>

     Committee relating to any Option to be granted to that member.
     Notwithstanding the above, any decision, signed or agreed to in writing or
     by telex or facsimile by all of the members of the Board or by all of the
     members of the Committee, as the case may be, shall be valid for every
     purpose as a resolution adopted at a Board or Committee meeting, as the
     case may be, that was duly convened and held.

     The interpretation and construction by the Committee of any provision of
     the Option Plan or of any Option thereunder shall be final and conclusive
     unless otherwise determined by the Board.

     Subject to any applicable law, each member of the Board or the Committee
     shall be indemnified and held harmless by the Company against any cost or
     expense (including counsel fees) reasonably incurred by him or her, or any
     liability (including any sum paid in settlement of a claim with the
     approval of the Company) arising out of any act or omission to act in
     connection with the Option Plan unless arising out of such member's own
     fraud or bad faith, all subject and to the extent permitted by any
     applicable law. Such indemnification shall be in addition to any rights of
     indemnification the member may have as a director or otherwise under the
     Company's Articles of Association, any agreement, any vote of shareholders
     or disinterested directors, insurance policy or otherwise. The term "Fair
     Market Value" shall mean, with respect to the Shares and as of the date
     that is relevant to such a determination, the market price per share of
     such Shares determined by the Committee, as follows: (a) if the Shares are
     traded on a stock exchange on the date in question, then the Fair Market
     Value will be equal to the closing price reported by the applicable
     composite-transactions report for such date; (b) if the Shares are traded
     over-the-counter on the date in question and are classified as a national
     market issue, then the Fair Market Value will be equal to the last-
     transaction price quoted by the NASDAQ system for such date; (c) if the
     Shares are traded over-the-counter on the date in question but are not
     classified as a national market issue, then the Fair Market Value will be
     equal to the mean between the last reported representative bid and asked
     prices quoted by the NASDAQ system for such date; and (d) if none of the
     foregoing provisions is applicable, then the Fair Market Value will be
     determined by the Committee in its sole and absolute discretion in good
     faith on such basis as it deems appropriate.

                                      -4-
<PAGE>

XIII. DESIGNATION OF PARTICIPANTS

     The persons eligible for participation in the Option Plan as recipients of
     Options shall include any employees, directors or consultants of the
     Company or of any Subsidiary of the Company that now exists or hereafter is
     organized or acquired by the Company. The grant of an Option hereunder
     shall neither entitle the recipient thereof to participate, nor disqualify
     him or her from participating in, any other grant of Options pursuant to
     this Option Plan or any other option or stock plan of the Company or any of
     its affiliates.

     Anything in the Option Plan to the contrary notwithstanding, all grants of
     Options to directors and office holders ("Nosei Misra" - as such term is
     defined in the Companies Ordinance (New Version), 1983 - "the Companies
     Ordinance") shall be authorized and implemented only in accordance with the
     provisions of the Companies Ordinance, as in effect from time to time.

XIV.  TRUSTEE

     The 102 Options which shall be granted to employees of the Company or of
     any Subsidiary of the Company that now exists or hereafter is organized or
     acquired by the Company and/or any Shares (as defined below) issued upon
     exercise of such Options and/or other shares received subsequently
     following any realization of rights, if such shall be granted to an
     employee, shall be issued to a Trustee nominated by the Committee, and
     approved in accordance with the provisions of Section 102 ("the Trustee")
     and held for the benefit of the Optionees for a period of not less than two
     years (24 months) from the Date of Grant, as defined in Optionee's Option
     Agreement. Anything to the contrary notwithstanding, the Trustee shall not
     release any Options, prior to their exercise, or release any Shares issued
     upon exercise of Options prior to the full payment of the Optionee's tax
     liabilities arising from Options which were granted to him or her and/or
     any Shares issued upon exercise of such Options. The Optionee hereby
     authorizes the Trustee to sign an agreement with the Company whereby Shares
     will not be transferred without deduction of taxes at source.

     Upon receipt of the Option, the Optionee will sign an undertaking to exempt
     the Trustee from any liability in respect of any action or decision
     executed bona fide in relation with the Option Plan, or any Option or Share
     granted to him or her thereunder.

                                      -5-
<PAGE>

XV.    SHARES RESERVED FOR THE OPTION PLAN; RESTRICTION THEREON

XVI.   The Company has reserved Six Hundred Sixty Four Thousand (664,000)
       authorized but unissued Ordinary Shares of NIS 0.01 par value each of the
       Company (each such Ordinary Share - a "Share" and collectively - "the
       Shares"), for purposes of the Plan, subject to adjustment as set forth in
       Section 8 below. Any of such Shares which may remain unissued and which
       are not subject to outstanding Options at the termination of the Option
       Plan shall cease to be reserved for the purpose of the Option Plan, but
       until termination of the Option Plan the Company shall at all times
       reserve sufficient number of Shares to meet the requirements of the
       Option Plan. Should any Option for any reason expire or be canceled prior
       to its exercise or expiration in full, the Shares therefore subject to
       such Option may again be subjected to an Option under the Option Plan.

XVII.  Until the consummation of an initial public offering of the Company's
       shares ("the IPO") an Optionee who purchased Shares hereunder upon
       exercise of Options:

XVIII. Shall not exercise his or her voting rights as a shareholder (in any and
       all matters whatsoever), and such Shares shall be voted by a proxy,
       substantially in the form attached to the Option Agreement as Exhibit C
       pursuant to the directions of the Board, such proxy to be to the person
       or persons designated by the Board. The Optionee shall further execute
       irrevocable and unconditional undertaking toward the person or persons so
       designated by the Board to vote under the Proxy, substantially in the
       form attached to the Option Agreement as Exhibit D. In addition to the
       above, any such Optionee shall not be entitled to receive any notice to
       which a shareholder of the Company is entitled.

XIX.   Notwithstanding anything to the contrary in the Articles of Association
       of the Company and/or in any applicable law or agreement, none of the
       Optionees nor the Trustee shall have right of first refusal and/or
       preemptive rights in relation with any issuance and/or sale of shares in
       the Company.

                                      -6-
<PAGE>

XX.    If in connection with an IPO, the stock exchange regulations and/or any
       applicable law so provide and/or the Board or the Committee so resolve
       and/or the underwriter or underwriters managing such offering so
       requests, then each Optionee who purchased Shares hereunder upon exercise
       of Options will agree to not sell or otherwise transfer any such Shares
       (other than Shares included in such underwriting) without the prior
       written consent of such underwriter, for such period of time as may be
       requested by the underwriter commencing on the effective date of the
       registration statement filed in connection with such offering, but in no
       event longer than the period of time that the officers and directors of
       the Company are generally prohibited from transferring their Shares in
       connection with such public offering.

XXI.   OPTION PRICE

XXII.  The purchase price of each Share subject to an Option or any portion
       thereof shall be determined by the Committee in its sole and absolute
       discretion in accordance with applicable law, subject to any guidelines
       as may be determined by the Board from time to time.

XXIII. The Option price shall be payable upon the exercise of the Option in a
       form satisfactory to the Committee and in the event of 102 Options
       conforming to the requirements of Section 102, including without
       limitation, by cash or check as set forth in Section 9.1 below. The
       Committee shall have the authority to postpone the date of payment on
       such terms as it may determine.

                                      -7-
<PAGE>

XXIV. CHANGE OF CONTROL TRANSACTIONS; ADJUSTMENTS

XXV.  In the event of a Change of Control Transaction, as defined below, the
      Company shall endeavor to cause the successor entity in such transaction
      either to assume all of the Options which have been granted hereunder and
      which are outstanding as of the consummation of such transaction
      ("Closing"), or to issue (or cause to be issued) in substitution thereof
      comparable options of such successor entity (or of its Parent or its
      Subsidiary). If the successor entity is unwilling to either assume such
      Options or grant comparable options in substitution for such Options, on
      terms that are acceptable to the Company as determined by the Board in the
      exercise of its discretion, then:

         (i)     with respect to each outstanding Option, that portion of the
              Option which remains unvested that either (x) would have become
              vested over the 12-month period immediately following the Closing,
              or (y) represents 50% of the unvested portion of the Option as of
              the Closing, whichever portion is smaller, will become Vested
              immediately prior to such Closing; and

         (ii)  the Board may cancel all outstanding Options, and terminate this
              Plan, effective as of the Closing, provided that it shall notify
              all Optionees of the proposed Change of Control Transaction a
              reasonable amount of time prior to the Closing so that the
              Optionee will be given the opportunity to exercise the vested
              portion of his or her Option (after giving effect to the
              acceleration of such vesting under clause (i) above) prior to the
              Closing.

         For purposes of this Section 8.1, the term "Change of Control
         Transaction" means a Business Combination in which less than 50% of the
         outstanding voting securities of the successor entity immediately
         following the Closing of the Business Combination transaction are
         beneficially held by those persons and entities in the same proportion
         as such persons and entities beneficially held the voting securities of
         the Company immediately prior to such transaction; the term "Business
         Combination" means a transaction or series of transactions consummated
         within any period of 90 days resulting in (A) the sale of all or
         substantially all of the assets of the Company, or (B) a merger or
         consolidation or other reorganization of which the Company is a merging
         party.

                                      -8-
<PAGE>

XXVI. In the event of any change in the capital structure of the Company,
      including but without limitation as a result of a recapitalization,
      combination, reclassification, distribution of bonus shares, distribution
      of dividend otherwise than in cash, shares split, reverse shares split,
      dividend on winding up, consolidating shares, swapping shares, changing
      the Company's structure or otherwise, but excluding a Change of Control
      Transactions in respect of which the provisions of Section 8.1 above shall
      apply, appropriate proportionate adjustments will be made in (i) the
      aggregate number of Shares that are reserved for issuance pursuant to
      Section 6 above, under outstanding Options or future Options granted
      hereunder; and/or (ii) the Option price and the number of Shares that may
      be acquired under each outstanding Option granted hereunder; and/or (iii)
      other rights and matters determined on a per share basis under this Plan
      or any Option agreement evidencing an outstanding Option granted
      hereunder. Any such adjustments will be made only by the Board, and when
      so made will be effective, conclusive and binding for all purposes with
      respect to this Plan and all Options then outstanding. No such adjustments
      will be required by reason of the issuance or sale by the Company for cash
      or other consideration of additional shares or securities convertible into
      or exchangeable for Shares.

         For the removal of doubt all the terms and conditions contained herein
         in respect of the Options and/or the Shares shall apply to the options
         and/or shares resulting from the adjustments as per the above.

                                      -9-
<PAGE>

XXVII.  Anything herein to the contrary notwithstanding, if prior to the
        completion of an IPO of the Company's securities, all or substantially
        all of the shares of the Company are to be sold, or upon a merger or
        reorganization or the like, the shares of the Company, or any class
        thereof, are to be exchanged for securities of another Company, then in
        such event, each Optionee shall be obliged to sell or exchange, as the
        case may be, the Shares such Optionee purchased under the Option Plan,
        in accordance with the instructions then issued by the Board whose
        determination shall be final.

XXVIII. TERM AND EXERCISE OF OPTIONS

XXIX.   Vested Options shall be exercised by the Optionee by giving written
        notice to the Company, in the form attached to the Option Agreement as
        Exhibit E, and the method as may be determined by the Company and the
        Trustee and if the Options so exercised are 102 Options than in
        accordance with the requirements of Section 102, which exercise shall be
        effective upon receipt of such notice by the Company at its principal
        office. The notice shall specify the number of Shares with respect to
        which the Option is being exercised and it shall be accompanied by any
        further assurances and/or undertaking as the Committee and/or Trustee
        may require to ensure that the transaction complies in all respects with
        the requirements of any applicable law. The notice as per the above will
        be signed by the person exercising the Option and it will be accompanied
        by full payment of the corresponding Option price, by cash or check made
        payable to the Company.

XXX.    Each Option granted under this Option Plan shall be exercisable
        following the Vesting Schedule Dates in respect thereof ("the Vesting
        Dates") and for the number of Shares as shall be provided in Exhibit B
        to the Option agreement. However no Option shall be exercisable after
        the expiration date, as defined for each Optionee in the Optionee's
        Option agreement ("the Expiration Date"), but subject always to Section
        9.6 below.

XXXI.   Options granted under the Option Plan shall not be transferable by
        Optionees other than by will or laws of descent and distribution, and
        during an Optionee's lifetime shall be exercisable only by that
        Optionee.

                                      -10-
<PAGE>

XXXII.  The Options may be exercised by the Optionee in whole at any time or in
        part from time to time, to the extent that the Options become vested
        prior to the Expiration Date, provided that the number of Shares
        purchased under the exercised Option as per the above will be no less
        than 100 Shares, without regard to adjustments to the number of Shares
        subject to the Option pursuant to Section 8 above, or, if less, all of
        the remaining Shares subject to the Option, and provided further that,
        subject to the provisions of Section 9.6 below, the Optionee is an
        employee, director or consultant of the Company or a Subsidiary of the
        Company or a company or a Parent or a subsidiary company of such company
        issuing or assuming the Options in a transaction described in Section
        8.1 above, at all times during the period beginning with the granting of
        the Option and ending upon the date of exercise.

XXXIII. Subject to the provisions of Section 9.6 below, in the event of
        termination of Optionee's employment with or performance of services for
        or on behalf of the Company or a Subsidiary of the Company or a company
        or a Parent or a subsidiary company of such company issuing or assuming
        the Options in a transaction described in Section 8.1 above, all Options
        granted to him or her will immediately expire. A notice of termination
        of employment or services by either party shall be deemed to constitute
        termination of employment or services.

XXXIV.  Notwithstanding anything to the contrary hereinabove, an Option may be
        exercised after the date of termination of Optionee's employment with or
        performance of services for or on behalf of the Company or any
        Subsidiary of the Company thereof or a company or a Parent or a
        subsidiary company of such company issuing or assuming the Options in a
        transaction described in Section 8.1 above during an additional period
        of time beyond the date of such termination, but only with respect to
        the number of Options already vested at the time of such termination
        according to the Vesting Dates if:

XXXV.   Termination is without Cause (as defined below), in which event any
        Options still in force and unexpired may be exercised within a period of
        30 (thirty) days from the date of such termination.

XXXVI.  Termination is the result of death or disability of the Optionee, in
        which event any Options still in force and unexpired may be exercised
        within a period of six (6) months from the date of termination.

                                      -11-
<PAGE>

XXXVII. The Committee may authorize an extension of the terms of all or part of
        the Options beyond the date of such termination, even if such terms has
        been expired, for a period not to exceed the period during which the
        Options by their terms would otherwise have been exercisable.

          The term "Cause" shall mean for the purposes of the Plan a termination
          by the Company and/or any of its Subsidiaries of the Optionee's
          employment or services (or if the Optionee is a director, removal of
          him or her from the Board by action of the shareholders or, if
          permitted by applicable law and the Articles of the Company, the other
          directors), in connection with the good faith determination of the CEO
          (or of the Company's shareholders if the Optionee is a director and
          the removal of him or her from the Board is by action of the
          shareholders, but in either case excluding the vote of the subject
          individual if he or she is a director or a shareholder) that the
          Optionee has engaged in any acts involving dishonesty or moral
          turpitude or in any acts that materially and adversely affect the
          business, affairs or reputation of the Company or any of its
          Subsidiaries.

          The term "Parent" shall mean for the purposes of the Plan any company
          (other than the Company) in an unbroken chain of companies ending with
          the Company if, at the time of granting an Option, each of the
          companies (other than the Company), owns stock possessing fifty
          percent (50%) or more of total combined voting power of all classes of
          stock in one of the other companies in such chain.

                                      -12-
<PAGE>

XXXVIII.  To avoid doubt and subject to Sections 6.2 above and 11.1 below, the
    holders of Options shall not have any of the rights or privileges of
    shareholders of the Company in respect of any Shares purchasable upon the
    exercise of any part of an Option, nor shall they be deemed to be a class of
    shareholders or creditors of the Company for purpose of the operation of
    Section 233 of the Companies Ordinance or any successor to such Section,
    until registration of the Optionee as holder of such Shares in the Company's
    register of members upon exercise of the Option in accordance with the
    provisions of this Plan.

XXXIX.  Any form of Option agreement subject to the Option Plan may contain such
    other provisions as the Committee may, from time to time, deem advisable.
    Without limiting the foregoing, the Committee may, with the consent of the
    Optionee, from time to time cancel all or any portion of any Option then
    subject to exercise, and the Company's obligation in respect of such Option
    may be discharged by either (i) payment to the Optionee of an amount in cash
    equal to the excess, if any, of the Fair Market Value of the Shares at the
    date of such cancellation subject to the portion of the Option so canceled
    over the aggregate purchase price of such Shares, or (ii) the issuance or
    transfer to the Optionee of Shares of the Company with a Fair Market Value
    at the date of such transfer equal to any such excess, or (iii) a
    combination of cash and Shares with a combined value equal to any such
    excess, all as determined by the Committee in its sole discretion.

                                      -13-
<PAGE>

XL.  SHARES SUBJECT TO RIGHT OF FIRST REFUSAL

    Until the consummation of an IPO, transfer of exercised Shares by the
    Optionee, whether for consideration or for no consideration (for the purpose
    of this Section 10 - "Sale") shall be made only once every year, within a
    period of time as shall be determined by the Committee and as the Company
    shall notify those Optionees who have notified the Company of their
    intention to sell the Shares held by them or any part thereof, and shall be
    subject to the right of first refusal of the Investor Shareholders, as
    defined in the Company's Articles of Association, and all other Shareholders
    of the Company holding 3% or more of the outstanding and issued share
    capital of the Company (save, for avoidance of doubt, for other Optionees
    who already exercised their options) ("Repurchasers"), pro rata in
    accordance with their shareholding. The Optionee shall give a notice of sale
    (the "Notice") to the Company in order to offer the Shares to the
    Repurchasers.

    The Notice shall specify the name of each proposed purchaser or other
    transferee ("Proposed Transferee"), the number of Shares offered for sale,
    the price per Share and the payment terms, as well as such other terms and
    conditions, if any, as were included in the offer. The Repurchasers will be
    entitled for 21 days from the day of receipt of the Notice, to purchase all
    of the offered Shares.

    If by the end of the above 21 days period not all of the offered Shares have
    been purchased by the Repurchasers, then the Repurchasers who have notified
    the Company of their desire to purchase the Shares which are subject to the
    Sale, if any, shall have additional 20 days period to purchase the balance
    of the Shares which are subject to the Sale. If by the end of the additional
    20 days period as per the above not all of the Shares which are subject to
    the Sale have been purchased by the Repurchasers then the Optionee will be
    entitled to sell such Shares at any time during the 60 days following the
    end of the 20 days period on terms not more favorable than those set out in
    the Notice, provided that the Proposed Transferee agrees in writing that the
    provisions of Sections 6.2, 6.3, 8.3 above and of this Section shall
    continue to apply to the Shares in the hands of such Proposed Transferee.

                                      -14-
<PAGE>

XLI.    DIVIDENDS; NO SOCIAL BENEFITS

XLII.   With respect to all Shares (in contrary to unexercised Options) issued
        upon the exercise of Options purchased by the Optionee and held by the
        Trustee, the Optionee shall be entitled to receive dividends in
        accordance with the quantity of such Shares, and subject to any
        applicable taxation on distribution of dividends. During the period in
        which Shares issued to the Trustee on behalf of an Optionee are held by
        the Trustee, the cash dividends paid with respect thereto shall be paid
        directly to the Optionee.

XLIII.  The income attributed to the Optionee as a result of the grant of the
        Options hereunder and/or the exercise of the Shares, their transfer in
        his or her name or their sale and in all respects relating thereto,
        shall not be taken into account when computing the basis of the
        Optionee's entitlement to any social benefits. Without derogating from
        the generality of the above, that income shall not be taken into account
        in computing mangers insurance, vocational studies fund, provident
        funds, severance pay, holiday pay and the like. If the Company is
        legally obliged to take any of the above into account, as income which
        is to be attributed to the Optionee, the Optionee will indemnify the
        Company in respect of any expense sustained by it in such respect.

XLIV.   ASSIGNABILITY AND SALE OF OPTIONS

        No Option hereunder shall be assignable, transferable or given as
        collateral or any right with respect to them given to any third party
        whatsoever, and during the lifetime of the Optionee each and all of such
        Optionee's rights to purchase Shares hereunder shall be exercisable only
        by the Optionee.

        As long as the Shares are held by the Trustee in favor of the Optionee,
        than all rights the last possesses over the Shares are personal, cannot
        be transferred, assigned, pledged or mortgaged, other than by will or
        laws of descent and distribution.

XLV.    TERM OF THE OPTION PLAN

        The Option Plan shall be effective as of the day it was adopted by the
        Board and shall terminate at the end of ten years from such day of
        adoption, if not terminated under Section 14 below prior to such date.
        For the removal of doubt, upon termination of the Option Plan as per the
        above, all unexercised Options shall immediately terminate.

XLVI.   AMENDMENTS OR TERMINATION

        The Board may at any time, but after consultation with the Trustee,
        amend, alter, suspend or terminate the Plan. No amendment, alteration,
        suspension or termination of the Plan shall impair the rights of any
        Optionee, unless mutually agreed otherwise between the Optionee and the
        Company, which agreement must be in writing and signed by the Optionee
        and the Company.

                                      -15-
<PAGE>

        Termination of the Plan shall not affect the Committee's ability to
        exercise the powers granted to it hereunder with respect to Options
        granted under the Plan prior to the date of such termination.

XLVII.  GOVERNMENT REGULATIONS

        The Option Plan, and the granting and exercise of Options hereunder, and
        the obligation of the Company to sell and deliver Shares under such
        Options, shall be subject to all applicable laws, rules, and
        regulations, whether of the State of Israel or of the United States or
        any other state having jurisdiction over the Company and/or the
        Optionee, including the registration of the Shares under the United
        States Securities Act of 1933, and to such approvals by any governmental
        agencies or national securities exchanges as may be required.

                                      -16-
<PAGE>

XLVIII.   CONTINUANCE OF EMPLOYMENT

          Neither the Option Plan nor the Option agreement with the Optionee
          shall impose any obligation on the Company or a Subsidiary thereof, to
          continue the employment or services of any Optionee with it, and
          nothing in the Option Plan or in any Option granted pursuant thereto
          shall confer upon any Optionee any right to continue in the employment
          of the Company or a Subsidiary thereof, nor the right to be retained
          as a consultant thereof or restrict the right of the Company or a
          Subsidiary thereof to terminate such employment or consulting services
          at any time.

XLIX.     GOVERNING LAW & JURISDICTION

          This Option Plan shall be exclusively governed by and construed and
          enforced in accordance with the laws of the State of Israel applicable
          to contracts made and to be performed therein, without giving effect
          to the principles of conflict of laws. The competent courts of Tel-
          Aviv, Israel, shall have and exclusive jurisdiction in any matters
          pertaining to this Option Plan.

L.        TAX CONSEQUENCES

          Any tax consequences arising from the grant or exercise of any Option,
          from the payment for Shares covered thereby or from any other event or
          act (of the Company, the Trustee or the Optionee) hereunder, shall be
          borne solely by the Optionee. The Company and/or the Trustee shall
          withhold taxes according to the requirements under the applicable
          laws, rules, and regulations, including withholding taxes at source.
          Furthermore, the Optionee shall agree to indemnify the Company and the
          Trustee and hold them harmless against and from any and all liability
          for any such tax or interest or penalty thereon, including without
          limitation, liabilities relating to the necessity to withhold, or to
          have withheld, any such tax from any payment made to the Optionee.

          The Committee and/or the Trustee shall not be required to transfer any
          Shares or to release any Share certificate to an Optionee until all
          required payments have been fully made.

LI.       NON-EXCLUSIVITY OF THE OPTION PLAN

          The adoption of the Option Plan by the Board shall not be construed as
          amending, modifying or rescinding any previously approved incentive
          arrangements or as creating any limitations on the power of the Board
          to adopt such other incentive arrangements as it may deem desirable,
          including, without limitation, the granting of stock options

                                      -17-
<PAGE>

          otherwise then under the Option Plan, and such arrangements may be
          either applicable generally or only in specific cases. For the
          avoidance of doubt, prior grant of options to employees, directors or
          consultants of the Company under their employment or services
          agreements, and not in the framework of any previous option plan,
          shall not be deemed an approved incentive arrangement for the purpose
          of this Section.

                                      -18-
<PAGE>

LII.      MULTIPLE AGREEMENTS

          The terms of each Option may differ from other Options granted under
          the Option Plan at the same time, or at any other time. The Committee
          may also grant more than one Option to a given Optionee during the
          term of the Option Plan, either in addition to, or in substitution
          for, one or more Options previously granted to that Optionee.

                                      -19-
<PAGE>

                                   EXHIBIT B
                                   ---------

                             Terms of the Options
                             --------------------

Name of the Optionee:                     _______________

Date of Grant:                            _______________

Designation:                              3(i) Options [_]

1.  Number of Options granted:            _______________

2.  Price per Share:                      _______________

3.  Vesting Schedule:                     _______________

              % of Options                               Vesting Date
              ------------                               ------------
                  25 %                    1 year from the Date of Grant

                2.0833 %                  End of each month, starting from the
                                          13/th/ month from the Date of Grant

all subject to the employment or services of the Optionee with the Company
through the entire respective Vesting Date, as per the above.

4.  Expiration Date:                      _______________

                                      -20-
<PAGE>

                                   EXHIBIT C
                                   ---------

                                     PROXY

                        LETTER OF APPOINTMENT OF PROXY
                        ------------------------------

I, ________________________, hereby appoint the attorney of Verisity Ltd. (the
"Company") to vote in my name and in my place at any general meeting of the
Company and at any separate class meetings.

In witness whereof, I have hereby affixed my signature the _________ day of
___________.

                                                  _____________________
                                                  Appointor's Signature

I hereby confirm that the foregoing
instrument was signed before me by the Appointor.

______________________________
name

______________________________
profession

______________________________
address

                                      -21-
<PAGE>

                                   EXHIBIT D
                                   ---------

To
The Attorney of the Company
---------------------------

The undersigned, having executed a proxy in the form attached hereto as Appendix
"A" (the "Proxy"), pursuant to which you shall be representing the undersigned
at the general meetings of Verisity Ltd., and in connection therewith, hereby
irrevocably and unconditionally undertake and agree as follows:

1. You will be entitled to vote instead of the undersigned at any and all
   general meetings of VERISITY LTD. (the "Company") (including but without
   limitation general meetings convened for the purpose of adopting
   extraordinary resolutions and separate class meetings) and to vote thereat on
   any and all matters in respect of the Shares of the Company as the
   undersigned would be entitled to vote if then personally present.

2. The undersigned acknowledge and agree that you will refrain from voting under
   this Proxy except than in the case of resolution in writing of the
   Shareholders of the Company, in which event you will sign such resolution
   only after the other Shareholders of the Company have signed same. The
   undersigned further acknowledge and agree that such vote and/or refrain from
   voting by you may not be in the interest of the undersigned and/or may be
   contrary thereto and/or may adversely effect the rights and/or situation of
   the undersigned. The undersigned hereby waive any claims, causes of action or
   demands against you in connection with your voting and/or refraining from
   voting as per the above.

3. The undersigned will immediately indemnify and hold you harmless from and
   against any damages, costs and expenses, including legal fees and expenses
   you may incur as a result of, or in connection with, your actions or non-
   actions under the Proxy, promptly upon your first written demand.

                                      -22-
<PAGE>

4. The undersigned acknowledge and agree that his or her undertakings as per the
   above are and will remain irrevocable, as one or more third parties will be
   relying upon them in taking action that they may otherwise not take, and by
   which they may be adversely changing their financial and/or legal situation.

_____________________

Name:  ______________

I.D.:  ______________

Address:  ___________

                                      -23-
<PAGE>

                                   EXHIBIT E
                                   ---------

                         NOTICE OF EXERCISE OF OPTION
                                 Verisity Ltd.

To the General Manager of Verisity Ltd.

The undersigned, the holder of an Option to purchase ordinary shares of Verisity
Ltd. (the "Company"), hereby irrevocably elects to exercise the purchase rights
represented by such Option, and to purchase thereunder ______________ ordinary
shares of the Company, herewith makes payment of NIS _______________ therefor in
the form of a check made payable to the Company, and requests that the
certificates for such shares be issued in the name of and delivered to the
undersigned at the address set forth below.

The undersigned acknowledges that the issuance and delivery of the certificates
for the shares as per the above is subject to, inter alia, the payment by the
undersigned of all taxes due in connection with the purchase of said shares.

The undersigned further acknowledges that the shares being purchased by him or
her are subject to substantial restrictions on sale or transfer set forth in the
Company's Articles of Association and in the Company's 1999 Israeli Share Option
Plan (the "Plan") and agrees to be bound by the terms and conditions of said
Plan and the Option Agreement entered into by and between the Company and the
undersigned on ___________.

Dated: ____________

____________________________________
              (signature)

__________________________________________________
Print name exactly as to be shown on certificate

Address :

__________________________________________________

                                      -24-
<PAGE>

                               OPTION AGREEMENT
                 Made as of the _________ day of ______, 1999

                         By and between VERISITY LTD.

                      an Israeli company with offices at
                             8-10 Ha' Melacha St.
                                Rosh Ha'-Ayin,
                                    Israel
                                ("the Company")

                               of the first part
                               -----------------
                                      and

                                 -------------
                                 ID  _________
                               ("the Optionee")

                              of the second part
                              ------------------

                                   PREAMBLE

Whereas In December 1, 1999, the Company adopted the 1999 Israeli Share Option
        Plan, a copy of which is attached as Exhibit A hereto (the "Option
                                             ---------
        Plan"), forming an integral part hereof, incorporated herein by
        reference and -

Whereas The Company has determined that the Optionee shall be granted an Option
        under the Option Plan to buy Shares of the Company, and the Optionee has
        agreed to such grant, all on the terms and subject to the conditions
        hereinafter provided.

                                      -1-
<PAGE>

NOW, THEREFORE, it is agreed as follows:

I.     PREAMBLE AND DEFINITIONS

II.    The Preamble to this Agreement constitutes an integral part hereof.

III.   Unless otherwise defined herein, capitalized terms used herein shall have
       the meaning ascribed to them in the Option Plan.

                                      -2-
<PAGE>

IV.    GRANT OF OPTION

V.     The Company hereby grants to the Optionee the number of Options set forth
       in Section 1 of Exhibit B hereto, to purchase Shares at the price per
                       ---------
       Share set forth in Section 2 of such Exhibit B ("the Option Price"), on
       the terms and subject to the conditions hereinafter provided.

          The Option Price will be paid in NIS in accordance with the
          representative rate of exchange of the U.S. dollar, published by the
          Bank of Israel and known on the date of payment.

                                      -3-
<PAGE>

VI.    The Optionee is aware and agree that the Company intends to issue
       additional shares and options in the future to various entities and
       individuals, as the Company in its sole discretion shall determine.

VII.   PERIOD OF OPTION AND CONDITIONS OF EXERCISE

VIII.  The terms of this Option Agreement shall commence on the date hereof
       ("the Date of Grant") and terminate at the Expiration Date (as defined in
       Section 6 below), or at the time at which the Option is completely
       terminated pursuant to the terms of the Option Plan or pursuant to this
       Agreement.

IX.    The Options may be exercised by the Optionee in whole at any time or in
       part from time to time, as determined by the Board, and to the extent
       that the Options become vested in accordance with Section 3 of Exhibit B,
       prior to the Expiration Date, provided that the number of Shares
       purchased under the exercised Option as per the above will be no less
       than 100 Shares, without regard to adjustments to the number of Shares
       subject to the Option pursuant to Section 7 below, or, if less, all of
       the remaining Shares subject to the Option, and provided further that,
       subject to the provisions of Section 3.4 below, the Optionee is an
       employee, director or consultant of the Company or a Subsidiary of the
       Company or a company or a Parent or a Subsidiary company of such company
       issuing or assuming the Options in a transaction described in Section 7.1
       of the Agreement, at all times during the period beginning with the
       granting of the Option and ending upon the date of exercise.

X.     Subject to the provisions of Section 3.4 below, in the event of
       termination of the Optionee's employment with, or the retention as a
       consultant of the Company or a Subsidiary of the Company or a company or
       a Parent or a subsidiary company of such company issuing or assuming the
       Options in a transaction described in Section 7.1 of the Agreement, all
       Options granted to him or her will immediately expire. A notice of
       termination of employment or consulting services as the case may be, by
       either the Company or the Optionee shall be deemed to constitute
       termination of employment or consulting services.

                                      -4-
<PAGE>

XI.    Notwithstanding anything to the contrary hereinabove, an Option may be
       exercised after the date of termination of Optionee's employment or
       services with the Company or any Subsidiary of the Company or a company
       or a Parent or a subsidiary company of such company issuing or assuming
       the Options in a transaction described in Section 7.1 of the Agreement
       during an additional period of time beyond the date of such termination,
       but only with respect to the number of Options already vested at the time
       of such termination according to the vesting dates if:

XII.   termination is without Cause, in which event any Options still in force
       and unexpired may be exercised within a period of 30 (thirty) days from
       the date of such termination.

XIII.  termination is the result of death or disability of the Optionee, in
       which event any Options still in force and unexpired may be exercised
       within a period of 6 (six) months from the date of termination.

XIV.   the Committee may authorize an extension of the terms of all or part of
       the Options beyond the date of such termination, even if such terms has
       been expired, for a period not to exceed the period during which the
       Options by their terms would otherwise have been exercisable.

XV.    The Options may be exercised only to purchase whole Shares, and in no
       case may a fraction of a Share be purchased. If any fractional Shares
       would be deliverable upon exercise, such fraction shall be rounded up
       one-half or more, or otherwise rounded down, to the nearest whole number.

XVI.   VESTING

       Options shall vest on the dates set forth in Section 3 of exhibit B
       hereto (the "Vesting Dates").

                                      -5-
<PAGE>

XVII.  METHOD OF EXERCISE

XVIII. Vested Options shall be exercised by the Optionee by giving written
       notice to the Company, in the form attached hereto as Exhibit E and the
       method as may be determined by the Company and the Trustee ("the Exercise
       Notice"), which exercise shall be effective upon receipt of such notice
       by the Company at its principal office. The notice shall specify the
       number of Shares with respect to which the Option is being exercised and
       it shall be accompanied by any further assurances and/or undertaking as
       the Committee and/or Trustee may require to ensure that the transaction
       complies in all respects with the requirements of any applicable law. The
       Exercise Notice as per the above will be signed by the person exercising
       the Option and it will be accompanied by full payment of the
       corresponding Option price, by cash or check made payable to the Company.

XIX.   Shares which have resulted from the exercise of 102 Options shall be
       issued in the name of the Trustee and be held by the Trustee in
       accordance with the provisions of Section 5 of the Option Plan. The
       Trustee shall not transfer any Options to the Optionee prior to exercise
       of the Options into Shares. The Trustee will transfer the Shares to the
       Optionee upon demand but in case of Shares which have resulted from the
       exercise of 102 Options, not earlier than two years (24 months) from Date
       of Grant. If any law or regulation requires the Company to take any
       action with respect to the Shares so demanded before the issuance
       thereof, then the date of their issuance shall be extended for the period
       necessary to take such action. The Optionee hereby authorizes the Trustee
       to sign an agreement with the Company whereby Shares will not be
       transferred without deduction of taxes at source. The Optionee hereby
       undertakes to exempt the Trustee from any liability in respect of any
       action or decision executed bona fide in relation with the Option Plan,
       or any Option or Share granted to him or her thereunder.

XX.    TERMINATION OF OPTION

XXI.   Except as otherwise stated in this Agreement, the Options, to the extent
       not previously exercised, shall terminate forthwith upon the earlier of
       (i) the date set forth in Section 4 of Exhibit B hereto; or (ii) the
       termination of the Option Plan as per Section 13 of the Option Plan; or
       (iii) the expiration of any extended period in any of the events set
       forth in Section 3.4 above (and such earlier date shall be hereinafter
       referred to as "the Expiration Date").

                                      -6-
<PAGE>

XXII.  Without derogating from the above, the Committee may, with the prior
       written consent of the Optionee, from time to time cancel all or any
       portion of the Options then subject to exercise, and the Company's
       obligation in respect of such Options may be discharged by either (i)
       payment to the Optionee of an amount in cash equal to the excess, if any,
       of the Fair Market Value of the Shares pertaining to such canceled
       Options, at the date of such cancellation, over the aggregate purchase
       price of such Shares, or (ii) the issuance or transfer to the Optionee of
       Shares of the Company with a Fair Market Value at the date of such
       transfer equal to any such excess, or (iii) a combination of cash and
       Shares with a combined value equal to any such excess, all as determined
       by the Committee in its sole discretion.

XXIII. CHANGE OF CONTROL TRANSACTIONS; ADJUSTMENTS

XXIV.  In the event of a Change of Control Transaction, as defined below, the
       Company shall endeavor to cause the successor entity in such transaction
       either to assume all of the Options which have been granted hereunder and
       which are outstanding as of the consummation of such transaction
       ("Closing"), or to issue (or cause to be issued) in substitution thereof
       comparable options of such successor entity (or of its Parent or its
       Subsidiary). If the successor entity is unwilling to either assume such
       Options or grant comparable options in substitution for such Options, on
       terms that are acceptable to the Company as determined by the Board in
       the exercise of its discretion, then:

          (i)  with respect to each outstanding Option, that portion of the
               Option which remains unvested that either (x) would have become
               vested over the 12-month period immediately following the
               Closing, or (y) represents 50% of the unvested portion of the
               Option as of the Closing, whichever portion is smaller, will
               become Vested immediately prior to such Closing; and

          (ii) the Board may cancel all outstanding Options, and terminate this
               Plan, effective as of the Closing, provided that it shall notify
               all Optionees of the proposed Change of Control Transaction a
               reasonable amount of time prior to the Closing so that the
               Optionee will be given the opportunity to exercise the vested
               portion of his or her Option (after giving effect to the
               acceleration of such vesting under clause (i) above) prior to the
               Closing.

                                      -7-
<PAGE>

               For purposes of this Section 7.1, the term "Change of Control
               Transaction" means a Business Combination in which less than 50%
               of the outstanding voting securities of the successor entity
               immediately following the Closing of the Business Combination
               transaction are beneficially held by those persons and entities
               in the same proportion as such persons and entities beneficially
               held the voting securities of the Company immediately prior to
               such transaction; the term "Business Combination" means a
               transaction or series of transactions consummated within any
               period of 90 days resulting in (A) the sale of all or
               substantially all of the assets of the Company, or (B) a merger
               or consolidation or other reorganization of which the Company is
               a merging party.

XXV.   In the event of any change in the capital structure of the Company,
       including but without limitation as a result of a recapitalization,
       combination, reclassification, distribution of bonus shares, distribution
       of dividend otherwise than in cash, shares split, reverse shares split,
       dividend on winding up, consolidating shares, swapping shares, changing
       the Company's structure or otherwise, but excluding a Change of Control
       Transactions in respect of which the provisions of Section 7.1 above
       shall apply, appropriate proportionate adjustments will be made in (i)
       the aggregate number of Shares that are reserved for issuance pursuant to
       Section 6 of the option plan, under outstanding Options or future Options
       granted hereunder; and/or (ii) the Option price and the number of Shares
       that may be acquired under each outstanding Option granted hereunder;
       and/or (iii) other rights and matters determined on a per share basis
       under the Option Plan or any Option agreement evidencing an outstanding
       Option granted thereunder. Any such adjustments will be made only by the
       Board, and when so made will be effective, conclusive and binding for all
       purposes with respect to the Option Plan and all Options then
       outstanding. No such adjustments will be required by reason of the
       issuance or sale by the Company for cash or other consideration of
       additional Shares or securities convertible into or exchangeable for
       Shares.

               For the removal of doubt all the terms and conditions contained
               herein in respect of the Options and/or the Shares shall apply to
               the options and/or shares resulting from the adjustments as per
               the above.

                                      -8-
<PAGE>

XXVI.   Anything herein to the contrary notwithstanding, if prior to the
        completion of an IPO of the Company's securities, all or substantially
        all of the shares of the Company are to be sold, or upon a merger or
        reorganization or the like, the shares of the Company, or any class
        thereof, are to be exchanged for securities of another Company, then in
        such event, each Optionee shall be obliged to sell or exchange, as the
        case may be, the Shares such Optionee purchased under the Option Plan,
        in accordance with the instructions then issued by the Board whose
        determination shall be final.

XXVII.  RIGHTS PRIOR TO EXERCISE OF OPTION; LIMITATIONS AFTER PURCHASE OF SHARES

XXVIII. Subject to the provisions of Sections 8.2 and 8.4 below, the Optionee
        shall not have any of the rights or privileges of shareholders of the
        Company in respect of any Shares purchasable upon the exercise of any
        part of an Option unless and until, following exercise but in case of
        Options and Shares held by the Trustee, subject always to the provisions
        of Section 5 of the Option Plan, registration of the Optionee as holder
        of such Shares in the Company's register of members.

XXIX.   With respect to all Shares (in contrary to unexercised Options) issued
        upon the exercise of Options purchased by the Optionee and held by the
        Trustee, the Optionee shall be entitled to receive dividends in
        accordance with the quantity of such Shares, and subject to any
        applicable taxation on distribution of dividends. During the period in
        which Shares issued to the Trustee on behalf of the Optionee, the cash
        dividends paid with respect thereto shall be paid directly to the
        Optionee.

XXX.    No Option granted hereunder shall be assignable, transferable or given
        as collateral or any right with respect to them given to any third party
        whatsoever, and during the lifetime of the Optionee each and all of the
        Optionee's rights to purchase Shares hereunder shall be exercisable only
        by the Optionee.

               As long as the Shares are held by the Trustee in favor of the
               Optionee, then all rights the last possesses over the Shares are
               personal, cannot be transferred, assigned, pledged or mortgaged,
               other than by will or laws of descent and distribution.

               Any such action made directly or indirectly, for an immediate
               validation or for a future one, shall be void.

                                      -9-
<PAGE>

XXXI.   Until the consummation of an initial public offering of the Company's
        shares ("the IPO") an Optionee who purchased Shares hereunder upon
        exercise of Options:

XXXII.  Shall not exercise his or her voting rights as a shareholder (in any and
        all matters whatsoever), and such Shares shall be voted by a proxy
        pursuant to the directions of the Board, such proxy to be to the person
        or persons designated by the Board. In addition to the above, any such
        Optionee shall not be entitled to receive any notice to which a
        shareholder of the Company is entitled.

               Upon the execution of this Agreement Optionee shall execute (i) a
               proxy in the form attached hereto as Exhibit "C", pursuant to
               which the attorney of the Company shall represent the Optionee at
               the general meetings of the Company, all as specified within said
               proxy; and (ii) a letter to the attorney of the Company in
               respect of the above proxy in the form attached hereto as Exhibit
               "D".

XXXIII. Notwithstanding anything to the contrary in the Articles of Association
        of the Company and/or in any applicable law or agreement, none of the
        Optionees nor the Trustee shall have right of first refusal and/or
        preemptive rights in relation with any issuance and/or sale of shares in
        the Company.

XXXIV.  If in connection with an IPO, the stock exchange regulations and/or any
        applicable law so provide and/or the Board or the Committee so resolve
        and/or the underwriter or underwriters managing such offering so
        requests, then each Optionee who purchased Shares hereunder upon
        exercise of Options will agree to not sell or otherwise transfer any
        such Shares (other than Shares included in such underwriting) without
        the prior written consent of such underwriter, for such period of time
        as may be requested by the underwriter commencing on the effective date
        of the registration statement filed in connection with such offering,
        but in no event longer than the period of time that the officers and
        directors of the Company are generally prohibited from transferring
        their Shares in connection with such public offering.

XXXV.   The Optionee shall not dispose of any Shares in transactions which
        violate, in the opinion of the Company, any applicable laws, rules and
        regulations.

XXXVI.  The Optionee agrees that the Company shall have the authority to endorse
        upon the certificate or certificates representing the Shares such
        legends referring to the foregoing restrictions, and any other
        applicable restrictions, as it may deem appropriate (which do not
        violate the Optionee's rights according to this Agreement).

                                      -10-
<PAGE>

XXXVII. SHARES SUBJECT TO RIGHT OF FIRST REFUSAL

        Until the consummation of an IPO, transfer of exercised Shares by the
        Optionee, whether for consideration or for no consideration (for the
        purpose of this Section 9 - "Sale") shall be made only once every year,
        within a period of time as shall be determined by the Committee and as
        the Company shall notify those Optionees who have notified the Company
        of their intention to sell the Shares held by them or any part thereof,
        and shall be subject to the right of first refusal of the Investor
        Shareholders, as defined in the Company's Articles of Association, and
        all other Shareholders of the Company holding 3% or more of the
        outstanding and issued share capital of the Company (save, for avoidance
        of doubt, for other Optionees who already exercised their options)
        ("Repurchasers"), pro rata in accordance with their shareholding. The
        Optionee shall give a notice of sale (the "Notice") to the Company in
        order to offer the Shares to the Repurchasers.

        The Notice shall specify the name of each proposed purchaser or other
        transferee ("Proposed Transferee"), the number of Shares offered for
        sale, the price per Share and the payment terms, as well as such other
        terms and conditions, if any, as were included in the offer. The
        Repurchasers will be entitled for 21 days from the day of receipt of the
        Notice, to purchase all of the offered Shares.

        If by the end of the above 21 days period not all of the offered Shares
        have been purchased by the Repurchasers, then the Repurchasers who have
        notified the Company of their desire to purchase the Shares which are
        subject to the Sale, if any, shall have additional 20 days period to
        purchase the balance of the Shares which are subject to the Sale. If by
        the end of the additional 20 days period as per the above not all of the
        Shares which are subject to the Sale have been purchased by the
        Repurchasers then the Optionee will be entitled to sell such Shares at
        any time during the 60 days following the end of the 20 days period on
        terms not more favorable than those set out in the Notice, provided that
        the Proposed Transferee agrees in writing that the provisions of
        Sections 7.3, 8.4, 8.5 and of this Section shall continue to apply to
        the Shares in the hands of such Proposed Transferee.

XXXVIII. GOVERNMENT REGULATIONS

        The Option Plan, and the granting and exercise of the Option thereunder,
        and the Company's obligation to sell and deliver Shares or cash under
        the Option, are subject to all applicable laws, rules and regulations,
        whether of the State of Israel or of the United States or any other
        state having jurisdiction over the Company and/or the Optionee,
        including the registration of the Shares under the United States
        Securities Act of 1933, and to such approvals by any governmental
        agencies or national securities exchanges as may required.

                                      -11-
<PAGE>

XXXIX.  CONTINUANCE OF EMPLOYMENT

        Nothing in this Option Agreement shall be construed to impose any
        obligation on the Company or a Subsidiary thereof to continue the
        Optionee's employment or services with it, to confer upon the Optionee
        any right to continue in the employment of the Company or a Subsidiary
        thereof, nor the right to be retained as a consultant thereof, or to
        restrict the right of the Company or a Subsidiary thereof to terminate
        such employment or consulting services at any time.

XL.     GOVERNING LAW & JURISDICTION

        This Agreement shall be exclusively governed by and construed and
        enforced in accordance with the laws of the State of Israel applicable
        to contracts made and to be performed therein, without giving effect to
        the principles of conflict of laws. The competent courts of Tel-Aviv,
        Israel shall have sole and exclusive jurisdiction in any matters
        pertaining to this Agreement.

XLI.    TAX CONSEQUENCES

        Any tax consequences arising from the grant or exercise of any Option,
        from the payment for Shares covered thereby or from any other event or
        act (of the Company, the Trustee or the Optionee) hereunder, shall be
        borne solely by the Optionee. The Company and/or the Trustee shall
        withhold taxes according to the requirements under the applicable laws,
        rules, and regulations, including the withholding of taxes at source.
        Furthermore, the Optionee shall indemnify the Company and the Trustee
        and hold them harmless against and from any and all liability for any
        such tax or interest or penalty thereon, including without limitation,
        liabilities relating to the necessity to withhold, or to have withheld,
        any such tax from any payment made to the Optionee.

        The Committee and/or the Trustee shall not be required to transfer any
        Shares or to release any Share certificate to an Optionee until all
        required payments have been fully made.

        The Optionee hereby declares that he/she will not transfer Shares issued
        upon the exercise of 102 Options, nor any other shares received
        subsequently following any realization of rights which are subject to
        Section 102, by a way of tax - exempt transfer or a transfer under
        Sections 104 (a), 104 (b) or 97 (a) of the Income Tax Ordinance.

XLII.   FAILURE TO ENFORCE NOT A WAIVER

        The failure of any party to enforce at any time any provisions of this
        Option Agreement shall in no way be construed to be a waiver of such
        provision or of any other provision hereof.

                                      -12-
<PAGE>

XLIII.  PROVISIONS OF THE OPTION PLAN

        The Options provided for herein are granted pursuant to the Option Plan,
        and said Options and this Option Agreement are in all respects governed
        by the Option Plan and subject to all of the terms and provisions
        whether such terms and provisions are incorporated in this Option
        Agreement solely by reference or are expressly cited herein. Any
        interpretation of this agreement will be made in accordance with the
        Option Plan but in the event there is any contradiction between the
        provisions of this agreement and the Option Plan, the provisions of this
        agreement will prevail.

XLIV.   BINDING EFFECT

        This Agreement shall be binding upon the heirs, executors,
        administrators, and successors of the parties hereof.

XLV.    NOTICES

        Any notice required or permitted under this Option Agreement shall be
        deemed to have been duly given within one week if delivered, faxed or
        mailed, if delivered by certified or registered mail or return receipt
        requested, either to the Optionee at his or her address set forth above
        or such other address as he or she may designate in writing to the
        Company, or to the Company at the address set forth above or such other
        address as the Company may designate in writing to the Optionee.

XLVI.   ENTIRE AGREEMENT

        This Agreement exclusively concludes all the terms of the Optionee's
        Option Plan, and, subject to the provisions of Section 19 of the Option
        Plan, annuls and supersedes any other agreement, arrangement or
        understanding, whether oral or in writing, relating to the grant of
        options to the Optionee. Any change of any kind to this agreement will
        be valid only if made in writing and signed by both the Optionee and the
        Company's authorized member and has received the approval of the Board.

        IN WITNESS WHEREOF, the Company and the Optionee have executed this
        Option Agreement in duplicate on the day and year first above written.

VERISITY LTD.

                                      -13-
<PAGE>

By:___________

Optionee acknowledges receipt of a copy of the Plan and represents that he or
she is familiar with and agrees to the terms and provisions thereof, and hereby
accepts these Options subject to all of the terms and provisions thereof.
Optionee has reviewed the Plan and this Option Agreement in their entirety, has
had an opportunity to obtain the advice of counsel prior to executing this
Option Agreement and fully understands all provisions of these Options. Optionee
hereby agrees to accept as binding, conclusive and final all decisions or
interpretations of the Committee upon any question arising under the Plan or
this Option Agreement or connected therewith. Optionee further agrees to notify
the Company upon any change in the residence address indicated above.

_________
The Optionee

Name:    ___________

I.D.:    ___________

Address: ___________

                                      -14-

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