Document:

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                                                                     EXHIBIT 4.2

                         CADABRA DESIGN LIBRARIES INC.

                               STOCK OPTION PLAN

     1.   Definitions.
          -----------

     In this Plan:

          (a)  "Board" means the board of directors of the Corporation;

          (b)  "Consultant" means a person who is engaged by the Corporation or
a Subsidiary to render management or consulting services to the Corporation;

          (c)  "Corporation" means CADABRA DESIGN LIBRARIES INC., and includes
any successor corporation thereto;

          (d)  "Date of Grant" means the date a Participant is granted an
Option;

          (e)  "Director" means a member of the Board;

          (f)  "Employee" means a person employed on a full-time basis by the
Corporation or a Subsidiary;

          (g)  "Officer" means an officer of the Corporation duly appointed by
the Board;

          (h)  "Option" means a contract complying with the provisions of this
Plan between the Corporation and a Participant pursuant to which the Participant
has a right to subscribe for unissued Shares;

          (i)  "Participant" means a Consultant, Officer, Director or Employee
or former Employee who is a party to an Option;

          (j)  "Plan" means the Cadabra Design Libraries Inc. Stock Option Plan;

          (k)  "Shares" means Class A common shares or Class B common shares
without nominal or par value in the capital of the Corporation, and, in the
event of an adjustment contemplated by Section 4 hereof, such other shares or
securities to which a Participant may be entitled upon the exercise of an Option
as a result of such adjustment; and

          (l)  "Subsidiary" means any corporation that is a subsidiary of the
Corporation as such term is defined in subsection 2(5) of the Canada Business
Corporations Act, as amended from time to time.

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     2.   Purpose.
          -------

     The purpose of the Plan is to provide Consultants, Officers, Directors and
Employees with a proprietary interest in the Corporation through the granting of
options to purchase Shares in order to:

          (a)  increase the interest in the Corporation's welfare of those
individuals who share primary responsibility for the management, growth and
protection of the business of the Corporation;

          (b)  recognize the contributions made by certain individuals to the
Corporation's growth during its development stage;

          (c)  furnish an incentive to such individuals to continue providing
their services to the Corporation; and

          (d)  provide a means through which the Corporation may attract able
persons to engage as Employees and Consultants.

     3.   Administration.
          --------------

     The Plan shall be administered by the Board.  No Director shall take any
action with respect to Options granted to such Director.

     The Board shall have full and final authority in its discretion, but
subject to the provisions of the Plan, to determine from time to time the
individuals to whom Options shall be granted and the number of Shares to be
covered by each Option; to determine the time or times at which Options shall be
granted; to interpret the Plan; to make, amend and rescind rules and regulations
relating to the Plan; to determine the terms and provisions of the instruments
by which Options shall be evidenced; and to make all other determinations
necessary or advisable for the administration of the Plan.

     The Board shall have the discretion to appoint not less than three (3)
Directors (the "Committee") who shall have the authority the administer the
Plan, provided that no member of the Committee shall take any action with
respect to Options granted to such member.  If and once appointed, the Committee
shall select one of its members as its Chairman and shall hold its meetings at
such time and place as it shall deem advisable.  A majority of the members of
the Committee shall constitute a quorum and all actions of the Committee shall
be taken by a majority of the members present at any meeting.  Any action of the
Committee may be taken by an instrument or instruments in writing signed by all
the members of the Committee, and any action so taken shall be as effective as
if it had been passed by a majority of the votes cast by the members of the
Committee present at a meeting of such members duly called and held.  Except as
otherwise provided by the terms of the Plan or the Board, the Committee, once
appointed shall have all the power and authority of the Board hereunder.

     Nothing contained in the Plan or any Option shall be construed in any way
so as to prevent the Corporation or any Subsidiary from taking any corporate
action which is deemed by the Corporation or the Subsidiary to be appropriate or
in its best interest, even if such action would have an adverse effect on the
Plan.

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     4.   Plan Restrictions.
          -----------------

     The following restrictions shall apply to the granting of Options under the
Plan:

          (a)  the maximum number of Shares that may be issued from time to time
pursuant to the Plan, together with any other Shares reserved for issuance under
any options for services or employee stock purchase or stock option plans or any
other plans, shall not exceed 2,500,000 Shares;

          (b)  the number of Shares subject to option in favor of any one
Participant, together with any other Shares reserved for issuance under any
other plans to such Participant, shall not exceed 5% of the total number of
issued and outstanding Shares at the Date of Grant of his Option; and

          (c)  no Option shall extend for a period of more than ten (10) years
from its Date of Grant.

     Notwithstanding the terms of this Section 4 or any other Section in the
Plan, the Board may adjust the number of Shares available for Options, the
number of Shares subject to Options and the exercise price of Options granted
hereunder to effect a change in capitalization of the Corporation, such as a
stock dividend, stock split, reverse stock split, share combination, exchange of
shares, merger, consolidation, reorganization, liquidation, or the like, of or
by the Corporation. No fractional shares may be purchased or issued under the
Plan.

     5.   Participants.
          ------------

     The Board may, from time to time, select particular Consultants, Officers,
Directors and Employees of the Corporation to whom Options are to be granted,
and upon the granting of such Options, the selected individuals shall become
Participants under the Plan.

     6.   Shares Subject to the Plan.
          --------------------------

     The Shares subject to Options granted pursuant to the Plan shall be
authorized but unissued Shares.  Shares that by reason of the expiration of an
Option, or for any other reason, are no longer subject to purchase pursuant to
an Option granted under the Plan, and Shares from time to time rendered in
payment of the exercise price of Options, may be made subject to additional
Options granted pursuant to the Plan.

     7.   Grant of Options.
          ----------------

     Options may be granted by the Corporation pursuant to the recommendations
of the Board. Options granted hereunder shall be evidenced by written stock
option agreements containing such terms and provisions as are recommended and
approved from time to time by the Board, but subject to and not more favorable
than the terms of the Plan. The Board may from time to time require additional
terms which the Board deems necessary or advisable. The Corporation shall
execute stock option agreements upon instruction from the Board.

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     8.   Option Exercise Price.
          ---------------------

     The purchase price of Shares subject to an Option granted pursuant to the
Plan shall be determined by the Board on the Date of Grant.

     9.   Restrictions.
          ------------

     The Board may, but need not, at the time of granting of an Option or at any
subsequent time impose such restrictions, if any, on issuance voluntary
disposition and release from escrow of any Options including, without
limitation, permitting exercise of Options only in installments over a period of
years.

     10.  Exercise and Payment.
          --------------------

     Subject to the provisions of the Plan, an Option may be exercised from time
to time by delivery to the Corporation at its registered office of a written
notice of exercise addressed to the Secretary of the Corporation specifying the
number of shares with respect to which the Option is being exercised. Full
payment for Shares purchased upon the exercise of an Option shall be delivered
to the Corporation with the notice of exercise. No Shares shall be issued until
full payment has been made and a Participant shall have none of the rights of a
shareholder of the Corporation in respect of the Shares subject to an Option
until such Shares have been taken up, paid for in full and issued to him. Any
federal, provincial or local taxes required to be paid or withheld at the time
of exercise shall also be paid or withheld in full prior to any delivery of
Shares upon the exercise of an Option.

     11.  Loans to Participants.
          ---------------------

     The Board, at its sole discretion, may authorize the Corporation to lend or
cause to be lent to a Participant such portion of the purchase price of Shares
purchased pursuant to an Option as it may determine. The terms and conditions of
such a loan, which may be interest free, shall be determined by the Board,
provided that the Participant shall be required to pledge to the Corporation any
Shares purchased under an Option with the assistance of a loan.

     12.  Transferability of Options.
          --------------------------

     An Option shall not be assignable or transferable by any Participant and
may be exercised during the life of the Participant only by the Participant.
The obligations of each Participant pursuant to the Plan and any Option shall be
binding on his heirs, executors and administrators.

     13.  Date of Grant of an Option.
          --------------------------

     The grant of an Option pursuant to the Plan shall occur only when a written
option agreement shall have been duly executed and delivered by or on behalf of
the Corporation to the Participant.

     14.  Rights in Event of Termination.
          ------------------------------

     If a Participant ceases to be a Consultant, Officer, Director or Employee
otherwise than as a result of his death, his Option shall forthwith terminate,
subject, however, to any specific provision to the contrary in such Option or as
may be approved or authorized by the Board either before or after the
Participant so ceases

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to be a Consultant, Officer, Director or Employee. In the case of the death of a
Participant, his Option may be exercised, as to all of the optioned shares in
respect of which such Option has not then been exercised, by his legal personal
representative at any time within a period not exceeding thirty (30) days after
the date of death of the Participant, but in no event after the expiry date of
such Option, as is stipulated in such Option.

     15.  Amendment or Discontinuation.
          ----------------------------

     Subject to Section 4 hereof and any necessary approvals from the
Corporation's shareholders, the Plan may be amended, altered or discontinued by
the Board at any time.

     16.  Merger, Amalgamations, Sale of Assets, Winding-Up, etc.
          ------------------------------------------------------

     In the event of a merger, amalgamation, or consolidation of the Corporation
with or into another corporation, or an offer to purchase all or substantially
all of the outstanding shares of the Corporation or the sale of all or
substantially all of the assets of the Corporation, each outstanding Option
which is not fully exercisable shall be accelerated and become fully
exercisable; provided, however, that if the successor corporation agrees to
assume all outstanding options or substitute equivalent options therefor, then
the Board, in its sole discretion, shall have the power to determine that
Options which are not fully exercisable shall not be so accelerated but shall be
so assumed or such equivalent options shall be substituted therefor.  If the
outstanding Options become fully exercisable as set forth in this Section 16,
the Board shall notify each Participant that such Options shall be fully
exercisable for a period of thirty (30) days from the date of such notice, and
the Option will terminate upon the expiration of such period.

     In the event of the proposed dilution, liquidation or winding-up of the
Corporation, to the extent that an Option has not been previously exercised, it
will terminate immediately prior to the consummation of such proposed action.
The Board may, in its sole discretion, declare that any Option shall terminate
as of a date fixed by the Board and give each Participant the right to exercise
his option as to all or any part of the Shares, including Shares as to which the
Option would not otherwise be exercisable.

     17.  Public Offering.
          ---------------

     If, at any time, an Option remains unexercised with respect to any Shares,
the Board authorizes the Corporation to make a public offering of its
securities, the Board may, in its sole discretion, (a) permit the Participants
to exercise their Options in respect of all or any of the Shares in respect of
which an Option has not been previously exercised at any time until a date which
shall be specified by the Board and (b) the Board may, at its option, require
the acceleration of the time for the exercise of the affected Options and of the
time for the fulfillment of any conditions or restrictions on such exercise.

     18.  Employment.
          ----------

     The Plan and any Option granted under the Plan do not confer upon the
Participant any right to be employed or engaged or to continued employment or
engagement by the Corporation or any Subsidiary.

     19.  No Right to be Granted an Option.
          --------------------------------

     Nothing in the Plan shall be construed so as to give any Consultant,
Director, Officer or Employee any right to be granted an Option.

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     20.  No Obligation to Exercise Option.
          --------------------------------

     The granting of an Option pursuant to the Plan shall not impose any
obligation upon the Participant to exercise such Option.

     21.  Gender and Number.
          -----------------

     Words importing gender shall include the masculine, feminine and neuter
genders.  Words importing the singular include the plural and vice versa.

     22.  Governing Law.
          -------------

     The Plan shall be construed in accordance with the laws of the Province of
Ontario and the laws of Canada applicable therein.

                                       6<PAGE>

                                                                   Exhibit 10.21

                             Verisity Design, Inc.
                      Form of Software License Agreement

This Software License Agreement ("Agreement") is entered into effective as of
________, 2000 the "Effective Date"), by and between Verisity Design, Inc., a
California corporation ("Verisity"), and  ___________, a (state) corporation
("Licensee") with reference to the following:

                                  Background
                                  ----------

A. Verisity is in the business of licensing certain software programs generally
known as Specman Elite, as more fully described in Exhibit A attached hereto
(the "Licensed  Program").

B. Licensee desires to obtain (i) a license to the Licensed Program and such
separate printed documentation ("Documentation") as Verisity generally makes
available to its licensees in connection with the Licensed Program, and (ii)
access to certain maintenance and technical support services in connection with
the Licensed Program, and Verisity desires to grant such a license and provide
such services on the terms and conditions set forth in this Agreement.

NOW THEREFORE, the parties agree as follows:

                                   ARTICLE I
                                   License.

     1.1  Subject to Licensee's compliance with the terms and conditions of this
Agreement, Verisity grants to Licensee, and Licensee accepts from Verisity, for
each Licensed Copy (as defined below), a nonexclusive, nontransferable license
to (A) maintain the executable form of the Licensed Program within a single
server with an associated Host ID ("Server") associated with workstations or
computers ("Clients") at a Licensed Server Location, all as specified in Exhibit
A, and (B) load the executable form of the Licensed Program into computer
memory, and execute the same within a single Client associated with such memory,
provided that: (i) no more than that number of copies of the Licensed Program as
Licensee has paid the applicable License Fee as specified in Exhibit A (each, a
"Licensed Copy") may be simultaneously loaded into computer memory and executed
on associated Clients; (ii) such memory and associated Clients must be owned or
leased by Licensee; and (iii) Licensee will make no use of the Licensed Program
for other than its intended uses that are directly related to the internal
business operations of Licensee, and will not make any use thereof to offer the
benefits or services of the Licensed Program to third parties, whether such
arrangement is in the nature of a service bureau, out-sourcing service, joint
development relationship or any other similar service or business. In addition
to the foregoing, Licensee acknowledges and agrees that in order to enforce the
limitation on the number of Licensed Copies which may be simultaneously loaded
and executed, the Licensed Program operates with certain third party license
management software (the "License Manager") that is only effective if all
Clients on which the Licensed Program operates are at all times capable of
communicating via a local area network (in which all Clients are within a five
mile radius of the Licensed Server Location) with the License Manager;
therefore, the Licensed Program may not be executed on any Client that is not in
direct communication at all times with the License Manager on such a network.
Licensee may make and hold two copies of the Licensed Program for temporary
backup use and/or archival purposes. All of Licensee's rights to use the
Licensed Program are expressly stated herein; there are no implied rights.

                                       1
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     1.2  It is anticipated that the Licensee may desire to acquire one or more
additional licenses to the Licensed Program, including licenses to additional
Licensed Copies, Host IDs, Servers, Clients, and Licensed Server Locations. Any
such additional license will be governed by the terms and conditions of this
Agreement absent a written agreement clearly modifying the terms of this
Agreement and executed by both parties.

                                  ARTICLE II
                             Third Party Software.

     2.1  Licensee acknowledges that operation of the Licensed Programs requires
use of certain third party software as specified in attached Exhibit A, that
except as expressly set forth in Exhibit A, Verisity will not provide such third
party software to Licensee, and that Licensee will have the sole responsibility
to obtain valid licenses to such third party software at Licensee's sole
expense.

                                  ARTICLE III
                           Additional Restrictions.

     3.1  Licensee may not use, copy, modify, display, sublicense or print the
Licensed Program or the Documentation, in whole or in part, except as expressly
provided in this Agreement. Without limiting the generality of the foregoing,
Licensee will abide by the following additional restrictions on the use and
copying of the Licensed Program and Documentation:

          (a)  No Modification. Licensee will make no modification to, or
               ---------------
adaptation of, the Licensed Program or the Documentation nor merge either of
them into any other programs or other materials. Licensee will have no access
to, or rights or license to modify, the source code for the Licensed Program.
Licensee will not attempt, or allow others under its control to attempt, to
obtain or derive information from or about the Licensed Program through
disassembly, decompiling, reverse engineering, or other means.

          (b)  Markings. All titles, trademarks, copyright notices and other
               --------
proprietary markings must be reproduced on all permitted copies of the Licensed
Program and Documentation. Licensee will not remove such titles, trademarks,
copyright notices or other proprietary markings.

                                  ARTICLE IV
                             Proprietary Matters.

     4.1  Ownership. Licensee acknowledges that the Licensed Program and the
          ---------
Documentation, including all associated copyrights, patents, trademarks, trade
secrets and other intellectual property and proprietary rights with respect
thereto, are, and at all times will be, the sole property of Verisity and/or its
licensors, even if suggestions made by Licensee are incorporated into subsequent
versions of the Licensed Program or the Documentation.

     4.2  Confidential Information. Licensee acknowledges that the Licensed
          ------------------------
Program and the Documentation, including without limitation all aspects of the
Licensed Program (e.g., the source code, methods of processing, specific design
and structure of individual programs and

                                       2
<PAGE>

their interaction and unique programming techniques employed therein as well as
screen formats), Verisity's proprietary "e" language, and benchmark results or
other performance related measurements relating to the Licensed Program,
constitute valuable trade secrets of Verisity and its licensors. Verisity and
Licensee acknowledge that, in the course of dealings between the parties, each
party will acquire information, identified as confidential, about the other
party, its business activities and operations, its technical information and
trade secrets, of a highly confidential and proprietary nature. Each party will
hold such information, which is identified as being confidential, and Licensee
will hold the Licensed Program and the Documentation, as well as the terms of
this Agreement, in strict confidence and will not disclose or reveal the same to
third parties except for any information generally available to or known to the
public, independently developed outside the scope of this Agreement, lawfully
disclosed by a third party, or required to be disclosed to a tribunal, provided
that in the case of required disclosures to tribunals, the receiving party will
notify the disclosing party prior to such disclosure to allow the disclosing
party to obtain protective orders maintaining the confidentiality of such
information. Notwithstanding the foregoing, Licensee is not prohibited from
using the Licensed Program in the intended operational environment where the
operation of same may be observed by persons other than Licensee.

                                   ARTICLE V
                  Maintenance and Technical Support Services.

     5.1  For such periods as Licensee fully pays the Maintenance Fee as
described in Article 6.2 below, Verisity will provide the services to Licensee
as are described in Exhibit B attached hereto (the "Services").

                                  ARTICLE VI
                         License Fee; Maintenance Fee.

     6.1  License Fee. In consideration for the licenses granted to Licensee in
          -----------
this Agreement, Licensee will pay to Verisity the License Fee set forth in
Exhibit A with respect to each Licensed Copy of the Licensed Program. Upon
delivery of the Licensed Program to Licensee's Delivery Site, Verisity will
deliver an invoice to Licensee setting forth the applicable Licensee Fee and the
Initial Maintenance Term's Maintenance Fee as set forth in Exhibit A, and
Licensee will pay the same in full within thirty (30) days after receipt of such
invoice.

     6.2  Maintenance Fee. In consideration for the Services to be performed by
          ---------------
Verisity as described in Exhibit B, Licensee will pay to Verisity a fee (the
"Maintenance Fee"), to be determined and paid as follows:

          (a)  The Maintenance Fee payable with respect to the Initial
Maintenance Term (as defined in Article 7.2 below) will be paid with the License
Fee invoiced to Licensee and payable pursuant to Article 6.1 above.

          (b)  The Maintenance Fee payable with respect to each Renewal
Maintenance Term (as defined in Article 7.2 below) will be invoiced by Verisity
to Licensee at least thirty (30) days before the expiration of the prior
Maintenance Term, and must be paid in full within thirty (30) days after the
invoice date.

          (c)  Because the cost of providing Services depends on a number of
unpredictable facts, such as the magnitude of improvements in New Releases,
Verisity may

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adjust the Maintenance Fee for any Renewal Maintenance Term by written notice to
Licensee prior to the expiration of the immediately prior Maintenance Term.

          (d)  Licensee will not have the option of paying the Maintenance Fee
with respect to less than the total number of Licensed Copies of the Licensed
Program, except to the extent that (A) Licensee wishes to terminate the Services
entirely as provided in Article 7.3 below, or (B) Licensee notifies Verisity
that the scope of the license granted in Article 1 is to be reduced to include
only that number of Licensed Copies as to which Licensee has paid the
Maintenance Fee, as provided in Article 7.3 below.

     6.3  Form of Payment; Taxes; Late Payments. All payments are due in United
          -------------------------------------
States dollars. The amount of the stated License Fee and Maintenance Fee do not
include any taxes, duties or other governmental charges levied or which may be
levied in respect of such fees or the services performed hereunder. Licensee
agrees to pay all such taxes, duties and governmental charges, regardless of
when they may come due, or to reimburse Verisity for same if Verisity is
required by applicable law to collect and pay over same to the relevant taxing
authority. Verisity reserves the right to apply a service charge to the unpaid
balance at the rate of 1.5% per month (but in no event more than the maximum
rate allowed by law) for any fee or other amount not paid within thirty (30)
days after the due date. In addition, if Licensee fails to pay any invoice when
due, Verisity will have the right to institute collection procedures to recover
same and all costs incurred by Verisity will be paid by Licensee.

                                  ARTICLE VII
                             Term and Termination.

     7.1  License Term. Subject to Article 7.3, below, the term of this
          ------------
Agreement and the licenses granted hereunder shall be the term as set forth in
Exhibit A upon payment of the License Fee (non-perpetual licenses may contain
the option to renew the license upon payment of a renewal License Fee) with
respect to each Licensed Copy.

     7.2  Maintenance Term; Renewal. The Services obligations of Verisity for
          -------------------------
each license under Article 5 above will commence upon the delivery of the
Licensed Program to Licensee ("Commencement") (provided that Licensee has paid
the Initial Maintenance Term's Maintenance Fee) and will expire at the end of
business on the date one year from Commencement or upon termination of the
license, whichever is earlier (the "Initial Maintenance Term"). Unless the
license has been terminated, such Services obligations will automatically renew
on the anniversary of Commencement each year during the term of this Agreement
for additional one (1) year periods (each, a "Renewal Maintenance Term"),
provided that Licensee pays the applicable Maintenance Fee prior to the due date
therefor, provided that any Renewal Maintenance Term commencing after seven
years from Commencement of the Initial Maintenance Term must be by mutual
written agreement of the parties. Reinstatement of lapsed Services will be
subject to the payment of applicable reinstatement fees equal to the prorated
sum of Maintenance Fees which would have been payable during the lapsed period
plus 10%.

     7.3  Termination. Licensee may terminate its right to obtain the Services
          -----------
under this Agreement at any time upon written notice to Verisity, subject to
compliance with the provisions of this Article 7. Licensee may also terminate
the license granted in Article 1 above as to any Licensed Copy of the Licensed
Program upon notice to Verisity, provided that Verisity will have no obligation
to refund any portion of the License Fee or current Maintenance Fee in
connection therewith. In addition to any other right to terminate this Agreement
expressly provided herein, Verisity may terminate this Agreement, including the
licenses granted under this Agreement, if Licensee fails to perform any of its
material obligations hereunder or otherwise

                                       4
<PAGE>

materially breaches this Agreement and fails to effect the cure of such failure
or breach within thirty (30) days after written notice thereof, provided that
Verisity may terminate only its Services, but not the licenses granted
hereunder, in the event Licensee fails to pay the Maintenance Fee when due.

     7.4  Effect of Termination. Termination of this Agreement or the licenses
          ---------------------
granted hereunder will not limit either party from pursuing any other remedies
available to it, including injunctive relief, nor will termination relieve
Licensee of its obligation to pay all fees and other amounts that accrued prior
to the effective date of termination. The rights and obligations of the parties
as provided in this and the following provisions of this Agreement will survive
any termination of this Agreement: Articles 4, 6.3 (to the extent of any
outstanding payment obligations), 7.5, 8, and 9.

     7.5  Return of Licensed Program. Upon termination of this Agreement or the
          --------------------------
licenses granted hereunder, Licensee will make no further use of the Licensed
Program or the Documentation; and, within ten (10) days after such termination,
Licensee will either destroy or return to Verisity the originals and all copies
of the Licensed Program and the Documentation in the possession or under the
control of Licensee, and certify in writing to Verisity that Licensee no longer
possesses or controls any copies of the Licensed Program or the Documentation
and is otherwise in compliance with the terms of this Agreement which survive
the termination. The foregoing obligations apply to copies of the Licensed
Program and the Documentation in all forms, partial and complete, in all types
of media and computer memory, and whether or not modified or combined with other
materials.

                                 ARTICLE VIII
                             Warranty; Liability.

     8.1  Non-infringement Warranty and Indemnity. Verisity represents and
          ---------------------------------------
warrants that it has the right to license the Licensed Program and Documentation
on the terms and conditions set forth in this Agreement, and that use of the
Licensed Program within the scope of such license does not infringe any United
States copyright or misappropriate any trade secret of a third party. Verisity
will indemnify and hold Licensee harmless from and against all damages,
liabilities, costs and expenses (including reasonable fees of counsel and other
professionals) incurred by Licensee arising out of a breach of the warranty in
this Article 8, provided that Licensee promptly notifies Verisity of any third
party claim or action which alleges such infringement or misappropriation, and
grants Verisity the sole control of the defense of any such action, including
all negotiations for its settlement or compromise. If Licensee is a defendant in
such action, it may participate at its expense. Verisity will use commercially
reasonable efforts to mitigate any damages arising out of a judicial
determination that use of the Licensed Program infringes third party copyrights
or trade secrets by either (A) delivering a non-infringing version of the
Licensed Program, or (B) obtaining a license from the third party such that the
use of the Licensed Program as contemplated hereunder is no longer infringing,
or (C) if neither of the foregoing actions are commercially practicable,
Verisity may terminate this Agreement and the license granted hereunder, in
which case Verisity will refund to Licensee a portion of the License Fee
actually paid to Verisity for the Licensed Program on an equitable basis taking
into consideration such factors as the useful life of the Licensed Program and
the period of time during which Licensee enjoyed its use.

     8.2  No Other Warranty. EXCEPT AS EXPRESSLY SET FORTH IN THIS ARTICLE 8,
          -----------------
VERISITY EXPRESSLY DISCLAIMS ALL WARRANTIES, WHETHER EXPRESS, IMPLIED OR
STATUTORY, AS TO ANY ASPECT OF THE LICENSED PROGRAM, THEIR OPERATION OR THE
SERVICES TO BE PERFORMED BY VERISITY

                                       5
<PAGE>

HEREUNDER, INCLUDING WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY, FITNESS
FOR A PARTICULAR PURPOSE, DESIGN, CONDITION, CAPACITY, PERFORMANCE, TITLE, AND
NON-INFRINGEMENT OF THIRD PARTY RIGHTS.

     8.3  Limitation on Liability. Licensee acknowledges that Verisity has not
          -----------------------
priced the Licensed Program to contemplate the risks of reliance by Licensee on
the Licensed Program or to have or assume substantial liability or
responsibility for Licensee's decisions. Accordingly, IN NO EVENT WILL VERISITY
BE LIABLE TO LICENSEE FOR LOSS OF PROFITS, LOSS OF REVENUES, LOSS OF SAVINGS,
LOSS OF USE, LOSS OR CORRUPTION OF DATA OR ANY INDIRECT, INCIDENTAL, SPECIAL,
EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, WHETHER UNDER TORT, CONTRACT OR
OTHER THEORIES OF RECOVERY, EVEN IF VERISITY HAD BEEN ADVISED OF THE POSSIBILITY
OF SUCH DAMAGES. LICENSEE EXCLUSIVELY BEARS FULL AND COMPLETE LIABILITY AND
RESPONSIBILITY FOR ITS USE AND RELIANCE ON THE LICENSED PROGRAM, EVEN IF SUCH
USE WERE TO PRODUCE INCORRECT INFORMATION OR ERRONEOUS RESULTS. IN NO EVENT WILL
VERISITY'S TOTAL LIABILITY UNDER THIS AGREEMENT OR AS A RESULT OF THE LICENSE
AND USE OF THE LICENSED PROGRAM EXCEED THE AGGREGATE AMOUNT OF THE LICENSE FEE
ACTUALLY PAID UNDER THIS AGREEMENT BY LICENSEE TO VERISITY. Licensee agrees that
the foregoing represents a fair allocation of risk hereunder and is a material
inducement to Verisity's entering into this Agreement.

                                  ARTICLE IX
                                Miscellaneous.

     9.1  Notices. All notices will be given in writing and will be sent by
          -------
certified mail, postage prepaid and return receipt requested, or transmitted by
facsimile if confirmed by such mailing, to the address indicated for the
receiving party on the signature page below. Either party may change its address
or facsimile telephone number by written notice to the other party.

     9.2  Entire Agreement; Amendments. This Agreement and the attachments and
          ----------------------------
exhibits hereto constitute the entire agreement of the parties concerning the
subject matter hereof, superseding all prior and contemporaneous proposals,
negotiations, communications and agreements, written or oral, with respect to
the subject matter of this Agreement. No representation or promise relating to
and no amendment or modification of this Agreement will be binding unless it is
in writing and signed by an authorized representative of each party.

     9.3  Assignment. Except as specifically provided for herein, neither this
          -----------
Agreement, nor any right or license under this Agreement, nor any Licensed
Program or Documentation, may be assigned, sublicensed, distributed, sold,
rented, leased or otherwise transferred by Licensee to a third party, other than
a wholly-owned subsidiary of that party which uses the Licensed Program within
the same Host ID at the same Licensed Server Location, without Verisity's prior
written consent, which will not be unreasonably withheld or delayed. Subject to
the foregoing, this Agreement will bind and inure to the benefit of the
successors and permitted assigns of Licensee and Verisity.

     9.4  Government Uses. If Licensee is an agency of the U.S. Government, this
          ---------------
Agreement will not be a valid or effective license unless Licensee will have
executed and delivered to Verisity a Government Licensing and Contracting
Addendum to this Agreement.

                                       6
<PAGE>

     9.5  Lawful Use; Export. Licensee will comply with all applicable laws and
          ----------
regulations in its use of the Licensed Program and the Documentation. Licensee
may not export, re-export or otherwise transfer the Licensed Program or the
Documentation to any territory outside of the United States of America except
with the prior written consent of Verisity, and then only in full compliance
with the provisions of the United States Export Administration Act and the rules
and regulations thereunder, and both the Licensed Program and the Documentation
will be deemed "technical data" for purposes thereof.

     9.6  Governing Law; Captions; Waiver; Etc. This Agreement will be governed
          ------------------------------------
by and construed in accordance with the substantive laws of the State of
California. The parties stipulate that all litigation under this Agreement not
subject to the Arbitration requirement below will be brought in the state courts
of Santa Clara County, California, or, for matters involving federal
jurisdiction, in the United States District Court for the Northern District of
California, and the parties each hereby submit to the personal jurisdiction of
such courts. The parties agree that the United Nations Convention on Contracts
for the International Sale of Goods will not govern this Agreement, the rights
and obligations of the parties hereunder, nor any agreement that may be executed
to implement this Agreement. The captions appearing in this Agreement are
inserted only as a matter of convenience and in no way define, limit, construe
or describe the scope or interpretation of this Agreement. Except for Licensee's
obligation to pay Verisity, neither party will be liable for any failure to
perform due to causes beyond the party's reasonable control. No waiver by a
party of any breach of any provision of this Agreement will constitute a waiver
of any other breach of that or any other provision of this Agreement. In the
event that any of the provisions contained in this Agreement are held to be
unenforceable, such provisions will be narrowed (or deleted if necessary) to the
minimum extent necessary to make them enforceable.

     9.7  Arbitration. If there is any disagreement that cannot be resolved
          -----------
between the parties arising out of or relating to this Agreement (other than a
dispute concerning the ownership of any copyright or other intellectual property
right), any such dispute will be settled by binding arbitration in Santa Clara
County, California, in accordance with the rules of the American Arbitration
Association. Any party receiving an award in arbitration may have judgment
entered on the award in any court having jurisdiction. The prevailing party in
any dispute will be entitled to receive from the other party its reasonable
attorneys' fees and costs.

     9.8  Injunctive Relief. Licensee hereby acknowledges that unauthorized
          -----------------
disclosure or use of the Licensed Program or the Documentation or any other
breach of this Agreement could cause irreparable harm and significant injury to
Verisity that may be difficult to ascertain. Accordingly, Licensee agrees that
Verisity will have the right to obtain immediate injunctive relief to enforce
obligations under this Agreement in addition to any other rights and remedies it
may have.

     9.9  Independent Contractors. Each party will perform its obligations as an
          -----------------------
independent contractor and will be solely responsible for its own financial
obligations. This Agreement will not create a joint venture, partnership, or
principal and agent relationship between the parties. Neither party will have
the authority or will represent that it has the authority to assume or create
any obligation, express or implied on behalf of the other party, except as
expressly provided herein.

                                       7
<PAGE>

     9.10 Counterparts. This Agreement may be executed in counterparts, each of
          ------------
which will be deemed an original, but all of such counterparts together will
constitute one and the same agreement.

In Witness Whereof, the parties hereto have executed this Agreement as of the
last day and year specified below.

VERISITY:                                    LICENSEE:

Verisity Design, Inc.

By: _________________________                By: __________________________

Title: ______________________                Title: _______________________

Date: _______________________                Date: ________________________

Address for notices to Verisity:             Address for notices to Licensee:

Verisity Design, Inc.
2041 Landings Drive
Mountain View, CA 94043
Phone (650) 934-6800                         Phone
Fax (650) 934-6801                           Fax
Attn:                                        Attn:

                                       8
<PAGE>

                                   EXHIBIT A

Licensed Program and Specific Terms

Licensed Program
----------------

Specman Elite is a software system designed to assist in the design of hardware
devices and software programs to verify the correctness of their designs.
Specman Elite's main features are:

     A language (called `e'). Files written in the `e' language can be either
       loaded and interpreted, or translated by Specman Elite into the C
       language.
     A tool that helps users generate test scenarios with which to verify their
       designs, based (among other things) on user-defined constraints.
     A tool that helps users quantify certain aspects of the coverage of the
       tests they run, depending (among other things) on those aspects being
       explicitly declared by the user.
     Features that help users debug the verification environment they develop
       with Specman Elite.

Specific Terms
--------------

Licensee:

License Fee & Number of Licensed Copies:
     _____ (Qty.) Licensed Copies, with a License Fee of $________ per Licensed
     Copy.

Term of License (perpetual or time based):

Host ID:

Licensed Server Location:

Licensed Territory:

Third Party Software:

Initial Maintenance Term:

     Maintenance Fee: $6,000 per Licensed LAN Copy. See Article 6.2.

Delivery Site:

                                       1
<PAGE>

                                   EXHIBIT B

Maintenance and Technical Support Services

For such periods as Licensee fully pays the Maintenance Fee, Verisity will
provide the following services to Licensee (the "Services"):

1. Delivery of "Bug Updates" and New Releases. Whenever Verisity makes a "Bug
Update" or "New Release" generally available to its customers who have purchased
maintenance and technical support services, Verisity will provide a copy of same
to Licensee, and Licensee will install the same on any computer on which it
intends to operate the Licensed Program. A "Bug Update" is an interim release
version of the Licensed Program in which certain previously identified Errors
have been corrected. A "New Release" is an updated version of the Licensed
Program with certain new functions and/or features, other than computer programs
that include substantially new or different functions and/or features relative
to the Licensed Program. Both Bug Updates and New Releases will include revised
Documentation or release notes which, when read in conjunction with previously
delivered Documentation, identifies with reasonably clarity the new or differing
functions and/or features of the Licensed Program. Upon delivery to Licensee,
any New Release will be considered a "Licensed Program" for purposes of this
Agreement.

From time to time Verisity and Licensee will meet to discuss Verisity's product
marketing and update plans with respect to the Licensed Program and to solicit
suggestions from Licensee with respect to improvements to the functionality of
the Licensed Program. The information disclosed to Licensee in such meetings
will be considered confidential information subject to Article 4.2 of the
Agreement.

Verisity will provide Licensee with periodic "bug" reports generated by
Verisity's technical support staff, including possible work-arounds and status
of planned corrections to the Licensed Program. The information disclosed to
Licensee in such reports will be considered confidential information subject to
Article 4.2 of the Agreement.

2. Error Correction. Verisity will provide the following services for Errors (as
   ----------------
defined below) of which Verisity is notified by Licensee:

(a) For Critical Errors: Verisity will initiate work to verify and correct the
    -------------------
Error within 36 hours of the time when Verisity received the report of such
Error. Verisity will diligently pursue the correction of the Error until the
same is corrected. A "Critical Error" is an Error that materially impairs
substantial functions of the Licensed Program or poses imminent danger to
Licensee's equipment or data.

(b) For Non-Critical Errors: Verisity will use reasonable commercial efforts to
    ------------------------
correct the Error in future Bug Updates and/or New Releases. A "Non-Critical
Error" is any Error other than a Critical Error.

An "Error" means a material failure of the Licensed Program to conform to its
functional specifications as described in the applicable Documentation. Errors
do not include, and Verisity will have no responsibility for, any of the
following circumstances: (A) the Licensed Program has been modified by any
person or entity other than Licensor; (B) the Licensed Program has been operated
other than in accordance with Licensor's installation and operations
instructions, including without limitation on computing devices or with computer
operating systems and/or third party software other than that recommended by
Licensor; (C) the Licensed Program has been damaged in any manner due to the
fault of any person or entity other than Verisity; (D) Licensee fails to
reasonably assist Verisity in verifying, reproducing and correcting error

                                       1
<PAGE>

conditions (for example, by providing telecommunications connections to
Licensee's computer equipment and providing sample output and other diagnostic
information), or Verisity is unable after using reasonable commercial efforts to
verify and reproduce the error condition reported by Licensee; (E) Licensee has
failed to install the most recent Bug Update or New Release of the Licensed
Program made available to Licensee pursuant to paragraph 1 above; or (F) any
failure of the computer operating systems and/or third party software utilized
by Licensee.

Error correction may include a temporary work-around, patch or bypass supplied
by Verisity, or temporary implementation by Licensee of a computer or
operational procedure, in order to diminish or avoid the effect of the Error.
Licensee acknowledges that software, by its nature, will contain "bugs" (some of
which may cause interruptions in use), and that operation of software on
hardware configurations other than those on which the software has been
developed and tested can create problems in the operation of the software.
Accordingly, Verisity does not warrant that all Errors can be corrected, and
Licensee agrees to implement appropriate procedures to back-up its data and
programming work in order to avoid loss or cost in the event of data loss in
using the Licensed Program.

3. "Hotline" Support. Verisity will make a qualified member of its technical
    -----------------
support staff available by telephone and e-mail during Verisity's normal
business hours, to assist Licensee's System Administrator in the use and
operation of the Licensed Program, and to report Error conditions. Licensee will
designate a System Administrator who will be Licensee's sole liaison with
Verisity for technical support, and will be responsible for providing first line
support of the Licensed Program for Licensee's employees. If Licensee's System
Administrator reports multiple Error conditions, he or she may request that
Verisity resolve such Errors in a designated order of priority. Verisity's
technical support staff will communicate to Licensee's Systems Administrator (by
telephone, e-mail or fax) the status of Verisity's efforts to correct Critical
Errors (i) if Verisity receives the Error report prior to 12 Noon Pacific Time,
by responding on the same business day, or (ii) if the Error report is received
later than that, by responding prior to 12 Noon Pacific Time on the next
business day.

4. On-Site Support. During the Maintenance Term, Verisity will provide on-site
   ---------------
technical support at Licensee's facilities for any problem which cannot
otherwise be diagnosed and resolved after reasonable attempts by Licensee's
technical staff to reproduce, diagnose, and resolve the problem with the help of
Verisity's technical staff through telephone discussions and/or electronic file
exchanges: (i) if Licensee's facility is within 50 miles of Verisity's nearest
support facility, at no charge to Licensee; or (ii) if Licensee's facilities are
located more than 50 miles from Verisity's facility, then for separate charges
for the travel time incurred by Verisity's technical support staff at Verisity's
standard hourly rate, together with reimbursement of reasonable applicable
travel and related expenditures consistent with Licensee's standard expense
reimbursement policy.

                                       2

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