Document:

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                                                                   EXHIBIT 10.28
                                                                   -------------

                                  VERISITY LTD

                   (hereinafter referred to as "the Company")

                          SUB-PLAN FOR THE ISSUANCE OF
                       OPTIONS TO THE COMPANY'S EMPLOYEES
                       ----------------------------------

I.       INTRODUCTION
         ------------

       This sub-plan (hereinafter referred to as "the plan"), is made within the
       framework of the 1997 Israel Share and Stock Option Incentive Plan which
       was approved by the Company's general meeting on 28th May 1998
       (hereinafter referred to as "the initial plan"), constitutes part of the
       initial plan and is intended to clarify and adapt the provisions of the
       initial plan so that they conform with the Company's contracts with
       employees to whom options are being granted instead of shares and/or
       options.

       The object of this plan is to grant to the employees and directors of the
       Company and its subsidiaries and affiliated companies (hereinafter
       referred to as "employees" or "employee") options to purchase shares of
       the Company in order to create an incentive for the employees and join
       them in the Company's development and success.

       For the removal of doubt, this plan supersedes any previous plan or
       previous undertaking.

                                      -1-
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II.      THE PLAN'S MANAGEMENT
         ---------------------

III.     Subject as provided in paragraphs 2.3 and 2.4 below, this plan shall be
         managed by the Company's board of directors in its absolute discretion
         or by such person to be nominated by it for that purpose (hereinafter
         referred to as "the Administrator"). The board of directors, the
         Administrator, the officers of the Company and the trustee pursuant to
         the plan shall not bear personal responsibility and not be howsoever
         liable to any employee on account of any resolution or act relating to
         or in connection with the plan.

IV.      Without prejudice to the generality of the above, the board of
         directors and/or the Administrator shall have the following powers:

V.       to determine in its or his absolute discretion the employees to whom
         options will be issued under this plan and the number of options to be
         granted to each of them; to determine the time and method of granting
         the options; to prescribe conditions, which need not be the same for
         all employees, for every option which the Company grants, including
         conditions for receiving the options;

VI.      to determine the option terms and conditions, including but without
         derogating from the generality of the above the exercise price of the
         options (the price payable for the exercise shares when notice is given
         by the employee of the exercise of the option), the option exercise
         term, including an extension of the term, and to determine the period
         after termination of the employer/employee relationship as mentioned in
         paragraph 9 below, during which the employee may exercise the options.
         For the avoidance of doubt, the board of directors and/or the
         Administrator may at any time extend the period for the exercise of the
         options by an employee after termination of the employment relationship
         between him and the Company as specified in paragraph 9 below, even
         after termination of the employment relationship as per the above, by
         changing the provisions of the agreement with the employee and/or of
         this plan in such respect;

VII.     to determine the employee's duties to the Company in connection with
         this plan and its implementation; to make an option grant agreement or
         agreements or any other agreement with the employee or employees;

VIII.    to determine provisions in all respects relating to the grant in
         installments of the options being allotted to each employee (vesting
         periods);

                                      -2-
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IX.      to modify any of the conditions relating to the options, including
         relating to the conditions which have been set as specified in
         paragraphs 2.2.1 to 2.2.4 above, provided that such shall not derogate
         from vested rights of an employee to whom options have been issued;

X.       to nominate in its absolute discretion the trustee under the plan and
         to replace it at any time in the future, subject to approval by the
         Income Tax Commission if such approval is necessary;

 XI.     to suspend, terminate or cancel all or any of the plan, to interpret
         the plan and its provisions, to determine further provisions and sub-
         plans in addition to it, to determine any other plan in its place and
         determine any provision and do anything in connection with this plan.
         For the removal of doubt, the plan's cancellation will be effected
         subject to coordination with the Income Tax Commission, if such
         coordination is necessary and will not derogate from vested rights of
         the employees.

XII.     The Company's general manager will be empowered to allot to an
         individual employee options for shares which constitute up to 1% of the
         Company's issued share capital on a fully diluted basis, in his
         absolute discretion.

XIII.    Notwithstanding paragraphs 2.1, 2.2 and 2.3 above, any resolution of
         the Company's board of directors or such person as appointed by it for
         the purpose of this plan is subject to Mr. Yoav Hollander's veto right.

XIV.     THE SHARES AND OPTIONS PURSUANT TO THE PLAN
         -------------------------------------------

       The shares pursuant to this plan will be the Company's Ordinary Shares
       (herein referred to as "Shares"). The options pursuant to this plan will
       be options for the purchase of Ordinary Shares of NIS 0.01 par value each
       of the Company (herein referred to as "Exercise Shares"). The option
       exercise term and the exercise price will be determined as specified in
       paragraph 2 above and if an exercise term is not determined as per the
       above, the exercise term will be 10 years from the time of the options'
       issue to the employee.

       The maximum number of Exercise Shares deriving from exercise of the
       options pursuant to the plan is 1,260,000 shares of NIS 0.01 par value
       each, which have been allotted to Ma'ahaz Ne'eman Ltd. and are held by it
       on trust. This is subject to adjustments as a result of any changes in
       the Company's capital, as specified in paragraph 13 below.

                                      -3-
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XV.      THE EMPLOYEE'S WARRANTIES AND OBLIGATIONS
         -----------------------------------------

       Every employee who participates in the plan shall sign an agreement and
       any other undertaking and/or document in such form as determined from
       time to time by the Company's board of directors and/or the Administrator
       (hereinafter referred to as "the Agreement"). The Agreement need not be
       in the same form or on the same terms as the agreements of other
       employees.

       Without derogating from the provisions of the plan or of any other
       agreement or document signed by an employee in the future, by
       participating in this plan the employee warrants and confirms as follows:

XVI.     that the plan and the Agreement supersede every previous agreement,
         arrangement or understanding, whether in writing or oral, between him
         and the Company, its directors or shareholders with regard to the
         matters contained in the plan and with regard to shares or options in
         the Company and any such agreement, arrangement or understanding is
         hereby declared null and void;

XVII.    that the employee is aware and agrees that the Company's shares are not
         listed on any stock exchange and that the Company is under no
         commitment to list its shares or the options or Exercise Shares which
         are to be issued to the employee in such exchange;

XVIII.   that the employee is aware that there are tax implications in
         connection with the grant and exercise of the options. The employee is
         aware and agrees that according to the plan the employee alone shall
         bear all the taxes of every type and all the expenses deriving
         therefrom and the employee shall not have and hereby waives any demand
         or claim which he now or in future has against the trustee, the Company
         or those acting for or on their behalf which derives from the taxation
         relating to the options, their exercise or the employee's participation
         in the plan.

                The employee is further aware and agrees that without prejudice
                to his above undertaking to pay all taxes in connection with the
                Shares and Options, the Company and the trustee may and shall be
                liable to withhold tax at source from all payments due to the
                employee;

                                      -4-
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XIX.     that he is aware that transfers of the Shares or options are subject to
         restrictions, inter alia as provided in paragraphs 6, 7 and 10 below;

XX.      that he is acquainted with the Company and its activity and is aware
         that the Company operates in a sophisticated, high-tech and high-risk
         environment and that holding the Company's shares involves an economic
         risk. The employee therefore undertakes that he will not have any claim
         against the Company or any of its directors, employees or shareholders
         should his investment in the Company's shares fails because of the
         payment of tax for which he is liable or for any other reason;

XXI.     that he is aware, agrees and confirms that the plan is a flexible one
         and is subject from time to time to material or other modifications
         which the board of directors and/or the Administrator will make, and
         the employee agrees and undertakes that he will not object to any such
         change or modification, that he will sign any document which in the
         Company's opinion is necessary in order to give full force and effect
         to the plan's modification and that any modification to or in
         connection with the plan will obligate him as though incorporated in
         the plan from the outset, provided that no such modification shall
         impair his vested rights.

XXII.    THE PLAN'S TERMS AND CONDITIONS
         -------------------------------

       The following terms and conditions, unless expressly otherwise provided
       in the Agreement in respect of a particular employee, shall apply in
       respect of all the employees who participate in the plan:

                                      -5-
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XXIII.   the employee shall have no vested right as a shareholder of the Company
         so long as the Exercise Shares have not been registered in his name in
         the Company's register of shareholders as mentioned in paragraphs 8.3
         and 8.4 below, and paragraphs 6 and 7 below shall apply in this
         respect;

XXIV.    the income attributed to the employee as a result of the grant of the
         Options and the Exercise Shares, their transfer in his name or their
         sale and in all respects relating thereto, shall not be taken into
         account when computing the basis of the employee'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
         employee, the employee will indemnify the Company in respect of any
         expense sustained by it in such respect;

XXV.     no provision of the Agreement or this plan shall be construed as an
         undertaking or agreement by the Company to employ the employee for any
         specific period and no provision of the Agreement or the plan shall be
         construed as limiting the Company's right to terminate the employment
         of an employee at any time in its discretion and in accordance with the
         contract of employment of each employee and/or the law.

XXVI.    VESTING OF THE EMPLOYEES' RIGHT TO OPTIONS
         ------------------------------------------

       So long as the employee is an employee of the Company or its subsidiary,
       his right to the options which have been granted to him pursuant to this
       plan and in the Agreement shall, unless otherwise provided in the
       Agreement with each employee as mentioned in paragraph 2 above, vest as
       follows:

       after the employee has completed one year of employment with the Company
       or its subsidiary and subject thereto, the employee will be entitled to
       exercise his right in respect of 25% of the Shares which have been
       assigned for him. The right with respect to the remainder of the Shares
       which have been assigned for the employee, namely 75%, shall vest in
       installments at the end of the employee's first year of employment with
       the Company, so that at the end of each month from the end of his first
       year of employment the employee will be entitled to exercise his right in
       respect of 2.0833% of the Shares which have been assigned for him.

                                      -6-
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       For the removal of doubt, if the employee's employment with the Company
       or its subsidiary terminates, for any reason, prior to the end of his
       first year of employment with the Company, the employee shall not be
       entitled to any Shares or Options in the Company. If the employee's
       employment with the Company terminates, for any reason, after the end of
       the first year but before the end of the fourth year, the employee will
       be entitled to exercise his right in respect of Shares, pro rata to the
       options his right to which had vested as provided above in this clause,
       in accordance with the period of time during which he actually worked for
       the Company or the subsidiary, subject always to the provisions at the
       end of paragraph 9.1 below with regard to terminating the right of an
       employee who has been dismissed in circumstances in which he is not
       entitled to full severance pay.

                                      -7-
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XXVII.   ISSUE OF THE SHARES AND OPTIONS TO THE TRUSTEE AND ITS HOLDING THEM
         -------------------------------------------------------------------

XXVIII.  The trustee to be appointed as per the above by the Company's board of
         directors for the implementation of this plan shall be vested with all
         the powers which are agreed upon between it and the Company in the
         trust agreement to be made between it and the Company.

XXIX.    The Option warrants shall be issued in the trustee's name and be
         deposited with and held by it.

XXX.     Unless otherwise provided in this plan or the Agreement, the trustee
         will hold all property received in respect of the Options and Exercise
         Shares on trust. Should an employee's entitlement in respect of certain
         Exercise Shares have vested and he exercise his right but the Shares
         have not yet been registered in his name, the trustee will hold all
         property received by it in respect of those Exercise Shares for the
         benefit of the employee and the property will be deemed part of those
         Exercise Shares.

XXXI.    Until 1st July 2002 or until immediately after the Company's shares
         have been issued to the public, whichever is the earlier, the sale,
         grant or transfer, whether or not for consideration, of the Exercise
         Shares by the employee shall be subject to the right of first refusal
         of the Investor Shareholders, as defined in the Company's Articles of
         Association, and of the Company's Shareholders who hold 3% or more of
         the Company's issued share capital, other than those who were or are
         employees of the Company or a subsidiary of the Company, who shall have
         no such right of first refusal, as set out below:

                                      -8-
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                in the event that an employee (hereinafter referred to as "the
                transferor") has received an offer from any third party in good
                faith or reached an understanding in good faith with any third
                party (hereinafter referred to as "the Transferee") with regard
                to a sale in good faith (or other transfer in good faith) of his
                Exercise Shares or any of them (hereinafter referred to as "the
                Offered Shares"), the other shareholders mentioned above shall
                have a right of first refusal to purchase the Offered Shares,
                pro rata to their holdings in the Company at that time, at the
                same price and on the same terms as agreed with the Transferee
                in good faith or offered by him in good faith, as the case may
                be (hereinafter referred to as "the Terms of the Transaction
                With The Transferee"). For such purpose the ratio of the said
                shareholders' holdings shall be computed in accordance with the
                relationship between the number of shares which each of the said
                shareholders holds and the total issued and paid up shares of
                the Company which are held by them on the deadline for sending
                acceptance notices as set out below. For the purpose of
                determining the said proportionate holdings, no account shall be
                taken of the shares of the transferor or, as the case may be, of
                the shares of the said shareholders who have given notice that
                they do not wish to purchase any of the shares offered or who
                have not sent acceptance notice by the time specified below.

                The transferor shall deliver to the Company a written affidavit
                signed by him detailing the terms of the transaction with the
                Transferee, including the name of the Transferee, the number of
                shares offered for sale, the sale price and the terms thereof
                (hereinafter referred to as "the Offer").

                Each of the said shareholders shall give notice to the
                transferor within 21 days of receiving the Offer as to whether
                or not he agrees to the Offer. Notice by a shareholder that he
                agrees to purchase the shares as per the above shall be
                irrevocable. On expiration of the said period any shareholder
                who has not replied to the Offer shall be deemed to have
                rejected it.

                On expiration of the said period the shares offered shall be
                transferred as follows:

                if all the said shareholders have given notice of their desire
                to purchase the shares offered to them, each such shareholder
                shall purchase a number of shares pro rata to his holdings in
                the Company;

                                      -9-
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                if any of the said shareholders gives notice that he does not
                wish to purchase the shares offered or does not send any notice
                within the time specified above, that shareholder's proportion
                of the shares offered (hereinafter referred to as "the remaining
                shares") will be offered to the other shareholders who have
                given acceptance notices pro rata to their holdings and the
                above provisions shall apply mutatis mutandis, subject to the
                provisos that in the second stage the time for giving notice of
                agreement to purchase any of the remaining shares shall be only
                20 days and that any shareholder who participated in the first
                stage shall be entitled to give notice in the second stage that
                he wishes to purchase more than his proportion of the remaining
                shares. If in the second stage acceptance notices are given in
                respect of more than the remaining shares, those shares shall be
                apportioned between the shareholders who have applied to
                purchase them pro rata to their shareholdings of the Company as
                aforesaid;

                if the total shares offered are greater than the total shares in
                respect of which acceptance notices are received as aforesaid or
                if no acceptance notice is received from any of the offerees,
                the right of first refusal pursuant to this clause shall be
                deemed to have lapsed and all the shares offered shall be free
                for sale to the Transferee on the Terms of the Transaction With
                The Transferee for a period of 60 days.

                Any reduction in the price, any other than negligible
                modification to the terms or any offer or transfer after the
                said 60 days, shall require a repeat offer to the said
                shareholders and the provisions of this paragraph shall apply
                again.

                In the event that as a result of the proportionate holdings it
                will be necessary to transfer share fractions, the number of
                shares being transferred shall be rounded to the nearest whole
                number (half a share being rounded down) to the effect that only
                whole shares shall be transferred. Any adjustments necessary,
                due to rounding share fractions into whole shares, shall be made
                by the board of directors in its absolute discretion.

                The above provisions of this paragraph shall not apply to the
                transmission of shares on inheritance.

                                      -10-
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XXXII.   So long as the Exercise Shares under this plan are held by the trustee
         and are registered in his name in the Company's register of
         shareholders and/or so long as a first issue of the Company's shares
         has not been made on any stock exchange, whichever is the later,
         Ma'ahaz Ne'eman Ltd. shall alone be entitled to receive any notice to
         which a shareholder of the Company is entitled, if at all, and subject
         as specified below it shall be the sole person entitled to exercise any
         right whatsoever which the Company's shareholders have in connection
         with the shares, including the right to receive notices to and to
         attend and vote at any shareholders' meeting and to appoint directors,
         insofar as such right exists. The employee shall not be entitled to
         exercise any right or apply to the trustee or the Company with any
         demand or request in such respect. Ma'ahaz Ne'eman Ltd. shall grant its
         consent whenever so requested by the Company's board of directors to a
         reduction of the notice period for the Company's general meetings.
         Ma'ahaz Ne'eman Ltd. shall sign any written resolution of the Company's
         shareholders, if so instructed by Mr. Yoav Hollander. Ma'ahaz Ne'eman
         Ltd. shall give a proxy to Mr. Yoav Hollander to vote on its behalf and
         in its stead in respect of the shares in respect of which it has been
         vested with the voting rights as per the above in any general meeting
         in respect of which Mr. Hollander requests such a proxy. The proxy
         shall enable Mr. Hollander to appoint another proxy. Should a proxy not
         be appointed as aforesaid, Ma'ahaz Ne'eman Ltd. shall be precluded from
         voting in the Company's general meeting by virtue of the shares
         registered in its name.

                For the removal of doubt and without derogating from any of the
                above, the option holders shall not be entitled to rights as
                shareholders of the Company so long as they have not exercised
                the options and so long as the Exercise Shares have not been
                transferred in their names and the consideration therefor
                actually paid to the Company and on the transfer of the Exercise
                Shares as per the above, those shares shall be governed by all
                the above provisions of this paragraph.

                                      -11-
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XXXIII.  So long as the Exercise Shares which have been exercised by an employee
         are registered in the trustee's name, the trustee shall not exercise
         any right of first refusal to purchase shares in the Company in respect
         of the shares registered in its name as per the above, even if such
         right is vested in it by law, the articles of association or any
         agreement.

XXXIV.   The trustee shall not be liable to the employee or any third party
         (including, but without prejudice to the generality of the foregoing,
         the income tax authorities and any other governmental or administrative
         agency) for any act done with regard to this plan and its
         implementation or anything connected therewith or deriving therefrom.
         The employee undertakes not howsoever to make any claim or demand
         against the trustee, whatever the cause of action.

XXXV.    THE CONDITIONS OF THE OPTIONS AND THEIR EXERCISE
         ------------------------------------------------

XXXVI.   The options shall expire in all respects on 31st December 2007, unless
         the plan is brought to an end prior thereto or the date is extended, as
         mentioned in paragraph 2 above. After the Options have expired as per
         the above, the Options shall be null and void and shall not confer any
         right whatsoever upon anyone who holds them or did hold them
         immediately prior to such expiration.

XXXVII.  The right to exercise the Options will be vested with the employee, in
         installments and gradually as determined pursuant to paragraph 6 above.
         At the end of each of the periods determined as per the above the
         employee may from time to time exercise the option with regard to all
         or any of the shares allocated to that period. In addition, throughout
         the periods the option with regard to all or any of the shares
         allocated to any preceding period, in which the option was not wholly
         exercised, may be exercised, provided that at the time of the option's
         exercise the employee has been continuously employed by the Company
         from the date of its grant until the date of its exercise or it is in
         the extension period mentioned in paragraph 2.2.2 above and paragraph
         9.2 below, subject always as provided at the end of paragraph 9.1 below
         relating to termination of the entitlement of an employee who has been
         dismissed in circumstances in which he is not entitled to full
         severance pay.

                                      -12-
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XXXVIII. An employee wishing to exercise an option, entitlement to which has
         vested as mentioned in paragraph 6 above, subject always as mentioned
         in paragraph 8.2 above, shall give written notice thereof to the
         Company in the standard form in such respect for the time being, a copy
         of which the employee may obtain from the Company. The notice shall
         detail the number of shares which the employee wishes to exercise and
         it shall be accompanied by the payment which is to be made, in the
         manner in which it is to be made, for the option exercise price in
         accordance with the Agreement. The notice shall also be accompanied by
         all the documents which the employee must sign as a condition for the
         option's exercise, as detailed in the plan and as resolved by the board
         of directors. As a condition for the option's exercise the employee
         shall pay the tax for which he is liable, if any (including by way of
         withholding same at source by the Company).

XXXIX.   On receipt of all the documents, certificates and payments required of
         the employee as a condition for the option's exercise pursuant to this
         plan and fulfillment of all other conditions, pursuant to the Agreement
         and by law, the Company will arrange to transfer the shares deriving
         from the option's exercise into the trustee's name. After receiving
         confirmation from the trustee that the tax liability in respect of the
         shares has been paid by the employee in full, the Company will arrange
         to transfer the Exercise Shares from the trustee to the employee, it
         will enter the employee in the Company's register of members and
         furnish a share certificate in the employee's name to the employee, all
         in accordance with the provisions of this plan.

XL.      TERMINATION OF THE EMPLOYEE'S EMPLOYMENT
         ----------------------------------------

XLI.     In the event that the employee's employment with the Company is
         terminated after the expiration of the first year of his employment,
         the employee will be entitled to exercise the options in respect of
         shares, entitlement to which had already vested on the expiration of
         his employment as per the above. The above shall not apply in the event
         that the termination of the employee's employment is in circumstances
         where, if he was or could have been dismissed by the Company by reason
         thereof, he was not or would not have been legally entitled to full
         severance pay, whereupon the employee's right in respect of all of the
         options to which he was entitled pursuant to the plan which are
         registered in the trustee's name, including the options, entitlement to
         which has already vested pursuant to paragraph 6 above, shall expire.

                                      -13-
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XLII.    Unless otherwise provided in the Agreement between the Company and the
         employee, the employee may exercise options which have not yet been
         exercised by him by the time his employment comes to an end,
         entitlement to which had vested by that time as mentioned in paragraph
         6 above, in accordance with such conditions as are prescribed pursuant
         to paragraph 2.2.2 above. In any event, and if not otherwise provided
         pursuant to paragraph 2.2.2 above, the exercise period after the
         expiration of the employer/employee relationship shall not be longer
         than six months in the case of the employee's death or 30 days in the
         case of the employer/employee relationship terminating for any other
         reason, whilst in the case of the employee's dismissal in circumstances
         in which he may legally be denied full severance pay, the provisions at
         the end of clause 9.1 above shall apply with regard to terminating the
         entitlement of the employee dismissed in circumstances in which he is
         not entitled to full severance pay.

XLIII.   In the event of an employee's death, the options held by the trustee or
         by the employee directly, the employee's entitlement to which had
         vested prior to his death, shall be held by the trustee for the
         employee's heirs on the same terms as it held them for the employee,
         subject to all the provisions of this plan and to such period of time
         as prescribed for the heirs' exercise of the options as provided in
         paragraphs 2.2.2 and 9.2 above, and the employee's other rights in
         respect of shares or options, entitlement to which had not yet vested
         at the time of his death, shall expire and not entitle his heirs to
         anything.

XLIV.    For the purpose of the above, the expiration of the employee's
         employment shall be the date upon which the Company or the employee, as
         the case may be, notifies the other party in writing of the termination
         of their relationship, even if the notice specifies a later date for
         the termination of the employer/employee relationship, unless a later
         date is fixed by the board of directors or the Administrator.

XLV.     RESTRAINTS ON THE TRANSFER OF SHARES AND OPTIONS
         ------------------------------------------------

       Without derogating from the provisions of paragraphs 6 and 7 above, the
       employee's rights in all respects relating to all or any of the shares
       and options - so long as the Exercise Shares deriving from the options'
       exercise have not been transferred to him by the trustee and registered
       in his name - are personal and are not capable of transfer, assignment,
       pledge, lien, attachment or other charge either voluntarily or by
       operation of law, other than a transfer by virtue of a will or the laws
       of succession, and no power of attorney or instrument of transfer,
       whether with immediate or future effect may be given in respect of them.
       For the removal of doubt, the Options are not transferable, save by
       virtue of a will and/or the laws of succession and they may only be
       exercised by the employee or his heirs.

                                      -14-
<PAGE>

       Any such direct or indirect transfer, whether made in order to obtain
       immediate or future effect, shall be null and void.

       After the shares' transfer into the employee's name in the Company's
       register of shareholders, the employee shall be subject to all the
       restrictions applying to a share transfer prescribed in the Company's
       articles of association, as in force from time to time, in addition to
       the restriction applicable to him as provided in this Plan.

       In addition and without derogating from the above, should the shares be
       subject to lock-up periods or market stand-offs in accordance with stock
       exchange regulations, issue conditions or the underwriters' requirements
       on a public issue, if there is a public issue, or a resolution of the
       board of directors or the plan manager or by law, the board of directors
       shall prescribe the scope and terms of application of such lock-up
       periods or market stand-offs and the employee shall be subject to them.

                                      -15-
<PAGE>

XLVI.    TAXATION AND OTHER ARRANGEMENTS RELATING TO THE TRANSFER TO THE
         ---------------------------------------------------------------
         EMPLOYEE OF THE SHARES AND OPTIONS
         ----------------------------------

XLVII.   The employee shall bear all the tax liabilities, levies and obligatory
         payments charged by the tax authorities (whether in Israel or abroad)
         and any other mandatory payment whatever its source in respect of the
         options and Exercise Shares or any dividend or other benefit in respect
         of them, in connection with the transfer of the options and Exercise
         Shares into the employee's name and any other charges accruing to the
         employee or the trustee in connection with the plan. The Company shall
         deduct tax in accordance with the law, including withholding tax, in
         such manner as obliged by the provisions of this plan. If at any stage
         of the plan's implementation a tax payment is necessary and the Company
         is not in possession of the funds necessary to withhold tax as
         aforesaid from the amount due to the employee from the Company, the
         Company shall be entitled not to implement that stage or part of the
         plan, unless the employee provides to the Company, forthwith upon its
         demand, the funds necessary to make such tax payment as per the above.

XLVIII.  The Company or the trustee may at any time apply to the tax authorities
         and any foreign tax authority to obtain their confirmation with regard
         to the level of tax which the Company, the employee or the trustee must
         transfer in respect of the allotment of the options or Exercise Shares
         or on any other issue relating to the implementation of this plan.
         Before the options or Exercise Shares are transferred into the
         employee's name, the trustee shall obtain a certificate from the
         Assessing Officer, or some other certificate to the satisfaction of the
         Company, that the tax legally charged has been paid and that the
         options or Exercise Shares can be transferred into the employee's name.

XLIX.    If so requested by the trustee or the Company's auditor, the employee
         shall provide the trustee with a certificate from the Assessing Officer
         in a form acceptable to the trustee as to the tax charged in respect of
         the options or Exercise Shares which is transferable to the Assessing
         Officer as a condition for the transfer into the employee's name of the
         options or Exercise Shares. In the alternative, on and in accordance
         with the trustee's request, the employee shall transfer the tax charged
         directly to the Assessing Officer and provide the trustee with a
         certificate in standard form from the Assessing Officer as to the
         payment, which shall release the trustee and the Company from any
         liability for the payment of tax.

                                      -16-
<PAGE>

L.     TRANSFER OF CONTROL
       -------------------

       In the event of a transaction in which control of the Company is
       transferred, as defined below, before making such transaction the Company
       shall apply to the entity acquiring control in order to investigate the
       possibility of that entity's assuming the commitment for performance of
       the option conditions pursuant to this plan or, instead of the options
       pursuant to this plan which shall be canceled as provided below, issuing
       new options of that entity (or of an entity related to it). Insofar as
       the entity acquiring control is not interested in any of the above-
       mentioned possibilities on such conditions as prescribed to the
       satisfaction of the board of directors in its absolute discretion, then:

LI.      in respect of options the entitlement to which has not yet vested,
         those of the options, entitlement to which would have vested during the
         12 months after making the merger transaction or representing 50% of
         the options, entitlement to which has not yet vested on the merger
         date, whichever is the lesser, shall become options exercisable
         immediately before making the merger transaction, to the effect that
         any option not exercised immediately before the merger transaction as
         per the above shall be void; and

LII.     the board of directors and/or the Administrator may, in its or his
         absolute discretion, cancel all the options which have not yet been
         exercised at the time of making the merger transaction, provided that
         reasonable advance notice is given to the option holders of the merger
         transaction and of their ability to exercise the options, entitlement
         to which has vested, including the options entitlement to which has
         vested as specified in paragraph 12.1 above, before the merger
         transaction.

       For the purpose hereof, a merger transaction shall be deemed any
       transaction or series of transactions during a period of 90 days, in the
       scope of which more than 50% of the rights of control of the Company are
       transferred or all the assets of the Company are sold or the Company is
       merged into another company.

                                      -17-
<PAGE>

LIII.    DISTRIBUTION OF DIVIDENDS AND ADJUSTMENTS ON ACCOUNT OF CHANGES IN THE
         ----------------------------------------------------------------------
         CAPITAL STRUCTURE
         -----------------

LIV.     Should changes be made to the Company's capital structure including,
         but without derogating from the generality of the foregoing, changes to
         the Exercise Shares by reorganization, change of the capital structure,
         distribution of bonus shares, distribution of dividend otherwise than
         in cash, shares splits, dividend on winding up, consolidating shares,
         swapping shares, changing the Company's structure or otherwise, but
         excluding a transfer of control of the Company in respect whereof the
         provisions of paragraph 12 above shall apply, the board of directors
         and/or the Administrator shall in its or his absolute discretion make
         the appropriate modifications in all respects relating to the options
         or the Exercise Shares, including adjusting their number, in order to
         reflect the event, provided that such shall not impair the employees'
         vested rights. Insofar as such adjustment creates share fractions when
         computing the number of shares subject to a particular option or due to
         a particular employee, half a unit shall be rounded up or down as the
         case may be in accordance with the directions of the board of directors
         and/or the plan manager.

LV.      Should bonus shares be allotted by virtue of shares which have actually
         been allotted for an employee in the scope of this plan and registered
         in the trustee's name, the bonus shares shall be allotted to the
         trustee and registered in its name and they shall in all respects,
         including with regard to their subordination to the conditions of the
         plan, be deemed the original shares by virtue whereof they were
         allotted so long as the shares are registered in the trustee's name.

LVI.     The entitlement of shares, which have actually been transferred to the
         employee, to participate with the Company's Ordinary Shares in any cash
         dividend which is declared and distributed shall be subject to a
         resolution of the board of directors.

LVII.    In the event that a cash dividend is distributed, subject as provided
         in paragraph 13.3 above, the dividend shall only be distributed in
         respect of those shares which have actually been transferred to the
         employee and in respect of options which have been exercised by the
         "effective date" for the dividend's distribution, in accordance with
         the provisions of paragraph 13.5 below. The employee shall have no
         complaint against the Company, its directors or shareholders, if for
         any reason, whether dependent on the Company or on the employee, the
         shares have not been transferred to the employee by the effective date.

                                      -18-
<PAGE>

               Notice of a resolution of the Company's board of directors to
               distribute dividend shall be sent by registered mail or fax or in
               such other way as, in the opinion of the board of directors,
               enables it to reach the employees to whom options have been
               granted and who are entitled to exercise them by the effective
               date, at least seven days prior to the effective date for the
               dividend distribution or given to them personally at least 48
               hours prior to the effective date.

               An employee who, under the conditions of the plan, is entitled to
               apply to the trustee to exercise an option for the purchase of
               any shares by the effective date may do so and if he does so in
               the manner required in this plan by the effective date, the
               shares allotted in respect of the options exercised by the
               effective date shall be entitled to participate in the dividend
               distribution as provided in this paragraph, subject always as
               provided in paragraph 13.3 above.

LVIII.   A dividend relating to shares in respect of which exercise notice has
         been given by the employee, which have been registered in the trustee's
         name, the employee's entitlement to which shares having already vested,
         shall be paid directly to the employee after legally withholding any
         tax, whether the rate thereof is the ordinary rate charged on dividend
         or its rate is higher, if tax is to be withheld as aforesaid.

               The Company or the trustee may set off and withhold from any
               dividend declared and distributed as aforesaid any amount which
               the employee owes to the Company or the trustee and any amount
               charged as tax, a levy or other obligatory payment.

                                      -19-
<PAGE>

LIX.     MISCELLANEOUS
         -------------

LX.      The trustee shall not be liable to the employee or any third party
         (including, but without derogating from the generality of the
         foregoing, the income tax authorities and any other governmental or
         administrative authority) for any act done with regard to this plan and
         its implementation or anything relating to it or deriving from it. The
         employee undertakes to indemnify the trustee for any such liability and
         in relation to any claim or demand by any entity, including the tax
         authorities, in connection with this plan.

LXI.     The plan and everything relating to it, including the Agreement, shall
         be governed by Israeli law. Exclusive jurisdiction under this plan
         shall vest with the competent courts of the State of Israel in Tel
         Aviv.

LXII.    Any notice under the Agreement or the plan shall be given in writing
         and shall be deemed delivered at the time of its transfer to the
         addressee in person or by fax, or three business days after being
         posted by registered mail to the address of the parties.

                                      -20-
<PAGE>

                                  VERISITY LTD

                     OPTION ALLOTMENT IN ACCORDANCE WITH THE
                   PLAN FOR THE GRANT OF SHARES AND ALLOTMENT
                      OF OPTIONS TO THE COMPANY'S EMPLOYEES
                      -------------------------------------

____________________
____________________

Dear Employee,

Further to your contract of employment with the Company of ________, in the
scope of which or pursuant whereto you have been granted rights to shares in the
Company and as ratified by the Company's board of directors, you have been
granted an option for the purchase of ____ Ordinary Shares of NIS 0.01 par value
each of the Company (hereinafter respectively referred to as "the Option" and
"the Exercise Shares"). The above grant is subject to the conditions of the Sub-
Plan For The Issuance Of Options To The Company's Employees, a copy of which is
annexed hereto as appendix "A" (hereinafter referred to as "the plan"), and to
the provisions of this letter, including those relating to vesting.

After you have signed at the end of this letter and subject thereto, the Company
will arrange to allot in the name of the trustee, Oren Braun, CPA, of the firm
of Kost, Forer & Gabai (hereinafter referred to as "the trustee") a warrant
registered in your name which, subject to the conditions of the plan and this
letter, will be exercisable into the Exercise Shares.

Subject to the other conditions of the plan and this letter, your entitlement to
exercise the option, will vest as follows:

       [Old employee] on 1st July 1998 you are entitled to exercise the option
       in respect of ____ shares / [young employee] after you have completed a
       whole year of employment with the Company and subject thereto, namely on
       _____________, you will be entitled to exercise the option in respect of
       25% of the total Exercise Shares.

                                      -1-
<PAGE>

       Subject to your continued employment with the Company and the other
       conditions of the plan, your entitlement to exercise the Option in
       respect of the remainder of the shares ([old employee] __% / [young
       employee] 75%) will vest during [old employee] ____ / [young employee] 36
       months from [old employee] 1st July 1998 / [young employee] the end of
       the first year of your employment with the Company as per the above, to
       the effect that at the end of each month from _________ you will be
       entitled to exercise your entitlement in respect of 2.0833% of the
       shares.

Subject to the conditions of the plan, your exercise of an option, the
entitlement to which has vested as per the above, shall be by written notice to
the Company in the Company's standard form. The notice shall detail the number
of shares you wish to exercise and it shall be accompanied by all the other
documents which are required in accordance with the plan. As a condition for
exercising the option you must pay the tax for which you are liable in respect
of the option's exercise (including by such tax being withheld at source by the
Company). After the Company has received all the documents, certificates and
payments required of you and confirmation from the trustee, the Company will
arrange to transfer the Exercise Shares into the trustee's name and after
receiving confirmation from the trustee that the tax liability in respect of the
shares has been paid in full by you, the Company will arrange for the transfer
into your name of the Exercise Shares that have been registered in the trustee's
name.

The exercise price of each of the Exercise Shares is ______, which will be
payable by you, amongst the other payments for which you are liable, at the time
you give exercise notice.

Without derogating from the generality of the above and for the removal of
doubt, amongst the other terms and conditions for the grant of the option and
the Exercise Shares, you must sign every document and make every payment
required by the Company and the trustee in such respect in accordance with the
provisions of the plan and this letter.

Independently of the vesting provisions, in the event that you wish to sell or
transfer all or any of the Exercise Shares which derive from the option, those
shares will be subject to the right of first refusal of the Investor
Shareholders, as defined in the Company's Articles of Association, and of the
Company's shareholders who hold 3% or more of its issued share capital, until
1st July 2002 or until the Company's shares are issued to the public, whichever
is the earlier, as mentioned in paragraph 7.4 of the plan. For the removal of
doubt, the above will apply in addition to possible lock-ups which might apply
to the option and the shares, as mentioned in the plan.

                                      -2-
<PAGE>

Please note that you will not have any rights as a shareholder of the Company so
long as the option has not been exercised by you, so long as the Exercise Shares
are held by the trustee or so long as those shares are registered in the
trustees name. Inter alia, you will not have the voting rights by virtue of the
Exercise Shares until the expiration of the said periods or until the first
issue of the Company's shares on any stock exchange, whichever is the later, and
those voting rights are vested with Mr. Yoav Hollander and you undertake to sign
a proxy, a copy of which is annexed hereto, to the order of Mr. Hollander in
such respect. In addition, you will not have rights to participate in allotments
of additional shares in the Company (including a pre-emptive right).
Notwithstanding as aforesaid and as provided in the plan, it is hereby clarified
that if after the Exercise Shares have been transferred into the trustee's name
the Company decides to distribute a dividend to its shareholders, your
proportion of the said dividend will be transferred directly to you, rather than
the trustee, subject to your payment of the tax obliged thereby.

In addition, should your employment with the Company come to an end it will have
implications with regard to your entitlement to exercise the option or any part
thereof, as provided in paragraph 9 of the plan. Nevertheless and
notwithstanding as provided in paragraph 9.2 of the plan, in the event that the
employer/employee relationship between the Company and yourself comes to an end,
the deadline for exercising the option in respect of shares, your entitlement to
which has vested before the end of the employer/employee relationship as per the
above, will be the latest of the following dates: (a) the relevant one of the
dates mentioned in paragraph 9.2 as aforesaid; or (b) five years from the date
of the first issue of the Company's shares on any stock exchange; or (c) five
years from the end of the lock-up period, if applicable, further to the first
issue of the Company's shares on any stock exchange. It is hereby clarified that
the above supersedes the provisions of the plan in such respect, subject
nevertheless as provided in paragraph 9.1 of the plan with regard to termination
of the entitlement of an employee who has been dismissed in circumstances in
which he is not legally entitled to severance pay.

For the removal of doubt, the option will expire in all respects on 31st
December 2007 and after its expiration it will not confer any right whatsoever
including, but without limitation, the right to exercise it or any part thereof.

Notwithstanding as provided in paragraph 12 of the plan, in the event of a
transaction transferring control of the Company, the conditions of paragraph 12
shall not apply and instead the options granted to you pursuant to this letter,
which have not yet been exercised by you, will be exercisable in respect of
shares (or in respect of any property or right) of the purchasing entity that
will have been

                                      -3-
<PAGE>

transferred to Ma'ahaz Ne'eman Ltd., within the transaction transferring control
on and against the shares which were held on trust by Ma'ahaz Ne'eman Ltd. for
the Company, and designated as Exercise Shares for the employees. The number of
shares (or properties or rights) in respect of which you will be entitled to
exercise the option after a transaction transferring control as per the above
will be determined by the Company's board of directors in its discretion, taking
into consideration the ratio between the Exercise Shares incorporated in the
option granted to you pursuant to this letter which have not yet been exercised
by you and the total shares (or properties or rights) which have been
transferred to Ma'ahaz Ne'eman Ltd. in the scope of the transaction transferring
control.

As mentioned in the plan, the Option and Exercise Shares in accordance with the
plan will be granted or allotted in the context of the employer/employee
relationship between the Company and you. You undertake to bear all tax
liabilities, levies and obligatory payments which are charged by the tax
authorities (in Israel and abroad) and every other mandatory payment, whatever
its source, in respect of the option, the shares or dividend or any other
benefit in respect of them on the transfer of the shares into your name,
together with any other liabilities accruing to you or the trustee in connection
with the plan. The Company or the trustee will legally deduct tax, including
withholding tax, and deduct every other mandatory payment, whatever its source,
from all the payments due to you, whether from salary or from any other payment
due to you from any other source in the manner specified in the plan. If at any
stage of the plan's implementation, any tax or mandatory payment is required as
per the above and the Company or the trustee is not in possession of the funds
necessary for the payment thereof from the amount due to you, the Company will
be entitled not to implement that stage or part of the plan, unless you provide
the Company, forthwith upon its request, with the funds necessary to make such
payment.

The Company and the trustee will not bear any liability and will be indemnified
by you for any expense or loss occasioned to them in respect of all the payments
made by them, including payments for not withholding tax in connection with the
grant of the option, its exercise, the allotment of shares, the sale of shares
or the transfer of shares into your name, the payment of dividend etc.

This letter does not constitute a contract of employment between you and the
Company, in which respect the provisions of paragraph 5.3 of the plan shall
apply.

The grant of the Option and Exercise Shares pursuant to this letter is subject
to all the conditions and limitation set out in the plan and provided by law and
we would ask you to read the plan carefully and confirm your agreement to it and
your undertaking to act pursuant to it, by signing a copy of this letter.

                                      -4-
<PAGE>

The transfer, assignment or charge of the rights granted to you pursuant to this
letter and the plan is restricted in accordance with the provisions of the plan.

This letter constitutes an final and conclusive summary of the matters set out
herein and it ratifies, and in such respect revokes and replaces any previous
agreement, arrangement, undertaking, contract, understanding or document,
whether written, oral or otherwise, between you and the Company, its directors
or shareholders, or any other person or entity related to any of the foregoing
with regard to the matters specified in the plan or this letter and with regard
to the shares and options of the Company and any such prior agreement,
arrangement, undertaking, contract, understanding or document, if at all,
including our previous letter to you in such respect and the plan annexed
thereto are hereby declared null and void in all respects. In the event of any
discrepancy between the provisions of this letter and those of the amended plan
which is annexed hereto, the provisions of the plan shall prevail, unless
expressly otherwise stated in this letter.

This letter and the matters relating to it shall be governed solely by Israeli
law.

The use of the masculine gender in this letter is solely for the sake of
convenience and the contents hereof equally relate to both men and women.

Yours faithfully,

Verisity Ltd.

I the undersigned, _________________ hereby declare and confirm my agreement to
the above, including as regards the fact that this letter is a conclusive
summary which revokes any previous or other summary, and my undertaking to act
pursuant to it. I further hereby declare and confirm that I am aware that the
Sub-Plan For The Issuance Of Options To The Company's Employees, which is
annexed hereto, incorporates limitations and important material conditions which
govern the option and my rights pursuant to it including, but without derogating
from the generality of the above, conditions in connection with my right to
exercise the Option, limitation on the transfer of the Option and the transfer
of the Exercise Shares and conditions in connection with the Company's ability
to bring the plan to a premature end, inter alia due to my employment with the
Company coming to an end.

                                      -5-
<PAGE>

I confirm that I have carefully read the Sub-Plan For The Issuance Of Options To
The Company's Employees and I acknowledge and agree that the foregoing and all
the provisions of the Sub-Plan and the conditions, restraints, agreements,
declarations and undertakings incorporated in the Sub-Plan, and inter alia in
paragraph 4 of it, shall apply to me in full and I undertake to act pursuant to
them.

I further confirm that I have not received any tax advice from the Company in
connection with the allotment of the shares or options pursuant to the Sub-Plan.

_______________________
(Employee's signature)

Name: ________________________

ID No.: ______________________

Address: _____________________

Date: ________________________

                                      -6-<PAGE>

                                                                   EXHIBIT 10.29
                                                                   -------------
                                 VERISITY LTD.

                          (Hereafter: the "Company")

PLAN TO GRANT SHARES AND ALLOT OPTIONS TO THE COMPANY EMPLOYEES

1.  Introduction
    ------------

    The aim of this plan is to grant Company shares and/or options to the
    employees and managers of the Company, its subsidiary companies and
    affiliated companies (hereafter: the "Employees" or the "Employee"), in
    order to create an incentive for the Employees and to make them partners in
    the development and success of the Company.

    The plan will be subject to receipt of all the certifications and/or
    implementation of all other actions required from time to time, and will
    enter into force on the date determined by the Board of Directors or the
    Company, subject to receipt of the approval of the General Meeting of the
    Company. In order to remove all doubt, this plan takes precedence over any
    previous plan or prior undertaking, and in any case the date for the grant
    for shares in pursuance of this plan shall enter into force only 30 days
    from the date of the Company's notice and of the Trustee of the Assessing
    Officer in pursuance of Section 102 of the Income Tax Ordinance (hereafter:
    the "Date of the Grant").

    It is the intention of the Company to apply to the Income Tax Authorities in
    order to obtain approval of this plan, so that the plan will be operated
    within the context of Section 102 of the Income Tax Ordinance, the
    Regulations, Rules and Provisions that were issued on the basis thereof
    (Section 102 and the said General Regulations and Provisions shall be called
    hereafter - "Section 102"). At the same time, there is no guarantee that the
    whole plan or part thereof will be approved by the Tax Authorities, or that
    it will be in accordance with the provisions of the law from time to time.
    Should there be a discrepancy between the sections of the plan, its
    appendices and the agreements with Employees that are drafted within its
    framework and the provisions of Section 102, the provisions of 102 shall
    apply, and the necessary adaptations will be determined by the Board of
    Directors of the Company, at its absolute discretion.

                                      -1-
<PAGE>

2.   Management of the Plan
     ----------------------

               2.1  Subject to that stated in Section 2.3 and 2.4 below, this
          Plan shall be managed by the Board of Directors of the Company at its
          absolute discretion, or by whoever is determined by the Board of
          Directors for the purpose of management of the Plan (hereafter: the
          "Plan Manager"). The Board of Directors or officers of the Company
          and/or the Trustee in pursuance of the Plan shall not bear personal
          liability and shall not be obligated in any way towards an Employee on
          account of a decision and/or actions taken concerning this Plan and/or
          in connection therewith.

               2.2  Without derogating from the general nature of the above, the
                    Board of Directors and/or the Plan Manager shall be
                    authorized as specified below:

                    2.2.1  To determine, at their absolute discretion, who are
                           the Employees who shall be granted shares and/or to
                           whom options will be allotted in pursuance of this
                           Plan and the number of shares and/or options to be
                           given to each one; to determine the date and manner
                           of granting the shares and/or options; to specify
                           terms that will not necessarily be identical for all
                           the Employees, for each share and /or option that the
                           Company grants, including the price and conditions
                           for receipt of the shares and/or options.

                    2.2.2  To determine the terms of the options including, but
                           without derogating from the general nature of that
                           stated, the exercise price of the options (the price
                           to be paid for the exercise shares at the time they
                           are allocated), the period for exercise of the
                           options including an extension of the period and to
                           determine the period, after the termination of an
                           employer - employee relationship as stated in Section
                           9.5 below, in the framework of which the Employee
                           shall be eligible to exercise the options. To remove
                           any doubt, the Board of Directors and/or the Plan
                           Manager may at any time extend the period for
                           exercise of the options by an Employee after the
                           termination of the employer - employee relationship
                           between him and the Company as stated in Section 9.5
                           below even after the termination of the employer -
                           employee relationship as stated while amending that
                           stated in this matter in the agreement with the
                           Employee and/or in this Plan.

                    2.2.3  To determine the obligations of the Employee towards
                           the Company in connection with this Plan and its
                           operation; to sign an

                                      -2-
<PAGE>

                 agreement or agreements for the grant of shares and/or options
                 or any other agreement with the Employee or the Employees.

          2.2.4  To determine the provisions in all that concerns the grant of
                 shares and/or options in installments that are allocated to
                 each Employee (the vesting period).

          2.2.5  To alter any of the terms determined in all that is connected
                 with the shares and/or the options including all that is
                 connected with the terms determined as stated in sections
                 2.2.1 -2.2.5 above, providing that this will in no way
                 prejudice the rights of an Employee who has been granted shares
                 and/or allocated options as stated.

          2.2.6  To determine at their absolute discretion the Trustee in
                 pursuance of the Plan and to replace him at any time in the
                 future, subject to the approval of the Income Tax Commission,
                 if such approval is required.

          2.2.7  To freeze, terminate or cancel the whole plan or part thereof,
                 to interpret the Plan and its provisions, to determine
                 additional provisions and subsidiary plans, to specify in its
                 stead any other plan and to determine any other provisions and
                 to carry out any actions that are connected with this Plan. To
                 remove any doubt, the cancellation of the Plan is subject to
                 being coordinated with the Income Tax Commission, if such
                 coordination is required, and does not prejudice the rights
                 conferred on the Employees.

     2.3  The Managing Director of the Company shall be authorized to allocate
          an individual Employee shares and/or options that represent up to 1%
          of the issued share capital of the Company, on the basis of full
          dilution, at his sole discretion.

     2.4  Despite that stated in Sections 2.1, 2.2 and 2.3 above, any resolution
          of the Board of Directors of the Company or any person appointed by
          the Board of Directors in the matter of this Plan, shall be subject to
          the approval and veto of Mr. Yoav Hollander.

3.   The Shares and Options in pursuance of the Plan

                                      -3-
<PAGE>

     The shares in pursuance of this Plan shall be ordinary shares in the
     Company (above and below - the "Shares"). The options in pursuance of this
     Plan shall be options to purchase ordinary shares in the Company with a
     nominal value of NIS 1 each (above and below - the "Exercise Shares"). The
     period for exercise of the options and the exercise price shall be
     determined as stated in Section 1 above, and if the exercise period is not
     determined as stated, the exercise period shall be 10 years from the time
     the options are allocated to an Employee.

     The maximum number of shares, including the exercise shares, that will
     result from the exercise of the options in pursuance of this Plan is
     1,260,000 shares each with a nominal value of NIS 1, that were allocated to
     Ma'ahaz Ne'eman Ltd. and that are held in trust. This is subject to
     verification because of changes in the Company equity, if there is any such
     change, as stated in Section 13 below.

     Should the conditions determined for the grant of shares and/or the
     allocation of options to an Employee not be met for any reason whatsoever
     and/or if the options allocated to an Employee are not exercised for any
     reason whatsoever, the shares granted and/or which were not exercised as
     stated, shall be placed at the disposal of the Plan and they may be used
     otherwise, including in order to make a new grant and/or to allocate new
     options to other Employees, all as stated in Section 2 above.

4.   The Declarations and Undertakings of the Employee
     -------------------------------------------------

     Every Employee that participates in the Plan will sign the agreement and
     any other or additional document and/or undertaking in the text determined
     from time to time by the Board of Directors of the Company and/or the Plan
     Manager (hereafter: the "Agreement"). The said Agreement will not
     necessarily be identical in its text and/or its terms to agreements with
     other Employees.

     Without derogating in any way from the provisions of the Plan or from the
     provisions of any other agreement and/or document that is signed by the
     Employee on participating in this Plan, the Employee declares and confirms
     as follows:

               4.1  That the Plan and the Agreement take precedence over any
     previous agreement, arrangement and/or understanding, whether made in
     writing or orally, between him and the Company, its directors and/or its
     shareholders in all that concerns the matters contained in the Plan and
     concerning the shares and/or options in the Company and any such agreement,
     arrangement or understanding, if there was any such agreement, arrangement
     or understanding is hereby cancelled.

                                      -4-
<PAGE>

     4.2  In any event, Section 102, as is valid from time to time and the Deed
          of Trust between the Company and the Trustee and the notice to the
          Assessing Officer of the execution of the rightful allocation and any
          additional and/or other document in connection therewith, obligate the
          Employee in full and will take preference in the event of a
          discrepancy in any other provision in this Plan.

     4.3  That the Employee is aware and agrees that the shares in the Company
          are not traded on any Stock Exchange whatsoever and that the Company
          is not obligated in any way to register the Company shares and/or the
          options and/or the exercise shares that are allocated to the Employee
          as stated, for trading

     4.4  That the Employee acknowledges that there are tax consequences in
          connection with the grant of the shares and/or options. The Employee
          is aware and agrees that in accordance with the provisions of the
          Plan, the Employee solely will bear the taxes of any sort whatsoever,
          any expenses derived therefrom, whether the provisions of Section 102
          apply to the Employee or not, and the Employee shall not have, and the
          Employee hereby waives any suit and/or claim that he has or that he
          may have in the future against the Trustee and/or against the Company
          and/or against those acting in their name and/or on their behalf that
          arises from the taxation that is connected in any way with the shares
          and/or the options and/or the participation of the Employee in the
          Plan.

          Similarly, the Employee acknowledges and agrees to that fact that
          without derogating from his said obligation to pay all the taxes in
          connection with the shares and/or options, the Company and/or the
          Trustee may and/or are obliged to deduct tax at source from all
          payments due to the Employee.

     4.5  That he acknowledges that restrictions are placed on the transfer of
          the shares and/or the options and inter alia as stated in Section 6, 7
          and 10 below.

     4.7  That he is familiar with the Company and its activities and that he
          knows that the Company operates and manufactures in a sophisticated,
          technology - intensive, high risk area and that there is an economic
          risk in holding the Company shares. Therefore, the Employee undertakes
          that he shall not make any claim against the Company, its directors,
          employees or shareholders should it become clear that his investment
          in

                                      -5-
<PAGE>

          the Company shares, on account of the payment of taxes that applies to
          him or for any other reason whatsoever, fails.

     4.8  The Employee hereby confirms and undertakes to the Company, the
          Trustee, the Assessing Officer and the Income Tax Commission, in
          accordance with that stated in the Income Tax Rules (Tax Relief on the
          Allocation of Shares and/or Options to Employees) 5749 - 1989 and/or
          any provision of law that replaces it, that he agrees that the said
          arrangement in Section 102 applies to him and that he shall not demand
          tax exemption according Sections 104 and 97(a) of the Income Tax
          Ordinance in pursuance of Section 102. The Trustee and the Company
          shall inform the Assessing Officer of this undertaking of the
          Employee.

          The text of the Employee's undertaking in this matter shall be signed
          with the signature of the Employee on the Agreement.

     4.9  That he is aware, agrees and confirms that the Plan is a flexible plan
          and subject from time to time to material and/or other changes that
          will be made by the Board of Directors and/or the Plan Manager and the
          Employee agrees and undertakes that he will not object to any change
          and/or replacement as stated, that he will sign any document that in
          the opinion of the Company is required to give full effect to any
          change in the Plan and that any change in the Plan or change in
          connection with the Plan will obligate him as though it had been
          contained in the Plan from the beginning, providing that any such
          change does not prejudice the rights conferred on him.

5.   The Terms of the Plan
     ---------------------

     The following terms, unless explicitly specified otherwise in the Agreement
     in respect of a particular Employee, shall apply to all the Employees who
     participate in the Plan.

               5.1  The Employee shall not have any right conferred on a
     shareholder in the Company as long as the shares and/or exercise shares
     have not been registered in his name in the Shareholders Register of the
     Company, and in this matter that stated in Sections 6 and 7 below shall
     apply.

     5.2  The income charged to the credit of the Employee as a result of the
          grant of the shares and/or options and/or exercise shares, their
          transfer to his name or their sale and all that is connected with
          them, shall not be

                                      -6-
<PAGE>

          considered when calculating the basis of the Employee's eligibility to
          any social rights whatsoever. Without derogating from the general
          nature of that stated, this income shall not be considered for the
          purpose of calculating National Insurance, Directors' Insurance,
          Advanced Studies Fund, Providence Funds, Severance Pay, Vacation Pay
          and the like. Should the Company be obliged in pursuance of this
          Agreement to take account of the above components in the income or
          profit to be charged in any practical or theoretical manner to the
          account of the Employee, and then the Company shall indemnify the
          Employee in respect of any expense he incurs in this connection.

     5.3  No provision whatsoever in this Agreement or in this Plan shall be
          construed as an undertaking and/or agreement on the part of the
          Company to employ the Employee for any particular period nor should
          any provision in the Agreement or the Plan be construed as a
          limitation of the Company's rights to terminate the employment of any
          Employee at any time, at the sole discretion of the Company and
          according to the Employment Agreement of each Employee and/or in law.
          Therefore, inter alia, the Employee shall have no claim against the
          Company because his rights in pursuance of Section 102 are likely to
          be denied him on account of the termination of his Employment with the
          Company as stated.

6.   Vesting - Formulation of the Employees Eligibility to Shares and/or Options
     ---------------------------------------------------------------------------

     The Employee's eligibility to shares and/or options that are allocated to
     him in pursuance of this Agreement with him, shall be formulated, unless
     otherwise stated in the Agreement with each Employee as is determined in
     that stated above in Section 2, so that as long as any Employee is an
     employee of the Company, or of its subsidiary company, the Employees rights
     shall be formulated as 25% of the shares allocated to him in the Agreement
     with him for each full year of his employment with the Company.

     To remove any doubt, if the Employee's work with the Company is terminated
     for any reason whatsoever before the end of his first year of employment
     with the Company, the Employee shall not be eligible for shares and/or
     options in the Company at all. If his employment with the Company is
     terminated for any reason whatsoever after the end of the first year and
     before the end of the fourth year, the Employee shall be entitled to shares
     and/or options for the relative part according to the period during which
     he was actually employed for his last "working year" subject to that stated
     at the end of Section 9.2 below concerning the negation of eligibility of
     an

                                      -7-
<PAGE>

     Employee who was dismissed in circumstances in which the Employee is not
     eligible for severance pay or for any part thereof.

     It is hereby made clear that regardless of the formulation of the
     Employee's eligibility to shares and/or options as stated above, the shares
     shall be blocked by the Trustee for a period of at less 24 months from the
     end of the period of the Company and the Trustee's notice to the Assessing
     Officer, in pursuance of the provisions of Section 102 (the "Date of
     Grant").

7.   Placing the Shares and/or the Options at the Disposal of the Trustee to be
     --------------------------------------------------------------------------
     Held by Him.
     ------------

               7.1  The Trustee appointed as stated above by the Board of
     Directors of the Company for the purposes of executing this Plan shall be
     vested with all the powers in pursuance of Section 102 as well as any other
     authority agreed between him and the Company in the Trust Agreement to be
     drawn up between him and the Company.

     7.2  The shares and/or the options and/or the exercise shares and the share
          certificates in respect of the shares and the exercise shares that are
          issued in the name of the Trustee, shall be deposited with him and
          held by him and shall be registered in his name in the Shareholders'
          Register of the Company for the period specified in section 7.4 below
          which shall not be less than the period determined in pursuance of
          Section 102 (hereafter: the "Blocking Period").

     7.3  Unless otherwise stated in this Plan or in any other agreement, the
          Trustee shall hold in trust any asset he receives in respect of the
          shares and/or the options and/or the exercise shares. Should the
          eligibility of any Employee be formulated in relation to particular
          shares and/or options and/or exercise shares, the Trustee shall hold
          any asset he receives in respect of these shares and/or options and/or
          exercise shares to the benefit of the Employee and shall deem the
          asset as part of those same shares and/or options and/or exercise
          shares in connection with the Blocking Period in pursuance of Section
          102.

     7.4  Subject to that stated in Section 102, the Employee and/or his heirs
          may not demand the transfer of the shares and/or options and/or
          exercise shares into their possession from the Trustee before July 1,
          2002 or immediately after the Company's shares have been issued to the
          public, whichever is the earlier.

                                      -8-
<PAGE>

     7.5  As long as the shares and/or the exercise shares in pursuance of this
          Plan are held by the Trustee or are registered in his name in the
          Shareholders' Register of the Company, Ma'ahaz Ne'eman Ltd. only shall
          be eligible to exercise any right of any sort whatsoever vested in the
          shareholders of the Company in connection with the shares including
          the right to be invited, to participate and to vote at any
          Shareholders' Meeting and to appoint directors, in as far as such a
          right exists. The Employee shall not be eligible to exercise any right
          to approach the Trustee or the Company with any demand or request in
          this matter. Ma'ahaz Ne'eman Ltd. shall be authorized whenever it so
          requests by the Board of Directors of the Company to shorten the
          period of advance notice for a General Meeting of the Company. Ma'ahaz
          Ne'eman Ltd. shall sign each resolution of the Shareholders of the
          Company in writing if instructed to do so by Mr. Yoav Hollander.
          Ma'ahaz Ne'eman Ltd. will provide Mr. Yoav Hollander with a power of
          attorney to vote in its name and in its stead in respect of the shares
          which confer on them the said voting rights at any General Meeting in
          respect of which Mr. Hollander requests such power of attorney. This
          power of attorney will allow Mr. Hollander to appoint another
          warrantor. If no such warrantor is appointed, Ma'ahaz Ne'eman Ltd.
          shall be prevented from voting by virtue of the shares registered in
          its name at the General Meeting of the Company.

          In order to remove any doubt and without derogating from the
          aforementioned, holders of options shall not be eligible for rights as
          shareholders of the Company as long as they have not exercised the
          options and as long as the exercise shares have not been allotted to
          them and the consideration for them actually paid to the Company, and
          on the allocation of the said exercise shares, all that stated above
          in this Section shall apply to those shares.

     7.6  Should at any time before the Company's shares are issued to the
          public, the Company vote on an offer of rights to the shareholders
          (hereafter- "Offer of Rights") and the Board of Directors of the
          Company determine that the Employees are eligible to participate in
          this Offer of Rights and at the same time the right to purchase the
          shares offered within the framework of the Offer f Rights is conferred
          on the Employees because of their holding Company shares, the Company
          shall offer the Employees the right to purchase these shares in
          accordance with the number of shares allocated to each Employee,
          whether the Employee's right to shares has been formulated or not.
          Should the Employee not exercise the right, the Trustee shall transfer

                                      -9-
<PAGE>

          the right not exercised to Mr. Yoav Hollander. The Trustee shall act
          in accordance with the aforementioned so that time shall be allowed to
          Mr. Hollander to exercise his right (if there is any such right) in
          accordance with the schedule determined in the Company Articles of
          Association. In order to remove any doubt, that stated in this Section
          shall not apply to those Employees who were allotted options in
          pursuance of this Plan.

          In order to remove doubt, at any time at which the Employees do not
          have the right to purchase shares in the Company because any such
          issue is not within the framework of the Offer of Rights as stated
          above in this Section, or if the Board of Directors has determined
          that the Employees may not participate in such an Offer of Rights and
          the Trustee, by virtue of the fact that he holds shares in the
          Company, has the right to purchase shares and/or options in the
          Company when offered (preemptive right) in accordance with that stated
          in Articles 50 - 51 of the Articles of Association of the Company,
          that stated in Section 7.5 above shall not apply and the Trustee shall
          not exercise his right to purchase the shares in the Company as stated
          in this framework.

     7.7  The Trustee shall not exercise the right of first refusal to purchase
          shares in the Company in respect of the shares registered in his name,
          even if such a right is conferred on him in law, in the Articles of
          Association or an agreement.

     7.8  Should the Board of Directors of the Company or any person acting in
          its name decide to terminate or cancel the Plan, the Trustee shall
          transfer the assets he holds and that have not been allocated to an
          Employee in accordance with the instructions of the Board of Directors
          of the Company or whoever is authorized by the Board.

     7.9  The Trustee shall not be liable to the Employee and/or to any third
          party (including, but without derogating from the general nature of
          that stated, the Income Tax Authorities and any other governmental or
          administrative authority) in respect of any action he has taken and/or
          that shall be taken concerning this Plan and its performance and all
          that is connected with it or is derived therefrom. The Employee
          undertakes not to make any claim against the Trustee in any manner
          whatsoever or on any grounds whatsoever.

8.   The Terms of the Options and Their Exercise
     -------------------------------------------

                                      -10-
<PAGE>

               8.1  The options shall lapse to all intents and purposes on
     December 31, 2007 unless this Plan is brought to an end before that date or
     if this date is extended as stated in Section 2 above.  After its lapse as
     stated, the options shall be void to all intents and purposes and shall not
     confer any right whatsoever on any person holding them or eligible to hold
     them, before they lapsed as stated.

     8.2  The right to exercise the options shall be conferred on an Employee in
          installments and gradually as is determined in Section 6 above. At the
          end of each of the periods determined as stated, the Employee may,
          from time to time, exercise the options concerning all the shares
          allocated for that period or any part thereof. In addition, during
          each of the periods, it will be possible to exercise the options
          concerning all the shares or part of the shares allocated for the
          previous period in which the options were not exercised in full and on
          condition that at the time of exercising the option, the Employee has
          been employed continuously by the Company from the date of issue until
          the date of exercise and/or he is within the extension period as
          stated in section 2.2.2 above, subject to that stated at the end of
          section 9.2 below concerning the negation of rights of an Employee who
          was dismissed in circumstances in which the Employee is not eligible
          to receive severance pay or any part thereof.

     8.3  An Employee who wishes to exercise the option for which his
          eligibility has been formulated as stated above in Section 6, and
          subject to that stated in Section 8.2 above, notice in writing shall
          be given to the Company, as is relevant, in the accepted text for the
          matter at that time, and a copy of which the Employee may obtain from
          the Company. The notice will itemize the number of shares that the
          Employee wishes to exercise and the payment due will be attached, and
          the manner in which it is paid, for the price for exercise of the
          options, in accordance with that determined by agreement. All other
          documents that the Employee is obliged to sign, as a condition for
          exercising the option shall also be attached to the notice as
          specified in the Plan and as decided by the Board of Directors. As a
          condition for exercise of the option, the Employee shall pay the
          applicable tax, if there is any such tax (including by the tax being
          deducted at source by the Company).

     8.4  On receipt of all the documents, certificates and payments as required
          from the Employee as a condition for exercise of the option in
          pursuance of this Plan and the fulfillment of all other conditions in
          respect thereof in pursuance of the agreement and in law, the Trustee
          shall send a notice to the Company in the text to be determined in the

                                      -11-
<PAGE>

          matter from time to time. The Company shall allocate the shares that
          derive from the exercise of the option in the name of the Trustee,
          shall register the Trustee in the Shareholders' Register of the
          Company and shall issue the Trustee with a share certificate in the
          name of the Trustee in accordance with that stated in this Plan and in
          pursuance of the provisions of Section 102.

9.   Termination of the Employee's Employment
     ----------------------------------------

               9.1  Should the provisions of section 102 apply to the Plan, then
       if the Employee has ceased to be an employee of the Company before the
       end of the two year period determined in pursuance of the provisions of
       Section 102, other than if he has ceased to be employed by the company on
       account of his demise or on account of special circumstances that are not
       under the control of the Employee, to the satisfaction of the
       Commissioner, then the exemption determined in Section 102 shall not
       apply to that Employee. In such a case, the Employee shall make
       arrangements with the Tax Authorities, at his expense, in regard to all
       that is connected with taxation of the shares and/or the options and pay
       the applicable tax immediately, as stated in Section 102.

     9.2  In the case of the termination of the Employee's employment with the
          Company after the end of the first year, and providing that the date
          of the termination of his employment comes into force after the end of
          the blocking period in pursuance of Section 102, the Employee shall be
          entitled to shares for which his eligibility has already been
          formulated at the date of the termination of his employment as stated.
          The aforementioned shall not apply in the case of the termination of
          the employment of an Employee if in the circumstances in which he was
          dismissed or if he was dismissed by the Company so that he is not
          entitled in law to severance pay or any part thereof, then, the
          Employee's right to any shares and/or options to which he is eligible
          in pursuance of this Plan and which are registered in the name of the
          Trustee including the shares and/or options for which his eligibility
          has already been formulated in pursuance of Section 7 above, shall
          lapse.

     9.3  As concerns options that had not been exercised by the date of the
          termination of the Employee's employment, the Employee may exercise
          the options in accordance with the conditions to be determined as
          stated in Section 2.2.2 above. In any case, and unless otherwise
          determined in pursuance of Section 2.2.2 above, the exercise period,
          after the termination of the employer - employee relationship shall
          not be longer

                                      -12-
<PAGE>

          than 6 months in the case of the death of the employee, 30 days in the
          case of termination of the employer - employee relationship for any
          other reason, while in the case of the dismissal of an employee in
          circumstances in which, in law, his severance pay may be negated, or
          part thereof, subject to that stated at the end of Section 9,2 above
          concerning the negation of the eligibility of an employee who was
          dismissed in circumstances in which the Employee is not entitled to
          severance pay or part thereof.

    9.4   In the case of the demise of the Employee and subject to the
          provisions of Section 102, shares and/or options held by the Trustee
          or held directly by the Employee for which the Employee's eligibility
          was formulated before his demise, shall be held by him for the heirs
          of the Employee as they were held for the Employee subject to all the
          provisions of this Plan and for the period of time determined for the
          heirs to exercise the options as stated in Section 2.2.3 above, and
          the remaining rights of the Employee to shares and/or options for
          which his eligibility had not yet been formulated at the date of his
          death shall lapse and shall not confer any right on his heirs.

    9.5   As regards that stated above, the termination of the Employee's
          employment shall be the date on which the Company or the Employee, as
          is the case, informs the other party in writing of the termination of
          the connection between them, even if a later date is recorded in the
          notice for the termination of the employer - employee relationship,
          unless another later date is determined by the Board of Directors
          and/or the Plan Manager.

    10.   Restrictions of the Transfer of the Shares and/or the Options
          -------------------------------------------------------------

               Without derogating from that stated in Sections 6 and 7 above,
     the Employee's rights in all that is connected with the shares and/or the
     options, all or part of them, as long as the shares and/or the exercise
     shares that are derived from the options have not been transferred to him
     from the Trustee and registered in his name, are individual and may not be
     transferred, assigned, mortgaged, subjected to a lien, charge or other
     encumbrance whether voluntarily or by force of law, other than a transfer
     by virtue of a will or the laws of inheritance, and no power of attorney
     shall be granted in respect thereof nor deed of transfer, whether it enters
     into force immediately or at a future date. To remove any doubt, the
     options are not transferable in any manner whatsoever other than by virtue
     of a will or the laws of inheritance, and they may be exercised solely by
     the Employee

                                      -13-
<PAGE>

     or his heirs.

     Any such transfer, whether made directly or indirectly, whether made to
     obtain immediate effect or effect in the future shall be null and void.

     In addition and without derogating from that stated above, should the Lock
     Up or Market Standoff periods apply to the shares in pursuance of the
     provisions of the Stock Exchange and/or the terms of issue and/or a demand
     of the underwriters on an issue to the public, if there is an issue to the
     public and/or the decision of the Board of Directors and/or the Plan
     Manager and/or in law, the Board of Directors shall determine the extent
     and the terms of the application of these Lock Up Periods, and the Employee
     shall be subject to such decision.

11.  Taxations, and Other Arrangements Arising from the Transfer of the Shares
     -------------------------------------------------------------------------
     and/or the Options to the Employee
     ----------------------------------

     11.1 The Employee shall bear all obligations for tax, charges, compulsory
          payments that are applied by the Tax Authorities (whether in Israel or
          abroad) and any other compulsory payment whatever its source, in
          respect of the shares and/or the options and/or the exercise shares or
          dividend or any other benefit in respect thereof, in connection with
          the transfer of the shares and/or the options and/or the exercise
          shares to the name of the Employee and/or other charges that arise in
          the name of the Employee and/or the Trustee in connection with the
          Plan. The Company will deduct tax due, including deduction of tax at
          source, as is compulsory according to the provisions of this Plan. If
          at any stage of the execution of the Plan, any payment of tax is
          demanded and the Company is not in possession of the required sums to
          carry out the said deduction at source from the amount due to the
          Employee from the Company, the Company may not execute that stage
          and/or part of the Plan unless the Employee makes immediately
          available to the Company on its demands, the sums required for making
          the said payment of tax.

     11.2 The Company or the Trustee may, at any time, approach the Assessing
          Officer and any other foreign tax authority to obtain confirmation
          concerning the amount of tax that the Company or the Employee or the
          Trustee is bound to transfer in respect of the allocation of the
          shares and/or the options and/or the exercise shares or any other
          questions that concern the implementation of this Plan. Before the
          transfer of the shares and/or the options and/or the exercise shares
          to the name of the Employee, the Trustee shall obtain a confirmation
          from the Assessing

                                      -14-
<PAGE>

          Officer or any other confirmation to the satisfaction of the Company
          of the fact that the tax that applies in pursuance of Section 102 has
          been paid and that the shares and/or the options and/or the exercise
          shares may be transferred to the name of the Employee.

     11.3 The Employee, if requested to do so by the Trustee or by the Company
          Accountant, will furnish the Trustee with confirmation from the
          Assessing Officer in the text acceptable to the Trustee, of the tax
          that applies in respect of the shares and/or the options and/or the
          exercise shares and that is to be transferred to the Assessing Officer
          as a condition for the transfer of the shares and/or the options
          and/or the exercise shares to the name of the Employee. Alternatively,
          on the demand of the Trustee and in accordance therewith, the Employee
          shall transfer the applicable tax directly to the Assessing Officer
          and shall furnish the Trustee and the Company with confirmation from
          the Assessing Officer in the accepted text of the release of the
          Trustee and the Company from all liability for the payment of tax.

12.  Transfer of Control
     -------------------

     In any instance of a transaction of transfer of control of the Company as
     defined below, the Company shall approach the body acquiring control,
     before the execution of the transfer of control transaction, in order to
     promote the possibility that the body will accept responsibility for the
     undertaking to meet the terms of the options in pursuance of this Plan, or
     shall issue, in stead of the options in pursuance of this Plan that will be
     cancelled as stated below, new options from that body (or of a body
     affiliated to it). Should the body acquiring control not be interested in
     the said possibilities on conditions that are determined to the
     satisfaction of the Board of Directors and at its absolute discretion then:

     12.1 In regard to the options for which the date of their eligibility has
          not yet been formulated then the part of the options for which their
          eligibility is formulated during the 12 months after the merger
          transaction or if they represent 50% of the options for which the
          eligibility had not yet been formulated at the date of the merger,
          whichever is the lesser amount, so that all options that had not been
          exercised on the eve of the said merger shall be cancelled and also:

     12.2 The Board of Directors and/or the Plan Manager may, at their sole
          discretion, cancel all the options not yet exercised on the date of
          execution of the merger transaction, providing that notice is given a
          reasonable period before that date to the holders of the options of
          the

                                      -15-
<PAGE>

          merger transaction and of the possibility of exercising the options
          for which their eligibility has been formulated, including the options
          for which their eligibility has been formulated as stated above in
          section 12.1, before the execution of the merger transaction.

     In this matter, any transaction or business arrangement shall be deemed to
     be a merger transaction for a period of 90 days in the framework of which
     more than 50% of the controlling rights in the Company are transferred, or
     any assets of the Company are sold or the Company merges with another while
     the Company is the Company received.

13.  Distribution of Dividends and Adjustments because of Changes in the Capital
     ---------------------------------------------------------------------------
     Structure
     ---------

               13.1   Should changes be made in the capital structure of the
       Company, including but without derogating from the general nature of that
       stated, changes in the exercise shares through consolidation, re-
       organization, a change in the capital structure, distribution of bonus
       shares, distribution of a non-cash dividend, splitting shares, a divided
       on liquidation, consolidation of shares, exchange of shares, a change in
       the structure of the Company or in any other way, but other than a
       transfer of control of the Company in respect of which that stated in
       Section 12 above shall apply, the Board of Directors and/or the Plan
       Manager, at their exclusive discretion shall make the appropriate changes
       in all that concerns the options or the exercise shares including
       adjusting their number in order to reflect this event providing that it
       shall not prejudice the rights conferred on the Employees. Should such
       adjustment create fractions of shares when calculating the number of
       shares subject to a particular option or that are due to a particular
       Employee, they shall be rounded off to the lower or upper half unit as is
       the case, in accordance with the instructions of the Board of Directors
       and/or the Plan Manager.

               13.2   Should bonus shares be issued by virtue of the shares
       actually issued for an Employee within the framework of this Plan and
       that are registered in the name of the Trustee, the bonus shares shall be
       issued to the Trustee, shall be registered in his name and shall be
       considered to all intents and purposes, including in all that is
       connected with their subjection to the terms of the Plan and the
       provisions of Section 102 as though they were the original shares by
       virtue of which they were issued as long as the shares are registered in
       the name of the Trustee.

                                      -16-
<PAGE>

               13.3   The eligibility of the shares actually issued to an
     Employee to participate with the Ordinary Shares of the Company in a cash
     dividend that is declared and distributed shall be subject to the decision
     of the Board of Directors.

               13.4   In the event that a cash dividend is distributed, subject
     to that stated in Section 13.3 above, the dividend shall only be
     distributed in respect of those shares actually allocated to an Employee
     and in respect of the options exercised up until the "determining date" for
     the distribution of the dividend and for the shares for which his
     eligibility has been formulated, in accordance with that stated below in
     Section 13.5. The Employee shall not make any claim against the Company,
     its directors or shareholders if for any reason, whether it depends on the
     Company or whether it depends on the Employee, the shares were not
     allocated to the Employee by the determining date.

     The decision of the Board of Directors of the Company to distribute a
     dividend shall be sent by registered mail or by fax or by any other method
     that will enable the Board of Directors to know that the notice has reached
     the Employees on whom the options were conferred and who are entitled to
     exercise them by the determining date, at least 7 days before the date
     determined for the distribution of the dividend, or shall be delivered to
     them by hand at least 48 hours before the determining date.

                  An Employee who according to the terms of the Plan may request
     from the Trustee that he exercise the options to purchase any shares
     whatsoever on his behalf by the determining date, may do so, if he actually
     does so in the manner required by this Plan by the determining date. The
     shares allocated in respect of the options exercised by the determining
     date shall be eligible to participate in the distribution of the dividend
     as stated above in this Section, subject to that stated in section 13.3
     above.

               13.5   A dividend concerning shares that were actually allocated
     to the Employee, that are registered in the name of the Trustee and for
     which his eligibility has already been formulated, shall be paid directly
     to the Employee, after deducting the tax due whether at the standard rate
     that applies to a dividend or whether at a higher rate, if tax is to be
     deducted as stated.

                  The Company or the Trustee may offset and deduct at source
     from any dividend declared and distributed as stated any sum that

                                      -17-
<PAGE>

     the Employee owes the Company or the Trustee as well as any sum that is
     taxable, or subject to a charge or any other compulsory payment.

               14.   Miscellaneous
                     -------------

                 14.1   The Trustee shall not be liable to the Employee or to
     any third party (including and without derogating from the general nature
     of that stated, the Income Tax Authorities or any other governmental or
     administrative authority) in respect of any action taken and/or that shall
     be taken in connection with this Plan and its execution and all that is
     connected with it or is derived from it. The Employee undertakes to
     indemnify the Trustee for any such liability and/or that concerns any claim
     and/or demand from any agent whatsoever, including the Tax Authorities, in
     connection with this Plan.

                 14.2   Israeli law shall apply to this Plan and all that is
     connected therewith, including the Agreement. The sole jurisdiction in
     pursuance of this Plan shall be that of the competent Court of Law of the
     State of Israel in Tel Aviv.

                 14.3   Any notice sent in pursuance of the Agreement or the
     Plan shall be given in writing, and shall be deemed to have been delivered
     on the date of its delivery to the Trustee by hand or by fax or 3 (three)
     business days after it was dispatched by registered mail to the address of
     the parties.

                                      -18-

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