Document:

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                                                                   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 to 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.

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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

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                 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

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     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 00.1 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 00.1, 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-
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     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

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          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

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          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

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     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.

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     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 exercise the right, the shares acquired by him
          shall be conferred to the Trustee, and they will be treated as part of
          the shares. Should the Employee not exercise the right, the Trustee
          shall transfer

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          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
     -------------------------------------------

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               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

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          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

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          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.

     After the transfer of the shares from the Trustee to the Employee on the
     Company's registrar, the Employee shall be subject to the same limitations
     applicable to the transfer of shares in the Company which are set forth in
     the Company's Articles of Association, as shall be in force from time to
     time.

     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 addressee by hand or by fax or 3 (three)
     business days after it was dispatched by registered mail to the address of
     the parties.

                                      -18-<PAGE>

                                                                   Exhibit 10.30

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

1.  Adoption and Purpose of the Plan.  This stock option plan, to be known as
    --------------------------------
the "Verisity Ltd. 1996 U.S. Stock Option Plan" (the "Plan") has been adopted by
the board of directors (the "Board") of Verisity Ltd., an Israeli corporation
(the "Company"), and is subject to the approval of its shareholders pursuant to
section 7 below.  The purpose of this Plan is to advance the interests of the
Company and its shareholders by enabling the Company to attract and retain
qualified directors, officers, employees, independent contractors, consultants
and advisers by providing them with an opportunity for investment in the
Company.  The options that may be granted hereunder ("Options") represent the
right by the grantee thereof ("Optionee") to acquire Ordinary Shares of the
Company ("Shares" which if acquired pursuant to the exercise of an Option will
be referred to as "Option Shares") subject to the terms and conditions of this
Plan and a written agreement between the Company and the Optionee to evidence
each such Option (an "Option Agreement").

2.  Certain Definitions.  The defined terms set forth in Exhibit A attached
    -------------------                                  ---------
hereto and incorporated herein (together with other capitalized terms defined
elsewhere in this Plan) will govern the interpretation of this Plan.

3.  Eligibility.  The Company may grant Options under this Plan only to (i)
    -----------
persons who, at the time of such grant, are directors, officers and/or employees
of the Company and/or any of its Subsidiaries, and (ii) natural persons who at
the time of such grant, are independent contractors, consultants or advisers of
the Company and/or any of its Subsidiaries ("Eligible Participants").  Subject
to the provisions of section 4 of this Plan, there is no limitation on the
number of Options that may be granted to an Eligible Participant.

4.  Option Pool; Shares Reserved for Options.  In no event will the Company
    ----------------------------------------
issue, in the aggregate, more than Four Million Two Hundred Twenty Thousand
(4,220,000) Shares (the "Option Pool") pursuant to the exercise of all Options
granted under this Plan, less that number of Shares that have been issued, or
have been reserved for issuance, either directly or pursuant to options granted,
to directors, officers, employees, independent contractors, consultants or
advisers of the Company and any of its Subsidiaries under any other stock option
plan, stock incentive plan, restricted stock or similar arrangement.  At all
times while Options granted under this Plan are outstanding, the Company will
reserve for issuance for the purposes hereof a sufficient number of authorized
and unissued Shares to fully satisfy the Company's obligations under all such
outstanding Options.

5.  Administration.  This Plan will be administered and interpreted by the
    --------------
Board, or by a committee consisting of two or more members of the Board,
appointed by the Board for such purpose (the Board, or such committee, referred
to herein as the "Administrator").  Subject to the express terms and conditions
hereof, the Administrator is authorized to prescribe, amend and rescind rules
and regulations relating to this Plan, and to make all other determinations
necessary or advisable for its administration and interpretation.  Specifically,
the Administrator will have full and final authority in its discretion, subject
to the specific limitations on that discretion as are set forth herein and in
the Articles of the Company, at any time:

                                      -1-
<PAGE>

        (a)  to select and approve the Eligible Participants to whom Options
     will be granted; provided that no Option may be granted to any person after
     he or she ceases, or to any entity after it ceases, for any reason, to be
     an Eligible Participant (a "Loss of Eligibility Status");

        (b)  to determine the Fair Market Value of the Shares as of the Grant
     Date for any Option;

        (c)  with respect to each Option, to determine the terms and conditions
     of the Option, to be set forth in the Option Agreement evidencing the
     Option (the form of which also being subject to approval by the
     Administrator), which may vary from the "default" terms and conditions set
     forth in section 6 below, except to the extent otherwise provided as
     follows:

            (i)   the total number of Option Shares that may be acquired by the
          Optionee pursuant to the Option;

            (ii)  whether the Option granted to an employee of the Company or
          its Subsidiary will be designated an ISO;

            (iii) the per share purchase price to be paid to the Company by the
          Optionee to acquire the Option Shares issuable upon exercise of the
          Option (the "Option Price"); provided that the Option Price will not
          be less than 85% of the Fair Market Value of the Shares as of the
          Grant Date, unless the Optionee is a 10% shareholder, in which case
          the Option Price will not be less than 110% of such Fair Market Value;

            (iv)  the maximum period or term during which the Option will be
          exercisable (the "Option Term"), provided that in no event may the
          Option Term be longer than 10 years from the Grant Date;

            (v)   the maximum period following any Loss of Eligibility Status
          with respect to the Optionee, whether resulting from his or her death,
          disability or any other reason, during which period (the "Grace
          Period") the Option will be exercisable, subject to Vesting and to the
          expiration of the Option Term, provided that in no event may the
          Administrator designate a Grace Period that is shorter than six months
          after such Loss of Eligibility Status by reason of the Optionee's
          death or disability, or 30 days after such Loss of Eligibility Status
          for any other reason, except in the event of a Just Cause Termination,
          in which case no Grace Period will be required (i.e., the Option will
          terminate immediately);

            (vi)  whether to accept a promissory note as a form of legal
          consideration in addition to cash as payment of all or a portion of
          the Option Price and/or Tax Withholding Liability to be paid by the
          Optionee upon the exercise of an Option granted hereunder;

            (vii) the conditions (e.g., the passage of time or the occurrence
          of events), if any, that must be satisfied prior to the vesting of the
          right to exercise all or specified portions of an Option (such
          portions being described as a percentage of the total number of Option
          Shares that may be acquired by the Optionee pursuant to the

                                      -2-
<PAGE>

          Option; the vested portion being referred to as a "Vested Option" and
          the unvested portion being referred to as an "Unvested Option");
          provided that no such conditions (except the Loss of Eligibility
          Status of the Optionee, after which no Unvested Option will become a
          Vested Option) may be imposed which prevents an Optionee who is an
          employee, but who is neither an officer or director, of the Company or
          any of its Subsidiaries, from purchasing at least 20% of the Option
          Shares initially subject to the Option as of the first anniversary of
          the Grant Date, and as of each anniversary thereafter, such that by
          the fifth anniversary of the Grant Date (assuming no such Loss of
          Eligibility Status) the entire Option would be deemed a Vested Option;
          and

        (d)  to delegate all or a portion of the Administrator's authority under
     sections 5(a), (b) and (c) above to one or more members of the Board who
     also are executive officers of the Company, and subject to such
     restrictions and limitations as the Administrator may decide to impose on
     such delegation.

6.  Default Terms and Conditions of Option Agreements.  Unless otherwise
    -------------------------------------------------
expressly provided in an Option Agreement based on the Administrator's
determination pursuant to section 5(c) above, the following terms and conditions
will be deemed to apply to each Option as if expressly set forth in the Option
Agreement, provided that in no event may an Option Agreement modify the
provisions of section 6.7(a):

    6.1 ISO.  If granted to an Eligible Participant who, as of the Grant Date,
        ---
is an employee of the Company or any Subsidiary (as determined under Section
3401(c) of the Code), the Option will be an ISO, subject to the following
additional terms and conditions:

        (a)  To the extent that the Fair Market Value of Option Shares
     (determined as of the Grant Date) with respect to which all ISOs are
     exercisable for the first time by any individual during any calendar year
     (pursuant to this Plan and all other plans of the Company and/or its
     Subsidiaries) exceeds $100,000, the Option will not be treated as an ISO.

        (b)  The Option Price will not be less than 100% of the Fair Market
     Value of the Shares as of the Grant Date, except that if the Optionee is a
     10% shareholder the Option Price will not be less than 110% of the Fair
     Market Value of the Shares as of the Grant Date, and the Option Term may
     not be more than five (5) years.

        (c)  Notwithstanding any Grace Period selected by the Administrator
     pursuant to section 5(c)(v) above, or the default provisions of section 6.3
     below, the tax treatment available pursuant to Section 422 of the Code upon
     the exercise of the ISO will not be available to an Optionee who exercises
     the Option more than (i) three months following the Optionee's Loss of
     Eligibility Status other than by reason of his or her death or permanent
     and total disability (within the meaning of Section 22(e)(3) of the Code),
     or (ii) 12 months following such Optionee's Loss of Eligibility Status by
     reason or his or her permanent and total disability, whichever case may be
     applicable.

    6.2  Option Term.  The Option Term will be for a period of 10 years
         -----------
beginning on the Grant Date (subject to section 6.1(b) above in the case of an
ISO granted to a 10% shareholder).

                                      -3-
<PAGE>

    6.3  Grace Periods.  Following a Loss of Eligibility Status:
         -------------

         (a)  the Grace Period will be 30 days, unless the Loss of Eligibility
     Status is a result of a Just Cause Termination or the death or disability
     of the Optionee;

         (b)  the Grace Period will be six months if the Loss of Eligibility
     Status is a result of the death or disability of the Optionee; and

         (c)  the Option will terminate, and there will be no Grace Period,
     effective immediately as of the date and time of a Loss of Eligibility
     Status which results from a Just Cause Termination of the Optionee,
     regardless of whether the Option is Vested or Unvested.

    6.4 Vesting.  The Option initially will be deemed an entirely Unvested
        -------
Option, but portions of the Option will become a Vested Option on the following
schedule:

         (a)  twenty-five percent (25%) will become a Vested Option as of the
     first anniversary of the "Vesting Start Date" specified in the Option
     Agreement (which may be earlier than the Grant Date specified therein); and

         (b)  two and one-twelfth percent (2-1/12%) of the Option will become a
     Vested Option as of the end of each month thereafter, provided that the
     Optionee does not suffer a Loss of Eligibility Status prior to each such
     vesting date and provided further that additional vesting will be suspended
     during any period while the Optionee is on a leave of absence from the
     Company, as determined by the Administrator.

    6.5  Exercise of the Option; Issuance of Share Certificate.
         -----------------------------------------------------

         (a)  The portion of the Option that is a Vested Option may be exercised
by giving written notice thereof to the Company, on such form as may be
specified by the Administrator, but in any event stating: the Optionee's
intention to exercise the Option; the date of exercise; the number of full
Option Shares to be purchased (which number will be no less than 100 Shares,
without regard to adjustments to the number of Shares subject to the Option
pursuant to section 8 below, or, if less, all of the remaining Shares subject to
the Option); the amount and form of payment of the Option Price; and such
assurances of the Optionee's investment intent as the Company may require to
ensure that the transaction complies in all respects with the requirements of
the 1933 Act and other applicable securities laws. The notice of exercise will
be signed by the person or persons exercising the Option. In the event that the
Option is being exercised by the representative of the Optionee, the notice will
be accompanied by proof satisfactory to the Company of the representative's
right to exercise the Option. The notice of exercise will be accompanied by full
payment of the Option Price for the number of Option Shares to be purchased, in
United States dollars, in cash, by check made payable to the Company, or in the
form of a promissory note payable to the Company as may be approved by the
Administrator, in its discretion pursuant to section 5(c)(vi) above.

         (b)  To the extent required by applicable federal, state, local or
foreign law, and as a condition to the Company's obligation to issue any Shares
upon the exercise of the Option in full or in part, the Optionee will make
arrangements satisfactory to the Company for the payment of any applicable Tax
Withholding Liability that may arise by reason of or in connection with such
exercise.

                                      -4-
<PAGE>

Such arrangements may include, in the Company's sole discretion, that the
Optionee tender to the Company the amount of such Tax Withholding Liability, in
cash, by check made payable to the Company, or in the form of such other payment
as may be approved by the Administrator, in its discretion pursuant to section
5(c)(vi) above.

        (c)  After receiving a proper notice of exercise and payment of the
applicable Option Price and Tax Withholding Liability, the Company will cause to
be issued a certificate or certificates for the Option Shares as to which the
Option has been exercised, registered in the name of the person rightfully
exercising the Option and the Company will cause such certificate or
certificates to be delivered to such person.

    6.6  Compliance with Law.  Notwithstanding any other provision of this Plan,
         -------------------
Options may be granted pursuant to this Plan, and Option Shares may be issued
pursuant to the exercise thereof by an Optionee, only after and on the condition
that there has been compliance with all applicable federal and state securities
laws. The Company will not be required to list, register or qualify any Option
Shares upon any securities exchange, under any applicable state, federal or
foreign law or regulation, or with the Securities and Exchange Commission or any
state agency, or secure the consent or approval of any governmental regulatory
authority, except that if at any time the Board determines, in its discretion,
that such listing, registration or qualification of the Option Shares, or any
such consent or approval, is necessary or desirable as a condition of or in
connection with the exercise of an Option and the purchase of Option Shares
thereunder, that Option may not be exercised, in whole or in part, unless and
until such listing, registration, qualification, consent or approval is effected
or obtained free of any conditions that are not acceptable to the Board, in its
discretion. However, the Company will seek to register or qualify with, or as
may be provided by applicable local law, file for and secure an exemption from
such registration or qualification requirements from, the applicable securities
administrator and other officials of each jurisdiction in which an Eligible
Participant would be granted an Option hereunder prior to such grant.

    6.7  Restrictions on Transfer.
         ------------------------

         (a)  Options Nontransferable.  No Option will be transferable by an
              -----------------------
Optionee otherwise than by will or the laws of descent and distribution.  During
the lifetime of an Optionee, the Option will be exercisable only by him or her.

         (b)  Prohibited Transfers.  Prior to the Initial Public Offering, no
              --------------------
Holder of any Option Shares may Transfer such Shares, or any interest therein,
except as expressly provided in this Plan, and in full compliance with
applicable securities laws and the Articles of the Company. All Transfers of
Option Shares not complying with the specific limitations and conditions set
forth in this section 6.7 and section 6.8 below, as well as in the Articles (the
limitations and conditions of which are deemed to be incorporated herein), are
expressly prohibited. Any prohibited Transfer is void and of no effect, and no
purported transferee in connection therewith will be recognized as a Holder of
Option Shares for any purpose whatsoever. Should such a Transfer purport to
occur, the Company may refuse to carry out the Transfer on its books, attempt to
set aside the Transfer, enforce any undertakings or rights under this Plan and
the Articles, or exercise any other legal or equitable remedy.

                                      -5-
<PAGE>

        (c)  Permitted Transfers.  In the case of a Permitted Transfer, the
             -------------------
rights of first refusal and purchase of the U.S. Subsidiary set forth in section
6.8 below will not apply.  For such purposes, a "Permitted Transfer" means any
of the following:  (i) a Transfer by will or under the laws of descent and
distribution; or (ii) a Transfer by a Holder of Option Shares to his or her
ancestors, descendants or spouse (other than pursuant to a decree of divorce,
dissolution or separate maintenance, a property settlement, or a separation
agreement or any similar agreement or arrangement with a spouse, except for bona
fide estate planning purposes), or to a trust, partnership, limited liability
company, custodianship or other fiduciary account for the benefit of the Holder
and/or such ancestors, descendants or spouse, including any Transfer in the form
of a distribution from any such trust, partnership, limited liability company,
custodianship or other fiduciary account to any of the foregoing permitted
beneficial owners or beneficiaries thereof.

        (d)  Conditions to Transfer.  It will be a condition to any Transfer of
             ----------------------
any Option Shares that:

               (i)   the transferee of the Shares will execute such documents as
     the Company may reasonably require to ensure that the Company's rights
     under this Plan, the Articles and any applicable Option Agreement, are
     adequately protected with respect to such Shares, including, without
     limitation, the transferee's agreement to be bound by all of the terms and
     conditions of this Plan and such Agreement, as if he or she were the
     original Holder of such Shares; an d

               (ii)  the Company is satisfied that such Transfer complies in all
     respects with the requirements imposed by applicable Israeli laws and
     regulations as well as applicable state and federal securities laws and
     regulations and the Articles of the Company.

        (e)  Market Standoff.  If in connection with any public offering of
             ---------------
securities of the Company (or any Successor Entity), the underwriter or
underwriters managing such offering so requests, then each Optionee and each
Holder of Option Shares will agree to not sell or otherwise Transfer any such
Shares (other than Shares included in such underwriting) without the prior
written consent of such underwriter, for such period of time as may be requested
by the underwriter commencing on the effective date of the registration
statement filed with the Securities and Exchange Commission in connection with
such offering, but in no event longer than the period of time that the officers
and directors of the Company or the U.S. Subsidiary are generally prohibited
from Transferring their Shares in connection with such public offering.

    6.8  Rights of Purchase and First Refusal.  Prior to the Initial Public
         ------------------------------------
Offering, the U.S. Subsidiary will have the following rights of purchase and
first refusal with respect to Option Shares:

        (a)  Right of First Refusal.  If any Holder proposes to Transfer any
             ----------------------
Option Shares, other than in the case of a Permitted Transfer pursuant to
section 6.7(c) above or an Involuntary or Donative Transfer subject to section
6.8(b) below, the U.S. Subsidiary will have an assignable right of first refusal
to purchase such Shares on the terms and conditions set out in this section
6.8(a).  If the U.S. Subsidiary (or its assignee) elects to exercise such right,
it will do so on an all-or-nothing basis with respect to any particular Transfer
of Shares in the following manner:

                                      -6-
<PAGE>

            (i)   Before any such Transfer, the Holder proposing to Transfer
     such Shares will deliver a notice of proposed Transfer (a "Proposed
     Transfer Notice") to the U.S. Subsidiary stating: the number of Option
     Shares that the Holder proposes to Transfer and the Holder's bona fide
     intention to Transfer such Shares; the names and addresses of the Holder,
     the proposed transferee and subsequently such other information regarding
     such transferee as the U.S. Subsidiary reasonably requests; the manner and
     date of such proposed Transfer; and the bona fide cash price and/or other
     consideration (and the fair market value thereof) per share, if any, that
     such Transferee has offered to pay Holder for such Shares (the "Offered
     Price") as well as such other terms, including payment terms, and
     conditions, if any, as were included in such offer (the "Offered Terms").

            (ii)  The U.S. Subsidiary (or its assignee) may exercise its right
     of first refusal under this section 6.8(a) at any time not more than twenty
     (20) days after the U.S. Subsidiary has received the Proposed Transfer
     Notice with respect to such Shares.  If the U.S. Subsidiary (or its
     assignee) elects to exercise such purchase rights it will do so by
     delivering to the Holder of such Shares a notice of such election and a
     closing date that is no more than thirty (30) days after receipt of the
     Proposed Transfer Notice (or such later date as the transferee may have
     offered or on which the Transfer is otherwise scheduled to occur).

            (iii) At the closing of the sale of the Shares to the U.S.
     Subsidiary (or its assignee), to be held at its principal executive
     offices, the U.S. Subsidiary (or its assignee) will pay the Holder of the
     Shares, in cash, the purchase price equal to the Offered Price, subject to
     an appropriate adjustment to take into account any deferred payment terms
     that were included in the Offered Terms, except in the case of a Transfer
     of Option Shares without consideration; provided that if the Offered Price
     includes any non-cash consideration, the value thereof for purposes of this
     section 6.8(a) will be determined in good faith by the Board, subject to
     section 6.8(c) below.

            (iv)  If the U.S. Subsidiary (including its assignees) fails or
     refuses to exercise its rights under this section 6.8(a) with respect to
     any Shares that are the subject of any Proposed Transfer Notice, then the
     Holder will have the right to Transfer such Shares to the transferee named
     in such Notice at the Offered Price and upon such Offered Terms as were set
     forth in such Notice; provided that such Transfer must be completed within
     ninety (90) days after the U.S. Subsidiary has received the Proposed
     Transfer Notice with respect to such Shares.

        (b)  Following an Involuntary or Donative Transfer.  Following any
             ---------------------------------------------
Involuntary Transfer or Donative Transfer (other than a Permitted Transfer) of
Option Shares (the "Transferred Shares"), the U.S. Subsidiary will have the
assignable right to purchase from the transferee of the Transferred Shares
("Transferee") all or a portion of such Shares for a purchase price that is
equal to the Fair Market Value of those Shares as of the date of such Transfer.
If the U.S. Subsidiary (or its assignee) elects to exercise such right, it will
do so in the following manner:

            (i)   Promptly after such Transfer, the transferor of the
     Transferred Shares will deliver, or will cause the Transferee to deliver, a
     notice (a "Completed Transfer Notice") to the U.S. Subsidiary stating: the
     number of Transferred Shares; the names and addresses of the transferor and
     the Transferee, and subsequently such other information regarding the

                                      -7-
<PAGE>

     Transferee as the U.S. Subsidiary reasonably requests; and the manner,
     circumstances and date of such Transfer.

            (ii)  The U.S. Subsidiary (or its assignee) may exercise its
     purchase rights under this section 6.8(b) at any time not more than ninety
     (90) days after the U.S. Subsidiary has received the Completed Transfer
     Notice with respect to the Transferred Shares.  If the U.S. Subsidiary (or
     its assignee) elects to exercise such purchase rights it will do so by
     delivering to the Transferee a notice of such election, specifying the
     number of Transferred Shares to be purchased and a closing date that is no
     more than sixty (60) days after the giving of such notice.

            (iii) At such closing, to be held at the U.S. Subsidiary's principal
     executive offices, the U.S. Subsidiary (or its assignee) will pay the
     Transferee the purchase price specified in this section 6.8(b).

        (c)  Resolution of Disputes.  If there is a dispute concerning the fair
             ----------------------
market value of the consideration offered or accepted for the Option Shares or
the Fair Market Value of the Option Shares, in connection with the exercise by
the U.S. Subsidiary of its rights under this section 6.8, the dispute will be
resolved by binding arbitration pursuant to Section 1280 et seq. of the
                                                         ------
California Code of Civil Procedure (the "CCP Act"), provided that the
arbitration will be conducted by a single arbitrator selected by Judicial
Arbitration and Mediation Services in Santa Clara, California. Within ten (10)
business days following the appointment of the arbitrator, each party will state
in writing its position concerning the dispute supported by the reasons therefor
with counterpart copies delivered to the arbitrator. If either party fails
timely to submit its position, the position submitted by the other party will be
deemed correct, and the arbitration will be deemed concluded. The arbitrator
will arrange for a simultaneous exchange of positions. The arbitrator will
select which of the two proposed positions most closely approximates his or her
determination of the correct position and will have no right to propose a middle
ground or any modification of either of the two proposed positions. The position
he or she chooses as most closely approximating his or her determination will
constitute the decision of the arbitrator and be final and binding upon the
parties. In the event of a failure, refusal, or inability of the arbitrator to
act, his or her successor will be appointed by him or her, or, if he or she
fails to do so within five (5) business days, as provided by the CCP Act. The
arbitrator will attempt to decide the issue within ten (10) business days after
his or her receipt of the proposed positions. Both parties will share the fee
and expenses of the arbitrator. The arbitrator will have the right to consult
experts and competent authorities with factual information or knowledge
concerning the dispute and the fees of such authorities will be shared equally
by the parties.

        (d)  Escrow.  For purposes of facilitating the enforcement of the
             ------
restrictions on Transfer set forth in this Plan or in any Option Agreement, the
Administrator may, at its discretion, require the Holder of Option Shares to
deliver the certificate(s) for such Shares with a stock power executed by him or
her and by his or her spouse (if required for Transfer), in blank, to the
Secretary of the U.S. Subsidiary or his or her designee, to hold said
certificate(s) and stock power(s) in escrow and to take all such actions and to
effectuate all such Transfers and/or releases as are in accordance with the
terms of this Plan.  The certificates may be held in escrow so long as the
Option Shares whose ownership they evidence are subject to any right of
repurchase or

                                      -8-
<PAGE>

first refusal under this Plan or under an Option Agreement, and shall be
released by the escrow holder to an Optionee (or to any permitted transferee of
the Optionee) when they are no longer subject to any right of repurchase or
first refusal under this Plan or under the Option Agreement. Each Optionee, by
exercising an Option, thereby acknowledges that the Secretary of the U.S.
Subsidiary (or his or her designee) is so appointed as the escrow holder with
the foregoing authorities as a material inducement to the grant of an Option
under this Plan, that the appointment is coupled with an interest, and that it
accordingly will be irrevocable. The escrow holder will not be liable to any
party to an Option Agreement (or to any other party) for any actions or
omissions unless the escrow holder is grossly negligent relative thereto. The
escrow holder may rely upon any letter, notice or other document executed by any
signature purported to be genuine.

    6.9  Change of Control Transactions and Reorganizations.
         --------------------------------------------------

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

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

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

For purposes of this section 6.9, the term "Change of Control Transaction" means
a Business Combination in which less than 50% of the outstanding voting
securities of the Successor Entity immediately following the Closing of the
Business Combination transaction are beneficially held by those persons and
entities in the same proportion as such persons and entities beneficially held
the voting securities of the Company immediately prior to such transaction; the
term "Business Combination" means a transaction or series of transactions
consummated within any period of 90 days resulting in (A) the sale of all or
substantially all of the assets of the Company, (B) a merger or consolidation or
other reorganization of which the Company or a Subsidiary is a merging party, or
(C) the sale or other change of beneficial ownership of at least 33-1/3% of the
outstanding voting securities of the Company.

        (b)  Reorganization.  If, in connection with a corporate reorganization
             --------------
or any other transaction contemplated by Section 424 of the Code and applicable
regulations , with or involving another company (other than a Subsidiary of the
Company prior to the consummation of such reorganization or other transaction,
the "Target Company") or its outstanding voting securities (and other

                                      -9-
<PAGE>

than a Change of Control Transaction, a "Corporate Reorganization"), the Company
grants one or more Options (each, a "Replacement Option") under this Plan in
replacement or substitution for one or more options (each, a "Terminated
Option") granted by the Target Company (or its parent or Subsidiary) to acquire
shares of its capital stock ("Target Shares") which are terminated or cancelled
in connection with such Corporate Reorganization, then notwithstanding section
5(c)(iii) above, or in the case of an ISO notwithstanding section 6.1(b) above,
the Replacement Option shall be granted with an Option Price such that in the
good faith determination of the Administrator both (i) the excess of the
aggregate fair market value of the maximum number of Option Shares that may be
acquired by Optionee pursuant to the exercise of the Replacement Option (without
regard to the vesting thereof) over the aggregate Option Price of such number of
Option Shares is not greater than the excess of the aggregate fair market value
of the maximum number of Target Shares that could have been acquired by Optionee
pursuant to the exercise of the Terminated Option prior to its termination or
cancellation (without regard to the vesting thereof) over the aggregate exercise
price of the number of such Target Shares, and (ii) the ratio of the Option
Price to the fair market value of each Option Share is not less than the ratio
of the exercise price of the Terminated Option to the fair market value of each
Target Share , provided that the fair market value of the Target Shares shall be
determined immediately prior to such Corporate Reorganization and the fair
market value of the Option Shares shall be determined immediately after such
Corporation Reorganization.

    6.10  Additional Restrictions on Transfer; Investment Intent.  By accepting
          ------------------------------------------------------
an Option and/or Option Shares under this Plan, the Optionee will be deemed to
represent, warrant and agree that, unless a registration statement is in effect
with respect to the offer and sale of Option Shares:  (i) neither the Option nor
any such Shares will be freely tradeable and must be held indefinitely unless
such Option and such Shares are either registered under the 1933 Act or an
exemption from such registration is available; (ii) the Company is under no
obligation to register the Option or any such Shares; (iii) upon exercise of the
Option, the Optionee will purchase the Option Shares for his or her own account
and not with a view to distribution within the meaning of the 1933 Act, other
than as may be effected in compliance with the 1933 Act and the rules and
regulations promulgated thereunder; (iv) no one else will have any beneficial
interest in the Option Shares; (v) the Optionee has no present intention of
disposing of the Option Shares at any particular time; and (vi) neither the
Option nor the Shares have been qualified under the securities laws of any state
and may only be offered and sold pursuant to an exception from qualification
under applicable state securities laws.

    6.11  Stock Certificates; Legends.  Certificates representing Option Shares
          ---------------------------
will bear all legends required by law and necessary or appropriate in the
Administrator's discretion to effectuate the provisions of this Plan and of the
applicable Option Agreement. The Company may place a "stop transfer" order
against Option Shares until full compliance with all restrictions and conditions
set forth in this Plan, in any applicable Option Agreement and in the legends
referred to in this section 6.11.

    6.12  Notices.  Any notice to be given to the Company under the terms of an
          -------
Option Agreement will be addressed to the Company at its principal executive
office, Attention: President, or at such other address as the Company may
designate in writing. Any notice to be given to an Optionee will be addressed to
him or her at the address provided to the Company by the Optionee. Any such
notice will be deemed to have been duly given if and when enclosed in a properly
sealed envelope, addressed as aforesaid, deposited, postage prepaid, in a post
office or branch post office regularly maintained by the local postal authority.

                                      -10-
<PAGE>

7.  Term of the Plan.  This Plan will become effective on the date of its
    ----------------
adoption by the Board, provided this Plan is approved by the shareholders of the
Company (excluding Option Shares issued by the Company pursuant to the exercise
of Options granted under this Plan) within 12 months before or after that date.
If this Plan is not so approved by the shareholders of the Company within that
12-month period of time, any Options granted under this Plan will be rescinded
and will be void. This Plan will expire on the tenth (10th) anniversary of the
date of its adoption by the Board or its approval by the shareholders of the
Company, whichever is earlier, unless it is terminated earlier pursuant to
section 11 of this Plan, after which no more Options may be granted under this
Plan, although all outstanding Options granted prior to such expiration or
termination will remain subject to the provisions of this Plan, and no such
expiration or termination of this Plan will result in the expiration or
termination of any such Option prior to the expiration or early termination of
the applicable Option Term.

8.  Adjustments Upon Changes in Stock; Rights Offering.
    --------------------------------------------------

    (a)  In the event of any change in the outstanding Shares of the Company as
a result of a stock split, reverse stock split, stock bonus or distribution,
recapitalization, combination or reclassification, appropriate proportionate
adjustments will be made in: (i) the aggregate number of Shares that are
reserved for issuance in the Option Pool pursuant to section 4 above, under
outstanding Options or future Options granted hereunder; (ii) the Option Price
and the number of Option Shares that may be acquired under each outstanding
Option granted hereunder; and (iii) other rights and matters determined on a per
share basis under this Plan or any Option Agreement evidencing an outstanding
Option granted hereunder. Any such adjustments will be made only by the Board,
and when so made will be effective, conclusive and binding for all purposes with
respect to this Plan and all Options then outstanding. No such adjustments will
be required by reason of the issuance or sale by the Company for cash or other
consideration of additional Shares or securities convertible into or
exchangeable for Shares.

    (b)  If at any time prior to an Initial Public Offering, the Company
proposes to issue or sell any securities to all of its then current
shareholders, each Optionee shall be deemed for purposes of such issuance or
offer to sell to be a shareholder of that number of Option Shares that may be
acquired by the Optionee (whether vested or unvested) pursuant to an Option (in
addition to any Option Shares or other Shares actually held of record by such
Optionee).

9.  Modification, Extension and Renewal of Options.  Subject to the terms and
    ----------------------------------------------
conditions and within the limitations of this Plan, the Administrator may
modify, extend or renew outstanding Options granted under this Plan, or accept
the surrender of outstanding Options (to the extent not theretofore exercised)
and authorize the granting of new Options in substitution therefor (to the
extent not theretofore exercised).  Notwithstanding the foregoing, however, no
modification of any Option will, without the consent of the Optionee, alter or
impair any rights or obligations under any outstanding Option.

10. Governing Law.  It is the intention of the parties that the internal laws
    -------------
of the State of California (irrespective of its choice of law principles) shall
govern the validity of this Agreement, the construction of its terms and the
interpretation of the rights and duties of the parties hereunder and that any
party may seek to enforce its rights under this Plan or any Option Agreement
entered into under this Plan in any court of competent jurisdiction located
within the judicial district in which the

                                      -11-
<PAGE>

Company or the U.S. Subsidiary has a regular place of business. Notwithstanding
the foregoing, the parties acknowledge and agree that the relationship of the
parties as shareholders of the Company, including without limitation all of the
rights and duties of the parties arising under the Company's Articles, shall be
governed by the laws of the State of Israel, and each such party hereby
irrevocably submits to the exclusive jurisdiction of the Courts of Israel
located in Tel Aviv, in respect of any dispute or matter arising out of or
connected with such relationship and the Articles.

11.  Amendment and Discontinuance.  The Board may amend, suspend or discontinue
     ----------------------------
this Plan at any time or from time to time; provided that no action of the Board
will cause ISOs granted under this Plan not to comply with Section 422 of the
Code unless the Board specifically declares such action to be made for that
purpose and provided further that no such action may, without the approval of
the shareholders of the Company, materially increase (other than by reason of an
adjustment pursuant to section 8 hereof) the maximum aggregate number of Option
Shares in the Option Pool, materially increase the benefits accruing to Eligible
Participants, or materially modify the category of, or eligibility requirements
for persons who are Eligible Participants. However, no such action may alter or
impair any Option previously granted under this Plan without the consent of the
Optionee, nor may the number of Option Shares in the Option Pool be reduced to a
number that is less than the aggregate number of Option Shares (i) that may be
issued pursuant to the exercise of all outstanding and unexpired Options granted
hereunder, and (ii) that have been issued and are outstanding pursuant to the
exercise of Options granted hereunder.

12.  Information Provided by Company.  Prior to the date on which the Company is
     -------------------------------
required to file its annual financial statements with the Securities and
Exchange Commission under the Securities Exchange Act of 1934, the Company
annually will make available to each Optionee the Company's financial statements
(which statements need not be audited), and each Optionee will, by virtue of
entering into an Option Agreement, be deemed to have agreed (and to cause any
investment advisers to whom the Optionee proposes to make such information
available to agree) to keep such information confidential and not to use,
disclose or copy such information for any purpose whatsoever other than
determining whether to exercise an Option. The Company deems such financial
statements to be the valuable trade secrets of the Company, and in the event of
any wrongful use, disclosure or other breach of the obligation to maintain the
confidentiality of such financial information, the Company may seek to enforce
all of its available legal and equitable rights and remedies, and may notify
local law enforcement officials that a criminal misappropriation of the
Company's trade secrets has taken place.

13.  No Shareholder Rights.  No rights or privileges of a shareholder in the
     ---------------------
Company are conferred by reason of the granting of an Option. No Optionee will
become a shareholder in the Company with respect to any Option Shares unless and
until the Option has been properly exercised and the Option Price fully paid as
to the portion of the Option exercised.

14.  Copies of Plan.  A copy of this Plan will be delivered to each Optionee at
     --------------
or before the time he or she executes an Option Agreement.  Copies of the
Articles of the Company will be provided upon request and are available for
review at the Company's main office.

Date Plan Adopted by Board of Directors:  July ___, 1997

                                      -12-
<PAGE>

Date Plan Approved by the Shareholders:  July ___, 1997

                                      -13-
<PAGE>

                                 Verisity Ltd.
                             1996 Stock Option Plan

                                   Exhibit A
                                  Definitions
                                  -----------

                                     -14-
<PAGE>

1.  "10% shareholder" means a person who owns, either directly or indirectly by
virtue of the ownership attribution provisions set forth in Section 424(d) of
the Code at the time he or she is granted an Option, stock possessing more than
10% of the total combined voting power or value of all classes of stock of the
Company and/or of its Subsidiaries.

2.  "1933 Act" means the Securities Act of 1933, as amended.

3.  "Administrator" has the meaning set forth in section 5 of the Plan.

4.  "Articles" means the Company's Articles of Association, as amended.

5.  "Board" has the meaning set forth in section 1 of the Plan.

6.  "Business Combination" has the meaning set forth in section 6.9 of the Plan.

7.  "CCP Act" has the meaning set forth in section 6.8(c) of the Plan.

8.  "Change of Control Transaction" has the meaning set forth in section 6.9 of
the Plan.

9.  "Closing" has the meaning set forth in section 6.9 of the Plan.

10. "Code" means the Internal Revenue Code of 1986, as amended (references
herein to Sections of the Code are intended to refer to Sections of the Code as
enacted at the time of the Plan's adoption by the Board and as subsequently
amended, or to any substantially similar successor provisions of the Code
resulting from recodification, renumbering or otherwise).

11. "Company" has the meaning set forth in section 1 of the Plan.

12. "Completed Transfer Notice" has the meaning set forth in section 6.8(b) of
the Plan.

13. "Donative Transfer" with respect to Option Shares means any voluntary
Transfer by a transferor other than for value or the payment of consideration to
the transferor.

14. "Eligible Participants" has the meaning set forth in section 3 of the Plan.

15. "Fair Market Value" means, with respect to the Shares and as of the date
that is relevant to such a determination (e.g., on the Grant Date), the market
price per share of such Shares determined by the Administrator, consistent with
the requirements of Section 422 of the Code and to the extent consistent
therewith, as follows: (a) if the Shares are traded on a stock exchange on the
date in question, then the Fair Market Value will be equal to the closing price
reported by the applicable composite-transactions report for such date; (b) if
the Shares are traded over-the-counter on the date in question and are
classified as a national market issue, then the Fair Market Value will be equal
to the last-transaction price quoted by the NASDAQ system for such date; (c) if
the Shares are traded over-the-counter on the date in question but are not
classified as a national market issue, then the Fair Market Value will be equal
to the mean between the last reported representative bid and asked prices quoted
by the NASDAQ system for such date; and (d) if none of the foregoing provisions
is applicable, then the Fair Market Value will be determined by the
Administrator in good faith on such
<PAGE>

basis as it deems appropriate, taking into consideration the provisions of
Section 260.141.50 of Title 10 of the California Code of Regulations.

16.  "Grace Period" has the meaning set forth in section 5(c)(v) of the Plan.

17.  "Grant Date" means, with respect to an Option, the date on which the Option
Agreement evidencing that Option is entered into between the Company and the
Optionee, or such other date as may be set forth in that Option Agreement as the
"Grant Date" which will be the effective date of that Option Agreement.

18.  "Holder" means the holder of any Option Shares.

19.  "Initial Public Offering" means the closing of the first sale of securities
of the Company, or of any Successor Entity, to the public, through a firm
commitment underwriting, for an aggregate price (exclusive of underwriters'
discounts and commissions and expenses of the offering) of at least fifteen
million dollars ($15,000,000), pursuant to an effective registration statement
filed with the Securities and Exchange Commission under the 1933 Act.

20.  "Involuntary Transfer" with respect to Option Shares includes, without
limitation, any of the following:  (A) an assignment of the Shares for the
benefit of creditors of the transferor; (B) a Transfer by operation of law; (C)
an execution of judgment against the Shares or the acquisition of record or
beneficial ownership of Shares by a lender or creditor; (D) a Transfer pursuant
to any decree of divorce, dissolution or separate maintenance, any property
settlement, any separation agreement or any other agreement with a spouse
(except for bona fide estate planning purposes) under which any Shares are
Transferred or awarded to the spouse of the transferor or are required to be
sold; or (E) a Transfer resulting from the filing by the transferor of a
petition for relief, or the filing of an involuntary petition against the
transferor, under the bankruptcy laws of the United States or of any other
nation.

21.  "ISO" means an "incentive stock option" as defined in Section 422 of the
Code.

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

23.  "Loss of Eligibility Status" has the meaning set forth in section 5(a) of
the Plan.

24.  "Offered Price" has the meaning set forth in section 6.8(a) of the Plan.

25.  "Offered Terms" has the meaning set forth in section 6.8(a) of the Plan.

26.  "Option Agreement" has the meaning set forth in section 1 of the Plan.

                                       2
<PAGE>

27.  "Option Pool" has the meaning set forth in section 4 of the Plan.

28.  "Option Price" has the meaning set forth in section 5(c)(iii) of the Plan.

29.  "Option Shares" has the meaning set forth in section 1 of the Plan,
provided that for purposes of section 6.7 and section 6.8 of the Plan, the term
"Option Shares" includes all Shares issued by the Company to a Holder (or his,
her or its predecessor) by reason of such holdings, including any securities
which may be acquired as a result of a stock split, stock dividend, and other
distributions of Shares in the Company made upon, or in exchange for, other
securities of the Company.

30.  "Option Term" has the meaning set forth in section 5(c)(iv) of the Plan.

31.  "Optionee" has the meaning set forth in section 1 of the Plan.

32.  "Options" has the meaning set forth in section 1 of the Plan.

33.  "Permitted Transfer" has the meaning set forth in section 6.7(c) of the
Plan.

34.  "Plan" has the meaning set forth in section 1 of the Plan.

35.  "Proposed Transfer Notice" has the meaning set forth in section 6.8(a) of
the Plan.

36.  "Shares" has the meaning set forth in section 1 of the Plan.

37.  "Subsidiary" has the same meaning as "subsidiary corporation" as defined in
Section 424(f) of the Code.

38.  "Successor Entity" means a corporation or other entity that acquires all or
substantially all of the assets of the Company, or which is the surviving or
parent entity resulting from a Business Combination, as that term is defined in
section 6.9(b) of the Plan.

39.  "Tax Withholding Liability" in connection with the exercise of any Option
means all federal and state income taxes, social security tax, and any other
taxes applicable to the compensation income arising from the transaction
required by applicable law to be withheld by the Company.

40.  "Transfer" with respect to Option Shares, includes, without limitation, a
voluntary or involuntary sale, assignment, transfer, conveyance, pledge,
hypothecation, encumbrance, disposal, loan, gift, attachment or levy of those
Shares, including any Involuntary Transfer, Donative Transfer or transfer by
will or under the laws of descent and distribution.

41.  "Transferee" has the meaning set forth in section 6.8(b) of the Plan.

42.  "Transferred Shares" has the meaning set forth in section 6.8(b) of the
Plan.

43.  "U.S. Subsidiary" means Verisity Design, Inc., a California corporation.

44.  "Unvested Option" has the meaning set forth in section 5(c)(vii) of the
Plan.

45.  "Vested Option" has the meaning set forth in section 5(c)(vii) of the Plan.

                                       3
<PAGE>

                                       4
<PAGE>

                             Stock Option Agreement
                            Under the Verisity Ltd.
                          1996 U.S. Stock Option Plan

        This Agreement is made effective as of ____________________ (the "Grant
Date"; also the date the option referred to herein was authorized for granting
by the Administrator of the Company's Option Plan), between Verisity Ltd., a
Company organized under the laws of the State of Israel (the "Company"), and the
undersigned Optionee. Capitalized terms not otherwise defined in this Agreement
will have the meanings set forth in the Company's 1996 U.S. Stock Option Plan, a
copy of which is attached hereto and incorporated by reference (the "Option
Plan").

        The Parties Agree as Follows:

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

        Number of Shares
         subject to the Option:    ___________

        Option Price per Share:    $__________

        Vesting Start Date:        ___________

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

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

    (a)  Vesting.  Initially, the entire Option will be "Unvested" within the
         -------
meaning of the Option Plan; portions of the Option will become "Vested" within
the meaning of the Option Plan on the following schedule:

         (1)  twenty-five percent (25%) of the Shares subject to the Option
    shall become Vested as of the first anniversary of the Vesting Start Date;
    and

         (2)  the remaining seventy-five percent (75%) of the Shares subject to
    the Option shall become Vested monthly ratably (approximately _______
    shares/month) on a cumulative basis over the 36 month period commencing on
    the first anniversary of the Vesting Start Date, subject to the condition
    that Optionee does not suffer a Loss of Eligibility Status prior to each
    such vesting date.

                                      -1-
<PAGE>

The following language is to be inserted into Section 2 of the Stock Option
Agreements for M. Busch, R. Chope, S. Walters, J. Keithan, R. Widman, L. Tougas,
D. Alford, E. Panu, I. Chen, S. Pearlmutter and C. Hanoch:

    (b)  Vesting Following a Change of Control Transaction.  Notwithstanding the
         -------------------------------------------------
foregoing, or anything else in the Option Plan to the contrary, in the event of
a Change of Control Transaction, even if the Successor Entity agrees to assume
the Company's obligations under the Option, or to grant or issue comparable
options in substitution for the Option, that portion of the Option (or
substitute option) which remains Unvested which (i) would have become Vested
over the 12-month period immediately following the Closing of such a
Transaction, or (ii) represents 50% of the Unvested portion of the Option as of
the Closing of such a Transaction, whichever portion is smaller, will become
Vested immediately prior to such Closing.

* * *

The following language is to be inserted into Section 2 of the Stock Option
Agreements for S. Hummel and F. Ferguson:

    (b)  Vesting Following a Change of Control Transaction.  Notwithstanding the
         -------------------------------------------------
foregoing, or anything else in the Option Plan to the contrary, in the event of
a Change of Control Transaction, even if the Successor Entity agrees to assume
the Company's obligations under the Option, or to grant or issue comparable
options in substitution for the Option, that portion of the Option (or
substitute option) which remains Unvested which would have become Vested over
the 12-month period beginning on the date which is three (3) months following
the Closing of such a Transaction (the "Acceleration Date") will become Vested
immediately on the Acceleration Date, provided that as a condition to such
additional Vesting, the Optionee does not during such 3-month period suffer a
Loss of Eligibility Status, except due to death, disability or a termination by
the Company other than a Just Cause Termination.  Thereafter, the remaining
Unvested Shares shall become Vested monthly at the rate of 3.125% of the
original number of Shares subject to the Option (approximately _______
shares/month) on a cumulative basis, subject to the condition that Optionee does
not suffer a Loss of Eligibility Status prior to each such vesting date.

                                      -2-
<PAGE>

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

    (d)  Notice of Exercise.  Optionee or Optionee's representative may exercise
         ------------------
the Option by giving written notice to the Company pursuant to section 6.5(a) of
the Option Plan using the specified form of notice of exercise attached to this
Agreement as Exhibit A.  The notice will be signed by the person or persons
             ---------
exercising the Option.  In the event that the Option is being exercised by the
representative of Optionee, the notice will be accompanied by proof reasonably
satisfactory to the Company of the representative's right to exercise the
Option.  Payment of the Option Price will accompany the notice and will be in
any of the following forms acceptable to the Company:  (i) cash or a check made
payable to the Company; or (ii) by the delivery of one or more certificate(s)
representing shares of the Company with a Fair Market Value on the date of
exercise equal to the Option Price, together with a stock power executed in
blank.

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

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

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

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

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

                                      -3-
<PAGE>

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

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

6.  Terms of the Option Plan.  Optionee understands that the Option Plan
    ------------------------
includes important terms and conditions that apply to the Option.  Those terms
include (without limitation):  important conditions to the right of Optionee to
exercise the Option; important restrictions on the ability of Optionee to
transfer the Option or to Transfer any of the Option Shares received upon
exercise of the Option; and early termination of the Option following the
occurrence of certain events, including Optionee no longer being an employee,
director, consultant or independent contractor to or of the Company or its
Subsidiaries.  Optionee acknowledges that he or she has read the Option Plan,
agrees to be bound by its terms, and makes each of the representations required
to be made by Optionee under it.  Optionee further acknowledges that the Company
has given no tax advice concerning the Option and has advised Optionee to
consult with his or her own tax or financial advisor about the tax treatment of
the Option and its exercise.

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

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

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

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

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

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

                              Verisity Ltd.

                                      -4-
<PAGE>

                              By:_____________________________________

                              Title:__________________________________

                              "Optionee"

                              ________________________________________

                              Address:

                              ________________________________________
                              ________________________________________

                              Social Security No.:____________________

     Attachments:  (1)  Consent of Spouse
                   (2) 1996 U.S. Stock Option Plan

     Exhibit A:  Form of Notice of Exercise of Stock Option

                                      -5-
<PAGE>

                               CONSENT OF SPOUSE
                               -----------------

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

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

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

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

Dated:_____________     Signature:___________________________________

                        Print Name:__________________________________
<PAGE>

                                                                       Exhibit A
                                                                       ---------

                      NOTICE OF EXERCISE OF STOCK OPTION
                                 Verisity Ltd.

To The General Manager of Verisity Ltd.

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

     The undersigned acknowledges that the shares being purchased by him or her
(the "Option Shares") are subject to substantial restrictions on sale or
transfer set forth in the Company's Articles of Association and in the Company's
1996 U.S. Stock Option Plan (the "Plan") and agrees to be bound by the terms and
conditions of said Plan and the Stock Option Agreement entered into by and
between the Company and the undersigned on ___________, 199__. The undersigned
further represents, warrants and acknowledges that, unless a registration
statement is in effect with respect to the sale of Option Shares: (i) those
Option Shares are not freely tradeable and must be held indefinitely unless such
Option Shares are either registered under the Securities Act of 1933, as
amended, (the "Act"), or an exemption from such registration is available; (ii)
the Company is under no obligation to register those Option Shares; (iii) the
undersigned is purchasing the Option Shares for his or her own account and not
with a view to or for sale in connection with any distribution within the
meaning of the Act, other than as may be effected in compliance with the Act and
the rules and regulations promulgated thereunder; (iv) no one else will have any
beneficial interest in the Option Shares; and (v) he or she has no present
intention of disposing of the Option Shares or any interest therein at any
particular time.

DATED: _______________

                                _______________________________________
                                   (signature)

                                _______________________________________
                                Print name exactly as to be shown on certificate

                                Address:
                                ________________________________________________

                                ________________________________________________

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