S-8

As filed with the Securities and Exchange Commission on April 12, 2005

Registration No. 333-

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM S-8

REGISTRATION STATEMENT

Under
The Securities Act of 1933

CADENCE DESIGN SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

Delaware	77-0148231
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

2655 Seely Avenue, Building 5
San Jose, California 95134
(Address of Principal Executive Offices) (Zip Code)

Options and Restricted Stock Units Assumed by Cadence Design Systems, Inc.
originally granted under the
Amended and Restated Verisity Ltd. 2000 U.S. Share Incentive Plan
Verisity Ltd. 1999 Israeli Share Option Plan
Verisity Ltd. 1997 Israel Share and Stock Option Incentive Plan,
Verisity Ltd. 1996 U.S. Stock Option Plan (as amended on October 28, 1999)
Verisity Ltd. 2000 Israeli Share Option Plan, as amended
Amended and Restated Axis Systems Inc. 1997 Stock Plan
(collectively, the “Verisity Plans”)

(Full title of the Plan)

R.L. Smith McKeithen, Esq.

Senior Vice President, General Counsel and Secretary

Cadence Design Systems, Inc.

2655 Seely Avenue, Building 5, San Jose, California 95134

(Name and Address of Agent for Service)

(408) 943-1234

(Telephone number, including area code, of agent for service)

Copies to:

Gregory J. Conklin, Esq.

Gibson, Dunn & Crutcher LLP

One Montgomery Street, 31^st Floor

San Francisco, California 94104

(415) 393-8200

CALCULATION OF REGISTRATION FEE

			Proposed Maximum	Amount of
Title of Securities		Proposed Maximum Offering Price per	Aggregate Offering	Registration
to be Registered (1)	Amount to be Registered (2)	Share (3)	Price (3)	Fee(3)
Common Stock, par value $0.01 per share	4,708,071 shares	$14.61	$68,784,918	$8,095.98

(1)	Includes, with respect to each share of Common Stock, Rights granted pursuant to the Registrant’s Amended and Restated Rights Agreement, dated as of February 1, 2000, between the Registrant and Mellon Investor Services, LLC, as Rights Agent. Until a triggering event thereunder, the Rights trade with, and cannot be separated from, the Common Stock.
(2)	This Registration Statement shall also cover any additional shares of Common Stock which become issuable under the Verisity Plans by reason of any stock dividend, stock split, recapitalization or other similar transaction effected without the receipt of consideration which results in an increase in the number of the outstanding shares of Cadence Design Systems, Inc. Common Stock.
(3)	Calculated solely for purposes of this offering under Rule 457(h) of the Securities Act of 1933, as amended, on the basis of the maximum offering price per share that such options may be exercised.

TABLE OF CONTENTS

PART I
PART II
	Item 3. Incorporation of Documents by Reference
	Item 4. Description of Securities
	Item 5. Interests of Named Experts and Counsel
	Item 6. Indemnification of Directors and Officers
	Item 7. Exemption from Registration Claimed
	Item 8. Exhibits
	Item 9. Undertakings
SIGNATURES
POWER OF ATTORNEY
EXHIBIT INDEX
EXHIBIT 5.1
EXHIBIT 23.1
EXHIBIT 99.1
EXHIBIT 99.2
EXHIBIT 99.3
EXHIBIT 99.4
EXHIBIT 99.5
EXHIBIT 99.6

PART I

Information Required in the Section 10(a) Prospectus

     Pursuant to the instructions to Form S-8, Part I (Information Required in the Section 10(a) Prospectus) is not filed as part of this Registration Statement.

     The shares of common stock subject to options and restricted stock units registered hereunder have been assumed by the Registrant pursuant to an Agreement and Plan of Merger, dated as of January 12, 2005, among the Registrant, Verisity Ltd., an Israeli corporation, and Scioto River Ltd., an Israeli corporation and wholly-owned subsidiary of the Registrant. These options and restricted stock units were originally granted to directors, employees and consultants of Verisity Ltd. under the Amended and Restated Verisity Ltd. 2000 U.S. Share Incentive Plan, the Verisity Ltd. 1999 Israeli Share Option Plan, the Verisity Ltd. 1997 Israel Share and Stock Option Incentive Plan, the Verisity Ltd. 1996 U.S. Stock Option Plan (as amended on October 28, 1999), the Verisity Ltd. 2000 Israeli Share Option Plan, as amended, and the Amended and Restated Axis Systems Inc. 1997 Stock Plan (collectively, the “Verisity Plans”).

PART II

Information Required in the Registration Statement

Item 3. Incorporation of Documents by Reference

     The Registrant hereby incorporates by reference into this Registration Statement the following documents previously filed with the Securities and Exchange Commission (the “Commission”):

(a)	The Registrant’s Annual Report on Form 10-K for the fiscal year ended January 1, 2005, including all material incorporated by reference therein;
(b)	The Registrant’s Current Reports on Form 8-K filed with the Commission on January 7, 2005, January 19, 2005, February 3, 2005, February 11, 2005, March 11, 2005, and April 7, 2005;
(d)	The description of the Registrant’s Common Stock to be offered hereby contained in the Registrant’s Registration Statement on Form 8-A filed with the Commission on August 29, 1990; and
(e)	The description of the Registrant’s Preferred Share Purchase Rights set forth in Exhibit 4.02 to the Registrant’s Annual Report on Form 10-K405 filed with the Commission on March 27, 2000.

     All documents filed pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended, after the date of this Registration Statement and prior to the filing of a post-effective amendment which indicates that all securities offered hereby have been sold or which deregisters all securities then remaining unsold shall be deemed to be incorporated by reference into this Registration Statement and to be a part hereof from the date of filing of such documents.

     Any document, and any statement contained in a document, incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Registration Statement to the extent that a statement contained herein, or in any other subsequently filed document that also is incorporated or deemed to be incorporated by reference herein, modifies or supersedes such document or statement. Any such document or statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Registration Statement. Subject to the foregoing, all information appearing in this Registration Statement is qualified in its entirety by the information appearing in the documents incorporated by reference.

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Item 4. Description of Securities

     Not Applicable.

Item 5. Interests of Named Experts and Counsel

     Not Applicable.

Item 6. Indemnification of Directors and Officers

     Section 145 of the Delaware General Corporation Law permits a corporation to indemnify any of its directors or officers who was or is a party or is threatened to be made a party to any third party proceeding by reason of the fact that such person is or was a director or officer of the corporation against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe that such person’s conduct was unlawful. In a derivative action, i.e., one by or in the right of a corporation, the corporation is permitted to indemnify any of its directors or officers against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification shall be made if such person shall have been adjudged liable to the corporation, unless and only to the extent that the court in which such action or suit was brought shall determine upon application that such person is fairly and reasonably entitled to indemnity for such expenses despite such adjudication of liability.

     Article VII of the Registrant’s currently effective Certificate of Incorporation eliminates the personal liability of its directors for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director’s duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law or (iv) for any transaction from which the director derived an improper personal benefit. In addition, as permitted by Section 145 of the Delaware General Corporation Law, the Bylaws of the Registrant provide that: (a) the Registrant is required to indemnify its directors and officers and persons serving in such capacities in other business entities (including, for example, subsidiaries of the Registrant) at the Registrant’s request (such directors, officers and other persons are hereinafter referred to collectively as, “Covered Persons”), to the fullest extent permitted by Delaware law, including those circumstances in which indemnification would otherwise be discretionary; (b) the Registrant is required to advance expenses as incurred to such Covered Persons in connection with defending a proceeding; (c) the indemnitee(s) of the Registrant have the right to bring suit, and to be paid the expenses of prosecuting such suit, if successful, to enforce the rights to indemnification under the Bylaws or to advancement of expenses under the Bylaws; (d) the rights conferred in the Bylaws are not exclusive and the Registrant is authorized to enter into indemnification agreements with such directors, officers and employees; (e) the Registrant is required to maintain director and officer liability insurance to the extent reasonably available; and (f) the Registrant may not retroactively amend the Bylaws indemnification provision in a way that is adverse to such Covered Persons.

     The Registrant has entered into indemnity agreements with each of its executive officers and directors that provide the maximum indemnity allowed to officers and directors by Section 145 of the Delaware General Corporation Law and the Bylaws, as well as certain additional procedural protections. The Registrant also maintains a limited amount of director and officer insurance. The indemnification provision in the Bylaws, and the indemnity agreements entered into between the Registrant and its officers or directors, may be sufficiently broad to permit indemnification of the Registrant’s officers and directors for liability arising under the Securities Act of 1933, as amended (the “1933 Act”).

Item 7. Exemption from Registration Claimed

     Not Applicable.

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Item 8. Exhibits

Exhibit Number	Exhibit
4.1	Instruments Defining Rights of Stockholders. Reference is made to the Registrant’s Registration Statement on Form 8-A filed with the Commission on August 29, 1990 and Exhibit 4.02 to the Registrant’s Annual Report on Form 10-K405 filed with the Commission on March 27, 2000 incorporated by reference pursuant to Items 3(d) and (e).
5.1	Opinion and consent of Gibson, Dunn & Crutcher LLP.
23.1	Consent of Independent Registered Public Accounting Firm
23.3	Consent of Gibson, Dunn & Crutcher LLP (contained in Exhibit 5.1).
24.1	Power of Attorney (included on the signature pages to this Registration Statement on Form S-8).
99.1	Amended and Restated Verisity Ltd. 2000 U.S. Share Incentive Plan
99.2	Verisity Ltd. 1999 Israeli Share Option Plan
99.3	Verisity Ltd. 1997 Israel Share and Stock Option Incentive Plan
99.4	Verisity Ltd. 1996 U.S. Stock Option Plan (as amended on October 28, 1999)
99.5	Verisity Ltd. 2000 Israeli Share Option Plan, as amended
99.6	Amended and Restated Axis Systems Inc. 1997 Stock Plan

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Item 9. Undertakings

     A. The undersigned Registrant hereby undertakes: (1) to file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement (i) to include any prospectus required by Section 10(a)(3) of the 1933 Act; (ii) to reflect in the prospectus any facts or events arising after the effective date of this Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in this Registration Statement; and (iii) to include any material information with respect to the plan of distribution not previously disclosed in this Registration Statement or any material change to such information in this Registration Statement; provided however, that clauses (1)(i) and (1)(ii) shall not apply if the information required to be included in a post-effective amendment by those clauses is contained in periodic reports filed with or furnished to the Commission by the Registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended (the “1934 Act”), that are incorporated by reference into this Registration Statement; (2) that for the purpose of determining any liability under the 1933 Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof; and (3) to remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold upon the termination of the offering under the Plan.

     B. The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the 1933 Act, each filing of the Registrant’s annual report pursuant to Section 13(a) or Section 15(d) of the 1934 Act that is incorporated by reference into this Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

     C. Insofar as indemnification for liabilities arising under the 1933 Act may be permitted to directors, officers or controlling persons of the Registrant pursuant to the indemnity provisions incorporated by reference in Item 6, or otherwise, the Registrant has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the 1933 Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the 1933 Act and will be governed by the final adjudication of such issue.

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SIGNATURES

     Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-8, and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Jose, State of California, on this 12th day of April, 2005.

CADENCE DESIGN SYSTEMS, INC.
By:	/s/ Michael J. Fister
	Michael J. Fister
	President, Chief Executive Officer and Director

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POWER OF ATTORNEY

     KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Michael J. Fister, William Porter and R.L. Smith McKeithen, and each of them, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof.

     Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Michael J. Fister	President, Chief Executive	April 12, 2005
Michael J. Fister	Officer and Director (Principal
	Executive Officer)
/s/ William Porter	Senior Vice President, Chief	April 12, 2005
William Porter	Financial Officer (Principal
	Financial Officer and Principal
	Accounting Officer)
/s/ H. Raymond Bingham	Chairman of the Board of Directors	April 12, 2005
H. Raymond Bingham
/s/ Donald L. Lucas
Donald L. Lucas	Director	April 12, 2005
/s/ Dr. Alberto SangiovanniVincentelli
Dr. Alberto Sangiovanni-Vincentelli	Director	April 12, 2005
/s/ George M. Scalise
George M. Scalise	Director	April 12, 2005
/s/ Dr. John B. Shoven
Dr. John B. Shoven	Director	April 12, 2005
/s/ Roger S. Siboni
Roger S. Siboni	Director	April 12, 2005
/s/ Lip-Bu Tan
Lip-Bu Tan	Director	April 12, 2005

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EXHIBIT INDEX

Exhibit Number	Exhibit
4.1	Instruments Defining Rights of Stockholders. Reference is made to the Registrant’s Registration Statement on Form 8-A filed with the Commission on August 29, 1990 and Exhibit 4.02 to the Registrant’s Annual Report on Form 10-K405 filed with the Commission on March 27, 2000 incorporated by reference pursuant to Items 3(c) and (d).
5.1	Opinion and consent of Gibson, Dunn & Crutcher LLP.
23.1	Consent of Independent Registered Public Accounting Firm
23.3	Consent of Gibson, Dunn & Crutcher LLP (contained in Exhibit 5.1).
24.1	Power of Attorney (included on the signature pages to this Registration Statement on Form S-8).
99.1	Amended and Restated Verisity Ltd. 2000 U.S. Share Incentive Plan
99.2	Verisity Ltd. 1999 Israeli Share Option Plan
99.3	Verisity Ltd. 1997 Israel Share and Stock Option Incentive Plan
99.4	Verisity Ltd. 1996 U.S. Stock Option Plan (as amended on October 28, 1999)
99.5	Verisity Ltd. 2000 Israeli Share Option Plan, as amended
99.6	Amended and Restated Axis Systems Inc. 1997 Stock Plan

EX-5.1

EXHIBIT 5.1

[Letterhead of Gibson, Dunn & Crutchen LLP]

April 11, 2005

Cadence Design Systems, Inc.
2655 Seely Avenue, Building 5
San Jose, CA 95134

     Re: Registration Statement on Form S-8 of Cadence Design Systems, Inc.

Ladies and Gentlemen:

     We refer to the registration statement on Form S-8 (the “Registration Statement”), under the Securities Act of 1933, as amended (the “Securities Act”), filed by Cadence Design Systems, Inc., a Delaware corporation (the “Company”), with respect to the proposed offering by the Company of up to 4,708,071 shares (the “Shares”) of its common stock, $0.01 par value per share (the “Common Stock”), subject to issuance by the Company upon exercise of options granted under the Amended and Restated Verisity Ltd. 2000 U.S. Share Incentive Plan, Verisity Ltd. 1999 Israeli Share Option Plan, Verisity Ltd. 1997 Israel Share and Stock Option Incentive Plan, Verisity Ltd. 1996 U.S. Stock Option Plan (as amended on October 28, 1999), Verisity Ltd. 2000 Israeli Share Option Plan, as amended and the Amended and Restated Axis Systems Inc. 1997 Stock Plan (collectively, the “Plans”). The options issuable under the Plans were assumed by the Company pursuant to the terms of that certain Agreement and Plan of Merger, dated as of January 12, 2005, by and among the Company, Scioto River, Ltd., an Israeli corporation and wholly owned subsidiary of the Company, and Verisity, Ltd., an Israeli corporation.

     We have examined the originals or certified copies of such corporate records, certificates of officers of the Company and/or public officials and such other documents, and have made such other factual and legal investigations, as we deemed relevant and necessary as the basis for the opinions set forth below. In such examination, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as conformed or photostatic copies and the authenticity of the originals of such copies.

     Based on our examination mentioned above, subject to the assumptions stated above and relying on the statements of fact contained in the documents that we have examined, we are of the opinion that (i) the issuance by the Company of the Shares has been duly authorized and (ii) when issued in accordance with the terms of the Plans, the Shares will be duly and validly issued, fully paid and non-assessable shares of Common Stock.

     We are admitted to practice in the State of California, and are not admitted to practice in the State of Delaware. However, for the limited purpose of our opinions set forth above, we are generally familiar with the General Corporation Law of the State of Delaware (the “DGCL”) as presently in effect and have made such inquiries as we consider necessary to render this opinion with respect to a Delaware corporation. This opinion letter is limited to the DGCL, as it presently exists and to the facts as they presently exist. We express no opinion with respect to the effect or applicability of the laws of any other jurisdiction. We assume no obligation to revise or supplement this opinion letter should the laws of such jurisdictions be changed after the date hereof by legislative action, judicial decision or otherwise.

     We hereby consent to the filing of this opinion as an exhibit to the Registration Statement. In giving this consent, we do not admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act or the General Rules and Regulations of the Securities and Exchange Commission.

Very truly yours,

/s/ GIBSON, DUNN & CRUTCHER LLP

GJC/SLM/KCK

2

EX-23.1

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors
Cadence Design Systems, Inc.:

We consent to the incorporation by reference in the Registration Statement on Form S-8 of Cadence Design Systems, Inc., to be filed on or about April 11, 2005 of our reports dated March 14, 2005, with respect to the consolidated balance sheets of Cadence Design Systems, Inc. and subsidiaries as of January 1, 2005 and January 3, 2004, and the related consolidated statements of operations, stockholders’ equity and comprehensive income, and cash flows for each of the years in the three-year period ended January 1, 2005, and related financial statement schedule, management’s assessment of the effectiveness of internal control over financial reporting as of January 1, 2005, and the effectiveness of internal control over financial reporting as of January 1, 2005, which appear in the January 1, 2005 annual report on Form 10-K of Cadence Design Systems, Inc..

/s/ KPMG LLP
Mountain View, California
April 8, 2005

EX-99.1

2000 U.S. SHARE INCENTIVE PLAN

EXHIBIT 99.1

Verisity Ltd.
2000 U.S. Share Incentive Plan, Amended And Restated May 27, 2004

1. Adoption and Purpose of the Plan. This plan, to be known as the “Verisity Ltd. 2000 U.S. Share Incentive Plan, Amended and Restated May 27, 2004” (the “Plan”), has been adopted by the board of directors (the “Board”) of Verisity Ltd., an Israeli corporation (the “Company”), and the shareholders of the Company. 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 and Consultants 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. Options granted hereunder may be either ISOs or Nonstatutory Stock Options. In addition, Shares may be issued to Directors, Officers, Employees and Consultants pursuant to Restricted Share Rights provided for hereunder at the discretion of the Administrator. The terms of any Options and Restricted Share Rights granted hereunder will be reflected in a written Option Agreement or a Restricted Share Agreement, as applicable.

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 and Restricted Share Rights under this Plan only to persons who, at the time of such grant, are Directors, Officers, Employees and/or Consultants 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 or Restricted Share Rights that may be granted to an Eligible Participant.

4. Shares Subject to the Plan. Subject to section 13 of this Plan, in no event will the Company issue, in the aggregate, more than the sum of (i) Three Million, Six Hundred and Five Thousand (3,605,000) Shares and (ii) Five Hundred Thousand (500,000) Shares¹ (collectively, the “OptionPool”) pursuant to the exercise of all Options and Restricted Share Rights granted under this Plan, less that number of Shares and Restricted

            ¹Such 500,000 Share pool was added to the Plan by resolution of the Board effective April 15, 2003, subject to the limitation that such pool be reserved solely for the issuance of Shares upon exercise of Nonstatutory Options, and not ISOs. The aggregate number of Shares issued or reserved for issuance pursuant to Options granted to persons other than Officers and Directors under this pool must exceed fifty percent (50%) of the total number of shares issued or reserved for issuance pursuant to Options granted under such pool as determined on April 15, 2006 and on each yearly anniversary thereafter.

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Share Rights that have been issued, or have been reserved for issuance, either directly or pursuant to options granted, to Directors, Officers, Employees, or Consultants of the Company and any of its Subsidiaries on or after August 30, 2000 under any other share option plan, share incentive plan, restricted share or similar arrangement (except for the Employee Share Purchase Plan, the 2000 Israeli Share Option Plan and any equity plan, agreement or arrangement assumed in connection with a merger or acquisition transaction), provided that the Option Pool shall be deemed to include, and shall not be reduced by (and shall be deemed to be increased by the Shares described in clause (ii) below): (i) any Shares that may have been reserved for issuance and purchase pursuant to any Option or Restricted Share Right granted under this Plan, but which Shares remain unissued (and no longer reserved for issuance) upon the expiration or cancellation for any reason of such Option or Right, or any portion thereof, (ii) any Shares that may have been reserved for issuance and purchase pursuant to any Option or Restricted Share Right granted under any such other plan or similar arrangement (except for the Employee Share Purchase Plan, the 2000 Israeli Share Option Plan and any equity plan, agreement or arrangement assumed in connection with a merger or acquisition transaction), but which Shares remain unissued (and no longer reserved for issuance) upon the expiration or cancellation for any reason, on or after August 30, 2000, of such Option or Right, or any portion thereof, and (iii) any Shares that are retained by or delivered to the Company upon exercise of an Option or Restricted Share Right as consideration for the payment of all or a portion of the Option Price and/or Tax Withholding Liability as contemplated by section 5(c) of this Plan. Notwithstanding the foregoing, subject to section 13 of this Plan, in no event will the Company issue, in the aggregate, more than Three Million, Six Hundred and Five Thousand (3,605,000) Shares pursuant to the exercise of all ISOs that are granted under this Plan. No Participant shall be issued, within any one-year period, a number of Shares and/or Option Shares under the Plan that exceeds 500,000 shares (subject to section 13). 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.

     (a) This Plan will be administered and interpreted by the Board, or if the Board so decides, then to the extent permissible under Israeli law including but not limited to the Israeli Companies Law and Section 112 thereof, by a Committee appointed by the Board for such purpose (the Board, or such Committee, referred to herein as the “Administrator”). Any Committee shall consist solely of two or more such Non-Employee Directors in accordance with Rule 16b-3, one of whom will be an External Director if and to the extent required under the Israeli Companies Law. Notwithstanding the foregoing, the Committee may consist of one or more members of the Board but only with respect to the grant of Options and Restricted Share Rights to eligible persons who (i) are not then subject to Section 16 of the Exchange Act and/or (ii) are either (A) not

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then Covered Employees and are not expected to be Covered Employees at the time of recognition of income resulting from such Option or Restricted Share Rights or (B) not persons with respect to whom the Company wished to comply with Section 162(m) of the Code. If administration of this plan is delegated to a Committee, the Committee shall have the powers theretofore possessed by the Board to the extent permissible under the Israeli Companies Law. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan. A majority of the members of the Board, or a Committee if so appointed, shall constitute a quorum and all actions of the Board or Committee shall be taken by a majority of the members present at any meeting. Any action of the Board, or a Committee, may be taken by an instrument or instruments in writing signed by all the members of the Board, or such Committee, and any actions so taken shall be as effective as if it had been passed by a majority of the votes cast by the members of the Board, or a Committee, present at a meeting of such members duly called and held.

     (b) Subject to the express terms and conditions hereof and to the extent permissible under the Israeli Companies Law and Section 112 thereof, 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, at any time:

          (i) to select and approve the Eligible Participants to whom Options and Restricted Share Rights will be granted; provided that no Option or Restricted Share Right 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”);

          (ii) to determine the Eligible Participants to whom and the time or times at which Shares may be issued under Restricted Share Rights; to grant Restricted Share Rights to such Eligible Participants; to determine the number of Shares to be sold or transferred and the price per share (which shall not be less than par value) and the method of payment for any Shares to be sold or transferred pursuant to a Restricted Share Right; to subject any Shares purchased pursuant to a Restricted Share Right to the Company’s right to repurchase such Shares upon any Loss of Eligibility Status (a “Repurchase Option”); to determine limitations on the Repurchase Option and the rate at which any such Repurchase Option shall lapse; and to determine all additional terms of the Restricted Share Agreement that are not otherwise inconsistent with the Plan;

          (iii) to determine the Fair Market Value of the Shares as of the Grant Date for any Option or Restricted Share Right; and

          (iv) 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

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which also being subject to approval by the Administrator), which may vary from the “default” terms and conditions set forth in section 7 below, except to the extent otherwise provided, as follows:

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

                    (b) if the Option would otherwise satisfy the conditions under Section 422(b) of the Code, whether the Option will be treated as an ISO;

                    (c) 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”);

                    (d) 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;

                    (e) whether to accept a promissory note, delivery of Shares and/or Options, etc. as forms 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;

                    (f) 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 as provided for in section 7(d) below and to the expiration of the Option Term; and

                    (g) 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 Option; the vested portion being referred to as a “Vested Option” and the unvested portion being referred to as an “Unvested Option”).

6. Restricted Shares.

          (a) Restricted Shares may be issued either alone or in tandem with the grant of Options under the Plan. After the Administrator determines that it will offer Restricted Shares under the Plan, it shall advise the selected Eligible Participant in writing, by means of a Notice of Grant, of the terms, conditions and restrictions related to the offer, including the number of Shares that the Participant shall be entitled to receive and the price to be paid (which may be as low per share as par value). The offer shall be

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accepted by a purchaser (the “Purchaser”) by the execution of a Restricted Share Agreement in the form determined by the Administrator.

          (b) Unless the Administrator determines otherwise and to the extent permissible under the Israeli Companies Law, the Restricted Share Agreement shall grant the Company a Repurchase Option. The purchase price for Shares repurchased pursuant to the Restricted Share Agreement shall be the original price paid by the Purchaser and may be paid by cancellation of any indebtedness of the Purchaser to the Company.

          7. Terms and Conditions of Option Agreements if not otherwise Specified. Unless otherwise expressly provided in an Option Agreement based on the Administrator’s determination pursuant to section 5(b) above, the following terms and conditions will be the default provisions that apply to each Option as if expressly set forth in the Option Agreement, provided that, if the Administrator grants an ISO to an Eligible Participant, then in no event shall that Participant’s Option Agreement modify the provisions of section 7(a):

          (a) 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 subject to the following additional terms and conditions in order to qualify as an ISO:

                    (i) 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 exceeds $100,000, the Option will not be treated as an ISO.

                    (ii) 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.

                    (iii) Notwithstanding any Grace Period selected by the Administrator pursuant to section 5(b) above, or the provisions set out in this section 7, 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.

          (b) Option Term. The Option Term will be for a period of 10 years beginning on the Grant Date (subject to section 7(a) above in the case of an ISO granted to a 10% shareholder).

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          (c) Grace Periods. Following a Loss of Eligibility Status:

                    (i) 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;

                    (ii) 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

                    (iii) 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.

          (d) 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:

                    (i) 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

                    (ii) 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.

          (e) Exercise of the Option; Issuance of Share Certificate.

                    (i) 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 13 below, or, if less, all of the remaining Shares subject to the Option); the amount and form of payment of the Option Price. 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. The Administrator will determine the form of the consideration that the Company will accept in payment of the Option Price. Such consideration, in the Administrator’s sole discretion, may include (a) cash, certified check, bank draft, money order or the equivalent in U.S. dollars payable to the order of the Company; (b) delivery of other Shares which (i) in the case of

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Shares acquired upon exercise of an Option, have been owned by the Optionee for more than six months on the date of surrender and (ii) have a Fair Market Value on the date of surrender equal to the aggregate Option Price of the Shares as to which said Option shall be exercised; (c) consideration received by the Company under a cashless exercise program implemented by the Administrator, if it wishes in its sole discretion, in connection with the Plan; or (d) such other consideration (such as a promissory note) as approved by the Administrator.

                    (ii) 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. 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(b) above. Similar arrangements shall be made by a Purchaser of Shares pursuant to a Restricted Share Agreement at the time (or times) that the Repurchase Option lapses, if so required by the Administrator.

                    (iii) After receiving a proper notice of exercise, payment of the applicable Option Price and Tax Withholding Liability and satisfaction of any requirements under section 9, below, 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 (also referred to as the Purchaser) or to the escrow holder described in section 8, below

8. Escrow. For purposes of facilitating the enforcement of the Repurchase Option set forth in this Plan or in any Restricted Share Agreement, the Administrator may, at its discretion, require the Purchaser of Shares to deliver the certificate(s) for such Shares with a stock power executed by him or her and by his or her spouse, in blank, to the Secretary of the Company (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 releases as are in accordance with the terms of this Plan. The certificates may be held in escrow so long as the Shares whose ownership they evidence are subject to any Repurchase Option under this Plan or under a Restricted Share Agreement, and shall be released by the escrow holder to a Purchaser when they are no longer subject to a Repurchase Option under this Plan or under a Restricted Share Agreement. Each Purchaser thereby acknowledges that the Secretary of the Company (or his or her designee) is so appointed as the escrow holder with the foregoing authorities as a material inducement to the grant of a Restricted Share Right 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 a

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Restricted Share 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.

9. Compliance with Law. Notwithstanding any other provision of this Plan, Options and Restricted Share Rights may be granted pursuant to this Plan, and Option Shares and Shares may be issued pursuant to the exercise thereof by a Participant, only after and on the condition that there has been compliance with all applicable United States federal and state securities laws, applicable Israeli laws and, to the extent applicable, all applicable rules and regulations of all share exchanges or quotation systems on which the Shares are listed or posted for trading (together “Applicable Laws”). Except in any period (a “Listing Period”) during which the Company’s Shares are listed or approved for listing upon notice of issuance on a national securities exchange, or are designated or approved for designation upon notice of issuance as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc., in which the exchange or system has been certified by rule or order of the California Commissioner of Corporations pursuant to section 25100(o) of the Corporate Securities Law of 1968, as amended (the “1968 Law”), each Option and Restricted Share Right granted under this Plan shall comply with the provisions of section 25102(o) of the 1968 Law and the regulations cited therein (specifically Regulations 260.140.41, 260.140.42, 260.140.45 and 260.140.46 of Title 10 of the California Code of Regulations), and the Administrator shall take no action nor exercise its authority or discretion hereunder except in strict compliance with such provisions, which shall be deemed incorporated into this Plan by this reference, provided that during any Listing Period such provisions shall not be deemed incorporated into this Plan, in which case the Administrator shall be free to take action and to exercise its authority and discretion hereunder without compliance with such provisions. In addition to any other requirements hereunder, the Company’s obligation to issue and deliver Shares under any Option or Restricted Share Right is subject to the satisfaction of all requirements under Applicable Laws in respect thereof and obtaining all regulatory approvals as the Company shall determine to be necessary or advisable in connection with the authorization, issuance and sale thereof. In this connection, the Company shall take all reasonable steps to obtain such approvals and registrations as may be necessary for the issuance of such Shares in compliance with Applicable Laws and for the registration of such Shares. As a condition to the exercise of an Option or the issuance of any Shares, the Company may impose various conditions, including a requirement that the person exercising such Option or acquiring such Shares represents and warrants, at the time of any such exercise or acquisition, that the Shares are being acquired only for investment and without any present intention to sell or distribute such Shares and other restrictions on such Shares relating to employment or other matters as may be determined by the Board. The Company may, upon advice of counsel to the Company, place legends on share certificates issued under the Plan as counsel to the Company deems necessary or advisable in order to comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the Shares.

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10. Restrictions on Transfer. No Option or Share (that is still subject to restrictions under a Restricted Share Agreement) will be transferable by an Optionee otherwise than by will or the laws of descent and distribution. During the lifetime of a natural person who is granted an Option under this Plan, the Option will be exercisable only by him or her. Notwithstanding anything else in the Plan to the contrary, no Option Agreement will contain any provision which is contrary to, or which modifies, the provisions of this Section 10.

11. Notices. Any notice to be given to the Company under the terms of an Option Agreement or Restricted Share Right will be addressed to the Company (or the Subsidiary for which the Participant renders services) at its principal corporate office, Attention: Chief Financial Officer, or at such other address as the Company (or such Subsidiary) may designate in writing. Any notice to be given to a Participant will be addressed to him or her at the address provided to the Company by such Participant. Any such notice will be deemed to have been duly given if and when enclosed in a properly sealed envelope, addressed as aforesaid,deposited, either postage prepaid in a post office or branch post office regularly maintained by the local postal authority or prepaid with a globally-recognized air courier.

12. Term of the Plan. The Plan will become effective on the date of its adoption by the shareholders of the Company. The Plan will expire on the tenth (10th) anniversary of the date of its adoption by the shareholders of the Company unless it is terminated earlier pursuant to Section 18 of the Plan, after which no more Options or Restricted Share Rights may be granted under the Plan, although all outstanding Options and Restricted Share Rights granted prior to such expiration or termination will remain subject to the provisions of the Plan, and no such expiration or termination of the Plan will result in the expiration or termination of any such Option or Restricted Share Right prior to the expiration or early termination of the applicable Option Term or the term set forth in the Restricted Share Right, as applicable.

13. Adjustments Upon Changes in Share Capital; Rights Offering.

     (a) The number of Shares subject to the Plan, the number of Shares available under Options and the Restricted Share Rights granted and the Option Price and the price payable for Shares under the Restricted Share Right shall be adjusted as determined by the Board in its discretion from time to time to reflect adjustments in the number of Shares arising as a result of subdivisions, share dividends, bonus shares, consolidations or reclassifications of the Shares or other relevant changes in the authorized or issued capital of the Company. 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. No fractional Shares may be purchased or issued hereunder. If a Participant is entitled to purchase a fraction of a Share pursuant to

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an Option or Restricted Share Right such entitlement shall be rounded down to the nearest whole number.

     (b) If 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 pursuant to Vested Options held by such Optionee (in addition to any Option Shares or other Shares actually held of record by such Optionee).

14. Market Standoff. If in connection with any public offering of securities of the Company, the Company, the Board and/or the underwriter or underwriters managing such offering so request, then each Participant and each holder of Option Shares and/or 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.

15. Change of Control Transactions. Except as otherwise provided in the Option Agreement, Restricted Share Agreement or any contract of employment or engagement between a Participant and the Company, in the event of a Change of Control Transaction, the Company shall endeavor to cause the Successor Entity in such transaction either to assume all of the Options which have been granted hereunder and which are outstanding as of the consummation of such transaction (the “Closing”), or to issue (or cause to be issued) in substitution thereof comparable options of such Successor Entity (or of its parent or its subsidiary). If the Successor Entity is unwilling to either assume such Options or grant comparable options in substitution for such Options on terms that are acceptable to the Company as determined by the Board in the exercise of its discretion, then 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 the Board may cancel all outstanding Options, and terminate this Plan, effective as of the closing, provided that it will notify all Optionees of the proposed Change of Control Transaction a reasonable amount of time prior to the closing thereof so that each 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 discussed above) prior to such closing. In the event of a Change of Control Transaction, the Board will also have the discretion to cancel all or any part of a Repurchase Option in effect with respect to any Purchaser’s Shares. For purposes of this section 15, the term “Change of Control Transaction” means (a) the sale of all or substantially all of the assets of the Company to any person or entity that, prior to such sale, did not control, was not under common control with, or was not controlled by, the Company, or (b) a merger

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or consolidation or other reorganization in which the Company is not the surviving entity or becomes owned entirely by another entity, unless at least fifty percent (50%) of the outstanding voting securities of the surviving or parent corporation, as the case may be, immediately following such transaction are beneficially held by such persons and entities in the same proportions as such persons and entities beneficially held the outstanding voting securities of the Company immediately prior to such transaction, or (c) the sale or other change of beneficial ownership of the outstanding voting securities of the Company such that any person or “group” as that term is defined under the Exchange Act becomes the beneficial owner of more than 50% of the outstanding voting securities of the Company.

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

17. Governing Law. The internal laws of the State of California (irrespective of its choice of law principles) shall govern this Agreement. HOWEVER, THE RELATIONSHIP OF THE PARTICIPANTS AS SHAREHOLDERS OF THE COMPANY, INCLUDING WITHOUT LIMITATION ALL OF THEIR RIGHTS AND DUTIES ARISING UNDER THE COMPANY’S ARTICLES, SHALL BE GOVERNED BY THE LAWS OF THE STATE OF ISRAEL, AND THE COMPANY AND EACH PARTICIPANT 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.

18. 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 13) 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 materially and adversely impair any Option or Restricted Share Right previously granted under this Plan without the consent of the Participant, nor may the number of Shares subject to the Plan be reduced to a number that is less than the

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aggregate number of Option Shares and Shares (i) that may be issued pursuant to the exercise of all outstanding and unexpired Options or Restricted Share Rights granted hereunder, and (ii) that have been issued and are outstanding pursuant to the exercise of Options granted hereunder. The Board may create subplans under this Plan or make changes to this Plan which are appropriate or necessary by law to permit Directors, Officers, Employees or Consultants of the Company or its Subsidiaries outside of the United States to participate in this Plan. The Board in its sole discretion may also submit any other amendment to the Plan for shareholder approval, including, but not limited to, amendments to the Plan intended to satisfy the requirements of Section 162(m) of the Code and the regulations promulgated thereunder regarding the exclusion of performance-based compensation from the limit on corporate deductibility of compensation paid to certain executive officers. Nothing contained in the Plan or in the Option Agreement or Restricted Share Agreement shall be construed so as to prevent the Company or any Subsidiary from taking corporate action which is deemed by the Company or the Subsidiary to be appropriate or in the Company’s best interest, whether or not such action would have an adverse effect on the Plan.

19. No Shareholder or Employment Rights. No rights or privileges of a shareholder in the Company are conferred by reason of the granting of an Option or Share Purchase Right. 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 has been fully paid as to the portion of the Option exercised, and the name of the person rightfully exercising the Option has been entered in the register of shareholders of the Company. The granting of an Option or the grant of rights to a Participant pursuant to a Restricted Share Right do not confer upon the Participant any right to continue in the employment of the Company or any Subsidiary of the Company or on the Board, as the case may be, nor does it interfere in any way with the right of the Participant or the Company to terminate the Participant’s employment at any time or shareholders’ right to elect Directors.

20. Copies of Plan; Electronic Delivery. A copy of the Plan will be delivered to each Participant at or before the time he, she or it executes an Option Agreement or Restricted Share Agreement, as applicable. Notwithstanding any other provision of the Plan, to the extent permitted by Applicable Law, the Company may provide copies of the Plan and any other documentation or writing to be delivered to any Participant or Eligible Participant (including Option Agreements and Restricted Share Agreements) electronically, and, as determined by the Administrator and permitted by Applicable Law, all notices and other documentation or writing required to be provided by a Participant or Eligible Participant to the Company may be transmitted electronically.

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Verisity Ltd.
2000 U.S. Share Incentive Plan, Amended And Restated May 27, 2004

Exhibit A

Definitions

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, shares possessing more than 10% of the total combined voting power or value of all classes of equity of the Company and/or of its Subsidiaries.

2. “1968 Law” has the meaning set forth in section 9 of the Plan.

3. “1933 Act” means the United States Securities Act of 1933, as amended.

4. “Administrator” has the meaning set forth in section 5(a) of the Plan.

5. “Applicable Laws” has the meaning set forth in section 9 of the Plan.

6. “Articles” means the Company’s Articles of Association, as amended.

7. “Board” has the meaning set forth in section 1 of the Plan.

8. “Change of Control Transaction” has the meaning set forth in section 15 of the Plan.

9. “Code” means the United States 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).

10. “Company” has the meaning set forth in section 1 of the Plan.

11. “Committee” means a committee appointed by the Board in accordance with section 5(a) of the Plan.

12. “Consultant” is as an individual who provides bona fide services (other than relating to capital raising activities) to the Company or a Subsidiary but who is not an Employee, Officer or Director.

13. “Covered Employee” means the chief executive officer and the four other highest compensated officers of the Company for whom total compensation is required to be reported to shareholders under the Exchange Act, as determined for purposes of Section 162(m) of the Code.

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14. “Disability” means any physical or mental disability which results in a Loss of Eligibility Status under applicable law, except that for purposes of section 9.3(c) of the Plan, the term “disability” means permanent and total disability within the meaning of Section 22(e)(3) of the Code.

15. “Director” means a member of the Board.

16. “Eligible Participants” has the meaning set forth in section 3 of the Plan.

17. “Employee” means any person, including Officers and Directors, employed by the Company or any Affiliate. Neither service as a Director nor payment of a director’s fee by the Company shall be sufficient to constitute “employment” by the Company.

18. “Exchange Act” means the United States Securities Exchange Act of 1934, as amended.

19. “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 share 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 on the Nasdaq National Market; (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 Nasdaq for such date; and (e) if none of the foregoing provisions is applicable, then the Fair Market Value will be determined by the Administrator in good faith on such basis as it deems appropriate.

20. “Grace Period” has the meaning set forth in section 5(b)(iv) of the Plan.

21. “Grant Date” means, with respect to an Option, the date set forth in that Option Agreement as the “Grant Date” and, with respect to a Share, the date set forth in that Restricted Share Agreement as the “Grant Date.”

22. “ISO” means an “incentive share option” as defined in Section 422 of the Code.

23. “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

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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.

24. “Listing Period” has the meaning set forth in section 9 of the Plan.

25. “Loss of Eligibility Status” has the meaning set forth in section 5(b)(i) of the Plan.

26. “Non-Employee Director” means a Director who either (i) is not a current Employee or Officer of the Company or its parent or Subsidiary, does not receive compensation (directly or indirectly) from the Company or its parent or Subsidiary for services rendered as a Consultant or in any capacity other than as a Director (except for an amount as to which disclosure would not be required under Item 404(a) of Regulation S-K promulgated pursuant to the 1933 Act), does not possess an interest in any other transaction as to which disclosure would be required under Item 404(a) of Regulation S-K, and is not engaged in a business relationship as to which disclosure would be required under Item 404(b) of Regulation S-K or (ii) is otherwise considered a “non-employee director” for purposed of Rule 16b-3.

27. “Nonstatutory Stock Option” means an Option not intended to qualify as an ISO.

28. “Notice of Grant” means a written notice evidencing certain terms and conditions of an individual Share Purchase Right grant.

29. “Officer” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.

30. “Option Agreement” means an agreement pursuant to which an Optionee is granted Options to purchase Option Shares pursuant to the Plan.

31. “Option Price” has the meaning set forth in section 5(b)(iv) of the Plan.

32. “Option Shares” has the meaning set forth in section 1 of the Plan.

33. “Option Term” has the meaning set forth in section 5(b)(iv) of the Plan.

34. “Optionee” has the meaning set forth in section 1 of the Plan.

35. “Options” has the meaning set forth in section 1 of the Plan.

36. “Participant” means Eligible Participants to whom Options are granted pursuant to the Plan or to whom a Share Purchase Right has been granted.

37. “Plan” has the meaning set forth in section 1 of the Plan.

38. “Purchaser” has the meaning set forth in section 6(a) of the Plan.

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39. “Repurchase Option” has the meaning set forth in section 5(b)(ii) of the Plan.

40. “Restricted Share Agreement” means a written agreement between the Company and the grantee of a Share Purchase Right evidencing the terms and restrictions applying to Shares to be purchased under a Share Purchase Right. The Restricted Share Agreement is subject to the terms and conditions of the Plan and the Notice of Grant.

41. “Rule 16b-3” means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as in effect when discretion is being exercised with respect to the Plan.

42. “Shares” means the Ordinary Shares of the Company or, in the event of an adjustment contemplated in section 13 hereof, such other securities to which an Eligible Participant may be entitled upon the exercise of an Option or a Share Purchase Right as a result of such adjustment.

43. “Share Purchase Right” means the right to purchase Shares pursuant to section 6 of the Plan, as evidenced in the Notice of Grant.

44. “Subsidiary” has the same meaning as “subsidiary corporation” as defined in Section 424(f) of the Code.

45. “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 Change of Control Transaction, as that term is defined in section 15 of the Plan.

46. “Tax Withholding Liability” in connection with the exercise, sale or repurchase of any Option or Option Shares means United States federal or state income taxes, social security taxes, employment taxes and any other taxes (together with any interest or penalties applicable thereon) related to any compensation income arising from the transaction required by applicable law to be withheld by the Company.

47. “Unvested Option” has the meaning set forth in section 5(b)(iv) of the Plan.

48.	“Vested Option” has the meaning set forth in section 5(b)(iv) of the Plan.
	Date Plan Adopted by Board of Directors: 11 October , 2000
	Date Plan Approved by the Shareholders: 18 October , 2000
	Date Plan Amended by Board of Directors: 17 April , 2002
	Date Amended Plan Approved by the Shareholders: 04 June , 2002
	Date Amended Plan Amended by Board of Directors: 30 March , 2004
	Date Amended Plan Approved by the Shareholders: 27 May , 2004

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EX-99.2

EXHIBIT 99.2

VERISITY LTD.

THE 1999 ISRAELI SHARE OPTION PLAN

I.	NAME
	This Plan, as amended from time to time, shall be known as the VERISITY Ltd. 1999 Israeli Share Option Plan (“the Option Plan”).
II.	PURPOSE OF THE OPTION PLAN
	The Option Plan is intended as an incentive to retain, in the employment of VERISITY Ltd. (“the Company”) or a Subsidiary of the Company which now exists or hereafter is organized or acquired by the Company, persons of training, experience, and ability, to attract employees, directors or consultants, whose services are considered valuable, to encourage the sense of proprietorship of such persons, and to stimulate the active interest of such persons in the development and financial success of the Company by providing them with opportunities to purchase shares in the Company, pursuant to the Option Plan approved by the board of directors of the Company (“the Board”) (each such employee, director or consultant shall be referred to herein as “Optionee”). Options granted under the Option Plan may or may not contain such terms as will qualify such Options for the special tax treatment under section 102 of the Israeli Income Tax Ordinance (“Section 102”).
	Options containing such terms as will qualify them for the special tax treatment under section 102 of the Israeli Income Tax Ordinance, shall be referred to herein as “102 Options”. Options that do not contain such terms as will qualify them for the special tax treatment under section 102 of the Israeli Income Tax Ordinance, shall be referred to herein as “3(i) Options”.
	All Options granted hereunder, whether together or separately, shall be hereinafter referred to as “the Options”.
	The term “Subsidiary” shall mean for the purposes of the Plan any company (other than the Company) in an unbroken chain of companies beginning with the Company if, at the time of granting an option, each of the companies other than the last company in the unbroken chain owns stock possessing fifty percent (50%) or more of

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	the total combined voting power of all classes of stock in one of the other companies in such chains.
III.	ADMINISTRATION OF THE OPTION PLAN
	The Board or a committee appointed and maintained by the Board for such purpose (“the Committee”) shall have the power to administer the Option Plan. Notwithstanding the above, the Board shall automatically have a residual authority if no Committee shall be constituted or if such Committee shall cease to operate for any reason whatsoever.
	The Committee shall consist of such number of members (not less than two (2) in number) as may be fixed by the Board. The Committee shall select one of its members as its chairman (“the Chairman”) and shall hold its meetings at such times and places as the Chairman shall determine. The Committee shall keep records of its meetings and shall make such rules and regulations for the conduct of its business as it shall deem advisable.
	No member of such Committee shall be prevented from receiving Options under the Option Plan while serving on the Committee by virtue of his or her being a member as per the above, unless otherwise specified herein.
	The Committee shall have full power and authority to:

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IV.	Designate participants as per Section 4 below;
V.	Designate Options as 102 Options or 3(i) Options;
VI.	Determine the terms and provisions of respective Option agreements (which need not be identical) including, but not limited to, the number of Ordinary Shares in the Company to be covered by each Option, the vesting periods in respect thereof including but without limitation provisions concerning the time or times when and the extent to which the Options may be exercised and the nature and duration of restrictions as to transferability;
VII.	Accelerate the right of an Optionee (as defined in Section 1 above) to exercise, in whole or in part, any previously granted Option;
VIII.	Interpret the provisions and supervise the administration of the Option Plan;
IX.	Determine the Fair Market Value (as defined below) of the Shares (as defined below);
X.	Determine any other matter which is necessary or desirable for, or incidental to administration of the Option Plan;
XI.	Appoint in its absolute discretion the Trustee and replace it at any time in the future; and
XII.	Suspend, terminate or cancel the Option Plan or any part thereof, replace and/or determine further provisions and sub-plans in addition to the Option Plan, determine any other plan in lieu of the Option Plan and determine any provision and do anything in connection with this Option Plan.
	The Committee shall have the authority to grant, in its discretion, to the holder of an outstanding Option, in exchange for the surrender and cancellation of such Option, a new Option having a purchase price equal to, lower than or higher than the purchase price provided in the Option so surrendered and canceled, and containing such other terms and conditions as the Committee may prescribe in accordance with the provisions of the Option Plan.
	All decisions made or resolutions passed by the Board or the Committee pursuant to the provisions of the Option Plan shall be made by a majority of its members except that no member of the Board or the Committee shall vote on, or be counted for quorum purposes, with respect to any proposed action of the Board or the

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

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

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

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XIII.	DESIGNATION OF PARTICIPANTS
	The persons eligible for participation in the Option Plan as recipients of Options shall include any employees, directors or consultants of the Company or of any Subsidiary of the Company that now exists or hereafter is organized or acquired by the Company. The grant of an Option hereunder shall neither entitle the recipient thereof to participate, nor disqualify him or her from participating in, any other grant of Options pursuant to this Option Plan or any other option or stock plan of the Company or any of its affiliates.
	Anything in the Option Plan to the contrary notwithstanding, all grants of Options to directors and office holders (“Nosei Misra” — as such term is defined in the Companies Ordinance (New Version), 1983 — “the Companies Ordinance”) shall be authorized and implemented only in accordance with the provisions of the Companies Ordinance, as in effect from time to time.
XIV.	TRUSTEE
	The 102 Options which shall be granted to employees of the Company or of any Subsidiary of the Company that now exists or hereafter is organized or acquired by the Company and/or any Shares (as defined below) issued upon exercise of such Options and/or other shares received subsequently following any realization of rights, if such shall be granted to an employee, shall be issued to a Trustee nominated by the Committee, and approved in accordance with the provisions of Section 102 (“the Trustee”) and held for the benefit of the Optionees for a period of not less than two years (24 months) from the Date of Grant, as defined in Optionee’s Option Agreement. Anything to the contrary notwithstanding, the Trustee shall not release any Options, prior to their exercise, or release any Shares issued upon exercise of Options prior to the full payment of the Optionee’s tax liabilities arising from Options which were granted to him or her and/or any Shares issued upon exercise of such Options. The Optionee hereby authorizes the Trustee to sign an agreement with the Company whereby Shares will not be transferred without deduction of taxes at source.
	Upon receipt of the Option, the Optionee will sign an undertaking to exempt the Trustee from any liability in respect of any action or decision executed bona fide in relation with the Option Plan, or any Option or Share granted to him or her thereunder.

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XV.	SHARES RESERVED FOR THE OPTION PLAN; RESTRICTION THEREON
XVI.	The Company has reserved Six Hundred Sixty Four Thousand (664,000) authorized but unissued Ordinary Shares of NIS 0.01 par value each of the Company (each such Ordinary Share — a “Share” and collectively — “the Shares”), for purposes of the Plan, subject to adjustment as set forth in Section 8 below. Any of such Shares which may remain unissued and which are not subject to outstanding Options at the termination of the Option Plan shall cease to be reserved for the purpose of the Option Plan, but until termination of the Option Plan the Company shall at all times reserve sufficient number of Shares to meet the requirements of the Option Plan. Should any Option for any reason expire or be canceled prior to its exercise or expiration in full, the Shares therefore subject to such Option may again be subjected to an Option under the Option Plan.
XVII.	Until the consummation of an initial public offering of the Company’s shares (“the IPO”) an Optionee who purchased Shares hereunder upon exercise of Options:
XVIII.	Shall not exercise his or her voting rights as a shareholder (in any and all matters whatsoever), and such Shares shall be voted by a proxy, substantially in the form attached to the Option Agreement as Exhibit C pursuant to the directions of the Board, such proxy to be to the person or persons designated by the Board. The Optionee shall further execute irrevocable and unconditional undertaking toward the person or persons so designated by the Board to vote under the Proxy, substantially in the form attached to the Option Agreement as Exhibit D. In addition to the above, any such Optionee shall not be entitled to receive any notice to which a shareholder of the Company is entitled.
XIX.	Notwithstanding anything to the contrary in the Articles of Association of the Company and/or in any applicable law or agreement, none of the Optionees nor the Trustee shall have right of first refusal and/or preemptive rights in relation with any issuance and/or sale of shares in the Company.

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XX.	If in connection with an IPO, the stock exchange regulations and/or any applicable law so provide and/or the Board or the Committee so resolve and/or the underwriter or underwriters managing such offering so requests, then each Optionee who purchased Shares hereunder upon exercise of Options will agree to not sell or otherwise transfer any such Shares (other than Shares included in such underwriting) without the prior written consent of such underwriter, for such period of time as may be requested by the underwriter commencing on the effective date of the registration statement filed in connection with such offering, but in no event longer than the period of time that the officers and directors of the Company are generally prohibited from transferring their Shares in connection with such public offering.
XXI.	OPTION PRICE
XXII.	The purchase price of each Share subject to an Option or any portion thereof shall be determined by the Committee in its sole and absolute discretion in accordance with applicable law, subject to any guidelines as may be determined by the Board from time to time.
XXIII.	The Option price shall be payable upon the exercise of the Option in a form satisfactory to the Committee and in the event of 102 Options conforming to the requirements of Section 102, including without limitation, by cash or check as set forth in Section 9.1 below. The Committee shall have the authority to postpone the date of payment on such terms as it may determine.

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XXIV.

CHANGE OF CONTROL TRANSACTIONS; ADJUSTMENTS

XXV.

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

(i)

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

(ii)

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

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

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

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

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XXVII.	Anything herein to the contrary notwithstanding, if prior to the completion of an IPO of the Company’s securities, all or substantially all of the shares of the Company are to be sold, or upon a merger or reorganization or the like, the shares of the Company, or any class thereof, are to be exchanged for securities of another Company, then in such event, each Optionee shall be obliged to sell or exchange, as the case may be, the Shares such Optionee purchased under the Option Plan, in accordance with the instructions then issued by the Board whose determination shall be final.
XXVIII.	TERM AND EXERCISE OF OPTIONS
XXIX.	Vested Options shall be exercised by the Optionee by giving written notice to the Company, in the form attached to the Option Agreement as Exhibit E, and the method as may be determined by the Company and the Trustee and if the Options so exercised are 102 Options than in accordance with the requirements of Section 102, which exercise shall be effective upon receipt of such notice by the Company at its principal office. The notice shall specify the number of Shares with respect to which the Option is being exercised and it shall be accompanied by any further assurances and/or undertaking as the Committee and/or Trustee may require to ensure that the transaction complies in all respects with the requirements of any applicable law. The notice as per the above will be signed by the person exercising the Option and it will be accompanied by full payment of the corresponding Option price, by cash or check made payable to the Company.
XXX.	Each Option granted under this Option Plan shall be exercisable following the Vesting Schedule Dates in respect thereof (“the Vesting Dates”) and for the number of Shares as shall be provided in Exhibit B to the Option agreement. However no Option shall be exercisable after the expiration date, as defined for each Optionee in the Optionee’s Option agreement (“the Expiration Date”), but subject always to Section 9.6 below.
XXXI.	Options granted under the Option Plan shall not be transferable by Optionees other than by will or laws of descent and distribution, and during an Optionee’s lifetime shall be exercisable only by that Optionee.

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XXXII.	The Options may be exercised by the Optionee in whole at any time or in part from time to time, to the extent that the Options become vested prior to the Expiration Date, provided that the number of Shares purchased under the exercised Option as per the above will be no less than 100 Shares, without regard to adjustments to the number of Shares subject to the Option pursuant to Section 8 above, or, if less, all of the remaining Shares subject to the Option, and provided further that, subject to the provisions of Section 9.6 below, the Optionee is an employee, director or consultant of the Company or a Subsidiary of the Company or a company or a Parent or a subsidiary company of such company issuing or assuming the Options in a transaction described in Section 8.1 above, at all times during the period beginning with the granting of the Option and ending upon the date of exercise.
XXXIII.	Subject to the provisions of Section 9.6 below, in the event of termination of Optionee’s employment with or performance of services for or on behalf of the Company or a Subsidiary of the Company or a company or a Parent or a subsidiary company of such company issuing or assuming the Options in a transaction described in Section 8.1 above, all Options granted to him or her will immediately expire. A notice of termination of employment or services by either party shall be deemed to constitute termination of employment or services.
XXXIV.	Notwithstanding anything to the contrary hereinabove, an Option may be exercised after the date of termination of Optionee’s employment with or performance of services for or on behalf of the Company or any Subsidiary of the Company thereof or a company or a Parent or a subsidiary company of such company issuing or assuming the Options in a transaction described in Section 8.1 above during an additional period of time beyond the date of such termination, but only with respect to the number of Options already vested at the time of such termination according to the Vesting Dates if:
XXXV.	Termination is without Cause (as defined below), in which event any Options still in force and unexpired may be exercised within a period of 30 (thirty) days from the date of such termination.
XXXVI.	Termination is the result of death or disability of the Optionee, in which event any Options still in force and unexpired may be exercised within a period of six (6) months from the date of termination.

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

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

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

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XXXVIII.

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

XXXIX.

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

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XL.	SHARES SUBJECT TO RIGHT OF FIRST REFUSAL
	Until the consummation of an IPO, transfer of exercised Shares by the Optionee, whether for consideration or for no consideration (for the purpose of this Section 10 — “Sale”) shall be made only once every year, within a period of time as shall be determined by the Committee and as the Company shall notify those Optionees who have notified the Company of their intention to sell the Shares held by them or any part thereof, and shall be subject to the right of first refusal of the Investor Shareholders, as defined in the Company’s Articles of Association, and all other Shareholders of the Company holding 3% or more of the outstanding and issued share capital of the Company (save, for avoidance of doubt, for other Optionees who already exercised their options) (“Repurchasers”), pro rata in accordance with their shareholding. The Optionee shall give a notice of sale (the “Notice”) to the Company in order to offer the Shares to the Repurchasers.
	The Notice shall specify the name of each proposed purchaser or other transferee (“Proposed Transferee”), the number of Shares offered for sale, the price per Share and the payment terms, as well as such other terms and conditions, if any, as were included in the offer. The Repurchasers will be entitled for 21 days from the day of receipt of the Notice, to purchase all of the offered Shares.
	If by the end of the above 21 days period not all of the offered Shares have been purchased by the Repurchasers, then the Repurchasers who have notified the Company of their desire to purchase the Shares which are subject to the Sale, if any, shall have additional 20 days period to purchase the balance of the Shares which are subject to the Sale. If by the end of the additional 20 days period as per the above not all of the Shares which are subject to the Sale have been purchased by the Repurchasers then the Optionee will be entitled to sell such Shares at any time during the 60 days following the end of the 20 days period on terms not more favorable than those set out in the Notice, provided that the Proposed Transferee agrees in writing that the provisions of Sections 6.2, 6.3, 8.3 above and of this Section shall continue to apply to the Shares in the hands of such Proposed Transferee.

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XLI.	DIVIDENDS; NO SOCIAL BENEFITS
XLII.	With respect to all Shares (in contrary to unexercised Options) issued upon the exercise of Options purchased by the Optionee and held by the Trustee, the Optionee shall be entitled to receive dividends in accordance with the quantity of such Shares, and subject to any applicable taxation on distribution of dividends. During the period in which Shares issued to the Trustee on behalf of an Optionee are held by the Trustee, the cash dividends paid with respect thereto shall be paid directly to the Optionee.
XLIII.	The income attributed to the Optionee as a result of the grant of the Options hereunder and/or the exercise of the Shares, their transfer in his or her name or their sale and in all respects relating thereto, shall not be taken into account when computing the basis of the Optionee’s entitlement to any social benefits. Without derogating from the generality of the above, that income shall not be taken into account in computing mangers insurance, vocational studies fund, provident funds, severance pay, holiday pay and the like. If the Company is legally obliged to take any of the above into account, as income which is to be attributed to the Optionee, the Optionee will indemnify the Company in respect of any expense sustained by it in such respect.
XLIV.	ASSIGNABILITY AND SALE OF OPTIONS
	No Option hereunder shall be assignable, transferable or given as collateral or any right with respect to them given to any third party whatsoever, and during the lifetime of the Optionee each and all of such Optionee’s rights to purchase Shares hereunder shall be exercisable only by the Optionee.
	As long as the Shares are held by the Trustee in favor of the Optionee, than all rights the last possesses over the Shares are personal, cannot be transferred, assigned, pledged or mortgaged, other than by will or laws of descent and distribution.
XLV.	TERM OF THE OPTION PLAN
	The Option Plan shall be effective as of the day it was adopted by the Board and shall terminate at the end of ten years from such day of adoption, if not terminated under Section 14 below prior to such date. For the removal of doubt, upon termination of the Option Plan as per the above, all unexercised Options shall immediately terminate.
XLVI.	AMENDMENTS OR TERMINATION
	The Board may at any time, but after consultation with the Trustee, amend, alter, suspend or terminate the Plan. No amendment, alteration, suspension or termination of the Plan shall impair the rights of any Optionee, unless mutually agreed otherwise between the Optionee and the Company, which agreement must be in writing and signed by the Optionee and the Company.

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	Termination of the Plan shall not affect the Committee’s ability to exercise the powers granted to it hereunder with respect to Options granted under the Plan prior to the date of such termination.
XLVII.	GOVERNMENT REGULATIONS
	The Option Plan, and the granting and exercise of Options hereunder, and the obligation of the Company to sell and deliver Shares under such Options, shall be subject to all applicable laws, rules, and regulations, whether of the State of Israel or of the United States or any other state having jurisdiction over the Company and/or the Optionee, including the registration of the Shares under the United States Securities Act of 1933, and to such approvals by any governmental agencies or national securities exchanges as may be required.

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XLVIII.	CONTINUANCE OF EMPLOYMENT
	Neither the Option Plan nor the Option agreement with the Optionee shall impose any obligation on the Company or a Subsidiary thereof, to continue the employment or services of any Optionee with it, and nothing in the Option Plan or in any Option granted pursuant thereto shall confer upon any Optionee any right to continue in the employment of the Company or a Subsidiary thereof, nor the right to be retained as a consultant thereof or restrict the right of the Company or a Subsidiary thereof to terminate such employment or consulting services at any time.
XLIX.	GOVERNING LAW & JURISDICTION
	This Option Plan shall be exclusively governed by and construed and enforced in accordance with the laws of the State of Israel applicable to contracts made and to be performed therein, without giving effect to the principles of conflict of laws. The competent courts of Tel- Aviv, Israel, shall have and exclusive jurisdiction in any matters pertaining to this Option Plan.
L.	TAX CONSEQUENCES
	Any tax consequences arising from the grant or exercise of any Option, from the payment for Shares covered thereby or from any other event or act (of the Company, the Trustee or the Optionee) hereunder, shall be borne solely by the Optionee. The Company and/or the Trustee shall withhold taxes according to the requirements under the applicable laws, rules, and regulations, including withholding taxes at source. Furthermore, the Optionee shall agree to indemnify the Company and the Trustee and hold them harmless against and from any and all liability for any such tax or interest or penalty thereon, including without limitation, liabilities relating to the necessity to withhold, or to have withheld, any such tax from any payment made to the Optionee.
	The Committee and/or the Trustee shall not be required to transfer any Shares or to release any Share certificate to an Optionee until all required payments have been fully made.
LI.	NON-EXCLUSIVITY OF THE OPTION PLAN
	The adoption of the Option Plan by the Board shall not be construed as amending, modifying or rescinding any previously approved incentive arrangements or as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of stock options

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

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

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EXHIBIT B

Terms of the Options

Name of the Optionee:
Date of Grant:
Designation:	3(i) Options [ _ ]
1.     Number of Options granted:
2.      Price per Share:
3.      Vesting Schedule:

% of Options	Vesting Date
25 %	1 year from the Date of Grant
2.0833 %	End of each month, starting from the 13/th/ month from the Date of Grant

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

4.     Expiration Date:

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EXHIBIT C

PROXY

LETTER OF APPOINTMENT OF PROXY

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

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

Appointor’s Signature

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

name

profession

address

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EXHIBIT D

To
The Attorney of the Company

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

1.	You will be entitled to vote instead of the undersigned at any and all general meetings of VERISITY LTD. (the “Company”) (including but without limitation general meetings convened for the purpose of adopting extraordinary resolutions and separate class meetings) and to vote thereat on any and all matters in respect of the Shares of the Company as the undersigned would be entitled to vote if then personally present.
2.	The undersigned acknowledge and agree that you will refrain from voting under this Proxy except than in the case of resolution in writing of the Shareholders of the Company, in which event you will sign such resolution only after the other Shareholders of the Company have signed same. The undersigned further acknowledge and agree that such vote and/or refrain from voting by you may not be in the interest of the undersigned and/or may be contrary thereto and/or may adversely effect the rights and/or situation of the undersigned. The undersigned hereby waive any claims, causes of action or demands against you in connection with your voting and/or refraining from voting as per the above.
3.	The undersigned will immediately indemnify and hold you harmless from and against any damages, costs and expenses, including legal fees and expenses you may incur as a result of, or in connection with, your actions or non- actions under the Proxy, promptly upon your first written demand.

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

Name:

I.D.:

Address:

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EXHIBIT E

NOTICE OF EXERCISE OF OPTION
Verisity Ltd.

To the General Manager of Verisity Ltd.

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

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

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

Dated: ____________

(signature)

Print name exactly as to be shown on certificate

Address :

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EX-99.3

EXHIBIT 99.3

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.

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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

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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

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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

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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.

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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

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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.

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EX-99.4

Exhibit 99.4

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:

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     (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

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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).

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     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.

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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.

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          (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; and

          (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:

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          (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

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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

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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

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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.

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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

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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

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Date Plan Approved by the Shareholders: July ___, 1997

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Verisity Ltd.
1996 Stock Option Plan

Exhibit A
Definitions

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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

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.

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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.

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EX-99.5

Exhibit 99.5

VERISITY LTD.

THE 2000 ISRAELI SHARE OPTION PLAN

1.   NAME

This Plan, as amended from time to time, shall be known as the Verisity Ltd. 2000 Israeli Share Option Plan (the “ISOP”).

2.   PURPOSE OF THE ISOP

The ISOP is intended to provide an incentive to retain, in the employ of Verisity Ltd. (the “Company”) and its Subsidiaries, persons of training, experience, and ability, to attract new employees, directors, consultants and advisors whose services are considered valuable, to encourage the sense of proprietorship of such persons, and to stimulate the active interest of such persons in the development and financial success of the Company by providing them with opportunities to purchase shares in the Company, pursuant to the ISOP approved by the board of directors of the Company (the “Board”). Options granted under the ISOP may or may not contain such terms as will qualify such Options for the special tax treatment under Section 102 of the Israeli Income Tax Ordinance (New Version) 1961 (the “Ordinance”) and any regulations, rules, orders or procedures promulgated thereunder, including but not limited to the Income Tax Rules (Tax Benefits in Stock Issuance to Employees) 1989 (collectively “Section 102”).

Options containing such terms as will qualify them for the special tax treatment under Section 102 shall be referred to herein as “102 Options”.

Options that do not contain such terms as will qualify them for the special tax treatment under Section 102 shall be referred to herein as “3(i) Options”.

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

The term “Subsidiary” shall mean for the purposes of the ISOP: any company (other than the Company) in an unbroken chain of companies beginning with the Company if, at the time of granting an option, each of the companies other than the last company in the unbroken chain owns shares possessing fifty percent (50%) or more of the total combined voting power of all classes of shares in one of the other companies in such chain.

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3.   ADMINISTRATION OF THE ISOP

The Board or a share option committee appointed and maintained by the Board for such purpose (the “Committee”) shall have the power to administer the ISOP. Notwithstanding the above, the Board shall have residual authority if no Committee shall be constituted or if such Committee shall cease to operate for any reason whatsoever. The Board or such Committee shall be referred to herein as the “Administrator”.

The Committee shall consist of such number of members (not less than two (2) in number, of whom at least one will be an External Director if and to the extent required under the Israeli Companies Law, 5759 — 1999) as may be fixed by the Board. The Committee shall select one of its members as its chairman (“the Chairman”) and shall hold its meetings at such times and places as the Chairman shall determine. The Committee shall keep records of its meetings and shall make such rules and regulations for the conduct of its business as it shall deem advisable.

No member of the Administrator shall be prevented from receiving Options under the ISOP by virtue of his or her service as a member, unless otherwise specified herein.

To the extent permitted under any applicable law, the Administrator shall have full power and authority (i) to designate participants (the “Optionees”); (ii) to determine the terms and provisions of any respective Option Agreement (which need not be identical) including, but not limited to, the number of Shares (as defined below) to be covered by each Option, the vesting periods in respect thereof including but without limitation provisions concerning the time or times when and the extent to which the Options may be exercised and the nature and duration of restrictions as to transferability; (iii) to accelerate the right of an Optionee to exercise, in whole or in part, any previously granted Option; (iv) to interpret the provisions and supervise the administration of the ISOP; (v) to determine the Fair Market Value (as defined below) of the Shares (as defined below); (vi) to designate Options as 102 Options or 3(i)Options; (vii) to determine any other matter which is necessary or desirable for, or incidental to administration of the ISOP; and (viii) to appoint in its absolute discretion the Trustee and replace it at any time in the future.

The Committee shall not be entitled to grant Options to the Optionees however, it will be authorized to issue shares underlying Options which have been granted by the Board and duly exercised pursuant to the provisions hereof all in accordance with Section 112(a)(5) of the Israeli Companies Law — 1999.

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

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All decisions and selections made by the Administrator pursuant to the provisions of the ISOP shall be made by a majority of its members except that no member of the Administrator shall vote on, or be counted for quorum purposes, with respect to any proposed action of the Administrator relating to any Option to be granted to that member. Notwithstanding the above, any decision signed or agreed to in writing or by telex or facsimile by all of the members of the Administrator, who are authorized to make such decision shall be valid for every purpose as a resolution adopted at the Administrator’s meeting that was duly convened and held.

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

Subject to the Company’s Articles of Association and the Company’s decision, and to all approvals legally required, including but not limited to the provisions of the Israeli Companies Law — 1999, each member of the Administrator shall be indemnified and held harmless by the Company against any cost or expense (including counsel fees) reasonably incurred by him, or any liability (including any sum paid in settlement of a claim with the approval of the Company) arising out of any act or omission to act in connection with the ISOP, unless arising out of such member’s own fraud or bad faith, to the extent permitted by applicable law. Such indemnification shall be in addition to any rights of indemnification the member may have as a director or otherwise under the Company’s Articles of Association, any agreement, any vote of shareholders or disinterested directors, insurance policy or otherwise.

“Fair Market Value” means, with respect to the Shares and as of the date that is relevant to such determination, the market price per share of such Shares determined by the Administrator as follows:

(One) if the Shares are traded on a share 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;

(Two) 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 on the Nasdaq National Market;

(Three) 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 Nasdaq for such date; and

(Four) if none of the foregoing provisions is applicable, then the Fair Market Value will be determined by the Administrator in good faith on such basis as it deems appropriate.

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4.   DESIGNATION OF PARTICIPANTS

4.1

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

4.2

Anything in the ISOP to the contrary notwithstanding, all grants of Options to directors and office holders shall be authorized and implemented in accordance with the provisions of any applicable law, including but not limited to the provisions of Israeli Companies Law - 1999 or any successor act or regulation, as in effect from time to time.

5.   TRUSTEE

The 102 Options which shall be granted under the ISOP and/or any Shares issued upon exercise of such Options and/or other shares received subsequently following any realization of rights, shall be allocated or issued to a Trustee nominated by the Administrator, and approved in accordance with the provisions of Section 102 (the “Trustee”) and held for the benefit of the Optionees. The 102 Options and any Shares received subsequently following exercise of 102 Options, shall be held by the Trustee for such period of time as required by Section 102 or any regulations, rules or orders or procedures promulgated thereunder.

Anything to the contrary notwithstanding, the Trustee shall not release any Options which were not already exercised into Shares by the Optionee or release any Shares issued upon exercise of Options prior to the full payment of the Optionee’s tax liabilities arising from Options which were granted to the Optionee and/or any Shares issued upon exercise of such Options.

Upon receipt of the Option, the Optionee will sign an undertaking to release the Trustee from any liability in respect of any action or decision duly taken and bona fide executed in relation with the ISOP, or any Option or Share granted to the Optionee thereunder.

6.   SHARES RESERVED FOR THE ISOP; RESTRICTION THEREON

6.1   The Company has reserved Seven Hundred Thousand (700,000) authorized

but unissued Ordinary Shares of NIS 0.01 par value each of the Company (the “Shares”) for the purposes of the ISOP, subject to adjustment as set forth in Section 8 below. Any of such Shares which may remain unissued and which are not subject to outstanding Options at the termination of the ISOP shall cease to be reserved for the purpose of the ISOP. Until termination of the ISOP the Company shall at all times reserve sufficient number of Shares to meet the requirements of

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the ISOP. Should any Option for any reason expire or be canceled prior to its exercise or relinquishment in full, the Shares therefore subject to such Option may again be subject to an Option under the ISOP.

6.2	Each Option granted pursuant to the ISOP, shall be evidenced by a written agreement between the Company and the Optionee (the “Option Agreement”), in such form as the Administrator shall from time to time approve. Each Option Agreement shall state, inter alia, the number of Shares to which the Option relates, the Purchase Price thereof and the type of Option granted thereunder (whether 102 or 3(i)).
6.3	All Shares issued upon exercise of the Options in compliance with the terms and conditions of the ISOP as well as the terms and conditions of the Option Agreement pursuant to which the Options were granted shall entitle the holder thereof to receive dividends and other distributions thereon.
6.4	If in connection with any public offering of securities of the Company, the stock exchange regulations and/or any applicable law so provide and/or the Administrator so resolve and/or the underwriter or underwriters managing such offering so requests, then each Optionee who purchased Shares hereunder upon exercise of Options will agree to not sell or otherwise transfer any such Shares (other than Shares included in such underwriting) without the prior written consent of such underwriter, for such period of time as may be requested by the underwriter commencing on the effective date of the registration statement filed in connection with such offering.

7.   PURCHASE PRICE

7.1

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

7.2

The Purchase Price shall be payable upon the exercise of the Option in a form satisfactory to the Administrator, including without limitation, by cash or cheque or any other form of payment approved by the Administrator in its sole and absolute discretion, to the extent permissible under any applicable law. The Administrator shall have the authority to postpone the date of payment on such terms as it may determine.

8.   ADJUSTMENTS

Except as otherwise provided in the Option Agreement, upon the occurrence of any of the following events, Optionee’s rights to purchase Shares under the ISOP shall be adjusted as hereafter provided:

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8.1   In the event of: (a) the sale of all or substantially all of the assets of the Company to any person or entity that, prior to such sale, did not control, was not under common control with, or was not controlled by, the Company, or (b) a merger or consolidation or other reorganization in which the Company is not the surviving entity or becomes owned entirely by another entity, unless at least fifty percent (50%) of the outstanding voting securities of the surviving or parent corporation, as the case may be, immediately following such transaction are beneficially held by such persons and entities in the same proportions as such persons and entities beneficially held the outstanding voting securities of the Company immediately prior to such transaction, or (c) the sale or other change of beneficial ownership of the outstanding voting securities of the Company such that any person or group becomes the beneficial owner of more than 50% of the outstanding voting securities of the Company ( “Change of Control Transaction”) while unexercised Options remain outstanding under the ISOP, then the Company shall endeavor to cause the successor entity in such transaction either to assume all the outstanding Options as of the consummation of such transaction (the “Closing”), or to issue (or cause to be issued) in substitution thereof comparable options of such successor entity (or of its parent or subsidiary). If the successor entity is unwilling to either assume such Options or grant comparable options in substitution of 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.

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8.2

The number of Shares subject to the ISOP, the number of Shares available under Options and the Purchase Price shall be adjusted as determined by the Board in its sole discretion from time to time to reflect adjustments in the number of Shares arising as a result of subdivisions, share dividends, bonus shares, consolidations or reclassifications of the Shares or other relevant changes in the authorized or issued share capital of the Company. 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. No fractional Shares may be purchased or issued hereunder. If an Optionee is entitled to purchase a fraction of a Share pursuant to an outstanding Option, such entitlement shall be rounded down to the nearest whole number.

Notwithstanding the above, no adjustment shall be made if 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 pursuant to vested Options held by such Optionee (in addition to any Option Shares or other Shares actually held of record by such Optionee).

9.   TERM AND EXERCISE OF OPTIONS

9.1	Options shall be exercised by the Optionee by giving written notice to the Company, in such form and method as may be determined by the Administrator, which exercise shall be effective upon receipt of such notice by the Company at its principal office. The notice shall specify the number of Shares with respect to which the Option is being exercised and it shall be accompanied by any further assurances and/or undertaking as the Administrator may require to ensure that the transaction complies in all respects with the requirements of any applicable law. The above notice will be signed by the person exercising the Option and, subject to Section 7.2 above, it will be accompanied by full payment of the corresponding Purchase Price.
9.2	Each Option shall be exercisable following the vesting dates, subject to the provisions of the ISOP and for the number of Shares as shall be provided in the Option Agreement. However no Option shall be exercisable after the expiration date, as defined for each Optionee in the Optionee’s Option Agreement (the “Expiration Date”), subject always to Section 9.6 below.
9.3	An Option shall not be transferable by an Optionee other than by will or laws of descent and distribution, and during an Optionee’s lifetime shall be exercisable only by that Optionee.

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9.4	The Options may be exercised by the Optionee in whole at any time or in part from time to time, to the extent that the Options become vested and exercisable, prior to the Expiration Date, and provided that the number of Shares purchased under the exercised Option will be no less than 100 Shares, without regard to adjustments to the number of shares subject to the Option pursuant to Section 8, or, if less, all of the remaining Shares subject to the Option, and provided further that subject to the provisions of Section 9.6 below and unless the Administrator resolves otherwise, the Optionee is an employee or director, consultant or advisor of the Company or any of its Subsidiaries, at all times during the period beginning with the granting of the Option and ending upon the date of exercise.
9.5	Subject to the provisions of Section 9.6 below, in the event of termination of Optionee’s employment with or performance of services for or on behalf of the Company or any of its Subsidiaries, all Options granted to the Optionee will immediately expire. A notice of termination of employment or services shall be deemed to constitute termination of employment or services.
9.6	Notwithstanding anything to the contrary hereinabove, an Option may be exercised after the date of termination of Optionee’s employment with or performance of services for or on behalf of the Company or any of its Subsidiaries during an additional period of time beyond the date of such termination, but only with respect to the number of Options already vested at the time of such termination according to the vesting periods of the Options set forth in the Optionee’s Option agreement, if:

(i)	Termination is without Cause (as defined below), in which event any Options still in force and unexpired may be exercised within a period of 30 (thirty) days from the date of such termination;
(ii)	Termination is the result of death or disability of the Optionee, in which event any Options still in force and unexpired may be exercised within a period of 6 (six) months from the date of termination; or
(iii)	Prior to the date of such termination, the Administrator shall authorize an extension of the terms of all or part of the Options beyond the date of such termination for a period not to exceed the period during which the Options by their terms would otherwise have been exercisable.

The term “Cause” shall mean a termination by the Company and/or any of its Subsidiaries of the Optionee’s employment or services (or if the Optionee is a Director, removal of him or her from the Board by action of the shareholders or, if permitted by applicable law and the Articles of Association 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

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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.

9.7

To avoid doubt, the holders of Options shall not have any of the rights or privileges of shareholders of the Company in respect of any Shares purchasable upon the exercise of any Options, nor shall they be deemed to be a class of shareholders or creditors of the Company for the purpose of the operation of Sections 350 and 351 of the Israeli Companies Law — 1999 or any successor to such Sections, until registration of the Optionee as holder of such Shares in the Company’s register of members upon exercise of the Options in accordance with the provisions of the ISOP.

9.8

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

10.   VESTING OF OPTIONS

Except as otherwise provided in the Option Agreement, the Option initially will be deemed an entirely unvested Option, but portions of the Option will become a vested Option on the following schedule:

10.1	twenty-five percent (25%) will become a vested Option as of the first anniversary of the Date of Grant set forth in the Optionee’s Option Agreement; and
10.2	two and one-twelfth percent (2-1/12%) of the Option will become vested as of the end of each month thereafter, subject to section 9.5 above and provided 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.

11.   DIVIDENDS; NO SOCIAL BENEFITS

11.1   With respect to all Shares (in contrary to unexercised Options) issued upon the exercise of Options purchased by the Optionee and held by the Trustee, the Optionee shall be entitled to receive dividends in accordance with the quantity of

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such Shares, and subject to any applicable taxation on distribution of dividends. During the period in which Shares issued to the Trustee on behalf of an Optionee are held by the Trustee, the cash dividends paid with respect thereto shall be paid directly to the Optionee.

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

12.   ASSIGNABILITY AND SALE OF OPTIONS

No Option shall be assignable, transferable or given as collateral or any right with respect to it shall be given to any third party whatsoever, and any such action made directly or indirectly, for an immediate validation or for a future one, shall be void. During the lifetime of the Optionee each and all of such Optionee’s rights to purchase Shares hereunder shall be exercisable only by the Optionee.

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

13.   EFFECTIVE DATE OF ISOP AND TERM OF THE ISOP

The ISOP shall be effective as of the day it was adopted by the Board and shall terminate at the end of ten years from such day of adoption, if not terminated under Section 14 below prior to such date, after which no more Options may be granted under the ISOP, although all outstanding Options granted prior to such termination will remain subject to the provisions of the ISOP, and no such termination of the ISOP will result in the expiration or termination of any such Option prior to the expiration or early termination of the applicable Option term.

14.   AMENDMENTS OR TERMINATION

14.1   The Administrator may at any time, amend, alter, suspend, cancel or terminate the ISOP or any part thereof, replace and/or determine further provisions and sub-plans in addition to the ISOP, determine any other plan in lieu of the ISOP and determine any provision and do anything in connection with the ISOP.

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14.2

No amendment, alteration, suspension or termination of the ISOP shall impair the rights of any Optionee with respect to an outstanding Option, unless mutually agreed otherwise between the Optionee and the Administrator, which agreement must be in writing and signed by the Optionee and the Company. Termination of the ISOP shall not affect the Administrator’s ability to exercise the powers granted to it hereunder with respect to Options granted under the ISOP prior to the date of such termination.

14.3

No Options may be granted under the ISOP while the ISOP is suspended or after it is terminated.

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15.   GOVERNMENT REGULATIONS

The ISOP, and the granting and exercise of Options hereunder, and the obligation of the Company to sell and deliver Shares under such Options, shall be subject to all applicable laws, rules, and regulations of the State of Israel and to such approvals by any governmental agencies or national securities exchanges as may be required. Nothing herein shall be deemed to require the Company to register the Shares under the securities law of any jurisdiction.

16.   CONTINUANCE OF EMPLOYMENT OR HIRED SERVICES

Neither the ISOP nor the Option Agreement with the Optionee shall impose any obligation on the Company or a Subsidiary thereof, to continue any Optionee in its employ, or the hiring by the Company of the Optionee’s services and nothing in the ISOP or in any Option granted pursuant thereto shall confer upon any Optionee any right to continue in the employ or service of the Company or a Subsidiary thereof or restrict the right of the Company or a Subsidiary thereof to terminate such employment or service hiring at any time.

17.   GOVERNING LAW & JURISDICTION

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

18.   TAX CONSEQUENCES

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

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

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19.   NON-EXCLUSIVITY OF THE ISOP

The adoption of the ISOP by the Board shall not be construed as amending, modifying or rescinding any previously approved incentive arrangements or as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of stock Options otherwise then under the ISOP, and such arrangements may be either applicable generally or only in specific cases.

For the avoidance of doubt, prior grant of options to Optionees of the Company under their employment or services agreements, and not in the framework of any previous option plan, shall not be deemed an approved incentive arrangement for the purpose of this Section.

In addition, for the avoidance of doubt, the grant of Options to the Optionees shall not prejudice any previous grant (within the framework of previously approved incentive arrangements) of Options to the Optionee.

20.   MULTIPLE AGREEMENTS

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

21.   THE STATUS OF THE AGREEMENT

Any interpretation of the Option Agreements will be made in accordance with the ISOP but in the event there is any contradiction between the provisions of an Option Agreement and the ISOP, the provisions of the Option Agreement will prevail.

EX-99.6

EXHIBIT 99.6

AMENDED & RESTATED AXIS SYSTEMS, INC. 1997 STOCK PLAN

Axis Systems, Inc.

1997 Stock Plan

Adopted On October 6, 1997

(Amended And Restated On December 8, 1998)

(Amended And Restated On February 9, 2004)

TABLE OF CONTENTS

		Page No.
SECTION 1.	ESTABLISHMENT AND PURPOSE		1
SECTION 2.	ADMINISTRATION		1
(a)	Committees of the Board of Directors		1
(b)	Authority of the Board of Directors		1
SECTION 3.	ELIGIBILITY		1
(a)	General Rule		1
(b)	Ten–Percent Stockholders		1
SECTION 4.	STOCK SUBJECT TO PLAN		1
(a)	Basic Limitation		1
(b)	Additional Shares		2
SECTION 5.	TERMS AND CONDITIONS OF AWARDS OR SALES		2
(a)	Stock Purchase Agreement		2
(b)	Duration of Offers and Nontransferability of Rights		2
(c)	Purchase Price		2
(d)	Withholding Taxes		2
(e)	Restrictions on Transfer of Shares and Minimum Vesting		2
(f)	Accelerated Vesting		3
SECTION 6.	TERMS AND CONDITIONS OF OPTIONS		3
(a)	Stock Option Agreement		3
(b)	Number of Shares		3
(c)	Exercise Price		3
(d)	Withholding Taxes		3
(e)	Exercisability		3
(f)	Accelerated Exercisability		3
(g)	Basic Term		4
(h)	Nontransferability		4
(i)	Termination of Service (Except by Death)		4
(j)	Leaves of Absence		4
(k)	Death of Optionee		5
(l)	No Rights as a Stockholder		5
(m)	Modification, Extension and Assumption of Options		5
(n)	Restrictions on Transfer of Shares and Minimum Vesting		5
(o)	Accelerated Vesting		5

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		Page No.
SECTION 7.	PAYMENT FOR SHARES		6
(a)	General Rule		6
(b)	Surrender of Stock		6
(c)	Services Rendered		6
(d)	Promissory Note		6
(e)	Exercise/Sale		6
(f)	Exercise/Pledge		6
SECTION 8.	ADJUSTMENT OF SHARES		7
(a)	General		7
(b)	Mergers and Consolidations		7
(c)	Reservation of Rights		7
SECTION 9.	SECURITIES LAW REQUIREMENTS		7
(a)	General		7
(b)	Financial Reports		7
SECTION 10.	NO RETENTION RIGHTS		8
SECTION 11.	DURATION AND AMENDMENTS		8
(a)	Term of the Plan		8
(b)	Right to Amend or Terminate the Plan		8
(c)	Effect of Amendment or Termination		8
SECTION 12.	DEFINITIONS		8

ii

Axis Systems, Inc. 1997 Stock Plan

SECTION 1. ESTABLISHMENT AND PURPOSE.

     The purpose of the Plan is to offer selected individuals an opportunity to acquire a proprietary interest in the success of the Company, or to increase such interest, by purchasing Shares of the Company’s Stock. The Plan provides both for the direct award or sale of Shares and for the grant of Options to purchase Shares. Options granted under the Plan may include Nonstatutory Options as well as ISOs intended to qualify under Section 422 of the Code.

     Capitalized terms are defined in Section 12.

SECTION 2. ADMINISTRATION.

     (a) Committees of the Board of Directors. The Plan may be administered by one or more Committees. Each Committee shall consist of one or more members of the Board of Directors who have been appointed by the Board of Directors. Each Committee shall have such authority and be responsible for such functions as the Board of Directors has assigned to it. If no Committee has been appointed, the entire Board of Directors shall administer the Plan. Any reference to the Board of Directors in the Plan shall be construed as a reference to the Committee (if any) to whom the Board of Directors has assigned a particular function.

     (b) Authority of the Board of Directors. Subject to the provisions of the Plan, the Board of Directors shall have full authority and discretion to take any actions it deems necessary or advisable for the administration of the Plan. All decisions, interpretations and other actions of the Board of Directors shall be final and binding on all Purchasers, all Optionees and all persons deriving their rights from a Purchaser or Optionee.

SECTION 3. ELIGIBILITY.

     (a) General Rule. Only Employees, Outside Directors and Consultants shall be eligible for the grant of Options or the direct award or sale of Shares. Only Employees shall be eligible for the grant of ISOs.

     (b) Ten-Percent Stockholders. An individual who owns more than 10% of the total combined voting power of all classes of outstanding stock of the Company, its Parent or any of its Subsidiaries shall not be eligible for designation as an Optionee or Purchaser unless (i) the Exercise Price is at least 110% of the Fair Market Value of a Share on the date of grant, (ii) the Purchase Price (if any) is at least 100% of the Fair Market Value of a Share and (iii) in the case of an ISO, such ISO by its terms is not exercisable after the expiration of five years from the date of grant. For purposes of this Subsection (b), in determining stock ownership, the attribution rules of Section 424(d) of the Code shall be applied.

SECTION 4. STOCK SUBJECT TO PLAN.

     (a) Basic Limitation. Shares offered under the Plan may be authorized but unissued Shares or treasury Shares. The aggregate number of Shares that may be issued under the Plan

1

(upon exercise of Options or other rights to acquire Shares) shall not exceed 1,124,013 Shares, subject to adjustment pursuant to Section 8. The number of Shares that are subject to Options or other rights outstanding at any time under the Plan shall not exceed the number of Shares that then remain available for issuance under the Plan. The Company, during the term of the Plan, shall at all times reserve and keep available sufficient Shares to satisfy the requirements of the Plan.

     (b) Additional Shares. In the event that any outstanding Option or other right for any reason expires or is canceled or otherwise terminated, the Shares allocable to the unexercised portion of such Option or other right shall again be available for the purposes of the Plan. In the event that Shares issued under the Plan are reacquired by the Company pursuant to any forfeiture provision, right of repurchase or right of first refusal, such Shares shall again be available for the purposes of the Plan, except that the aggregate number of Shares which may be issued upon the exercise of ISOs shall in no event exceed 1,124,013 Shares (subject to adjustment pursuant to Section 8).

SECTION 5. TERMS AND CONDITIONS OF AWARDS OR SALES.

     (a) Stock Purchase Agreement. Each award or sale of Shares under the Plan (other than upon exercise of an Option) shall be evidenced by a Stock Purchase Agreement between the Purchaser and the Company. Such award or sale shall be subject to all applicable terms and conditions of the Plan and may be subject to any other terms and conditions which are not inconsistent with the Plan and which the Board of Directors deems appropriate for inclusion in a Stock Purchase Agreement. The provisions of the various Stock Purchase Agreements entered into under the Plan need not be identical.

     (b) Duration of Offers and Nontransferability of Rights. Any right to acquire Shares under the Plan (other than an Option) shall automatically expire if not exercised by the Purchaser within 30 days after the grant of such right was communicated to the Purchaser by the Company. Such right shall not be transferable and shall be exercisable only by the Purchaser to whom such right was granted.

     (c) Purchase Price. The Purchase Price of Shares to be offered under the Plan shall not be less than 85% of the Fair Market Value of such Shares, and a higher percentage may be required by Section 3(b). Subject to the preceding sentence, the Purchase Price shall be determined by the Board of Directors at its sole discretion. The Purchase Price shall be payable in a form described in Section 7.

     (d) Withholding Taxes. As a condition to the purchase of Shares, the Purchaser shall make such arrangements as the Board of Directors may require for the satisfaction of any federal, state, local or foreign withholding tax obligations that may arise in connection with such purchase.

     (e) Restrictions on Transfer of Shares and Minimum Vesting. Any Shares awarded or sold under the Plan shall be subject to such special forfeiture conditions, rights of repurchase, rights of first refusal and other transfer restrictions as the Board of Directors may determine. Such restrictions shall be set forth in the applicable Stock Purchase Agreement and

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shall apply in addition to any restrictions that may apply to holders of Shares generally. Any such right may be exercised only within three months after the termination of the Purchaser’s Service for cash or for cancellation of indebtedness incurred in purchasing the Shares.

     (f) Accelerated Vesting. Unless the applicable Stock Purchase Agreement provides otherwise, any right to repurchase a Purchaser’s Shares at the original Purchase Price (if any) upon termination of the Purchaser’s Service shall lapse and all of such Shares shall become vested if (i) the Company is subject to a Change in Control before the Purchaser’s Service terminates and (ii) the repurchase right is not assigned to the entity that employs the Purchaser immediately after the Change in Control or to its parent or subsidiary.

SECTION 6. TERMS AND CONDITIONS OF OPTIONS.

     (a) Stock Option Agreement. Each grant of an Option under the Plan shall be evidenced by a Stock Option Agreement between the Optionee and the Company. Such Option shall be subject to all applicable terms and conditions of the Plan and may be subject to any other terms and conditions which are not inconsistent with the Plan and which the Board of Directors deems appropriate for inclusion in a Stock Option Agreement. The provisions of the various Stock Option Agreements entered into under the Plan need not be identical.

     (b) Number of Shares. Each Stock Option Agreement shall specify the number of Shares that are subject to the Option and shall provide for the adjustment of such number in accordance with Section 8. The Stock Option Agreement shall also specify whether the Option is an ISO or a Nonstatutory Option.

     (c) Exercise Price. Each Stock Option Agreement shall specify the Exercise Price. The Exercise Price of an ISO shall not be less than 100% of the Fair Market Value of a Share on the date of grant, and a higher percentage may be required by Section 3(b). The Exercise Price of a Nonstatutory Option shall not be less than 85% of the Fair Market Value of a Share on the date of grant, and a higher percentage may be required by Section 3(b). Subject to the preceding two sentences, the Exercise Price under any Option shall be determined by the Board of Directors at its sole discretion. The Exercise Price shall be payable in a form described in Section 7.

     (d) Withholding Taxes. As a condition to the exercise of an Option, the Optionee shall make such arrangements as the Board of Directors may require for the satisfaction of any federal, state, local or foreign withholding tax obligations that may arise in connection with such exercise. The Optionee shall also make such arrangements as the Board of Directors may require for the satisfaction of any federal, state, local or foreign withholding tax obligations that may arise in connection with the disposition of Shares acquired by exercising an Option.

     (e) Exercisability. Each Stock Option Agreement shall specify the date when all or any installment of the Option is to become exercisable. The exercisability provisions of any Stock Option Agreement shall be determined by the Board of Directors at its sole discretion.

     (f) Accelerated Exercisability. Unless the applicable Stock Option Agreement provides otherwise, all of an Optionee’s Options shall become exercisable in full if (i) the Company is subject to a Change in Control before the Optionee’s Service terminates, (ii) such

3

Options do not remain outstanding, (iii) such Options are not assumed by the surviving corporation or its parent and (iv) the surviving corporation or its parent does not substitute options with substantially the same terms for such Options.

     (g) Basic Term. The Stock Option Agreement shall specify the term of the Option. The term shall not exceed 10 years from the date of grant, and a shorter term may be required by Section 3(b). Subject to the preceding sentence, the Board of Directors at its sole discretion shall determine when an Option is to expire.

     (h) Nontransferability. No Option shall be transferable by the Optionee other than by beneficiary designation, will or the laws of descent and distribution. An Option may be exercised during the lifetime of the Optionee only by the Optionee or by the Optionee’s guardian or legal representative. No Option or interest therein may be transferred, assigned, pledged or hypothecated by the Optionee during the Optionee’s lifetime, whether by operation of law or otherwise, or be made subject to execution, attachment or similar process.

     (i) Termination of Service (Except by Death). If an Optionee’s Service terminates for any reason other than the Optionee’s death, then the Optionee’s Options shall expire on the earliest of the following occasions:

     (i) The expiration date determined pursuant to Subsection (g) above;

     (ii) The date three months after the termination of the Optionee’s Service for any reason other than Disability, or such later date as the Board of Directors may determine; or

     (iii) The date six months after the termination of the Optionee’s Service by reason of Disability, or such later date as the Board of Directors may determine.

The Optionee may exercise all or part of the Optionee’s Options at any time before the expiration of such Options under the preceding sentence, but only to the extent that such Options had become exercisable before the Optionee’s Service terminated (or became exercisable as a result of the termination) and the underlying Shares had vested before the Optionee’s Service terminated (or vested as a result of the termination). The balance of such Options shall lapse when the Optionee’s Service terminates. In the event that the Optionee dies after the termination of the Optionee’s Service but before the expiration of the Optionee’s Options, all or part of such Options may be exercised (prior to expiration) by the executors or administrators of the Optionee’s estate or by any person who has acquired such Options directly from the Optionee by beneficiary designation, bequest or inheritance, but only to the extent that such Options had become exercisable before the Optionee’s Service terminated (or became exercisable as a result of the termination) and the underlying Shares had vested before the Optionee’s Service terminated (or vested as a result of the termination).

     (j) Leaves of Absence. For purposes of Subsection (i) above, Service shall be deemed to continue while the Optionee is on a bona fide leave of absence, if such leave was approved by the Company in writing and if continued crediting of Service for this purpose is expressly required by the terms of such leave or by applicable law (as determined by the Company).

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     (k) Death of Optionee. If an Optionee dies while the Optionee is in Service, then the Optionee’s Options shall expire on the earlier of the following dates:

     (i) The expiration date determined pursuant to Subsection (g) above;

     or

     (ii) The date 12 months after the Optionee’s death.

All or part of the Optionee’s Options may be exercised at any time before the expiration of such Options under the preceding sentence by the executors or administrators of the Optionee’s estate or by any person who has acquired such Options directly from the Optionee by beneficiary designation, bequest or inheritance, but only to the extent that such Options had become exercisable before the Optionee’s death or became exercisable as a result of the death. The balance of such Options shall lapse when the Optionee dies.

     (l) No Rights as a Stockholder. An Optionee, or a transferee of an Optionee, shall have no rights as a stockholder with respect to any Shares covered by the Optionee’s Option until such person becomes entitled to receive such Shares by filing a notice of exercise and paying the Exercise Price pursuant to the terms of such Option.

     (m) Modification, Extension and Assumption of Options. Within the limitations of the Plan, the Board of Directors may modify, extend or assume outstanding Options or may accept the cancellation of outstanding Options (whether granted by the Company or another issuer) in return for the grant of new Options for the same or a different number of Shares and at the same or a different Exercise Price. The foregoing notwithstanding, no modification of an Option shall, without the consent of the Optionee, impair the Optionee’s rights or increase the Optionee’s obligations under such Option.

     (n) Restrictions on Transfer of Shares and Minimum Vesting. Any Shares issued upon exercise of an Option shall be subject to such special forfeiture conditions, rights of repurchase, rights of first refusal and other transfer restrictions as the Board of Directors may determine. Such restrictions shall be set forth in the applicable Stock Option Agreement and shall apply in addition to any restrictions that may apply to holders of Shares generally. Any such repurchase right may be exercised only within 90 days after the termination of the Optionee’s Service for cash or for cancellation of indebtedness incurred in purchasing the Shares.

     (o) Accelerated Vesting. Unless the applicable Stock Option Agreement provides otherwise, any right to repurchase an Optionee’s Shares at the original Exercise Price upon termination of the Optionee’s Service shall lapse and all of such Shares shall become vested if (i) the Company is subject to a Change in Control before the Optionee’s Service terminates and (ii) the repurchase right is not assigned to the entity that employs the Optionee immediately after the Change in Control or to its parent or subsidiary.

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SECTION 7. PAYMENT FOR SHARES.

     (a) General Rule. The entire Purchase Price or Exercise Price of Shares issued under the Plan shall be payable in cash or cash equivalents at the time when such Shares are purchased, except as otherwise provided in this Section 7.

     (b) Surrender of Stock. To the extent that a Stock Option Agreement so provides, all or any part of the Exercise Price may be paid by surrendering, or attesting to the ownership of, Shares that are already owned by the Optionee. Such Shares shall be surrendered to the Company in good form for transfer and shall be valued at their Fair Market Value on the date when the Option is exercised. The Optionee shall not surrender, or attest to the ownership of, Shares in payment of the Exercise Price if such action would cause the Company to recognize compensation expense (or additional compensation expense) with respect to the Option for financial reporting purposes.

     (c) Services Rendered. At the discretion of the Board of Directors, Shares may be awarded under the Plan in consideration of services rendered to the Company, a Parent or a Subsidiary prior to the award. At the discretion of the Board of Directors, Shares may also be awarded under the Plan in consideration of services to be rendered to the Company, a Parent or a Subsidiary after the award, except that the par value of such Shares, if newly issued, shall be paid in cash or cash equivalents.

     (d) Promissory Note. To the extent that a Stock Option Agreement or Stock Purchase Agreement so provides, all or a portion of the Exercise Price or Purchase Price (as the case may be) of Shares issued under the Plan may be paid with a full-recourse promissory note. However, the par value of the Shares, if newly issued, shall be paid in cash or cash equivalents. The Shares shall be pledged as security for payment of the principal amount of the promissory note and interest thereon. The interest rate payable under the terms of the promissory note shall not be less than the minimum rate (if any) required to avoid the imputation of additional interest under the Code. Subject to the foregoing, the Board of Directors (at its sole discretion) shall specify the term, interest rate, amortization requirements (if any) and other provisions of such note.

     (e) Exercise/Sale. To the extent that a Stock Option Agreement so provides, and if Stock is publicly traded, payment may be made all or in part by the delivery (on a form prescribed by the Company) of an irrevocable direction to a securities broker approved by the Company to sell Shares and to deliver all or part of the sales proceeds to the Company in payment of all or part of the Exercise Price and any withholding taxes.

     (f) Exercise/Pledge. To the extent that a Stock Option Agreement so provides, and if Stock is publicly traded, payment may be made all or in part by the delivery (on a form prescribed by the Company) of an irrevocable direction to pledge Shares to a securities broker or lender approved by the Company, as security for a loan, and to deliver all or part of the loan proceeds to the Company in payment of all or part of the Exercise Price and any withholding taxes.

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SECTION 8. ADJUSTMENT OF SHARES.

     (a) General. In the event of a subdivision of the outstanding Stock, a declaration of a dividend payable in Shares, a declaration of an extraordinary dividend payable in a form other than Shares in an amount that has a material effect on the Fair Market Value of the Stock, a combination or consolidation of the outstanding Stock into a lesser number of Shares, a recapitalization, a spin off, a reclassification or a similar occurrence, the Board of Directors shall make appropriate adjustments in one or more of (i) the number of Shares available for future grants under Section 4, (ii) the number of Shares covered by each outstanding Option or (iii) the Exercise Price under each outstanding Option.

     (b) Mergers and Consolidations. In the event that the Company is a party to a merger or consolidation, outstanding Options shall be subject to the agreement of merger or consolidation. Such agreement, without the Optionees’ consent, may provide for:

     (i) The continuation of such outstanding Options by the Company (if the Company is the surviving corporation);

     (ii) The assumption of the Plan and such outstanding Options by the surviving corporation or its parent;

     (iii) The substitution by the surviving corporation or its parent of options with substantially the same terms for such outstanding Options; or

     (iv) The cancellation of such outstanding Options without payment of any consideration.

     (c) Reservation of Rights. Except as provided in this Section 8, an Optionee or Purchaser shall have no rights by reason of (i) any subdivision or consolidation of shares of stock of any class, (ii) the payment of any dividend or (iii) any other increase or decrease in the number of shares of stock of any class. Any issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or Exercise Price of Shares subject to an Option. The grant of an Option pursuant to the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure, to merge or consolidate or to dissolve, liquidate, sell or transfer all or any part of its business or assets.

SECTION 9. SECURITIES LAW REQUIREMENTS.

     (a) General. Shares shall not be issued under the Plan unless the issuance and delivery of such Shares comply with (or are exempt from) all applicable requirements of law, including (without limitation) the Securities Act of 1933, as amended, the rules and regulations promulgated thereunder, state securities laws and regulations, and the regulations of any stock exchange or other securities market on which the Company’s securities may then be traded.

     (b) Financial Reports. The Company each year shall furnish to Optionees, Purchasers and stockholders who have received Stock under the Plan its balance sheet and

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income statement, unless such Optionees, Purchasers or stockholders are key Employees whose duties with the Company assure them access to equivalent information. Such balance sheet and income statement need not be audited.

SECTION 10. NO RETENTION RIGHTS.

     Nothing in the Plan or in any right or Option granted under the Plan shall confer upon the Purchaser or Optionee any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Company (or any Parent or Subsidiary employing or retaining the Purchaser or Optionee) or of the Purchaser or Optionee, which rights are hereby expressly reserved by each, to terminate his or her Service at any time and for any reason, with or without cause.

SECTION 11. DURATION AND AMENDMENTS.

     (a) Term of the Plan. The Plan, as set forth herein, shall become effective on the date of its adoption by the Board of Directors, subject to the approval of the Company’s stockholders. In the event that the stockholders fail to approve the Plan within 12 months after its adoption by the Board of Directors, any grants of Options or sales or awards of Shares that have already occurred shall be rescinded, and no additional grants, sales or awards shall be made thereafter under the Plan. The Plan shall terminate automatically 10 years after its adoption by the Board of Directors and may be terminated on any earlier date pursuant to Subsection (b) below.

     (b) Right to Amend or Terminate the Plan. The Board of Directors may amend, suspend or terminate the Plan at any time and for any reason; provided, however, that any amendment of the Plan which increases the number of Shares available for issuance under the Plan (except as provided in Section 8), or which materially changes the class of persons who are eligible for the grant of ISOs, shall be subject to the approval of the Company’s stockholders. Stockholder approval shall not be required for any other amendment of the Plan.

     (c) Effect of Amendment or Termination. No Shares shall be issued or sold under the Plan after the termination thereof, except upon exercise of an Option granted prior to such termination. The termination of the Plan, or any amendment thereof, shall not affect any Share previously issued or any Option previously granted under the Plan.

SECTION 12. DEFINITIONS.

     (a) “Board of Directors” shall mean the Board of Directors of the Company, as constituted from time to time.

     (b) “Change in Control” shall mean:

     (i) The consummation of a merger or consolidation of the Company with or into another entity or any other corporate reorganization, if more than 50% of the combined voting power of the continuing or surviving entity’s securities outstanding immediately after such merger, consolidation or other reorganization is owned by persons who were not

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stockholders of the Company immediately prior to such merger, consolidation or other reorganization; or

     (ii) The sale, transfer or other disposition of all or substantially all of the Company’s assets.

A transaction shall not constitute a Change in Control if its sole purpose is to change the state of the Company’s incorporation or to create a holding company that will be owned in substantially the same proportions by the persons who held the Company’s securities immediately before such transaction.

     (c) “Code” shall mean the Internal Revenue Code of 1986, as amended.

     (d) “Committee” shall mean a committee of the Board of Directors, as described in Section 2(a).

     (e) “Company” shall mean Axis Systems, Inc., a Delaware corporation.

     (f) “Consultant” shall mean a person who performs bona fide services for the Company, a Parent or a Subsidiary as a consultant or advisor, excluding Employees and Outside Directors.

     (g) “Disability” shall mean that the Optionee is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment.

     (h) “Employee” shall mean any individual who is a common law employee of the Company, a Parent or a Subsidiary.

     (i) “Exercise Price” shall mean the amount for which one Share may be purchased upon exercise of an Option, as specified by the Board of Directors in the applicable Stock Option Agreement.

     (j) “Fair Market Value” shall mean the fair market value of a Share, as determined by the Board of Directors in good faith. Such determination shall be conclusive and binding on all persons.

     (k) “ISO” shall mean an employee incentive stock option described in Section 422(b) of the Code.

     (l) “Nonstatutory Option” shall mean a stock option not described in Sections 422(b) or 423(b) of the Code.

     (m) “Option” shall mean an ISO or Nonstatutory Option granted under the Plan and entitling the holder to purchase Shares.

     (n) “Optionee” shall mean an individual who holds an Option.

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     (o) “Outside Director” shall mean a member of the Board of Directors who is not an Employee.

     (p) “Parent” shall mean any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if each of the corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. A corporation that attains the status of a Parent on a date after the adoption of the Plan shall be considered a Parent commencing as of such date.

     (q) “Plan” shall mean this Axis Systems, Inc. 1997 Stock Plan.

     (r) “Purchase Price” shall mean the consideration for which one Share may be acquired under the Plan (other than upon exercise of an Option), as specified by the Board of Directors.

     (s) “Purchaser” shall mean an individual to whom the Board of Directors has offered the right to acquire Shares under the Plan (other than upon exercise of an Option).

     (t) “Service” shall mean service as an Employee, Outside Director or Consultant.

     (u) “Share” shall mean one share of Stock, as adjusted in accordance with Section 8 (if applicable).

     (v) “Stock” shall mean the Ordinary Shares of Verisity Ltd., with a par value of NIS 0.01 per Share.

     (w) “Stock Option Agreement” shall mean the agreement between the Company and an Optionee which contains the terms, conditions and restrictions pertaining to the Optionee’s Option.

     (x) “Stock Purchase Agreement” shall mean the agreement between the Company and a Purchaser who acquires Shares under the Plan which contains the terms, conditions and restrictions pertaining to the acquisition of such Shares.

     (y) “Subsidiary” means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. A corporation that attains the status of a Subsidiary on a date after die adoption of the Plan shall be considered a Subsidiary commencing as of such date.

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