<PAGE>
EXHIBIT 10.28
-------------
VERISITY LTD
(hereinafter referred to as "the Company")
SUB-PLAN FOR THE ISSUANCE OF
OPTIONS TO THE COMPANY'S EMPLOYEES
----------------------------------
I. INTRODUCTION
------------
This sub-plan (hereinafter referred to as "the plan"), is made within the
framework of the 1997 Israel Share and Stock Option Incentive Plan which
was approved by the Company's general meeting on 28th May 1998
(hereinafter referred to as "the initial plan"), constitutes part of the
initial plan and is intended to clarify and adapt the provisions of the
initial plan so that they conform with the Company's contracts with
employees to whom options are being granted instead of shares and/or
options.
The object of this plan is to grant to the employees and directors of the
Company and its subsidiaries and affiliated companies (hereinafter
referred to as "employees" or "employee") options to purchase shares of
the Company in order to create an incentive for the employees and join
them in the Company's development and success.
For the removal of doubt, this plan supersedes any previous plan or
previous undertaking.
-1-
<PAGE>
II. THE PLAN'S MANAGEMENT
---------------------
III. Subject as provided in paragraphs 2.3 and 2.4 below, this plan shall be
managed by the Company's board of directors in its absolute discretion
or by such person to be nominated by it for that purpose (hereinafter
referred to as "the Administrator"). The board of directors, the
Administrator, the officers of the Company and the trustee pursuant to
the plan shall not bear personal responsibility and not be howsoever
liable to any employee on account of any resolution or act relating to
or in connection with the plan.
IV. Without prejudice to the generality of the above, the board of
directors and/or the Administrator shall have the following powers:
V. to determine in its or his absolute discretion the employees to whom
options will be issued under this plan and the number of options to be
granted to each of them; to determine the time and method of granting
the options; to prescribe conditions, which need not be the same for
all employees, for every option which the Company grants, including
conditions for receiving the options;
VI. to determine the option terms and conditions, including but without
derogating from the generality of the above the exercise price of the
options (the price payable for the exercise shares when notice is given
by the employee of the exercise of the option), the option exercise
term, including an extension of the term, and to determine the period
after termination of the employer/employee relationship as mentioned in
paragraph 9 below, during which the employee may exercise the options.
For the avoidance of doubt, the board of directors and/or the
Administrator may at any time extend the period for the exercise of the
options by an employee after termination of the employment relationship
between him and the Company as specified in paragraph 9 below, even
after termination of the employment relationship as per the above, by
changing the provisions of the agreement with the employee and/or of
this plan in such respect;
VII. to determine the employee's duties to the Company in connection with
this plan and its implementation; to make an option grant agreement or
agreements or any other agreement with the employee or employees;
VIII. to determine provisions in all respects relating to the grant in
installments of the options being allotted to each employee (vesting
periods);
-2-
<PAGE>
IX. to modify any of the conditions relating to the options, including
relating to the conditions which have been set as specified in
paragraphs 2.2.1 to 2.2.4 above, provided that such shall not derogate
from vested rights of an employee to whom options have been issued;
X. to nominate in its absolute discretion the trustee under the plan and
to replace it at any time in the future, subject to approval by the
Income Tax Commission if such approval is necessary;
XI. to suspend, terminate or cancel all or any of the plan, to interpret
the plan and its provisions, to determine further provisions and sub-
plans in addition to it, to determine any other plan in its place and
determine any provision and do anything in connection with this plan.
For the removal of doubt, the plan's cancellation will be effected
subject to coordination with the Income Tax Commission, if such
coordination is necessary and will not derogate from vested rights of
the employees.
XII. The Company's general manager will be empowered to allot to an
individual employee options for shares which constitute up to 1% of the
Company's issued share capital on a fully diluted basis, in his
absolute discretion.
XIII. Notwithstanding paragraphs 2.1, 2.2 and 2.3 above, any resolution of
the Company's board of directors or such person as appointed by it for
the purpose of this plan is subject to Mr. Yoav Hollander's veto right.
XIV. THE SHARES AND OPTIONS PURSUANT TO THE PLAN
-------------------------------------------
The shares pursuant to this plan will be the Company's Ordinary Shares
(herein referred to as "Shares"). The options pursuant to this plan will
be options for the purchase of Ordinary Shares of NIS 0.01 par value each
of the Company (herein referred to as "Exercise Shares"). The option
exercise term and the exercise price will be determined as specified in
paragraph 2 above and if an exercise term is not determined as per the
above, the exercise term will be 10 years from the time of the options'
issue to the employee.
The maximum number of Exercise Shares deriving from exercise of the
options pursuant to the plan is 1,260,000 shares of NIS 0.01 par value
each, which have been allotted to Ma'ahaz Ne'eman Ltd. and are held by it
on trust. This is subject to adjustments as a result of any changes in
the Company's capital, as specified in paragraph 13 below.
-3-
<PAGE>
XV. THE EMPLOYEE'S WARRANTIES AND OBLIGATIONS
-----------------------------------------
Every employee who participates in the plan shall sign an agreement and
any other undertaking and/or document in such form as determined from
time to time by the Company's board of directors and/or the Administrator
(hereinafter referred to as "the Agreement"). The Agreement need not be
in the same form or on the same terms as the agreements of other
employees.
Without derogating from the provisions of the plan or of any other
agreement or document signed by an employee in the future, by
participating in this plan the employee warrants and confirms as follows:
XVI. that the plan and the Agreement supersede every previous agreement,
arrangement or understanding, whether in writing or oral, between him
and the Company, its directors or shareholders with regard to the
matters contained in the plan and with regard to shares or options in
the Company and any such agreement, arrangement or understanding is
hereby declared null and void;
XVII. that the employee is aware and agrees that the Company's shares are not
listed on any stock exchange and that the Company is under no
commitment to list its shares or the options or Exercise Shares which
are to be issued to the employee in such exchange;
XVIII. that the employee is aware that there are tax implications in
connection with the grant and exercise of the options. The employee is
aware and agrees that according to the plan the employee alone shall
bear all the taxes of every type and all the expenses deriving
therefrom and the employee shall not have and hereby waives any demand
or claim which he now or in future has against the trustee, the Company
or those acting for or on their behalf which derives from the taxation
relating to the options, their exercise or the employee's participation
in the plan.
The employee is further aware and agrees that without prejudice
to his above undertaking to pay all taxes in connection with the
Shares and Options, the Company and the trustee may and shall be
liable to withhold tax at source from all payments due to the
employee;
-4-
<PAGE>
XIX. that he is aware that transfers of the Shares or options are subject to
restrictions, inter alia as provided in paragraphs 6, 7 and 10 below;
XX. that he is acquainted with the Company and its activity and is aware
that the Company operates in a sophisticated, high-tech and high-risk
environment and that holding the Company's shares involves an economic
risk. The employee therefore undertakes that he will not have any claim
against the Company or any of its directors, employees or shareholders
should his investment in the Company's shares fails because of the
payment of tax for which he is liable or for any other reason;
XXI. that he is aware, agrees and confirms that the plan is a flexible one
and is subject from time to time to material or other modifications
which the board of directors and/or the Administrator will make, and
the employee agrees and undertakes that he will not object to any such
change or modification, that he will sign any document which in the
Company's opinion is necessary in order to give full force and effect
to the plan's modification and that any modification to or in
connection with the plan will obligate him as though incorporated in
the plan from the outset, provided that no such modification shall
impair his vested rights.
XXII. THE PLAN'S TERMS AND CONDITIONS
-------------------------------
The following terms and conditions, unless expressly otherwise provided
in the Agreement in respect of a particular employee, shall apply in
respect of all the employees who participate in the plan:
-5-
<PAGE>
XXIII. the employee shall have no vested right as a shareholder of the Company
so long as the Exercise Shares have not been registered in his name in
the Company's register of shareholders as mentioned in paragraphs 8.3
and 8.4 below, and paragraphs 6 and 7 below shall apply in this
respect;
XXIV. the income attributed to the employee as a result of the grant of the
Options and the Exercise Shares, their transfer in his name or their
sale and in all respects relating thereto, shall not be taken into
account when computing the basis of the employee's entitlement to any
social benefits. Without derogating from the generality of the above,
that income shall not be taken into account in computing mangers
insurance, vocational studies fund, provident funds, severance pay,
holiday pay and the like. If the Company is legally obliged to take any
of the above into account, as income which is to be attributed to the
employee, the employee will indemnify the Company in respect of any
expense sustained by it in such respect;
XXV. no provision of the Agreement or this plan shall be construed as an
undertaking or agreement by the Company to employ the employee for any
specific period and no provision of the Agreement or the plan shall be
construed as limiting the Company's right to terminate the employment
of an employee at any time in its discretion and in accordance with the
contract of employment of each employee and/or the law.
XXVI. VESTING OF THE EMPLOYEES' RIGHT TO OPTIONS
------------------------------------------
So long as the employee is an employee of the Company or its subsidiary,
his right to the options which have been granted to him pursuant to this
plan and in the Agreement shall, unless otherwise provided in the
Agreement with each employee as mentioned in paragraph 2 above, vest as
follows:
after the employee has completed one year of employment with the Company
or its subsidiary and subject thereto, the employee will be entitled to
exercise his right in respect of 25% of the Shares which have been
assigned for him. The right with respect to the remainder of the Shares
which have been assigned for the employee, namely 75%, shall vest in
installments at the end of the employee's first year of employment with
the Company, so that at the end of each month from the end of his first
year of employment the employee will be entitled to exercise his right in
respect of 2.0833% of the Shares which have been assigned for him.
-6-
<PAGE>
For the removal of doubt, if the employee's employment with the Company
or its subsidiary terminates, for any reason, prior to the end of his
first year of employment with the Company, the employee shall not be
entitled to any Shares or Options in the Company. If the employee's
employment with the Company terminates, for any reason, after the end of
the first year but before the end of the fourth year, the employee will
be entitled to exercise his right in respect of Shares, pro rata to the
options his right to which had vested as provided above in this clause,
in accordance with the period of time during which he actually worked for
the Company or the subsidiary, subject always to the provisions at the
end of paragraph 9.1 below with regard to terminating the right of an
employee who has been dismissed in circumstances in which he is not
entitled to full severance pay.
-7-
<PAGE>
XXVII. ISSUE OF THE SHARES AND OPTIONS TO THE TRUSTEE AND ITS HOLDING THEM
-------------------------------------------------------------------
XXVIII. The trustee to be appointed as per the above by the Company's board of
directors for the implementation of this plan shall be vested with all
the powers which are agreed upon between it and the Company in the
trust agreement to be made between it and the Company.
XXIX. The Option warrants shall be issued in the trustee's name and be
deposited with and held by it.
XXX. Unless otherwise provided in this plan or the Agreement, the trustee
will hold all property received in respect of the Options and Exercise
Shares on trust. Should an employee's entitlement in respect of certain
Exercise Shares have vested and he exercise his right but the Shares
have not yet been registered in his name, the trustee will hold all
property received by it in respect of those Exercise Shares for the
benefit of the employee and the property will be deemed part of those
Exercise Shares.
XXXI. Until 1st July 2002 or until immediately after the Company's shares
have been issued to the public, whichever is the earlier, the sale,
grant or transfer, whether or not for consideration, of the Exercise
Shares by the employee shall be subject to the right of first refusal
of the Investor Shareholders, as defined in the Company's Articles of
Association, and of the Company's Shareholders who hold 3% or more of
the Company's issued share capital, other than those who were or are
employees of the Company or a subsidiary of the Company, who shall have
no such right of first refusal, as set out below:
-8-
<PAGE>
in the event that an employee (hereinafter referred to as "the
transferor") has received an offer from any third party in good
faith or reached an understanding in good faith with any third
party (hereinafter referred to as "the Transferee") with regard
to a sale in good faith (or other transfer in good faith) of his
Exercise Shares or any of them (hereinafter referred to as "the
Offered Shares"), the other shareholders mentioned above shall
have a right of first refusal to purchase the Offered Shares,
pro rata to their holdings in the Company at that time, at the
same price and on the same terms as agreed with the Transferee
in good faith or offered by him in good faith, as the case may
be (hereinafter referred to as "the Terms of the Transaction
With The Transferee"). For such purpose the ratio of the said
shareholders' holdings shall be computed in accordance with the
relationship between the number of shares which each of the said
shareholders holds and the total issued and paid up shares of
the Company which are held by them on the deadline for sending
acceptance notices as set out below. For the purpose of
determining the said proportionate holdings, no account shall be
taken of the shares of the transferor or, as the case may be, of
the shares of the said shareholders who have given notice that
they do not wish to purchase any of the shares offered or who
have not sent acceptance notice by the time specified below.
The transferor shall deliver to the Company a written affidavit
signed by him detailing the terms of the transaction with the
Transferee, including the name of the Transferee, the number of
shares offered for sale, the sale price and the terms thereof
(hereinafter referred to as "the Offer").
Each of the said shareholders shall give notice to the
transferor within 21 days of receiving the Offer as to whether
or not he agrees to the Offer. Notice by a shareholder that he
agrees to purchase the shares as per the above shall be
irrevocable. On expiration of the said period any shareholder
who has not replied to the Offer shall be deemed to have
rejected it.
On expiration of the said period the shares offered shall be
transferred as follows:
if all the said shareholders have given notice of their desire
to purchase the shares offered to them, each such shareholder
shall purchase a number of shares pro rata to his holdings in
the Company;
-9-
<PAGE>
if any of the said shareholders gives notice that he does not
wish to purchase the shares offered or does not send any notice
within the time specified above, that shareholder's proportion
of the shares offered (hereinafter referred to as "the remaining
shares") will be offered to the other shareholders who have
given acceptance notices pro rata to their holdings and the
above provisions shall apply mutatis mutandis, subject to the
provisos that in the second stage the time for giving notice of
agreement to purchase any of the remaining shares shall be only
20 days and that any shareholder who participated in the first
stage shall be entitled to give notice in the second stage that
he wishes to purchase more than his proportion of the remaining
shares. If in the second stage acceptance notices are given in
respect of more than the remaining shares, those shares shall be
apportioned between the shareholders who have applied to
purchase them pro rata to their shareholdings of the Company as
aforesaid;
if the total shares offered are greater than the total shares in
respect of which acceptance notices are received as aforesaid or
if no acceptance notice is received from any of the offerees,
the right of first refusal pursuant to this clause shall be
deemed to have lapsed and all the shares offered shall be free
for sale to the Transferee on the Terms of the Transaction With
The Transferee for a period of 60 days.
Any reduction in the price, any other than negligible
modification to the terms or any offer or transfer after the
said 60 days, shall require a repeat offer to the said
shareholders and the provisions of this paragraph shall apply
again.
In the event that as a result of the proportionate holdings it
will be necessary to transfer share fractions, the number of
shares being transferred shall be rounded to the nearest whole
number (half a share being rounded down) to the effect that only
whole shares shall be transferred. Any adjustments necessary,
due to rounding share fractions into whole shares, shall be made
by the board of directors in its absolute discretion.
The above provisions of this paragraph shall not apply to the
transmission of shares on inheritance.
-10-
<PAGE>
XXXII. So long as the Exercise Shares under this plan are held by the trustee
and are registered in his name in the Company's register of
shareholders and/or so long as a first issue of the Company's shares
has not been made on any stock exchange, whichever is the later,
Ma'ahaz Ne'eman Ltd. shall alone be entitled to receive any notice to
which a shareholder of the Company is entitled, if at all, and subject
as specified below it shall be the sole person entitled to exercise any
right whatsoever which the Company's shareholders have in connection
with the shares, including the right to receive notices to and to
attend and vote at any shareholders' meeting and to appoint directors,
insofar as such right exists. The employee shall not be entitled to
exercise any right or apply to the trustee or the Company with any
demand or request in such respect. Ma'ahaz Ne'eman Ltd. shall grant its
consent whenever so requested by the Company's board of directors to a
reduction of the notice period for the Company's general meetings.
Ma'ahaz Ne'eman Ltd. shall sign any written resolution of the Company's
shareholders, if so instructed by Mr. Yoav Hollander. Ma'ahaz Ne'eman
Ltd. shall give a proxy to Mr. Yoav Hollander to vote on its behalf and
in its stead in respect of the shares in respect of which it has been
vested with the voting rights as per the above in any general meeting
in respect of which Mr. Hollander requests such a proxy. The proxy
shall enable Mr. Hollander to appoint another proxy. Should a proxy not
be appointed as aforesaid, Ma'ahaz Ne'eman Ltd. shall be precluded from
voting in the Company's general meeting by virtue of the shares
registered in its name.
For the removal of doubt and without derogating from any of the
above, the option holders shall not be entitled to rights as
shareholders of the Company so long as they have not exercised
the options and so long as the Exercise Shares have not been
transferred in their names and the consideration therefor
actually paid to the Company and on the transfer of the Exercise
Shares as per the above, those shares shall be governed by all
the above provisions of this paragraph.
-11-
<PAGE>
XXXIII. So long as the Exercise Shares which have been exercised by an employee
are registered in the trustee's name, the trustee shall not exercise
any right of first refusal to purchase shares in the Company in respect
of the shares registered in its name as per the above, even if such
right is vested in it by law, the articles of association or any
agreement.
XXXIV. The trustee shall not be liable to the employee or any third party
(including, but without prejudice to the generality of the foregoing,
the income tax authorities and any other governmental or administrative
agency) for any act done with regard to this plan and its
implementation or anything connected therewith or deriving therefrom.
The employee undertakes not howsoever to make any claim or demand
against the trustee, whatever the cause of action.
XXXV. THE CONDITIONS OF THE OPTIONS AND THEIR EXERCISE
------------------------------------------------
XXXVI. The options shall expire in all respects on 31st December 2007, unless
the plan is brought to an end prior thereto or the date is extended, as
mentioned in paragraph 2 above. After the Options have expired as per
the above, the Options shall be null and void and shall not confer any
right whatsoever upon anyone who holds them or did hold them
immediately prior to such expiration.
XXXVII. The right to exercise the Options will be vested with the employee, in
installments and gradually as determined pursuant to paragraph 6 above.
At the end of each of the periods determined as per the above the
employee may from time to time exercise the option with regard to all
or any of the shares allocated to that period. In addition, throughout
the periods the option with regard to all or any of the shares
allocated to any preceding period, in which the option was not wholly
exercised, may be exercised, provided that at the time of the option's
exercise the employee has been continuously employed by the Company
from the date of its grant until the date of its exercise or it is in
the extension period mentioned in paragraph 2.2.2 above and paragraph
9.2 below, subject always as provided at the end of paragraph 9.1 below
relating to termination of the entitlement of an employee who has been
dismissed in circumstances in which he is not entitled to full
severance pay.
-12-
<PAGE>
XXXVIII. An employee wishing to exercise an option, entitlement to which has
vested as mentioned in paragraph 6 above, subject always as mentioned
in paragraph 8.2 above, shall give written notice thereof to the
Company in the standard form in such respect for the time being, a copy
of which the employee may obtain from the Company. The notice shall
detail the number of shares which the employee wishes to exercise and
it shall be accompanied by the payment which is to be made, in the
manner in which it is to be made, for the option exercise price in
accordance with the Agreement. The notice shall also be accompanied by
all the documents which the employee must sign as a condition for the
option's exercise, as detailed in the plan and as resolved by the board
of directors. As a condition for the option's exercise the employee
shall pay the tax for which he is liable, if any (including by way of
withholding same at source by the Company).
XXXIX. On receipt of all the documents, certificates and payments required of
the employee as a condition for the option's exercise pursuant to this
plan and fulfillment of all other conditions, pursuant to the Agreement
and by law, the Company will arrange to transfer the shares deriving
from the option's exercise into the trustee's name. After receiving
confirmation from the trustee that the tax liability in respect of the
shares has been paid by the employee in full, the Company will arrange
to transfer the Exercise Shares from the trustee to the employee, it
will enter the employee in the Company's register of members and
furnish a share certificate in the employee's name to the employee, all
in accordance with the provisions of this plan.
XL. TERMINATION OF THE EMPLOYEE'S EMPLOYMENT
----------------------------------------
XLI. In the event that the employee's employment with the Company is
terminated after the expiration of the first year of his employment,
the employee will be entitled to exercise the options in respect of
shares, entitlement to which had already vested on the expiration of
his employment as per the above. The above shall not apply in the event
that the termination of the employee's employment is in circumstances
where, if he was or could have been dismissed by the Company by reason
thereof, he was not or would not have been legally entitled to full
severance pay, whereupon the employee's right in respect of all of the
options to which he was entitled pursuant to the plan which are
registered in the trustee's name, including the options, entitlement to
which has already vested pursuant to paragraph 6 above, shall expire.
-13-
<PAGE>
XLII. Unless otherwise provided in the Agreement between the Company and the
employee, the employee may exercise options which have not yet been
exercised by him by the time his employment comes to an end,
entitlement to which had vested by that time as mentioned in paragraph
6 above, in accordance with such conditions as are prescribed pursuant
to paragraph 2.2.2 above. In any event, and if not otherwise provided
pursuant to paragraph 2.2.2 above, the exercise period after the
expiration of the employer/employee relationship shall not be longer
than six months in the case of the employee's death or 30 days in the
case of the employer/employee relationship terminating for any other
reason, whilst in the case of the employee's dismissal in circumstances
in which he may legally be denied full severance pay, the provisions at
the end of clause 9.1 above shall apply with regard to terminating the
entitlement of the employee dismissed in circumstances in which he is
not entitled to full severance pay.
XLIII. In the event of an employee's death, the options held by the trustee or
by the employee directly, the employee's entitlement to which had
vested prior to his death, shall be held by the trustee for the
employee's heirs on the same terms as it held them for the employee,
subject to all the provisions of this plan and to such period of time
as prescribed for the heirs' exercise of the options as provided in
paragraphs 2.2.2 and 9.2 above, and the employee's other rights in
respect of shares or options, entitlement to which had not yet vested
at the time of his death, shall expire and not entitle his heirs to
anything.
XLIV. For the purpose of the above, the expiration of the employee's
employment shall be the date upon which the Company or the employee, as
the case may be, notifies the other party in writing of the termination
of their relationship, even if the notice specifies a later date for
the termination of the employer/employee relationship, unless a later
date is fixed by the board of directors or the Administrator.
XLV. RESTRAINTS ON THE TRANSFER OF SHARES AND OPTIONS
------------------------------------------------
Without derogating from the provisions of paragraphs 6 and 7 above, the
employee's rights in all respects relating to all or any of the shares
and options - so long as the Exercise Shares deriving from the options'
exercise have not been transferred to him by the trustee and registered
in his name - are personal and are not capable of transfer, assignment,
pledge, lien, attachment or other charge either voluntarily or by
operation of law, other than a transfer by virtue of a will or the laws
of succession, and no power of attorney or instrument of transfer,
whether with immediate or future effect may be given in respect of them.
For the removal of doubt, the Options are not transferable, save by
virtue of a will and/or the laws of succession and they may only be
exercised by the employee or his heirs.
-14-
<PAGE>
Any such direct or indirect transfer, whether made in order to obtain
immediate or future effect, shall be null and void.
After the shares' transfer into the employee's name in the Company's
register of shareholders, the employee shall be subject to all the
restrictions applying to a share transfer prescribed in the Company's
articles of association, as in force from time to time, in addition to
the restriction applicable to him as provided in this Plan.
In addition and without derogating from the above, should the shares be
subject to lock-up periods or market stand-offs in accordance with stock
exchange regulations, issue conditions or the underwriters' requirements
on a public issue, if there is a public issue, or a resolution of the
board of directors or the plan manager or by law, the board of directors
shall prescribe the scope and terms of application of such lock-up
periods or market stand-offs and the employee shall be subject to them.
-15-
<PAGE>
XLVI. TAXATION AND OTHER ARRANGEMENTS RELATING TO THE TRANSFER TO THE
---------------------------------------------------------------
EMPLOYEE OF THE SHARES AND OPTIONS
----------------------------------
XLVII. The employee shall bear all the tax liabilities, levies and obligatory
payments charged by the tax authorities (whether in Israel or abroad)
and any other mandatory payment whatever its source in respect of the
options and Exercise Shares or any dividend or other benefit in respect
of them, in connection with the transfer of the options and Exercise
Shares into the employee's name and any other charges accruing to the
employee or the trustee in connection with the plan. The Company shall
deduct tax in accordance with the law, including withholding tax, in
such manner as obliged by the provisions of this plan. If at any stage
of the plan's implementation a tax payment is necessary and the Company
is not in possession of the funds necessary to withhold tax as
aforesaid from the amount due to the employee from the Company, the
Company shall be entitled not to implement that stage or part of the
plan, unless the employee provides to the Company, forthwith upon its
demand, the funds necessary to make such tax payment as per the above.
XLVIII. The Company or the trustee may at any time apply to the tax authorities
and any foreign tax authority to obtain their confirmation with regard
to the level of tax which the Company, the employee or the trustee must
transfer in respect of the allotment of the options or Exercise Shares
or on any other issue relating to the implementation of this plan.
Before the options or Exercise Shares are transferred into the
employee's name, the trustee shall obtain a certificate from the
Assessing Officer, or some other certificate to the satisfaction of the
Company, that the tax legally charged has been paid and that the
options or Exercise Shares can be transferred into the employee's name.
XLIX. If so requested by the trustee or the Company's auditor, the employee
shall provide the trustee with a certificate from the Assessing Officer
in a form acceptable to the trustee as to the tax charged in respect of
the options or Exercise Shares which is transferable to the Assessing
Officer as a condition for the transfer into the employee's name of the
options or Exercise Shares. In the alternative, on and in accordance
with the trustee's request, the employee shall transfer the tax charged
directly to the Assessing Officer and provide the trustee with a
certificate in standard form from the Assessing Officer as to the
payment, which shall release the trustee and the Company from any
liability for the payment of tax.
-16-
<PAGE>
L. TRANSFER OF CONTROL
-------------------
In the event of a transaction in which control of the Company is
transferred, as defined below, before making such transaction the Company
shall apply to the entity acquiring control in order to investigate the
possibility of that entity's assuming the commitment for performance of
the option conditions pursuant to this plan or, instead of the options
pursuant to this plan which shall be canceled as provided below, issuing
new options of that entity (or of an entity related to it). Insofar as
the entity acquiring control is not interested in any of the above-
mentioned possibilities on such conditions as prescribed to the
satisfaction of the board of directors in its absolute discretion, then:
LI. in respect of options the entitlement to which has not yet vested,
those of the options, entitlement to which would have vested during the
12 months after making the merger transaction or representing 50% of
the options, entitlement to which has not yet vested on the merger
date, whichever is the lesser, shall become options exercisable
immediately before making the merger transaction, to the effect that
any option not exercised immediately before the merger transaction as
per the above shall be void; and
LII. the board of directors and/or the Administrator may, in its or his
absolute discretion, cancel all the options which have not yet been
exercised at the time of making the merger transaction, provided that
reasonable advance notice is given to the option holders of the merger
transaction and of their ability to exercise the options, entitlement
to which has vested, including the options entitlement to which has
vested as specified in paragraph 12.1 above, before the merger
transaction.
For the purpose hereof, a merger transaction shall be deemed any
transaction or series of transactions during a period of 90 days, in the
scope of which more than 50% of the rights of control of the Company are
transferred or all the assets of the Company are sold or the Company is
merged into another company.
-17-
<PAGE>
LIII. DISTRIBUTION OF DIVIDENDS AND ADJUSTMENTS ON ACCOUNT OF CHANGES IN THE
----------------------------------------------------------------------
CAPITAL STRUCTURE
-----------------
LIV. Should changes be made to the Company's capital structure including,
but without derogating from the generality of the foregoing, changes to
the Exercise Shares by reorganization, change of the capital structure,
distribution of bonus shares, distribution of dividend otherwise than
in cash, shares splits, dividend on winding up, consolidating shares,
swapping shares, changing the Company's structure or otherwise, but
excluding a transfer of control of the Company in respect whereof the
provisions of paragraph 12 above shall apply, the board of directors
and/or the Administrator shall in its or his absolute discretion make
the appropriate modifications in all respects relating to the options
or the Exercise Shares, including adjusting their number, in order to
reflect the event, provided that such shall not impair the employees'
vested rights. Insofar as such adjustment creates share fractions when
computing the number of shares subject to a particular option or due to
a particular employee, half a unit shall be rounded up or down as the
case may be in accordance with the directions of the board of directors
and/or the plan manager.
LV. Should bonus shares be allotted by virtue of shares which have actually
been allotted for an employee in the scope of this plan and registered
in the trustee's name, the bonus shares shall be allotted to the
trustee and registered in its name and they shall in all respects,
including with regard to their subordination to the conditions of the
plan, be deemed the original shares by virtue whereof they were
allotted so long as the shares are registered in the trustee's name.
LVI. The entitlement of shares, which have actually been transferred to the
employee, to participate with the Company's Ordinary Shares in any cash
dividend which is declared and distributed shall be subject to a
resolution of the board of directors.
LVII. In the event that a cash dividend is distributed, subject as provided
in paragraph 13.3 above, the dividend shall only be distributed in
respect of those shares which have actually been transferred to the
employee and in respect of options which have been exercised by the
"effective date" for the dividend's distribution, in accordance with
the provisions of paragraph 13.5 below. The employee shall have no
complaint against the Company, its directors or shareholders, if for
any reason, whether dependent on the Company or on the employee, the
shares have not been transferred to the employee by the effective date.
-18-
<PAGE>
Notice of a resolution of the Company's board of directors to
distribute dividend shall be sent by registered mail or fax or in
such other way as, in the opinion of the board of directors,
enables it to reach the employees to whom options have been
granted and who are entitled to exercise them by the effective
date, at least seven days prior to the effective date for the
dividend distribution or given to them personally at least 48
hours prior to the effective date.
An employee who, under the conditions of the plan, is entitled to
apply to the trustee to exercise an option for the purchase of
any shares by the effective date may do so and if he does so in
the manner required in this plan by the effective date, the
shares allotted in respect of the options exercised by the
effective date shall be entitled to participate in the dividend
distribution as provided in this paragraph, subject always as
provided in paragraph 13.3 above.
LVIII. A dividend relating to shares in respect of which exercise notice has
been given by the employee, which have been registered in the trustee's
name, the employee's entitlement to which shares having already vested,
shall be paid directly to the employee after legally withholding any
tax, whether the rate thereof is the ordinary rate charged on dividend
or its rate is higher, if tax is to be withheld as aforesaid.
The Company or the trustee may set off and withhold from any
dividend declared and distributed as aforesaid any amount which
the employee owes to the Company or the trustee and any amount
charged as tax, a levy or other obligatory payment.
-19-
<PAGE>
LIX. MISCELLANEOUS
-------------
LX. The trustee shall not be liable to the employee or any third party
(including, but without derogating from the generality of the
foregoing, the income tax authorities and any other governmental or
administrative authority) for any act done with regard to this plan and
its implementation or anything relating to it or deriving from it. The
employee undertakes to indemnify the trustee for any such liability and
in relation to any claim or demand by any entity, including the tax
authorities, in connection with this plan.
LXI. The plan and everything relating to it, including the Agreement, shall
be governed by Israeli law. Exclusive jurisdiction under this plan
shall vest with the competent courts of the State of Israel in Tel
Aviv.
LXII. Any notice under the Agreement or the plan shall be given in writing
and shall be deemed delivered at the time of its transfer to the
addressee in person or by fax, or three business days after being
posted by registered mail to the address of the parties.
-20-
<PAGE>
VERISITY LTD
OPTION ALLOTMENT IN ACCORDANCE WITH THE
PLAN FOR THE GRANT OF SHARES AND ALLOTMENT
OF OPTIONS TO THE COMPANY'S EMPLOYEES
-------------------------------------
____________________
____________________
Dear Employee,
Further to your contract of employment with the Company of ________, in the
scope of which or pursuant whereto you have been granted rights to shares in the
Company and as ratified by the Company's board of directors, you have been
granted an option for the purchase of ____ Ordinary Shares of NIS 0.01 par value
each of the Company (hereinafter respectively referred to as "the Option" and
"the Exercise Shares"). The above grant is subject to the conditions of the Sub-
Plan For The Issuance Of Options To The Company's Employees, a copy of which is
annexed hereto as appendix "A" (hereinafter referred to as "the plan"), and to
the provisions of this letter, including those relating to vesting.
After you have signed at the end of this letter and subject thereto, the Company
will arrange to allot in the name of the trustee, Oren Braun, CPA, of the firm
of Kost, Forer & Gabai (hereinafter referred to as "the trustee") a warrant
registered in your name which, subject to the conditions of the plan and this
letter, will be exercisable into the Exercise Shares.
Subject to the other conditions of the plan and this letter, your entitlement to
exercise the option, will vest as follows:
[Old employee] on 1st July 1998 you are entitled to exercise the option
in respect of ____ shares / [young employee] after you have completed a
whole year of employment with the Company and subject thereto, namely on
_____________, you will be entitled to exercise the option in respect of
25% of the total Exercise Shares.
-1-
<PAGE>
Subject to your continued employment with the Company and the other
conditions of the plan, your entitlement to exercise the Option in
respect of the remainder of the shares ([old employee] __% / [young
employee] 75%) will vest during [old employee] ____ / [young employee] 36
months from [old employee] 1st July 1998 / [young employee] the end of
the first year of your employment with the Company as per the above, to
the effect that at the end of each month from _________ you will be
entitled to exercise your entitlement in respect of 2.0833% of the
shares.
Subject to the conditions of the plan, your exercise of an option, the
entitlement to which has vested as per the above, shall be by written notice to
the Company in the Company's standard form. The notice shall detail the number
of shares you wish to exercise and it shall be accompanied by all the other
documents which are required in accordance with the plan. As a condition for
exercising the option you must pay the tax for which you are liable in respect
of the option's exercise (including by such tax being withheld at source by the
Company). After the Company has received all the documents, certificates and
payments required of you and confirmation from the trustee, the Company will
arrange to transfer the Exercise Shares into the trustee's name and after
receiving confirmation from the trustee that the tax liability in respect of the
shares has been paid in full by you, the Company will arrange for the transfer
into your name of the Exercise Shares that have been registered in the trustee's
name.
The exercise price of each of the Exercise Shares is ______, which will be
payable by you, amongst the other payments for which you are liable, at the time
you give exercise notice.
Without derogating from the generality of the above and for the removal of
doubt, amongst the other terms and conditions for the grant of the option and
the Exercise Shares, you must sign every document and make every payment
required by the Company and the trustee in such respect in accordance with the
provisions of the plan and this letter.
Independently of the vesting provisions, in the event that you wish to sell or
transfer all or any of the Exercise Shares which derive from the option, those
shares will be subject to the right of first refusal of the Investor
Shareholders, as defined in the Company's Articles of Association, and of the
Company's shareholders who hold 3% or more of its issued share capital, until
1st July 2002 or until the Company's shares are issued to the public, whichever
is the earlier, as mentioned in paragraph 7.4 of the plan. For the removal of
doubt, the above will apply in addition to possible lock-ups which might apply
to the option and the shares, as mentioned in the plan.
-2-
<PAGE>
Please note that you will not have any rights as a shareholder of the Company so
long as the option has not been exercised by you, so long as the Exercise Shares
are held by the trustee or so long as those shares are registered in the
trustees name. Inter alia, you will not have the voting rights by virtue of the
Exercise Shares until the expiration of the said periods or until the first
issue of the Company's shares on any stock exchange, whichever is the later, and
those voting rights are vested with Mr. Yoav Hollander and you undertake to sign
a proxy, a copy of which is annexed hereto, to the order of Mr. Hollander in
such respect. In addition, you will not have rights to participate in allotments
of additional shares in the Company (including a pre-emptive right).
Notwithstanding as aforesaid and as provided in the plan, it is hereby clarified
that if after the Exercise Shares have been transferred into the trustee's name
the Company decides to distribute a dividend to its shareholders, your
proportion of the said dividend will be transferred directly to you, rather than
the trustee, subject to your payment of the tax obliged thereby.
In addition, should your employment with the Company come to an end it will have
implications with regard to your entitlement to exercise the option or any part
thereof, as provided in paragraph 9 of the plan. Nevertheless and
notwithstanding as provided in paragraph 9.2 of the plan, in the event that the
employer/employee relationship between the Company and yourself comes to an end,
the deadline for exercising the option in respect of shares, your entitlement to
which has vested before the end of the employer/employee relationship as per the
above, will be the latest of the following dates: (a) the relevant one of the
dates mentioned in paragraph 9.2 as aforesaid; or (b) five years from the date
of the first issue of the Company's shares on any stock exchange; or (c) five
years from the end of the lock-up period, if applicable, further to the first
issue of the Company's shares on any stock exchange. It is hereby clarified that
the above supersedes the provisions of the plan in such respect, subject
nevertheless as provided in paragraph 9.1 of the plan with regard to termination
of the entitlement of an employee who has been dismissed in circumstances in
which he is not legally entitled to severance pay.
For the removal of doubt, the option will expire in all respects on 31st
December 2007 and after its expiration it will not confer any right whatsoever
including, but without limitation, the right to exercise it or any part thereof.
Notwithstanding as provided in paragraph 12 of the plan, in the event of a
transaction transferring control of the Company, the conditions of paragraph 12
shall not apply and instead the options granted to you pursuant to this letter,
which have not yet been exercised by you, will be exercisable in respect of
shares (or in respect of any property or right) of the purchasing entity that
will have been
-3-
<PAGE>
transferred to Ma'ahaz Ne'eman Ltd., within the transaction transferring control
on and against the shares which were held on trust by Ma'ahaz Ne'eman Ltd. for
the Company, and designated as Exercise Shares for the employees. The number of
shares (or properties or rights) in respect of which you will be entitled to
exercise the option after a transaction transferring control as per the above
will be determined by the Company's board of directors in its discretion, taking
into consideration the ratio between the Exercise Shares incorporated in the
option granted to you pursuant to this letter which have not yet been exercised
by you and the total shares (or properties or rights) which have been
transferred to Ma'ahaz Ne'eman Ltd. in the scope of the transaction transferring
control.
As mentioned in the plan, the Option and Exercise Shares in accordance with the
plan will be granted or allotted in the context of the employer/employee
relationship between the Company and you. You undertake to bear all tax
liabilities, levies and obligatory payments which are charged by the tax
authorities (in Israel and abroad) and every other mandatory payment, whatever
its source, in respect of the option, the shares or dividend or any other
benefit in respect of them on the transfer of the shares into your name,
together with any other liabilities accruing to you or the trustee in connection
with the plan. The Company or the trustee will legally deduct tax, including
withholding tax, and deduct every other mandatory payment, whatever its source,
from all the payments due to you, whether from salary or from any other payment
due to you from any other source in the manner specified in the plan. If at any
stage of the plan's implementation, any tax or mandatory payment is required as
per the above and the Company or the trustee is not in possession of the funds
necessary for the payment thereof from the amount due to you, the Company will
be entitled not to implement that stage or part of the plan, unless you provide
the Company, forthwith upon its request, with the funds necessary to make such
payment.
The Company and the trustee will not bear any liability and will be indemnified
by you for any expense or loss occasioned to them in respect of all the payments
made by them, including payments for not withholding tax in connection with the
grant of the option, its exercise, the allotment of shares, the sale of shares
or the transfer of shares into your name, the payment of dividend etc.
This letter does not constitute a contract of employment between you and the
Company, in which respect the provisions of paragraph 5.3 of the plan shall
apply.
The grant of the Option and Exercise Shares pursuant to this letter is subject
to all the conditions and limitation set out in the plan and provided by law and
we would ask you to read the plan carefully and confirm your agreement to it and
your undertaking to act pursuant to it, by signing a copy of this letter.
-4-
<PAGE>
The transfer, assignment or charge of the rights granted to you pursuant to this
letter and the plan is restricted in accordance with the provisions of the plan.
This letter constitutes an final and conclusive summary of the matters set out
herein and it ratifies, and in such respect revokes and replaces any previous
agreement, arrangement, undertaking, contract, understanding or document,
whether written, oral or otherwise, between you and the Company, its directors
or shareholders, or any other person or entity related to any of the foregoing
with regard to the matters specified in the plan or this letter and with regard
to the shares and options of the Company and any such prior agreement,
arrangement, undertaking, contract, understanding or document, if at all,
including our previous letter to you in such respect and the plan annexed
thereto are hereby declared null and void in all respects. In the event of any
discrepancy between the provisions of this letter and those of the amended plan
which is annexed hereto, the provisions of the plan shall prevail, unless
expressly otherwise stated in this letter.
This letter and the matters relating to it shall be governed solely by Israeli
law.
The use of the masculine gender in this letter is solely for the sake of
convenience and the contents hereof equally relate to both men and women.
Yours faithfully,
Verisity Ltd.
I the undersigned, _________________ hereby declare and confirm my agreement to
the above, including as regards the fact that this letter is a conclusive
summary which revokes any previous or other summary, and my undertaking to act
pursuant to it. I further hereby declare and confirm that I am aware that the
Sub-Plan For The Issuance Of Options To The Company's Employees, which is
annexed hereto, incorporates limitations and important material conditions which
govern the option and my rights pursuant to it including, but without derogating
from the generality of the above, conditions in connection with my right to
exercise the Option, limitation on the transfer of the Option and the transfer
of the Exercise Shares and conditions in connection with the Company's ability
to bring the plan to a premature end, inter alia due to my employment with the
Company coming to an end.
-5-
<PAGE>
I confirm that I have carefully read the Sub-Plan For The Issuance Of Options To
The Company's Employees and I acknowledge and agree that the foregoing and all
the provisions of the Sub-Plan and the conditions, restraints, agreements,
declarations and undertakings incorporated in the Sub-Plan, and inter alia in
paragraph 4 of it, shall apply to me in full and I undertake to act pursuant to
them.
I further confirm that I have not received any tax advice from the Company in
connection with the allotment of the shares or options pursuant to the Sub-Plan.
_______________________
(Employee's signature)
Name: ________________________
ID No.: ______________________
Address: _____________________
Date: ________________________
-6-
