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                                                                    EXHIBIT 10.1

                            VIRAGE LOGIC CORPORATION

                           1997 EQUITY INCENTIVE PLAN

     1. Purpose. The purpose of this Plan is to provide incentives to attract,
retain and motivate eligible persons whose present and potential contributions
are important to the success of the Company, its Parent and Subsidiaries, by
offering them an opportunity to participate in the Company's future performance
through awards of Options and Restricted Stock. Capitalized terms not defined in
the text are defined in Section 22. This Plan is intended to be a written
compensatory benefit plan within the meaning of Rule 701 promulgated under the
Securities Act.

     2. Shares Subject to the Plan.

     2.1  Number of Shares Available. Subject to Sections 2.2 and 17, the total
number of Shares reserved and available for grant and issuance pursuant to this
Plan will be 6,195,140 Shares or such lesser number of Shares as permitted under
Section 260.140.45 of Title 10 of the California Code of Regulations. Subject to
Sections 2.2 and 17, Shares will again be available for grant and issuance in
connection with future Awards under this Plan that: (a) are subject to issuance
upon exercise of an Option but cease to be subject to such Option for any reason
other than exercise of such Option or (b) are subject to an Award that otherwise
terminates without Shares being issued; provided, however, that any cancelled
option will continue to count against the maximum number of Shares for which
Awards may be granted to a Participant pursuant to Section 2.3 of this Plan. At
all times the Company will reserve and keep available a sufficient number of
Shares as will be required to satisfy the requirements of all Awards granted
under this Plan.

     2.2  Adjustment of Shares. In the event that the number of outstanding
shares of the Company's Common Stock is changed by a stock dividend,
recapitalization, stock split, reverse stock split, subdivision, combination,
reclassification or similar change in the capital structure of the Company
without consideration, then (a) the number of Shares reserved for issuance under
this Plan, (b) the Exercise Prices of and number of Shares subject to
outstanding Options, and (c) the Purchase Prices of and number of Shares subject
to other outstanding Awards will be proportionately adjusted, subject to any
required action by the Board or the shareholders of the Company and compliance
with applicable securities laws; provided, however, that fractions of a Share
will not be issued but will either be paid in cash at Fair Market Value of such
fraction of a Share or will be rounded down to the nearest whole Share, as
determined by the Committee.

     2.3  Limits on Grants for Qualified Performance-Based Compensation. The
Company may not issue Awards covering more than 500,000 Shares of Common Stock
to any one Participant in any calendar year.

     3. Eligibility. ISOs (as defined in Section 5 below) may be granted only to
employees (including officers and directors who are also employees) of the
Company or of a Parent or Subsidiary of the Company. All other Awards may be
granted to employees, officers, directors and consultants of the Company or any
Parent or Subsidiary of the Company; provided such consultants render bona fide
services not in connection with the offer and sale of securities in a
capital-raising transaction. A person may be granted more than one Award under
this Plan.

     4. Administration.

     4.1  Committee Authority. This Plan will be administered by the Committee
or the Board acting as the Committee. From such time as the Company issues a
class of common equity securities required to be registered under Section 12 of
the Exchange Act, and with respect to Participants who reasonably could be
expected to be "covered employees" within the meaning of section 162(m)(3) of
the Code in any year in which the Award granted to them could generate a
deductible compensation expense, the Plan shall be administrated by a committee
of the Board comprised solely of two or more Board members who are "outside
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directors" within the meaning of Section 162(m)(4)(C)(i) of the Code and section
1.162-27(e)(3) of the Treasury Regulations. Subject to the general purposes,
terms and conditions of this Plan, and to the direction of the Board, the
Committee will have full power to implement and carry out this Plan. Without
limitation, the Committee will have the authority to:

          (a) construe and interpret this Plan, any Award Agreement and any
     other agreement or document executed pursuant to this Plan;

          (b) prescribe, amend and rescind rules and regulations relating to
     this Plan;

          (c) select persons to receive Awards;

          (d) determine the form and terms of Awards;

          (e) determine the number of Shares or other consideration subject to
     Awards;

          (f) determine whether Awards will be granted singly, in combination
     with, in tandem with, in replacement of, or as alternatives to, other
     Awards under this Plan or awards under any other incentive or compensation
     plan of the Company or any Parent or Subsidiary of the Company;

          (g) grant waivers of Plan or Award conditions;

          (h) determine the vesting, exercisability and payment of Awards;

          (i) correct any defect, supply any omission, or reconcile any
     inconsistency in this Plan, any Award, any Award Agreement, any Exercise
     Agreement or any Restricted Stock Purchase Agreement;

          (j) determine whether an Award has been earned, and

          (k) make all other determinations necessary or advisable for the
     administration of this Plan.

     4.2  Committee Discretion. Any determination made by the Committee with
respect to any Award will be made in its sole discretion at the time of grant of
the Award or, unless in contravention of any express term of this Plan or Award,
and subject to Section 5.9, at any later time, and such determination will be
final and binding on the Company and on all persons having an interest in any
Award under this Plan. The Committee may delegate to one or more officers of the
Company the authority to grant an Award under this Plan.

     5. Options. The Committee may grant Options to eligible persons and will
determine whether such Options will be Incentive Stock Options within the
meaning of the Code ("ISOs") or Nonqualified Stock Options ("NQSOs"), the number
of Shares subject to the Option, the Exercise Price of the Option, the period
during which the Option may be exercised, and all other terms and conditions of
the Option, subject to the following:

     5.1  Form of Option Grant. Each Option granted under this Plan will be
evidenced by an Award Agreement which will expressly identify the Option as an
ISO or an NQSO ("Stock Option Agreement"), and will be in such form and contain
such provisions (which need not be the same for each Participant) as the
Committee may from time to time approve, and which will comply with and be
subject to the terms and conditions of this Plan.

     5.2  Date of Grant. The date of grant of an Option will be the date on
which the Committee makes the determination to grant such Option, unless
otherwise specified by the Committee. The Stock Option Agreement and a copy of
this Plan will be delivered to the Participant within a reasonable time after
the granting of the Option.

     5.3  Exercise Period. Options may be exercisable immediately (subject to
repurchase pursuant to Section 11 of this Plan) or may be exercisable within the
times or upon the events determined by the Committee as set forth in the Stock
Option Agreement governing such Option; provided, however, that no Option will
be exercisable after the expiration of ten (10) years from the date the Option
is granted, and further that no ISO granted to a person who directly or by
attribution owns more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or of any Parent or Subsidiary of the
Company ("Ten Percent Shareholder") will be exercisable after the expiration of
five (5) years from the date

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the ISO is granted. The Committee also may provide for Options to become
exercisable at one time or from time to time, periodically or otherwise, in such
number of Shares or percentage of Shares as the Committee determines. Subject to
earlier termination of the Option as provided herein, each Participant who is
not an officer, director or consultant of the Company or of a Parent or
Subsidiary of the Company and does not have annual compensation of $60,000 or
more shall have the right to exercise an Option granted hereunder at the rate of
at least twenty percent (20%) per year over five (5) years from the date such
Option is granted. Subject to earlier termination of the Option as provided for
herein, each Participant who is an officer, director or consultant of the
Company or of a Parent or Subsidiary of the Company or has annual compensation
of $60,000 or more shall have the right to exercise an Option granted hereunder
at the rate of at least 20% per year over five (5) years from the later of (A)
the date when all other Options granted to the Participant by the Company have
become exercisable in full, and (B) the date when the Company's repurchase right
has lapsed in full with regard to all other shares of restricted stock held by
Participant.

     5.4  Exercise Price. The Exercise Price of an Option will be determined by
the Committee when the Option is granted and may not be less than 85% of the
Fair Market Value of the Shares on the date of grant; provided that (i) the
Exercise Price of an ISO will not be less than 100% of the Fair Market Value of
the Shares on the date of grant and (ii) the Exercise Price of any Option
granted to a Ten Percent Shareholder will not be less than 110% of the Fair
Market Value of the Shares on the date of grant. Payment for the Shares
purchased must be made in accordance with Section 7 of this Plan.

     5.5  Method of Exercise. Options may be exercised only by delivery to the
Company of a written stock option exercise agreement (the "Exercise Agreement")
in a form approved by the Committee (which need not be the same for each
Participant), stating the number of Shares being purchased, the restrictions
imposed on the Shares purchased under such Exercise Agreement, if any, and such
representations and agreements regarding Participant's investment intent and
access to information and other matters, if any, as may be required or desirable
by the Company to comply with applicable securities laws, together with payment
in full of the Exercise Price, and any applicable taxes, for the number of
Shares being purchased.

     5.6  Termination. Subject to earlier termination pursuant to Sections 17
and 18 and notwithstanding the exercise periods set forth in the Stock Option
Agreement, exercise of an Option will always be subject to the following:

          (a) If the Participant is Terminated for any reason except death,
     Disability or for Cause, then the Participant may exercise such
     Participant's Options only to the extent that such Options are exercisable
     upon the Termination Date no later than three (3) months after the
     Termination Date (or within such shorter time period, not less than thirty
     (30) days, or within such longer time period, not exceeding five (5) years,
     after the Termination Date as may be determined by the Committee, with any
     exercise beyond three (3) months after the Termination Date deemed to be an
     NQSO) but in any event, no later than the expiration date of the Options.

          (b) If the Participant is Terminated because of Participant's death or
     Disability (or the Participant dies within three (3) months after a
     Termination other than because of Participant's Disability or Cause), then
     Participant's Options may be exercised only to the extent that such Options
     are exercisable by Participant on the Termination Date and must be
     exercised by Participant (or Participant's legal representative or
     authorized assignee) no later than twelve (12) months after the Termination
     Date (or within such shorter time period, not less than six (6) months, or
     within such longer time period, not exceeding five (5) years, after the
     Termination Date as may be determined by the Committee, with any exercise
     beyond (a) three (3) months after the Termination Date when the Termination
     is for any reason other than the Participant's death or disability, within
     the meaning of Section 22(e)(3) of the Code, or (b) twelve (12) months
     after the Termination Date when the Termination is for Participant's
     disability, within the meaning of Section 22(e)(3) of the Code, deemed to
     be an NQSO) but in any event no later than the expiration date of the
     Options.

          (c) If the Participant is terminated for Cause, then Participant's
     Options shall expire on such Participant's Termination Date, or at such
     later time and on such conditions as are determined by the Committee.

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     5.7  Limitations on Exercise. The Committee may specify a reasonable
minimum number of Shares that may be purchased on any exercise of an Option,
provided that such minimum number will not prevent Participant from exercising
the Option for the full number of Shares for which it is then exercisable.

     5.8  Limitations on ISOs. The aggregate Fair Market Value (determined as of
the date of grant) of Shares with respect to which ISOs are exercisable for the
first time by a Participant during any calendar year (under this Plan or under
any other incentive stock option plan of the Company or any Parent or Subsidiary
of the Company) will not exceed $100,000. If the Fair Market Value of Shares on
the date of grant with respect to which ISOs are exercisable for the first time
by a Participant during any calendar year exceeds $100,000, then the Options for
the first $100,000 worth of Shares to become exercisable in such calendar year
will be ISOs and the Options for the amount in excess of $100,000 that become
exercisable in that calendar year will be NQSOs. In the event that the Code or
the regulations promulgated thereunder are amended after the Effective Date (as
defined in Section 18 below) to provide for a different limit on the Fair Market
Value of Shares permitted to be subject to ISOs, then such different limit will
be automatically incorporated herein and will apply to any Options granted after
the effective date of such amendment.

     5.9  Modification, Extension or Renewal. The Committee may modify, extend
or renew outstanding Options and authorize the grant of new Options in
substitution therefor, provided that any such action may not, without the
written consent of a Participant, impair any of such Participant's rights under
any Option previously granted. Any outstanding ISO that is modified, extended,
renewed or otherwise altered will be treated in accordance with Section 424(h)
of the Code. The Committee may reduce the Exercise Price of outstanding Options
without the consent of Participants affected by a written notice to them;
provided, however, that the Exercise Price may not be reduced below the minimum
Exercise Price that would be permitted under Section 5.4 of this Plan for
Options granted on the date the action is taken to reduce the Exercise Price.

     5.10  No Disqualification. Notwithstanding any other provision in this
Plan, no term of this Plan relating to ISOs will be interpreted, amended or
altered, nor will any discretion or authority granted under this Plan be
exercised, so as to disqualify this Plan under Section 422 of the Code or,
without the consent of the Participant affected, to disqualify any ISO under
Section 422 of the Code.

     6. Restricted Stock. A Restricted Stock Award is an offer by the Company to
sell to an eligible person Shares that are subject to restrictions. The
Committee will determine to whom an offer will be made, the number of Shares the
person may purchase, the Purchase Price, the restrictions to which the Shares
will be subject, and all other terms and conditions of the Restricted Stock
Award, subject to the following:

     6.1  Form of Restricted Stock Award. All purchases under a Restricted Stock
Award made pursuant to this Plan will be evidenced by an Award Agreement
("Restricted Stock Purchase Agreement") that will be in such form (which need
not be the same for each Participant) as the Committee will from time to time
approve, and will comply with and be subject to the terms and conditions of this
Plan. The Restricted Stock Award will be accepted by the Participant's execution
and delivery of the Restricted Stock Purchase Agreement and full payment for the
Shares to the Company within thirty (30) days from the date the Restricted Stock
Purchase Agreement is delivered to the person. If such person does not execute
and deliver the Restricted Stock Purchase Agreement along with full payment for
the Shares to the Company within thirty (30) days, then the offer will
terminate, unless otherwise determined by the Committee.

     6.2  Purchase Price. The Purchase Price of Shares sold pursuant to a
Restricted Stock Award will be determined by the Committee and will be at least
85% of the Fair Market Value of the Shares on the date the Restricted Stock
Award is granted or at the time the purchase is consummated, except in the case
of a sale to a Ten Percent Shareholder, in which case the Purchase Price will be
100% of the Fair Market Value on the date the Restricted Stock Award is granted
or at the time the purchase is consummated. Payment of the Purchase Price must
be made in accordance with Section 7 of this Plan.

     6.3  Restrictions. Restricted Stock Awards may be subject to the
restrictions set forth in Section 11 of this Plan or such other restrictions not
inconsistent with the California Corporations Code.
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     7. Payment for Share Purchases.

     7.1  Payment. Payment for Shares purchased pursuant to this Plan may be
made in cash (by check) or, where expressly approved for the Participant by the
Committee and where permitted by law:

          (a) by cancellation of indebtedness of the Company to the Participant;

          (b) by surrender of shares that either: (1) have been owned by
     Participant for more than six (6) months and have been paid for within the
     meaning of SEC Rule 144 (and, if such shares were purchased from the
     Company by use of a promissory note, such note has been fully paid with
     respect to such shares); or (2) were obtained by Participant in the public
     market;

          (c) by tender of a full recourse promissory note having such term as
     may be approved by the Committee and bearing interest at a rate sufficient
     to avoid imputation of income under Sections 483 and 1274 of the Code;
     provided, however, that Participants who are not employees or directors of
     the Company will not be entitled to purchase Shares with a promissory note
     unless the note is adequately secured by collateral other than the Shares;

          (d) by waiver of compensation due or accrued to the Participant for
     services rendered;

          (e) with respect only to purchases upon exercise of an Option, and
     provided that a public market for the Company's stock exists:

             (1) through a "same day sale" commitment from the Participant and a
        broker-dealer that is a member of the National Association of Securities
        Dealers (an "NASD Dealer") whereby the Participant irrevocably elects to
        exercise the Option and to sell a portion of the Shares so purchased to
        pay for the Exercise Price, and whereby the NASD Dealer irrevocably
        commits upon receipt of such Shares to forward the Exercise Price
        directly to the Company; or

             (2) through a "margin" commitment from the Participant and an NASD
        Dealer whereby the Participant irrevocably elects to exercise the Option
        and to pledge the Shares so purchased to the NASD Dealer in a margin
        account as security for a loan from the NASD Dealer in the amount of the
        Exercise Price, and whereby the NASD Dealer irrevocably commits upon
        receipt of such Shares to forward the Exercise Price directly to the
        Company; or

          (f) by any combination of the foregoing.

     7.2  Loan Guarantees. The Committee may help the Participant pay for Shares
purchased under this Plan by authorizing a guarantee by the Company of a
third-party loan to the Participant.

     8. Withholding Taxes.

     8.1  Withholding Generally. Whenever Shares are to be issued in
satisfaction of Awards granted under this Plan, the Company may require the
Participant to remit to the Company an amount sufficient to satisfy federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such Shares. Whenever, under this Plan, payments
in satisfaction of Awards are to be made in cash, such payment will be net of an
amount sufficient to satisfy federal, state, and local withholding tax
requirements.

     8.2  Stock Withholding. When, under applicable tax laws, a Participant
incurs tax liability in connection with the exercise or vesting of any Award
that is subject to tax withholding and the Participant is obligated to pay the
Company the amount required to be withheld, the Committee may in its sole
discretion allow the Participant to satisfy the minimum withholding tax
obligation by electing to have the Company withhold from the Shares to be issued
that number of Shares having a Fair Market Value equal to the minimum amount
required to be withheld, determined on the date that the amount of tax to be
withheld is to be determined. All elections by a Participant to have Shares
withheld for this purpose will be made in accordance with the requirements
established by the Committee for such elections and be in writing in a form
acceptable to the Committee.
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     9. Privileges of Stock Ownership.

     9.1  Voting and Dividends. No Participant will have any of the rights of a
shareholder with respect to any Shares until the Shares are issued to the
Participant. After Shares are issued to the Participant, the Participant will be
a shareholder and have all the rights of a shareholder with respect to such
Shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such Shares; provided, that if such
Shares are Restricted Stock, then any new, additional or different securities
the Participant may become entitled to receive with respect to such Shares by
virtue of a stock dividend, stock split or any other change in the corporate or
capital structure of the Company will be subject to the same restrictions as the
Restricted Stock, provided, further, that the Participant will have no right to
retain such stock dividends or stock distributions with respect to Unvested
Shares that are repurchased pursuant to Section 11. The Company will comply with
Section 260.140.1 of Title 10 of the California Code of Regulations with respect
to the voting rights of Common Stock.

     9.2  Financial Statements. The Company will provide financial statements to
each Participant prior to such Participant's purchase of Shares under this Plan,
and to each Participant annually during the period such Participant has Awards
outstanding, or as otherwise required or permitted under Section 260.140.46 of
Title 10 of the California Code of Regulations. Notwithstanding the foregoing,
the Company will not be required to provide such financial statements to key
employees whose services in connection with the Company assure them access to
equivalent information.

     10. Transferability. Awards granted under this Plan, and any interest
therein, will not be transferable or assignable by Participant, and may not be
made subject to execution, attachment or similar process, otherwise than by will
or by the laws of descent and distribution. During the lifetime of the
Participant an Award will be exercisable only by the Participant or Participants
legal representative and any elections with respect to an Award, may be made
only by the Participant or Participant's legal representative.

     11. Restrictions on Shares.

     11.1  Right of First Refusal. At the discretion of the Committee, the
Company may reserve to itself and/or its assignee(s) in the Award Agreement a
right of first refusal to purchase all Shares that a Participant (or a
subsequent transferee) may propose to transfer to a third party, unless
otherwise not permitted by the California Corporations Code, provided, that such
right of first refusal terminates upon the Company's initial public offering of
Common Stock pursuant to an effective registration statement filed under the
Securities Act.

     11.2  Right of Repurchase. At the discretion of the Committee, the Company
may reserve to itself and/or its assignee(s) in the Award Agreement a right to
repurchase Unvested Shares held by a Participant for cash and/or cancellation of
purchase money indebtedness following such Participant's Termination at any time
within the later of ninety (90) days after the Participant's Termination Date
and the date the Participant purchases Shares under the Plan at the
Participant's Exercise Price or Purchase Price, as the case may be, provided,
that unless the Participant is an officer, director or consultant of the Company
or of a Parent or Subsidiary of the Company, or has annual compensation of
$60,000 or more, such right of repurchase lapses at the rate of at least twenty
percent (20%) per year over five (5) years from: (A) the date of grant of the
Option or (B) in the case of Restricted Stock, the date the Participant
purchases the Shares, and provided further, that if Participant is an officer,
director or consultant of the Company or of a Parent or Subsidiary of the
Company or has annual compensation of $60,000 or more, such right of repurchase
shall lapse at the rate of at least twenty percent (20%) per year over five (5)
years from the later of (A) the date when all other Options granted to the
Participant by the Company have become exercisable in full, and (B) the date
when the Company's repurchase right has lapsed in full with regard to all other
shares of restricted stock held by Participant.

     12. Certificates. All certificates for Shares or other securities delivered
under this Plan will be subject to such stock transfer orders, legends and other
restrictions as the Committee may deem necessary or advisable, including
restrictions under any applicable federal, state or foreign securities law, or
any rules, regulations and
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other requirements of the SEC or any stock exchange or automated quotation
system upon which the Shares may be listed or quoted.

     13. Escrow, Pledge of Shares. To enforce any restrictions on a
Participant's Shares, the Committee may require the Participant to deposit all
certificates representing Shares, together with stock powers or other
instruments of transfer approved by the Committee, appropriately endorsed in
blank, with the Company or an agent designated by the Company to hold in escrow
until such restrictions have lapsed or terminated, and the Committee may cause a
legend or legends referencing such restrictions to be placed on the
certificates. Any Participant who is permitted to execute a promissory note as
partial or full consideration for the purchase of Shares under this Plan will be
required to pledge and deposit with the Company all or part of the Shares so
purchased as collateral to secure the payment of Participant's obligation to the
Company under the promissory note; provided, however, that the Committee may
require or accept other or additional forms of collateral to secure the payment
of such obligation and, in any event, the Company will have full recourse
against the Participant under the promissory note notwithstanding any pledge of
the Participant's Shares or other collateral. In connection with any pledge of
the Shares, Participant will be required to execute and deliver a written pledge
agreement in such form as the Committee will from time to time approve. The
Shares purchased with the promissory note may be released from the pledge on a
pro rata basis as the promissory note is paid.

     14. Exchange and Buyout of Awards. The Committee may, at any time or from
time to time, authorize the Company, with the consent of the respective
Participants, to issue new Awards in exchange for the surrender and cancellation
of any or all outstanding Awards. The Committee may at any time buy from a
Participant an Award previously granted with payment in cash, shares of Common
Stock of the Company (including restricted stock) or other consideration, based
on such terms and conditions as the Committee and the Participant may agree.

     15. Securities Law and Other Regulatory Compliance. An Award will not be
effective unless such Award is in compliance with all applicable federal and
state securities laws, rules and regulations of any governmental body, and the
requirements of any stock exchange or automated quotation system upon which the
Shares may then be listed or quoted, as they are in effect on the date of grant
of the Award and also on the date of exercise or other issuance. Notwithstanding
any other provision in this Plan, the Company will have no obligation to issue
or deliver certificates for Shares under this Plan prior to (a) obtaining any
approvals from governmental agencies that the Company determines are necessary
or advisable, and/or (b) compliance with any exemption, completion of any
registration or other qualification of such Shares under any state or federal
law or ruling of any governmental body that the Company determines to be
necessary or advisable. The Company will be under no obligation to register the
Shares with the SEC or to effect compliance with the exemption, registration,
qualification or listing requirements of any state securities laws, stock
exchange or automated quotation system, and the Company will have no liability
for any inability or failure to do so.

     16. No Obligation to Employ. Nothing in this Plan or any Award granted
under this Plan will confer or be deemed to confer on any Participant any right
to continue in the employ of, or to continue any other relationship with, the
Company or any Parent or Subsidiary of the Company or limit in any way the right
of the Company or any Parent or Subsidiary of the Company to terminate
Participant's employment or other relationship at any time, with or without
Cause.

     17. Corporate Transactions.

     17.1  Assumption or Replacement of Awards by Successor. In the event of (a)
a dissolution or liquidation of the Company, (b) a merger or consolidation in
which the Company is not the surviving corporation (other than a merger or
consolidation with a wholly-owned subsidiary, a reincorporation of the Company
in a different jurisdiction, or other transaction in which there is no
substantial change in the shareholders of the Company or their relative stock
holdings and the Awards granted under this Plan are assumed, converted or
replaced by the successor corporation, which assumption, conversion or
replacement will be binding on all Participants), (c) merger in which the
Company is the surviving corporation but after which the shareholders of the
Company immediately prior to such merger (other than any shareholder which
merges with the Company in such merger, or which owns or controls another
corporation which merges, with
<PAGE>   8

the Company in such merger) cease to own their shares or other equity interests
in the Company, or (d) the sale of all or substantially all of the assets of the
Company, any or all outstanding Awards may be assumed, converted or replaced by
the successor corporation (if any), which assumption, conversion or replacement
will be binding on all Participants. In the alternative, the successor
corporation may substitute equivalent Awards or provide substantially similar
consideration to Participants as was provided to shareholders (after taking into
account the existing provisions of the Awards). The successor corporation may
also issue, in place of outstanding Shares of the Company held by the
Participant, substantially similar shares or other property subject to
repurchase restrictions and other provisions no less favorable to the
Participant than those which applied to such outstanding Shares immediately
prior to such transaction described in this Subsection 17.1. In the event such
successor corporation (if any) refuses to assume or substitute Awards, as
provided above, pursuant to a transaction described in this Subsection 17.1,
then notwithstanding any other provision in this Plan to the contrary, such
Awards will expire on such transaction at such time and on such conditions as
the Board will determine.

     17.2  Other Treatment of Awards. Subject to any greater rights granted to
Participants under the foregoing provisions of this Section 17, in the event of
the occurrence of any transaction described in Section 17.1, any outstanding
Awards will be treated as provided in the applicable agreement or plan of
merger, consolidation, dissolution, liquidation or sale of assets.

     17.3  Assumption of Awards by the Company. The Company, from time to time,
also may substitute or assume outstanding awards granted by another company,
whether in connection with an acquisition of such other company or otherwise, by
either (a) granting an Award under this Plan in substitution of such other
company's award or (b) assuming such award as if it had been granted under this
Plan if the terms of such assumed award could be applied to an Award granted
under this Plan. Such substitution or assumption will be permissible if the
holder of the substituted or assumed award would have been eligible to be
granted an Award under this Plan if the other company had applied the rules of
this Plan to such grant. In the event the Company assumes an award granted by
another company, the terms and conditions of such award will remain unchanged
(except that the exercise price and the number and nature of shares issuable
upon exercise of any such option will be adjusted appropriately pursuant to
Section 424(a) of the Code). In the event the Company elects to grant a new
Option rather than assuming an existing option, such new Option may be granted
with a similarly adjusted Exercise Price.

     18. Adoption and Shareholder Approval. This Plan will become effective on
the date that it is adopted by the Board (the "Effective Date"). This Plan will
be approved by the shareholders of the Company (excluding Shares issued pursuant
to this Plan), consistent with applicable laws, within twelve (12) months before
or after the Effective Date. Upon the Effective Date, the Board may grant Awards
pursuant to this Plan; provided, however, that: (a) no Option may be exercised
prior to initial shareholder approval of this Plan; (b) no Option granted
pursuant to an increase in the number of Shares approved by the Board shall be
exercised prior to the time such increase has been approved by the shareholders
of the Company; (c) in the event that initial shareholder approval is not
obtained within the time period provided herein, all Awards granted hereunder
shall be canceled, any Shares issued pursuant to any Award shall be canceled and
any purchase of Shares issued hereunder shall be rescinded; and (d) Awards
granted pursuant to an increase in the number of Shares approved by the Board
which increase is not timely approved by shareholders shall be canceled, any
Shares issued pursuant to any such Awards shall be canceled, and any purchase of
Shares subject to any such Award shall be rescinded. In the event that initial
shareholder approval is not obtained within twelve (12) months before or after
the date this Plan is adopted by the Board, all Awards granted hereunder will be
canceled, any Shares issued pursuant to any Award will be canceled and any
purchase of Shares hereunder will be rescinded.

     19. Term of Plan/Governing Law. Unless earlier terminated as provided
herein, this Plan will terminate ten (10) years from the Effective Date or, if
earlier, the date of shareholder approval. This Plan and all agreements
hereunder shall be governed by and construed in accordance with the laws of the
State of California.
<PAGE>   9

     20. Amendment or Termination of Plan. Subject to Section 5.9, the Board may
at any time terminate or amend this Plan in any respect, including without
limitation amendment of any form of Award Agreement or instrument to be executed
pursuant to this Plan; provided, however, that the Board will not, without the
approval of the shareholders of the Company, amend this Plan in any manner that
requires such shareholder approval pursuant to the California Corporations Code
or the Code or the regulations promulgated thereunder as such provisions apply
to ISO plans.

     21. Nonexclusive of the Plan. Neither the adoption of this Plan by the
Board, the submission of this Plan to the shareholders of the Company for
approval, nor any provision of this Plan will be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem desirable, including, without limitation, the
granting of stock options and other equity awards otherwise than under this
Plan, and such arrangements may be either generally applicable or applicable
only in specific cases.

     22. Definitions. As used in this Plan, the following terms will have the
following meanings:

     "Award" means any award under this Plan, including any Option or Restricted
Stock Award.

     "Award Agreement" means, with respect to each Award, the signed written
agreement between the Company and the Participant setting forth the terms and
conditions of the Award.

     "Board" means the Board of Directors of the Company.

     "Cause" means Termination because of (i) any willful material violation by
the Participant of any law or regulation applicable to the business of the
Company or a Parent or Subsidiary of the Company, the Participant's conviction
for, or guilty plea to, a felony or a crime involving moral turpitude, any
willful perpetration by the Participant of a common law fraud, (ii) the
Participant's commission of an act of personal dishonesty which involves
personal profit in connection with the Company or any other entity having a
business relationship with the Company, (iii) any material breach by the
Participant of any provision of any agreement or understanding between the
Company or any Parent or Subsidiary of the Company and the Participant regarding
the terms of the Participant's service as an employee, director or consultant to
the Company or a Parent or Subsidiary of the Company, including without
limitation, the willful and continued failure or refusal of the Participant to
perform the material duties required of such Participant as an employee,
director or consultant of the Company or a Parent or Subsidiary of the Company,
other than as a result of having a Disability, or a breach of any applicable
invention assignment and confidentiality agreement or similar agreement between
the Company and the Participant, (iv) Participant's disregard of the policies of
the Company or any Parent or Subsidiary of the Company so as to cause loss,
damage or injury to the property, reputation or employees of the Company or a
Parent or Subsidiary of the Company, or (v) any other misconduct by the
Participant which is materially injurious to the financial condition or business
reputation of, or is otherwise materially injurious to, the Company or a Parent
or Subsidiary of the Company.

     "Code" means the Internal Revenue Code of 1986, as amended.

     "Committee" means the committee appointed by the Board to administer this
Plan (including, with respect to Participants who reasonably could be expected
to be "covered employees" within the meaning of section 162(m)(3) of the Code in
any year in which the Award granted to them could generate a deductible
compensation expense, the committee of the Board established pursuant to Section
4.1 of the Plan to administrate the Plan with respect to such Participants), or
if no committee is appointed, the Board.

     "Company" means Virage Logic Corporation, or any successor corporation.

     "Disability" means a disability, whether temporary or permanent, partial or
total, as determined by the Committee.

     "Exchange Act" means the Securities Exchange Act of 1934, as amended.

     "Exercise Price" means the price at which a holder of an Option may
purchase the Shares issuable upon exercise of the Option.
<PAGE>   10

     "Fair Market Value" means, as of any date, the value of a share of the
Company's Common Stock determined as follows:

          (a) if such Common Stock is then quoted on the Nasdaq National Market,
     its closing price on the Nasdaq National Market on the date of
     determination as reported in The Wall Street Journal;

          (b) if such Common Stock is publicly traded and is then listed on a
     national securities exchange, its closing price on the date of
     determination on the principal national securities exchange on which the
     Common Stock is listed or admitted to trading as reported in The Wall
     Street Journal;

          (c) if such Common Stock is publicly traded but is not quoted on the
     Nasdaq National Market nor listed or admitted to trading on a national
     securities exchange, the average of the closing bid and asked prices on the
     date of determination as reported by The Wall Street Journal (or, if not so
     reported, as otherwise reported by any newspaper or other source as the
     Board may determine); or

          (d)  if none of the foregoing is applicable, by the Committee in good
     faith.

     "Option" means an award of an option to purchase Shares pursuant to Section
5.

     "Parent" means any corporation (other than the Company) in an unbroken
chain of corporations ending with the Company if each of such 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.

     "Participant" means a person who receives an Award under this Plan.

     "Plan" means this Virage Logic Corporation 1997 Equity Incentive Plan, as
amended from time to time.

     "Purchase Price" the price at which a Participant may purchase Restricted
Stock.

     "Restricted Stock" means Shares purchased pursuant to a Restricted Stock
Award.

     "Restricted Stock Award" means an award of Shares pursuant to Section 6.

     "SEC" means the Securities and Exchange Commission.

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

     "Shares" means shares of the Company's Common Stock reserved for issuance
under this Plan, as adjusted pursuant to Sections 2 and 17, and any successor
security.

     "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.

     "Termination" or "Terminated" means, for purposes of this Plan with respect
to a Participant, that the Participant has for any reason ceased to provide
services as an employee, officer, director or consultant to the Company or a
Parent or Subsidiary of the Company. A Participant will not be deemed to have
ceased to provide services in the case of (i) sick leave, (ii) military leave,
or (iii) any other leave of absence approved by the Committee, provided that
such leave is for a period of not more than ninety (90) days unless
reinstatement (or, in the case of an employee with an ISO, reemployment) upon
the expiration of such leave is guaranteed by contract or statute, or unless
provided otherwise pursuant to formal policy adopted from time to time by the
Company and issued and promulgated in writing. In the case of any Participant on
(i) sick leave, (ii) military leave or (iii) an approved leave of absence, the
Committee may make such provisions respecting suspension of vesting of the Award
while on leave from the Company or a Parent or Subsidiary of the Company as it
may deem appropriate, except that in no event may an Option be exercised after
the expiration of the term set forth in the Stock Option Agreement. The
Committee will have sole discretion to determine whether a Participant has
ceased to provide services and the effective date on which the Participant
ceased to provide services (the "Termination Date").

     "Unvested Shares" means 'Unvested Shares' as defined in the Award
Agreement.

     "Vested Shares" means 'Vested Shares' as defined in the Award Agreement.