<PAGE>

                                                                   EXHIBIT 10.35
                                                                   -------------

                             Verisity Design, Inc.

                          Software License and Volume
                               Purchase Agreement

        This Software License and Volume Purchase Agreement ("Agreement") is
entered into effective as of December 11, 1998, (the "Effective Date"), by and
between Verisity Design, Inc., a California corporation ("Licensor"), and LSI
Logic Corporation, a Delaware corporation ("Licensee") with reference to the
following:

                                   Background
                                   ----------

        A. Licensor is the licensor of the certain software programs generally
known as Specman, as more fully described in Exhibit A attached hereto (the
"Licensed Program").

        B. Licensee desires to obtain (i) a license to the Licensed Program and
such separate printed documentation ("Documentation") as Licensor generally
makes available to its licensees in connection with the Licensed Program, and
(ii) access to certain maintenance and technical support services in connection
with the Licensed Program, and (iii) early access to Licensed Programs, and
Licensor desires to grant such a license and provide such services on the terms
and conditions set forth in this Agreement.

        NOW THEREFORE, the parties agree as follows:

        1. License.
           -------

           a. Subject to Licensee's compliance with the terms and conditions of
this Agreement, Licensor grants to Licensee, and Licensee accepts from Licensor,
for each Licensed Copy (as defined below), a nonexclusive, nontransferable
license, for the term specified in Section 6, to load the executable form of the
Licensed Program into computer memory, and execute the same within a central
processing unit ("CPU") associated with such memory, provided that: (i) no more
than that number of copies of the Licensed Program as Licensee has paid the
applicable License Fee as specified in Exhibit A (each, a "Licensed Copy") may
be simultaneously loaded into computer memory and executed on an associated CPU;
(ii) such memory and associated CPU must be owned or leased

                                      -1-
<PAGE>

by Licensee, and (iii) Licensee will make no use of the Licensed Program for
other than its intended uses that are directly related to the business
operations of Licensee, and will not make any use thereof to offer the benefits
or services of the Licensed Program to third parties where such arrangement is
in the nature of a service bureau, outsourcing service, or any other similar
service or business in which the principal purpose of the relationship between
the Licensee and such third party is to provide functional verification of
integrated circuits.

        In addition to the foregoing, Licensee acknowledges and agrees that in
order to enforce the limitation on the number of Licensed Copies which may be
simultaneously loaded and executed, the Licensed Program includes license
management software which is only effective if all CPUs on which the Licensed
Program operates are at all times capable of communicating via a local area
network or a wide area network if applicable WAN upgrade has been purchased with
the license management software; therefore, the Licensed Program may not be
executed on any CPU which is not in direct communication at all times with the
license management software on such a network.  Licensee may make and hold two
copies of the Licensed Program for temporary backup use and/or archival
purposes.  All of Licensee's rights to use the Licensed Program are expressly
stated herein; there are no implied rights.  Licensee acknowledges that
operation of the Licensed Programs requires use of certain third party software
as specified in attached Exhibit A, that Licensor will not provide such third
party software to Licensee, and that Licensee has or will obtain valid licenses
to such third party software.

           b. Third Party Access: Subject to the restrictions specified Section
              ------------------
1.a, Licensor hereby grants Licensee the right to grant Production Use (as
defined below) of the Licensed Programs to Licensee's contractors performing
services or work related to Licensee's business within Licensee's facilities
under these same terms and conditions. Further, subject to receiving the written
approval specified below, Licensee may grant Production Use of the Licensed
Programs to Licensee's contractors performing out-sourced design work or other
work related to Licensee's business, at such contractor's facility via network
connection into Licensee under these same terms and conditions. The foregoing
grants of rights with respect to Licensee's contractors are subject to the
following: (i) such contractors are bound to confidentiality agreements no less
protective of Licensor's intellectual property than this Agreement; (ii) such
contractors are not EDA suppliers; and (iii) such Production Use shall be
limited to 90 days per contractor per calendar year. Licensee may grant
Production Use of the Licensed Programs to Licensee's customers within
Licensee's facilities, provided such use is only in support of work that
Licensee is performing for such customers, and under these same terms and
conditions. Subject to receiving the written approval

                                      -2-
<PAGE>

specified below, Licensee may grant Production Use of the Licensed Programs to
Licensee's customers off Licensee premises under these same terms and
conditions. The foregoing grants of rights with respect to Licensee's customer
are subject to such customers being bound to confidentiality agreements no less
protective of Licenser's intellectual property than this Agreement.

        Should it become necessary for Licensee to loan Licensed Programs to its
contractors or customers (referred to in this Section 1.b as "third-parties")
for Production Use off Licensee premises as specified above, Licensee shall
submit its written request to Licensor providing justification therefor.  It is
anticipated that Licensor will approve any request does not impact expected
licensing transactions between Licensor and such third party; in any event such
approval (which shall not be unreasonably withheld) or disapproval shall be
forthcoming within 3 business days of Licensee's request.  Any approval shall be
subject to Licensee obtaining from such third party its agreement to limit its
Production Use to designs of products with or for Licensee only and subject to
its agreement to return the Product to Licensee within a term not to exceed
thirty (30) days.  Licensed Programs loaned may be extended if such Licensed
Programs has been loaned in order to facilitate business relations until proper
purchase agreements can be put in place.  In that case, after sixty (60) days,
Licensor may determine if such third party has intent to purchase the Licensed
Programs within a reasonable timeframe, and when necessary, will reasonably
offer to license the Licensed Programs directly with such third party pursuant
to the terms and conditions of its standard form license agreement.  "Production
Use" means transferring, transmitting, compiling, executing, interpreting,
processing, storing or displaying any portion of the Licensed Programs through
the use of computer and/or video equipment and utilization of Documentation for
any purpose related to authorized use of Licensed Programs for the design of
ASICs, ASSPs for Licensee and its customers.

           c. For purposes of the rights granted under this Section 1,
"Licensee" shall include subsidiaries of LSI Logic Corporation in which it owns
at least 50% of the outstanding voting securities and any entity which holds a
controlling interest in Licensee (collectively "Affiliates") provided that: (i)
such Affiliates shall fully adhere to the terms, limitations and restrictions
contained herein; and (ii) Licensee shall indemnify Licenser for any damages
that arise out of the failure of such Affiliates to fully adhere to such terms,
limitations and restrictions.

           d. Upon acquisition or merger by Licensor of or with a third party
licensor of any product to Licensee, Licensor shall confirm the continuing
validity of the license between such third party and Licensee on the same terms
and conditions and shall take no action to amend (except as agreed by Licensee),

                                      -3-
<PAGE>

derogate or undermine the rights of Licensee thereunder as they exist at the
time of the acquisition or merger.

        2. Additional Restrictions. Licensee may not use, copy, modify, display,
           -----------------------
sublicense or print the Licensed Program or the Documentation, in whole or in
part, except as expressly provided in this Agreement. Without limiting the
generality of the foregoing, Licensee will abide by the following additional
restrictions on the use and copying of the Licensed Program and Documentation:

           a. No Modification. Licensee will not make any modification to, or
              ---------------
adaptation of, the Licensed Program or the Documentation nor merge either of
them into any other programs or other materials. Licensee will have no access
to, or rights or license to modify, the source code for the Licensed Program,
except as expressly set forth in Exhibit B attached hereto. Licensee will not
attempt, or allow others under its control to attempt, to obtain or derive
information from or about the Licensed Program through disassembly, decompiling,
reverse engineering or other means.

           b. Markings. All titles, trademarks, copyright notices and other
              --------
proprietary markings must be reproduced on all permitted copies of the Licensed
Program. Licensee will not remove such titles, trademarks, copyright notices or
other proprietary markings.

        3. Proprietary Matters.
           -------------------

           a. Ownership. Licensee acknowledges that the Licensed Program and the
              ---------
Documentation, including all associated copyrights, patents, trademarks, trade
secrets and other intellectual property and proprietary rights with respect
thereto, are, and at all times will be, the sole property of Licensor and its
licensors, even if suggestions made by Licensee are incorporated into subsequent
versions of the Licensed Program or the Documentation.

           b. Confidential Information. Licensee acknowledges that the Licensed
              ------------------------
Program and the Documentation, including without limitation all aspects of the
Licensed Program (e.g., the source code, methods of processing, specific design
and structure of individual programs and their interaction and unique
programming techniques employed therein as well as screen formats) as well as
benchmark results or other performance related measurements relating to the
Licensed Program constitute valuable trade secrets of Licenser and its
licensors. Licenser and Licensee acknowledge that, in the course of dealings
between the parties, each party will acquire information, identified as
confidential, about the other party, its business activities and operations, its
technical information and trade secrets, of a highly confidential and
proprietary nature. Each party will hold

                                      -4-
<PAGE>

such information, which is identified as being confidential, and Licensee will
hold the Licensed Program and the Documentation, as well as the terms of this
Agreement, in strict confidence and will not disclose or reveal the same to
third parties except for any information generally available to or known to the
public, independently developed outside the scope of this Agreement, lawfully
disclosed by a third party, or required to be disclosed to a tribunal, provided
that in the case of required disclosures to tribunals, the receiving party will
notify the disclosing party prior to such disclosure to allow the disclosing
party to obtain protective orders maintaining the confidentiality of such
information. Notwithstanding the foregoing, Licensee is not prohibited from
using the Licensed Program in the intended operational environment where the
operation of same may be observed by persons other than Licensee. For avoidance
of doubt, the results obtained from Licensee's use of the Licensed Programs
(excluding any benchmark results or other performance related measurements
relating to the Licensed Program) are confidential to Licensee and its customers
and can be disclosed to such customers at Licensee's discretion.

           4. Maintenance and Technical Support Services. For such periods as
              ------------------------------------------
Licensee fully pays the Annual Maintenance Fee as described in Section 5.c
below, Licenser will provide the services to Licensee as are described in
Exhibit B attached hereto (the "Services").

           5. License Fee; Maintenance Fee.
              ----------------------------

              a. License Fee. In consideration for the licenses granted to
                 -----------
Licensee in this Agreement, Licensee will pay to Licensor the License Fee set
forth in Exhibit A with respect to each Licensed Copy of the Licensed Program.
Delivery of the Licensed Program shall be in accordance with the terms, if any,
contained in Exhibit A. Upon delivery of the Licensed Program, Licensor will
deliver an invoice to Licensee setting forth the applicable Licensee Fee and the
Initial Maintenance Term's Annual Maintenance Fee as set forth in Exhibit A, and
Licensee will pay the same in full within thirty (30) business days after
receipt of such invoice.

              b. [*]

[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.

                                      -5-
<PAGE>

[*]

              c. Annual Maintenance Fee. In consideration for the Services to be
                 ----------------------
performed by Licensor as described in Exhibit B, Licensee will annually pay to
Licenser a fee (the "Annual Maintenance Fee"), to be determined and paid as
follows:

                 (1) The Annual Maintenance Fee payable with respect to the
Initial Maintenance Term (as defined in Section 6.b below) will be paid with the
License Fee invoiced to Licensee and payable pursuant to Section 5.a above.

                 (2) The Annual Maintenance Fee payable with respect to each
Renewal Maintenance Term (as defined in Section 6.b below) will be invoiced by
Licensor to Licensee at least thirty (30) days before the expiration of the
prior Maintenance Term, and must be paid in prior to the start of the Renewal
Maintenance Term.

                 (3) Licensee will not have the option of paying the Annual
Maintenance Fee with respect to less than the total number of Licensed Copies of
the Licensed Program, except to the extent that (A) Licensee wishes to terminate
the Services entirely as provided in Section 6.c below, or (B) Licensee notifies
Licensor that the scope of the license granted in Section 1 is to be reduced to
include only that number of Licensed Copies as to which Licensee has paid the
Annual Maintenance Fee, as provided in Section 6.c below.

              d. Form of Payment; Taxes; Late Payments. All payments are due in
                 -------------------------------------
United States dollars. The amount of the stated License Fee and Annual
Maintenance Fee do not include any taxes, duties or other governmental charges
levied or may be levied in respect of such fees or the services performed
hereunder. Licensee agrees to pay all such taxes, duties and governmental
charges (exclusive of taxes based on Licensor' s income), regardless of when
they may come due, or to reimburse Licensor for same if Licensor is required by
applicable law to collect and pay over same to the relevant taxing authority.
Licenser reserves the right to apply a service charge to the unpaid balance at
the rate of 1% per month (but in no event more than the maximum rate allowed by
law) for any fee or other amount not paid within thirty (30) days after the due
date. In addition, if Licensee fails to pay any invoice when due, Licenser will
have the right to

[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.

                                      -6-
<PAGE>

institute collection procedures to recover same and all costs incurred by
Licenser will be paid by Licensee.

              e. Additional Consideration. In part consideration for the
                 ------------------------
foregoing licenses, Licensee shall make reasonable commercial efforts to inform
those of its employees who would likely use the Licensed Program on the use and
functionality of the Licensed Program and encourage its use by such employees.

          6.  Term and Termination.
              --------------------

              a. License Term. The licenses hereunder are granted for a
                 ------------
perpetual term unless otherwise specified in Exhibit A upon payment of the
License Fee with respect to each Licensed Copy, unless terminated by Licensee as
provided in this Agreement, and may only be revoked by Licensor if Licensee
materially breaches any of its material obligations this Agreement.

              b. Maintenance Term; Renewal. The Services obligations of Licensor
                 -------------------------
under Section 4 above will commence upon the delivery of the Licensed Program to
Licensee ("Commencement") (provided that Licensee has paid the Initial
Maintenance Term's Annual Maintenance Fee) and will expire at the end of
business on the date one year from Commencement (the "Initial Maintenance
Term"). Such Services obligations will automatically renew on the anniversary of
Commencement each year during the term of this Agreement for additional one (1)
year periods (each, a "Renewal Maintenance Term"), provided that Licensee pays
the applicable Annual Maintenance Fee by the due date therefor, provided that
any Renewal Maintenance Term commencing after seven years from Commencement of
the Initial Maintenance Term must be by mutual written agreement of the parties.
Reinstatement of lapsed Services will be subject to the payment of applicable
reinstatement fees equal to the prorated sum of Maintenance Fees which would
have been payable during the lapsed period plus 10%.

              c. Termination. Licensee may terminate its right to obtain the
                 -----------
Services under this Agreement at any time upon written notice to Licensor,
subject to compliance with the provisions of this Section 6. Licensee may also
terminate the license granted in Section 1 above as to any Licensed Copy of the
Licensed Program upon notice to Licensor, provided that Licenser will have no
obligation to refund any portion of the License Fee or current Annual
Maintenance Fee in connection therewith. In addition to any other right to
terminate this Agreement expressly provided herein, Licenser may terminate this
Agreement, including the licenses granted under this Agreement, if (i) Licensee
fails to perform any of its material obligations hereunder or otherwise
materially breaches this Agreement and fails to effect the cure of such failure
or breach or agree with Licensor to a

                                      -7-
<PAGE>

plan for a cure within thirty (30) days after written notice thereof or (ii) in
the event that parties have agreed to such a plan for a cure, the Licensee fails
to diligently pursue such plan; provided that Licenser may terminate only its
Services, but not the licenses granted hereunder, in the event Licensee fails to
pay the Annual Maintenance Fee when due. Licensee may terminate all Services
without effect to the right to use the Licensed Programs provided that Licensee
is not then in material breach of this Agreement.

              d. Effect of Termination. Termination of this Agreement or the
                 ---------------------
licenses granted hereunder will not limit either party from pursuing any other
remedies available to it, including injunctive relief, nor will termination
relieve Licensee of its obligation to pay all fees and other amounts that
accrued prior to the effective date of termination. The rights and obligations
of the parties as provided in this and the following provisions of this
Agreement will survive any termination of this Agreement: Sections 3, 5.d, 6.e,
7 and 8. Other than in the case of termination for breach by Licensor in
accordance with Section 6.c, the provisions of Section 1 will also survive.

              e. Return of Licensed Program. Upon termination of this Agreement
                 --------------------------
for breach by Licenser in accordance with Section 6.c or termination of the
licenses granted hereunder by Licensee, Licensee will make no further use of the
Licensed Program or the Documentation; and, within ten (10) days after such
termination, Licensee will either destroy or return to Licenser the originals
and all copies of the Licensed Program and the Documentation in the possession
or under the control of Licensee, and certify in writing to Licensor that
Licensee no longer possesses or controls any copies of the Licensed Program or
the Documentation and is otherwise in compliance with the terms of this
Agreement which survive the termination. The foregoing obligations apply to
copies of the Licensed Program and the Documentation in all forms, partial and
complete, in all types of media and computer memory, and whether or not modified
or combined with other materials.

          7.  Warranty; Liability.
              -------------------

              a. Non-infringement Warranty and Indemnity. Licensor represents
                 ---------------------------------------
and warrants that it has the right, including all government consents and
approvals, to license the Licensed Program and Documentation on the terms and
conditions set forth in this Agreement, and that use of the Licensed Program
within the scope of such license does not infringe any United States copyright
or misappropriate any trade secret of a third party or to the best of Licensor's
knowledge infringe any United States patents. Licensor will indemnify and hold
Licensee harmless from and against all damages, liabilities, costs and expenses

                                      -8-
<PAGE>

(including reasonable fees of counsel and other professionals) incurred by
Licensee arising out of a breach of the warranty in this Section 7, provided
that Licensee promptly notifies Licenser of any third-party claim or action
alleges such infringement or misappropriation, and grants Licenser the sole
control of the defense of any such action, including all negotiations for its
settlement or compromise. If Licensee is a defendant in such action, it may
participate at its expense. Licenser will use commercially reasonable efforts to
mitigate any damages arising out of a judicial determination that use of the
Licensed Program infringes third party copyrights or trade secrets by either (A)
delivering a non-infringing version of the Licensed Program, or (B) obtaining a
license from the third party such that the use of the Licensed Program as
contemplated hereunder is no longer infringing, or (C) if neither of the
foregoing actions are commercially practicable, Licensor may terminate this
Agreement and the license granted hereunder, in which case Licenser will refund
to Licensee a portion of the License Fee actually paid to Licenser for the
Licensed Program on an equitable basis taking into consideration such factors as
the useful life of the Licensed Program and the period of time during which
Licensee enjoyed its use.

              b. Year 2000. Licenser warrants that the Licensed Programs
                 ---------
provided under this Agreement that are current under maintenance are compliant
with and comprehend the year 2000 century date change. Licenser's obligations
under this warranty include, but are not limited to, the duty to ensure that the
goods, services and work will not (i) have any operational impediments; (ii)
malfunction; (iii) cease to perform; (iv) generate incorrect or ambiguous data;
and/or results, with respect to same-century and multi-century formulas,
functions, data; and/or (v) produce incorrect or ambiguous results, with respect
to same-century and multi-century formulas, functions, date values and date-data
interfaces. Licensor warrants that Licensed Programs current under maintenance
will process data (i) beyond January 1, 2000; (ii) between the 20th and 21st
centuries including the transition from the 20th to 21st centuries; (iii) will
recognize leap years; and that the Licensed Programs will not cease operation
because the license management software is not Year 2000 ready.

              c. No Other Warranty. EXCEPT AS EXPRESSLY SET FORTH IN THIS
                 -----------------
SECTION 7, LICENSOR EXPRESSLY DISCLAIMS ALL WARRANTIES, WHETHER EXPRESS, IMPLIED
OR STATUTORY, AS TO ANY ASPECT OF THE LICENSED PROGRAM, THEIR OPERATION OR THE
SERVICES TO BE PERFORMED BY LICENSOR HEREUNDER, INCLUDING WITHOUT LIMITATION,
WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, DESIGN,
CONDITION, CAPACITY, PERFORMANCE, TITLE, AND NON-INFRINGEMENT OF THIRD-PARTY
RIGHTS.

                                      -9-
<PAGE>

              d. Limitation on Liability. Licensee acknowledges that Licensor
                 -----------------------
has not priced the Licensed Program to contemplate the risks of reliance by
Licensee on the Licensed Program or to have or assume substantial liability or
responsibility for Licensee's decisions. Accordingly, IN NO EVENT WILL LICENSOR
BE LIABLE TO LICENSEE FOR LOSS OF PROFITS, LOSS OF REVENUES, LOSS OF SAVINGS,
LOSS OF USE, LOSS OR CORRUPTION OF DATA OR ANY INDIRECT, INCIDENTAL, SPECIAL,
EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, WHETHER UNDER TORT, CONTRACT OR
OTHER THEORIES OF RECOVERY, EVEN IF LICENSOR HAD BEEN ADVISED OF THE POSSIBILITY
OF SUCH DAMAGES. LICENSEE EXCLUSIVELY BEARS FULL AND COMPLETE LIABILITY AND
RESPONSIBILITY FOR ITS USE AND RELIANCE ON THE LICENSED PROGRAM, EVEN IF SUCH
USE WERE TO PRODUCE INCORRECT INFORMATION OR ERRONEOUS RESULTS. IN NO EVENT WILL
LICENSOR'S TOTAL LIABILITY UNDER THIS AGREEMENT OR AS A RESULT OF THE LICENSE
AND USE OF THE LICENSED PROGRAM EXCEED THE AGGREGATE AMOUNT OF THE LICENSE FEE
ACTUALLY PAID UNDER THIS AGREEMENT BY LICENSEE TO LICENSOR. Licensee agrees that
the foregoing represents a fair allocation of risk hereunder and is a material
inducement to Licensor's entering into this Agreement.

          8.  Miscellaneous.
              -------------

              a. Notices. All notices will be given in writing and will be sent
                 -------
by certified mail, postage prepaid and return receipt requested, or transmitted
by facsimile if confirmed by such mailing, to the address indicated for the
receiving party on the signature page below. Either party may change its address
or facsimile telephone number by written notice to the other party.

              b. Entire Agreement; Amendments. This Agreement and the
                 ----------------------------
attachments and exhibits hereto constitute the entire agreement of the parties
concerning the subject matter hereof, superseding all prior and contemporaneous
proposals, negotiations, communications and agreements, written or oral, with
respect to the subject matter of this Agreement. No representation or promise
relating to and no amendment or modification of this Agreement will be binding
unless it is in writing and signed by an authorized representative of each
party.

              c. Assignment. Except as specifically provided for herein, neither
                 ----------
this Agreement, nor any right or license under this Agreement, nor any Licensed
Program or Documentation, may be assigned, sublicensed, distributed, sold,
rented, leased or otherwise transferred by Licensee to a third party, other than
an Affiliate of that party, without Licensor's prior written consent, which will
not

                                      -10-
<PAGE>

be unreasonably withheld or delayed. Subject to the foregoing, this Agreement
will bind and inure to the benefit of the successors and permitted assigns of
Licensee and Licensor.

              d. Government Uses. If Licensee is an agency of the U.S.
                 ---------------
Government, this Agreement will not be a valid or effective license unless
Licensee will have executed and delivered to Licenser a Government Licensing and
Contracting Addendum to this Agreement.

              e. Lawful Use; Export. Licensee will comply with all applicable
                 ------------------
laws and regulations in its use of the Licensed Program and the Documentation.
Licensee may not export, re-export or otherwise transfer the Licensed Program or
the Documentation to any territory outside of the United States of America
except with the prior written consent of Licenser, and then only in full
compliance with the provisions of the United States Export Administration Act
and the rules and regulations thereunder, and both the Licensed Program and the
Documentation will be deemed "technical data" for purposes thereof.

              f. Governing Law; Captions; Waiver; Etc. This Agreement will be
                 ------------------------------------
governed by and construed in accordance with the substantive laws of the State
of California. The captions appearing in this Agreement are inserted only as a
matter of convenience and in no way define, limit, construe or describe the
scope or interpretation of this Agreement. Except for Licensee's obligation to
pay Licensor, neither party will be liable for any failure to perform due to
causes beyond the party's reasonable control. No waiver by a party of any breach
of any provision of this Agreement will constitute a waiver of any other breach
of that or any other provision of this Agreement. In the event that any of the
provisions contained in this Agreement are held to be unenforceable, such
provisions will be narrowed (or deleted if necessary) to the minimum extent
necessary to make them enforceable.

              g. Arbitration. If there is any disagreement that cannot be
                 -----------
resolved between the parties arising out of or relating to this Agreement (other
than a dispute concerning the ownership of any copyright or other intellectual
property right), any such dispute will be settled by binding arbitration in
Santa Clara County, California, in accordance with the rules of the American
Arbitration Association. Any party receiving an award in arbitration may have
judgment entered on the award in any court having jurisdiction. The prevailing
party in any dispute will be entitled to receive from the other party its
reasonable attorneys' fees and costs.

              h. Injunctive Relief. Licensee hereby acknowledges that
                 -----------------
unauthorized disclosure or use of the Licensed Program or the Documentation or

                                      -11-
<PAGE>

any other breach of this Agreement could cause irreparable harm and significant
injury to Licensor that may be difficult to ascertain. Accordingly, Licensee
agrees that Licensor will have the right to seek immediate injunctive relief to
enforce obligations under this Agreement in addition to any other rights and
remedies it may have.

              i. Independent Contractors. Each party will perform its
                 -----------------------
obligations as an independent contractor and will be solely responsible for its
own financial obligations. This Agreement will not create a joint venture,
partnership, or principal and agent relationship between the parties. Neither
party will have the authority or will represent that it has the authority to
assume or create any obligation, express or implied on behalf of the other
party, except as expressly provided herein.

              j. Joint Announcement. The parties agree to make a mutually agreed
                 ------------------
upon public announcement concerning this Agreement promptly after the Effective
Date and no later than March 31, 1999.

              k. Counterparts. This Agreement may be executed in counterparts,
                 ------------
each of which will be deemed an original, but all of such counterparts together
will constitute one and the same agreement.

        In Witness whereof, the parties hereto have executed this Agreement as
of the last day and year specified below.


LICENSOR:                                  LICENSEE:

Verisity Design, Inc.                      LSI Logic Corporation

By:  /s/ Moshe Gavrielov                   By:  s/s
     ----------------------------               --------------------------------
Title: CEO                                 Title: VP Worldwide Marketing
       --------------------------                 ------------------------------
Date:  December 14, 1998                   Date:  December 14, 1998
       --------------------------                 ------------------------------

Address for notices to Licensor:           Address for notices to Licensee:

Verisity Design, Inc.
1943 Landings Drive
Mountain View, CA 94043
Phone (650) 961-5200
Fax (650) 961-5300
Attn:  Kathryn Kranen

                                      -12-
<PAGE>

                                   EXHIBIT A

                      LICENSED PROGRAM AND SPECIFIC TERMS

        Licensed Program

        Specman is a software system designed to assist in the design of
hardware devices and software programs to verify the correctness of their
designs.  Specman's main features are:

        . A language (called `e'). Files written in the `e' language can be
          either loaded and interpreted, or translated by Specman into the C
          language.

        . A tool that helps users generate test scenarios with which to verify
          their designs, based on (among other things) user-defined constraints.

        . A tool that helps users quantify certain aspects of the coverage of
          the tests they run, depending (among other things) on those aspects
          being explicitly declared by the user.

        . Features that help users debug the verification environment they
          develop with Specman.

        Specific Terms

        Licensee:  LSI Logic Corporation
        --------

        License Fee, Number of Licensed Copies:  25 Licensed Copies, which, at
        --------------------------------------
Licensee's option, may be either a perpetual floating local-area network version
of the Licensed Program (the "LAN Licensed Program") or a perpetual wide-area
network version of the Licensed Program (the "WAN Licensed Program").  The
License Fee for each Licensed Copy shall be as follows:

        . [*] per Licensed Copy of the LAN Licensed Program; and

        . [*] per Licensed Copy of the WAN Licensed Program.

        The above License Fees [*]. A current price list is attached as
Exhibit C.

        Additional Licensed Copies:  [*]
        --------------------------


[*]- CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.


                                      -13-
<PAGE>

[*]

        . [*] per Licensed Copy of the LAN Licensed Program; and

        . [*] per Licensed Copy of the WAN Licensed Program.

        Maintenance Fees:
        ----------------

        Annual Maintenance Fee:  [*] per Licensed Copy of the LAN Licensed
Program and [*] per Licensed Copy of the WAN Licensed Program. [*] See
Section 5.c. This same fee rate shall also apply to any licensed program copies
acquired by Licensee prior to the Effective Date of this Agreement on renewal of
applicable Annual Maintenance.

        Future Products:  Licensee may acquire a license to future products
        ---------------
[*]

        Purchase Order and Initial Delivery:  [*]  Licensor shall deliver such
Licensed Copies to the Licensee between the date that the Licensor receives such
purchase order and January 4, 1999, at the discretion of the Licensor.


[*]- CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.


                                      -14-
<PAGE>

                                    EXHIBIT B
                   Maintenance and Technical Support Services

        For such periods as Licensee fully pays the Annual Maintenance Fee,
Licensor will provide the following services, including without limitation
providing corrections to "Errors" as described below, to Licensee (the
"Services"):

        1. Delivery of "Bug Updates" and "New Releases." Whenever Licensor makes
           -------------------------------------------
a "Bug Update" or "New Release" generally available to its customers who have
purchased maintenance and technical support services, Licensor will provide a
copy of same to Licensee, and Licensee will install the same on any computer on
which it intends to operate the Licensed Program. A "Bug Update" is an interim
release version of the Licensed Program in which certain previously identified
Errors have been corrected. A "New Release" is an updated version of the
Licensed Program with certain new functions and/or features, other than computer
programs that include substantially new or different functions and/or features
relative to the Licensed Program. Both Bug Updates and New Releases will include
revised Documentation or release notes which, when read in conjunction with
previously delivered Documentation, identifies with reasonably clarity the new
or differing functions and/or features of the Licensed Program. Upon delivery to
Licensee, any New Release will be considered a "Licensed Program" for purposes
of this Agreement. There is no additional License Fee for "New Releases".

        From time to time Licensor and Licensee will meet to discuss Licensor's
product marketing and update plans with respect to the Licensed Program and to
solicit suggestions from Licensee with respect to improvements to the
functionality of the Licensed Program.  The information disclosed in such
meetings will be considered confidential information subject to Section 3.b of
the Agreement.

        Licensor will provide Licensee with periodic "bug" reports generated by
Licenser's technical support staff, including possible work-arounds and status
of planned corrections to the Licensed Program.  The information disclosed to
Licensee in such reports will be considered confidential information subject to
Section 3.b of the Agreement.

        2. Error Correction. Licensor will provide the following services for
           ----------------
Errors (as defined below) of which Licensor is notified by Licensee:

           a. For Critical Errors: Licensor will initiate work to verify and
correct the Error within 36 hours of the time when Licensor received the report
of

                                      -15-
<PAGE>

such Error. Licensor will diligently pursue the correction of the Error until
the same is corrected. A "Critical Error" is an Error that materially impairs
substantial functions of the Licensed Program or poses imminent danger to
Licensee's equipment or data.

           b. For Non-Critical Errors: Licensor will use reasonable commercial
efforts to promptly correct the Error in future Bug Updates and/or New Releases.
A "Non-Critical Error" is any Error other than a Critical Error.

        An "Error" means a material failure of the Licensed Program to conform
        to its functional specifications as described in the applicable
        Documentation.  Errors do not include, and Licenser will have no
        responsibility for, any of the following circumstances:  (A) the
        Licensed Program has been modified by any person or entity other than
        Licensor; (B) the Licensed Program has been operated other than in
        accordance with Licensor's installation and operations instructions,
        including without limitation on computing devices or with computer
        operating systems and/or third party software other than that
        recommended by Licensor; (C) the Licensed Program has been damaged in
        any manner due to the fault of any person or entity other than Licensor;
        (D) Licensee fails to reasonably assist Licenser in verifying,
        reproducing and correcting error conditions (for example, by providing
        telecommunications connections to Licensee's computer equipment and
        providing sample output and other diagnostic information), or Licenser
        is unable after using reasonable commercial efforts to verify and
        reproduce the error condition reported by Licensee; (E) Licensee has
        failed to install the most recent Bug Update or New Release of the
        Licensed Program made available to Licensee pursuant to paragraph 1
        above; or (F) any failure of the computer operating systems and/or third
        party software utilized by Licensee.  Subject to the foregoing, a Error
        shall also include a failure of the Licensed Program to be compatible
        with those industry standard design tools used by Licensee provided that
        Licenser has access to such tools on terms generally made available to
        other similarly situated licensees of such tools.

Error correction may include a temporary work-around, patch or bypass supplied
by Licensor, or temporary implementation by Licensee of a computer or

                                      -16-
<PAGE>

operational procedure, in order to diminish or avoid the effect of the Error.
Licensee acknowledges that software, by its nature, will contain "bugs" (some of
which may cause interruptions in use), and that operation of software on
hardware configurations other than those on which the software has been
developed and tested can create problems in the operation of the software.
Accordingly, Licensor does not warrant that all Errors can be corrected, and
Licensee agrees to implement appropriate procedures to back-up its data and
programming work in order to avoid loss or cost in the event of data loss in
using the Licensed Program.

           3. "Hotline" Support. Licensor will make a qualified member of its
               ----------------
technical support staff available by telephone and e-mail during Licensor's
normal business hours, to assist Licensee's System Administrators in the use and
operation of the Licensed Program, and to report Error conditions. Licensee will
designate up to three System Administrators, which designation may be changed
from time to time, who will be Licensee's sole liaison with Licensor for
technical support, and will be responsible for providing first line support of
the Licensed Program for Licensee's employees. If Licensee's System
Administrators reports multiple Error conditions, he or she may request that
Licensor resolve such Errors in a designated order of priority. Licensor's
technical support staff will communicate to Licensee's Systems Administrator (by
telephone, e-mail or fax) the status of Licensor's efforts to correct Critical
Errors (i) if Licenser receives the Error report prior to 12 Noon Pacific Time,
by responding on the same business day, or (ii) if the Error report is received
later than that, by responding prior to 12 Noon Pacific Time on the next
business day.

           4. On-Site Support. During the Maintenance Term, Licensor will
              ---------------
provide on-site technical support at Licensee's facilities for any problem which
cannot otherwise be diagnosed and resolved after reasonable attempts by
Licensee's technical staff to reproduce, diagnose, and resolve the problem with
the help of Licensor's technical staff through telephone discussions and/or
electronic file exchanges: (i) if Licensee's facility is within 50 miles of
Licensor's nearest support facility, at no charge to Licensee; or (ii) if
Licensee's facilities are located more than 50 miles from Licensor's facility,
then for separate charges for the travel time incurred by Licensor's technical
support staff at Licensor's standard hourly rate, together with reimbursement of
reasonable applicable travel and related expenditures consistent with Licensee's
standard expense reimbursement policy.

           5. Training. Licensor will provide [*] training classes in the
              --------
operation and use of the Licensed Programs of up to [*] of the employees of
Licensee in each class. Such training sessions shall be at a mutually convenient
time at the Licensor's facilities or at Licensee's Milpitas office. An
additional class will be available for each additional [*] Licensed Copies.

[*]- CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.

                                      -17-
<PAGE>

           6. Alpha and Beta Versions. Licensor shall, on Licensee's reasonable
              -----------------------
request, make available to Licensee releases of Licensee's products in alpha or
beta versions or other pre-release versions ("pre-release software") for the
sole purpose of testing and evaluating such pre-release software and pursuant to
the terms of Licensor's standard beta test agreement. Licensee shall take
commercially reasonable efforts to work cooperatively with Licenser in testing
and evaluating such pre-release software and shall discuss the results of such
tests and evaluations with Licenser.


                                      -18-
<PAGE>

                                   EXHIBIT C

                              VERISITY PRICE LIST

<TABLE>
<S>                <C>                                                                   <C>
SM 1000            Verisity Design's Specman Perpetual license--including:                 [*]
                   architectural modeling, automatic generation of functional tests,
                   HDL simulation control, data and temporal checking, and functional
                   coverage analysis.  Includes one sim interface at no charge.

Specman            Simulator Interfaces
SM 1021            Verilog XL interface                                                    [*]
SM 1022            Leapfrog interface                                                      [*]
SM 1023            QuickHDL interface                                                      [*]
SM 1024            Mode Tim interface                                                      [*]
SM 1025            VSS interface                                                           [*]
SM 1026            VCS Interface                                                           [*]
SM 1027            SpeedSim Interface                                                      [*]
SM 1028            NC Verilog Interface                                                    [*]
                   The above software licenses are for a single user floating license
                   for a local area network within a five-mile radius of the license
                   server.

SM 1300            License upgrade to North American wide area network                     [*]
SM 1301            License upgrade to worldwide wide area network                          [*]

TR 1000            Specman Basic Training                                                  [*]
                   Held at Verisity's headquarters in Mt. View, CA

TR 1200            Specman Basic Training On-Site Course                                   [*]
                   Travel expenses included if within 50 mile radius from sales
                   office.  Customer to provide facility, workstations, and
                   simulation licenses.

AE1000             Applications Consulting                                                 [*]



Maintenance Services                                                                       [*]

SM 1000M           Verisity Design's Specman Perpetual license--1 year support $6,000      [*]
                   and maintenance

                   Additional Maintenance Support Services                                 [*]
Specman Simulator Interfaces - Support
SM 1021M           Venlog XL interface support                                             [*]
SM 1022M           Leapfrog interface support                                              [*]
SM 1023M           QuickHDL interface support                                              [*]
SM 1024M           Mode Tim interface support                                              [*]
SM1025M            VSS interface support                                                   [*]
M1026M             VCS interface support                                                   [*]
SM 1027M           SpeedSim Interface support                                              [*]
SM 1028M           NC Verilog Interface support                                            [*]
SM 1300M           North American wide area network Support Upgrade                        [*]
SM 1301M
                   License upgrade to World wide--wide area network Support                [*]
</TABLE>

[*]- CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.

                                      -19-