Document:

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                                                                  EXHIBIT 10.11

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                           LOAN AND SECURITY AGREEMENT

                            VIRAGE LOGIC CORPORATION

                           VIRAGE LOGIC INTERNATIONAL

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                                TABLE OF CONTENTS

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1   ACCOUNTING AND OTHER TERMS............................................    4

2   LOAN AND TERMS OF PAYMENT.............................................    4
    2.1   Credit Extensions...............................................    4
    2.2   Overadvances....................................................    5
    2.3   Interest Rate, Payments.........................................    5
    2.4   Fees............................................................    5

3   CONDITIONS OF LOANS...................................................    5
    3.1   Conditions Precedent to Initial Credit Extension................    5
    3.2   Conditions Precedent to all Credit Extensions...................    5

4   CREATION OF SECURITY INTEREST.........................................    6
    4.1   Grant of Security Interest......................................    6

5   REPRESENTATIONS AND WARRANTIES........................................    6
    5.1   Due Organization and Authorization..............................    6
    5.2   Collateral......................................................    6
    5.3   Litigation......................................................    6
    5.4   No Material Adverse Change in Financial Statements..............    6
    5.5   Solvency........................................................    6
    5.6   Regulatory Compliance...........................................    7
    5.7   Subsidiaries....................................................    7
    5.8   Full Disclosure.................................................    7

6   AFFIRMATIVE COVENANTS.................................................    7
    6.1   Government Compliance...........................................    7
    6.2   Financial Statements, Reports, Certificates.....................    7
    6.3   Inventory; Returns..............................................    8
    6.4   Taxes...........................................................    8
    6.5   Insurance.......................................................    8
    6.6   Primary Accounts................................................    8
    6.7   Financial Covenants.............................................    8
    6.8   Further Assurances..............................................    8

7   NEGATIVE COVENANTS....................................................    9
    7.1   Dispositions....................................................    9
    7.2   Changes in Business, Ownership, Management or
          Business Locations..............................................    9
    7.3   Mergers or Acquisitions.........................................    9
    7.4   Indebtedness....................................................    9
    7.5   Encumbrance.....................................................    9
    7.6   Distributions; Investments......................................    9
    7.7   Transactions with Affiliates....................................    9
    7.8   Subordinated Debt...............................................   10
    7.9   Compliance......................................................   10

8   EVENTS OF DEFAULT.....................................................   10
    8.1   Payment Default.................................................   10
    8.2   Covenant Default................................................   10
    8.3   Material Adverse Change.........................................   10
    8.4   Attachment......................................................   10
    8.5   Insolvency......................................................   11
    8.6   Other Agreements................................................   11
    8.7   Judgments.......................................................   11
    8.8   Misrepresentations..............................................   11

9   BANK'S RIGHTS AND REMEDIES............................................   11
    9.1   Rights and Remedies.............................................   11
    9.2   Power of Attorney...............................................   12
    9.3   Accounts Collection.............................................   12
    9.4   Bank Expenses...................................................   12
    9.5   Bank's Liability for Collateral.................................   12
    9.6   Remedies Cumulative.............................................   12
    9.7   Demand Waiver...................................................   12

10  NOTICES AND WAIVERS...................................................   13
    10.1  Notices.........................................................   13
    10.2  Subrogation and Similar Rights..................................   13
    10.3  Waivers of Notice...............................................   13
    10.4  Subrogation Defenses............................................   14
    10.5  Right to Settle, Release........................................   14

11  CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER............................   14

12  GENERAL PROVISIONS....................................................   14
    12.1  Successors and Assigns..........................................   14
    12.2  Indemnification.................................................   15
    12.3  Time of Essence.................................................   15
    12.4  Severability of Provision.......................................   15
    12.5  Amendments in Writing, Integration..............................   15
    12.6  Counterparts....................................................   15
    12.7  Survival........................................................   15
    12.8  Confidentiality.................................................   15
    12.9  Attorneys' Fees, Costs and Expenses.............................   15

13  DEFINITIONS...........................................................   16
    13.1  Definitions.....................................................   16
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      THIS LOAN AND SECURITY AGREEMENT dated July 28, 1999, between SILICON
VALLEY BANK ("Bank"), whose address is 3003 Tasman Drive, Santa Clara,
California 95054 and VIRAGE LOGIC CORPORATION and VIRAGE LOGIC INTERNATIONAL
("Borrower") provides the terms on which Bank will lend to Borrower and Borrower
will repay Bank. The parties agree as follows:

1.    ACCOUNTING AND OTHER TERMS

      Accounting terms not defined in this Agreement will be construed following
GAAP. Calculations and determinations must be made following GAAP. The term
"financial statements" includes the notes and schedules. The terms "including"
and "includes" always mean "including (or includes) without limitation," in this
or any Loan Document This Agreement shall be construed to impart upon Bank a
duty to act reasonably at all times.

2.    LOAN AND TERMS OF PAYMENT

2.1   CREDIT EXTENSIONS.

      Borrower will pay Bank the unpaid principal amount of all Credit
Extensions and interest on the unpaid principal amount of the Credit Extensions.

2.1.1 REVOLVING ADVANCES.

      (a) Bank will make Advances not exceeding (i) the lesser of (A) the
Committed Revolving Line minus the Cash Management Services Sublimit or (B) the
Borrowing Base, minus (ii) the amount of all outstanding Letters of Credit
(including drawn but unreimbursed Letters of Credit). Amounts borrowed under
this Section may be repaid and reborrowed during the term of this Agreement.

      (b) To obtain an Advance, Borrower must notify Bank by facsimile or
telephone by 3:00 p.m. Pacific time on the Business Day the Advance is to be
made. Borrower must promptly confirm the notification by delivering to Bank the
Payment/Advance Form attached as Exhibit B. Bank will credit Advances to
Borrower's deposit account. Bank may make Advances under this Agreement based on
instructions from a Responsible Officer or his or her designee or without
instructions if the Advances are necessary to meet Obligations which have become
due. Bank may rely on any telephone notice given by a person whom Bank believes
is a Responsible Officer or designee. Borrower will indemnify Bank for any loss
Bank suffers due to such reliance.

      (c) The Committed Revolving Line terminates on the Revolving Maturity
Date, when all Advances are immediately payable.

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2.1.2 LETTERS OF CREDIT.

      Bank will issue or have issued Letters of Credit for Borrower's account
not exceeding (i) the lesser of the Committed Revolving Line or the Borrowing
Base minus (ii) the outstanding principal balance of the Advances minus the Cash
Management Sublimit; however, the face amount of outstanding Letters of Credit
(including drawn but unreimbursed Letters of Credit and any Letter of Credit
Reserve) may not exceed $150,000. Each Letter of Credit will have an expiry date
of no later than 180 days after the Revolving Maturity Date, but Borrower's
reimbursement obligation will be secured by cash on terms acceptable to Bank at
any time after the Revolving Maturity Date if the term of this Agreement is not
extended by Bank. Borrower agrees to execute any further documentation in
connection with the Letters of Credit as Bank may reasonably request.

2.1.3 CASH MANAGEMENT SERVICES SUBLIMIT.

      Borrower may use up to $150,000 for Bank's Cash Management Services, which
may include merchant services, direct deposit of payroll, business credit card,
and check cashing services identified in various cash management services
agreements related to such services (the "Cash Management Services"). All
amounts Bank pays for any Cash Management Services will be treated as Advances
under the Committed Revolving Line.

2.2   OVERADVANCES.

      If Borrower's Obligations under Section 2.1.1 and 2.1.2 exceed the lesser
of either (i) the Committed Revolving Line minus the Cash Management Sublimit or
(ii) the Borrowing Base, Borrower must immediately pay Bank the excess or if
Borrower's obligations under 2.1.2 and 2.1.3 exceed $150,000.

2.3   INTEREST RATE, PAYMENTS.

      (a) Interest Rate. Advances accrue interest on the outstanding principal
balance at a per annum rate of 1 percentage points above the Prime Rate. After
an Event of Default, Obligations accrue interest at 5 percent above the rate
effective immediately before the Event of Default. The interest rate increases
or decreases when the Prime Rate changes. Interest is computed on a 360 day year
for the actual number of days elapsed.

      (b) Payments. Interest due on the Committed Revolving Line is payable on
the 27th of each month. Bank may debit any of Borrower's deposit accounts
including Account Number _________________ for principal and interest payments
owing or any amounts Borrower owes Bank. Bank will promptly notify Borrower when
it debits Borrower's accounts. These debits are not a set-off. Payments received
after 12:00 noon Pacific time are considered received at the opening of business
on the next Business Day. When a payment is due on a day that is not a Business
Day, the payment is due the next Business Day and additional fees or interest
accrue.

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2.4   FEES.

      Borrower will pay:

      (a) Facility Fee. A fully earned, non-refundable Facility Fee of $22,500
due on the Closing Date; and

      (b) Bank Expenses. All Bank Expenses (including reasonable attorneys' fees
and reasonable expenses) incurred through and after the date of this Agreement,
are payable when due.

3.    CONDITIONS OF LOANS

3.1   CONDITIONS PRECEDENT TO INITIAL CREDIT EXTENSION.

      Bank's obligation to make the initial Credit Extension is subject to the
condition precedent that it receive the agreements, documents and fees it
requires.

3.2   CONDITIONS PRECEDENT TO ALL CREDIT EXTENSIONS.

      Bank's obligations to make each Credit Extension, including the initial
Credit Extension, is subject to the following:

      (a) timely receipt of any Payment/Advance Form; and

      (b) the representations and warranties in Section 5 must be materially
true on the date of the Payment/Advance Form and on the effective date of each
Credit Extension and no Event of Default may have occurred and be continuing, or
result from the Credit Extension. Each Credit Extension is Borrower's
representation and warranty on that date that the representations and warranties
of Section 5 remain true.

4.    CREATION OF SECURITY INTEREST

4.1   GRANT OF SECURITY INTEREST.

      Borrower grants Bank a continuing security interest in all presently
existing and later acquired Collateral to secure all Obligations and performance
of each of Borrower's duties under the Loan Documents. Except for Permitted
Liens, any security interest will be a first priority security interest in the
Collateral. Bank may place a "hold" on any deposit account pledged as
Collateral. If this Agreement is terminated, Bank's lien and security interest
in the Collateral will continue until Borrower fully satisfies its Obligations.

5.    REPRESENTATIONS AND WARRANTIES

      Borrower represents and warrants as follows:

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5.1   DUE ORGANIZATION AND AUTHORIZATION.

      Borrower and each Subsidiary is duly existing and in good standing in its
state of formation and qualified and licensed to do business in, and in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be qualified, except where the failure to do so could
not reasonably be expected to cause a Material Adverse Change.

      The execution, delivery and performance of the Loan Documents have been
duly authorized, and do not conflict with Borrower's formation documents, nor
constitute an event of default under any material agreement by which Borrower is
bound. Borrower is not in default under any agreement to which or by which it is
bound in which the default could cause reasonably be expected to cause a
Material Adverse Change.

5.2   COLLATERAL.

      Borrower has good title to the Collateral, free of Liens except Permitted
Liens. The Accounts are bona fide, existing obligations, and the service or
property has been performed or delivered to the account debtor or its agent for
immediate shipment to and unconditional acceptance by the account debtor.
Borrower has no notice of any actual or imminent Insolvency Proceeding of any
account debtor whose accounts are an Eligible Account in any Borrowing Base
Certificate. All Inventory is in all material respects of good and marketable
quality, free from material defects.

5.3   LITIGATION.

      Except as shown in the Schedule, there are no actions or proceedings
pending or, to the knowledge or Borrower's Responsible Officers and legal
counsel, threatened by or against Borrower or any Subsidiary in which a likely
adverse decision could reasonably be expected to cause a Material Adverse
Change.

5.4   NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS.
      All consolidated financial statements for Borrower, and any
Subsidiary, delivered to Bank fairly present in all material respects Borrower's
consolidated financial condition and Borrower's consolidated results of
operations. There has not been any material deterioration in Borrower's
consolidated financial condition since the date of the most recent financial
statements submitted to Bank.

5.5   SOLVENCY.

      The fair salable value of Borrower's assets (including goodwill minus
disposition costs) exceeds the fair value of its liabilities; the Borrower is
not left with unreasonably small capital after the transactions in this
Agreement and Borrower is able to pay its debts (including trade debts) as they
mature.

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5.6   REGULATORY COMPLIANCE.

      Borrower is not an "investment company' or a company "controlled" by an
"investment company" under the Investment Company Act. Borrower is not engaged
as one of its important activities in extending credit for margin stock (under
Regulations T and U of the Federal Reserve Board of Governors). Borrower has
complied in all material respects with the Federal Fair Labor Standards Act.
Borrower has not violated any laws, ordinances or rules, the violation of which
could reasonably be expected to cause a Material Adverse Change. None of
Borrower's or any Subsidiary's properties or assets has been used by Borrower or
any Subsidiary or, to the best of Borrower's knowledge, by previous Persons, in
disposing, producing, storing, treating, or transporting any hazardous substance
other than legally. Borrower and each Subsidiary has timely filed all required
tax returns and paid, or made adequate provision to pay, all material taxes,
except those being contested in good faith with adequate reserves under GAAP.
Borrower and each Subsidiary has obtained all consents, approvals and
authorizations of, made all declarations or filings with, and given all notices
to, all government authorities that are necessary to continue its business as
currently conducted, except where the failure to do so could not reasonably be
expected to cause a Material Adverse Change.

5.7   SUBSIDIARIES.

      Borrower does not own any stock, partnership interest or other equity
securities except for Permitted Investments.

5.8   FULL DISCLOSURE.

      No written representation, warranty or other statement of Borrower in any
certificate or written statement given to Bank (taken together with all such
written certificates and written statements to Bank) contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements contained in the certificates or statements not misleading. It
being recognized by Bank that the projections and forecasts provided by Borrower
in good faith and based upon reasonable assumptions are not viewed as facts and
that actual results during the period or periods covered by such projections and
forecasts may differ from the projected and forecasted results.

6.    AFFIRMATIVE COVENANTS

      Borrower will do all of the following:

6.1   GOVERNMENT COMPLIANCE.

      Borrower will maintain its and all Subsidiaries' legal existence and good
standing in its jurisdiction of formation and maintain qualification in each
jurisdiction in which the failure to so qualify would reasonably be expected to
cause a material adverse effect on Borrower's business or operations. Borrower
will comply, and have each Subsidiary

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comply, with all laws, ordinances and regulations to which it is subject,
noncompliance with which could have a material adverse effect on Borrower's
business or operations or would reasonably be expected to cause a Material
Adverse Change.

6.2   FINANCIAL STATEMENTS, REPORTS, CERTIFICATES.

      (a) Borrower will deliver to Bank: (i) as soon as available, but no later
than 30 days after the last day of each month and quarter, a company prepared
consolidated balance sheet and income statement covering Borrower's consolidated
operations during the period, in a form and certified by a Responsible Officer
acceptable to Bank (ii) as soon as available, but no later than 120 days after
the last day of Borrower's fiscal year, audited consolidated financial
statements prepared under GAAP, consistently applied, together with an
unqualified opinion on the financial statements from an independent certified
public accounting firm reasonably acceptable to Bank; (iii) a prompt report of
any legal actions pending or threatened against Borrower or any Subsidiary that
could result in damages or costs to Borrower or any Subsidiary of $100,000 or
more; and (iv) budgets, sales projections, operating plans or other financial
information Bank reasonably requests.

      (b) Within 30 days after the last day of each month, Borrower will deliver
to Bank a Borrowing Base Certificate signed by a Responsible Officer in the form
of Exhibit C, with aged listings of accounts receivable and accounts payable.

      (c) Within 30 days after the last day of each month and quarter, Borrower
will deliver to Bank with the monthly financial statements a Compliance
Certificate signed by a Responsible Officer in the form of Exhibit D.

      (d) Bank has the right to audit Borrower's Collateral at Borrower's
expense, but the audits will be conducted no more often than every 6 months
unless an Event of Default has occurred and is continuing.

6.3   INVENTORY; RETURNS.

      Borrower will keep all Inventory in good and marketable condition, free
from material defects. Returns and allowances between Borrower and its account
debtors will follow Borrower's customary practices as they exist at execution of
this Agreement. Borrower must promptly notify Bank of all returns, recoveries,
disputes and claims, that involve more than $50,000.

6.4   TAXES.

      Borrower will make, and cause each Subsidiary to make. timely payment of
all material federal, state, and local taxes or assessments and will deliver to
Bank, on demand, appropriate certificates attesting to the payment.

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6.5   INSURANCE.

      Borrower will keep its business and the Collateral insured for risks and
in amounts, as Bank may reasonably request. Insurance policies will be in a
form, with companies, and in amounts that are satisfactory to Bank in Bank's
reasonable discretion. All property policies will have a lender's loss payable
endorsement showing Bank as an additional loss payee and all liability policies
will show the Bank as an additional insured and provide that the insurer must
give Bank at least 20 days notice before canceling its policy. At Bank's
request, Borrower will deliver certified copies of policies and evidence of all
premium payments. Proceeds payable under any policy will, at Bank's option, be
payable to Bank on account of the Obligations.

6.6   PRIMARY ACCOUNTS.

      Borrower will maintain its primary depository and operating accounts with
Bank.

6.7   FINANCIAL COVENANTS.

      Borrower will maintain as of the last day of each month unless otherwise
noted:

      (i) Quick Ratio. A ratio of Quick Assets to Current Liabilities of at
least 1.30 to 1.00.

      (ii) Profitability. Borrower will be profitable on a quarterly basis.

6.8   FURTHER ASSURANCES.

      Borrower will execute any further instruments and take further action as
Bank reasonably requests to perfect or continue Bank's security interest in the
Collateral or to effect the purposes of this Agreement.

7.    NEGATIVE COVENANTS

      Borrower will not do any of the following without Bank's prior written
consent which will not be unreasonably withheld:

7.1   DISPOSITIONS.

      Convey, sell, lease, transfer or otherwise dispose of (collectively
"Transfer"), or permit any of its Subsidiaries to Transfer, all or any part of
its business or property, other than Transfers (i) of Inventory in the ordinary
course of business; (ii) of non-exclusive licenses and similar arrangements for
the use of the property of Borrower or its Subsidiaries in the ordinary course
of business; or (iii) of worn-out or obsolete Equipment.

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7.2   CHANGES IN BUSINESS, OWNERSHIP, MANAGEMENT OR BUSINESS LOCATIONS.

      Engage in or permit any of its Subsidiaries to engage in any business
other than the businesses currently engaged in by Borrower or reasonably related
thereto or have a material change in its ownership or management (other than the
sale of Borrower's equity securities in a public offering or to venture capital
investors approved by Bank) of greater than 25%. Borrower will not, without at
least 30 days prior written notice, relocate its chief executive office or add
any new offices or business locations.

7.3   MERGERS OR ACQUISITIONS.

      Merge or consolidate, or permit any of its Subsidiaries to merge or
consolidate, with any other Person, or acquire, or permit any of its
Subsidiaries to acquire, all or substantially all of the capital stock or
property of another Person, except where (i) no Event of Default has occurred
and is continuing or would result from such action during the term of this
Agreement and (ii) result in a decrease of more than 25% of Tangible Net Worth.
A Subsidiary may merge or consolidate into another Subsidiary or into Borrower.

7.4   INDEBTEDNESS.

      Create, incur, assume, or be liable for any Indebtedness, or permit any
Subsidiary to do so, other than Permitted Indebtedness.

7.5   ENCUMBRANCE.

      Create, incur, or allow any Lien on any of its property, or assign or
convey any right to receive income, including the sale of any Accounts, or
permit any of its Subsidiaries to do so, except for Permitted Liens, or permit
any Collateral not to be subject to the first priority security interest granted
here, subject to Permitted Liens.

7.6   DISTRIBUTIONS; INVESTMENTS.

      Directly or indirectly acquire or own any Person, or make any Investment
in any Person, other than Permitted Investments, or permit any of its
Subsidiaries to do so. Pay any dividends or make any distribution or payment or
redeem, retire or purchase any capital stock.

7.7   TRANSACTIONS WITH AFFILIATES.

      Directly or indirectly enter or permit any material transaction with any
Affiliate except transactions that are in the ordinary course of Borrower's
business, on terms less favorable to Borrower than would be obtained in an arm's
length transaction with a non-affiliated Person.

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7.8   SUBORDINATED DEBT.

      Make or permit any payment on any Subordinated Debt, except under the
terms of the Subordinated Debt or amend any provision in any document relating
to the Subordinated Debt without Bank's prior written consent.

7.9   COMPLIANCE.

      Become an "investment company" or a company controlled by an "investment
company," under the Investment Company Act of 1940 or undertake as one of its
important activities extending credit to purchase or carry margin stock, or use
the proceeds of any Credit Extension for that purpose; fail to meet the minimum
funding requirements of ERISA, permit a Reportable Event or Prohibited
Transaction, as defined in ERISA, to occur; fail to comply with the Federal Fair
Labor Standards Act or violate any other law or regulation, if the violation
could reasonable be expected to have a material adverse effect on Borrower's
business or operations or would reasonably be expected to cause a Material
Adverse Change, or permit any of its Subsidiaries to do so.

8.    EVENTS OF DEFAULT

      Any one of the following is an Event of Default:

8.1   PAYMENT DEFAULT.

      If Borrower fails to pay any of the Obligations within 3 days after their
due date. During the additional period the failure to cure the default is not an
Event of Default (but no Credit Extension will be made during the cure period);

8.2   COVENANT DEFAULT.

      If Borrower does not perform any obligation in Section 6 or violates any
covenant in Section 7 or does not perform or observe any other material term,
condition or covenant in this Agreement, any Loan Documents, or in any agreement
between Borrower and Bank and as to any default under a term, condition or
covenant that can be cured, has not cured the default within 10 days after it
occurs, or if the default cannot be cured within 10 days or cannot be cured
after Borrower's attempts within 10 day period, and the default may be cured
within a reasonable time, then Borrower has an additional period (of not more
than 30 days) to attempt to cure the default. During the additional time, the
failure to cure the default is not an Event of Default (but no Credit Extensions
will be made during the cure period);

8.3   MATERIAL ADVERSE CHANGE.

      (i) If there occurs a material impairment in the perfection or priority of
the Bank's security interest in the Collateral or in the value of such
Collateral (other than

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normal depreciation) which is not covered by adequate insurance or (ii) if the
Bank determines, based upon information available to it and in its reasonable
judgment, that there is a reasonable likelihood that Borrower will fail to
comply with one or more of the financial covenants in Section 6 during the next
succeeding financial reporting period.

8.4   ATTACHMENT.

      If any material portion of Borrower's assets is attached, seized, levied
on, or comes into possession of a trustee or receiver and the attachment seizure
or levy is not removed in 10 days, or if Borrower is enjoined, restrained, or
prevented by court order from conducting a material part of its business or if a
judgment or other claim becomes a Lien on a material portion of Borrower's
assets, or if a notice of lien, levy, or assessment is filed against any of
Borrower's assets by any government agency and not paid within 10 days after
Borrower receives notice. These are not Events of Default if stayed or if a bond
is posted pending contest by Borrower (but no Credit Extensions will be made
during the cure period);

8.5   INSOLVENCY.

      If Borrower becomes insolvent or if Borrower begins an Insolvency
Proceeding or an Insolvency Proceeding is begun against Borrower and not
dismissed or stayed within 30 days (but no Credit Extensions will be made before
any Insolvency Proceeding is dismissed);

8.6   OTHER AGREEMENTS.

      If there is a default in any agreement between Borrower and a third party
that gives the third party the right to accelerate any Indebtedness exceeding
$100,000 or that could cause a Material Adverse Change;

8.7   JUDGMENTS.

      If a money judgment(s) in the aggregate of at least $50,000 is rendered
against Borrower and is unsatisfied and unstayed for 10 days (but no Credit
Extensions will be made before the judgment is stayed or satisfied); or

8.8   MISREPRESENTATIONS.

      If Borrower or any Person acting for Borrower makes any material
misrepresentation or material misstatement now or later in any warranty or
representation in this Agreement or in any writing delivered to Bank or to
induce Bank to enter this Agreement or any Loan Document.

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9.    BANK'S RIGHTS AND REMEDIES

9.1   RIGHTS AND REMEDIES.

      When an Event of Default occurs and continues Bank may, without notice or
demand, do any or all of the following:

      (a) Declare all Obligations immediately due and payable (but if an Event
of Default described in Section 8.5 occurs all Obligations are immediately due
and payable without any action by Bank);

      (b) Stop advancing money or extending credit for Borrower's benefit under
this Agreement or under any other agreement between Borrower and Bank;

      (c) Settle or adjust disputes and claims directly with account debtors for
amounts, on terms and in any order that Bank considers advisable;

      (d) Make any payments and do any acts it considers necessary or reasonable
to protect its security interest in the Collateral. Borrower will assemble the
Collateral if Bank requires and make it available as Bank designates. Bank may
enter premises where the Collateral is located, take and maintain possession of
any part of the Collateral, and pay, purchase, contest or compromise any Lien
which appears to be prior or superior to its security interest and pay all
expenses incurred. Borrower grants Bank a license to enter and occupy any of its
premises, without charge, to exercise any of Bank's rights or remedies;

      (e) Apply to the Obligations any (i) balances and deposits of Borrower it
holds, or (ii) any amount held by Bank owing to or for the credit or the account
of Borrower;

      (f) Ship, reclaim, recover, store, finish, maintain, repair, prepare for
sale, advertise for sale, and sell the Collateral; and

      (g) Dispose of the Collateral according to the Code.

9.2   POWER OF ATTORNEY.

      Effective only when an Event of Default occurs and continues, Borrower
irrevocably appoints Bank as its lawful attorney to: (i) endorse Borrower's name
on any checks or other forms of payment or security; (ii) sign Borrower's name
on any invoice or bill of lading for any Account or draft against account
debtors, (iii) make, settle, and adjust all claims under Borrower's insurance
policies; (iv) settle and adjust disputes and claims about the Accounts directly
with account debtors, for amounts and on terms Bank determines reasonable; and
(v) transfer the Collateral into the name of Bank or a third party as the Code
permits. Bank may exercise the power of attorney to sign Borrower's name on any
documents necessary to perfect or continue the perfection of any security

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interest regardless of whether an Event of Default has occurred. Bank's
appointment as Borrower's attorney in fact, and all of Bank's rights and powers,
coupled with an interest, are irrevocable until all Obligations have been fully
repaid and performed and Bank's obligation to provide Credit Extensions
terminates.

9.3   ACCOUNTS COLLECTION.

      When an Event of Default occurs and continues, Bank may notify any Person
owing Borrower money of Bank's security interest in the funds and verify the
amount of the Account. Borrower must collect all payments in trust for Bank and,
if requested by Bank, immediately deliver the payments to Bank in the form
received from the account debtor, with proper endorsements for deposit.

9.4   BANK EXPENSES.

      If Borrower fails to pay any amount or furnish any required proof of
payment to third persons, Bank may make all or part of the payment or obtain
insurance policies required in Section 6.5, and take any action under the
policies Bank deems prudent. Any amounts paid by Bank are Bank Expenses and
immediately due and payable, bearing interest at the then applicable rate and
secured by the Collateral. No payments by Bank are deemed an agreement to make
similar payments in the future or Bank's waiver of any Event of Default.

9.5   BANK'S LIABILITY FOR COLLATERAL.

      If Bank complies with reasonable banking practices and Section 9-207 of
the Code, it is not liable for: (a) the safekeeping of the Collateral; (b) any
loss or damage to the Collateral; (c) any diminution in the value of the
Collateral; or (d) any act or default of any carrier, warehouseman, bailee, or
other person. Borrower bears all risk of loss, damage or destruction of the
Collateral.

9.6   REMEDIES CUMULATIVE.

      Bank's rights and remedies under this Agreement, the Loan Documents, and
all other agreements are cumulative. Bank has all rights and remedies provided
under the Code, by law, or in equity. Bank's exercise of one right or remedy is
not an election, and Bank's waiver of any Event of Default is not a continuing
waiver. Bank's delay is not a waiver, election, or acquiescence. No waiver is
effective unless signed by Bank and then is only effective for the specific
instance and purpose for which it was given.

9.7   DEMAND WAIVER.

      Borrower waives demand, notice of default or dishonor, notice of payment
and nonpayment, notice of any default nonpayment at maturity, release,
compromise,

                                       12
<PAGE>   15
settlement extension, or renewal of accounts, documents, instruments, chattel
paper, and guarantees held by Bank on which Borrower is liable.

10.   NOTICES AN WAIVERS

10.1  NOTICES.

      Unless otherwise provided in this Agreement, all notices or demands by any
party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements and
other informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by a recognized overnight
delivery service, certified mail, postage prepaid, return receipt requested, or
by telefacsimile to Borrower or to Bank, as the case may be, at its addresses
set forth below.

      If to Borrower:   VIRAGE LOGIC CORPORATION
                        46501 Landing Parkway
                        Fremont CA 94538
                        Attn: ____________________
                        FAX:  510-360-8099

      and to:           VIRAGE LOGIC INTERNATIONAL
                        46501 Landing Parkway
                        Fremont CA 94538
                        Attn: ____________________
                        FAX:  510-360-8099

      If to Bank:       Silicon Valley Bank
                        3003 Tasman Drive
                        Santa Clara, CA 95054-1191
                        Attn: Terri Auwaerter
                        FAX:  (408) 496-2415

10.2  SUBROGATION AND SIMILAR RIGHTS.

      Notwithstanding any other provision of this Agreement or any other Loan
Document, each Borrower irrevocably waives all rights that it may have at law or
in equity (including, without limitation, any law subrogating the Borrower to
the rights of Bank under the Loan Documents) to seek contribution,
indemnification, or any other form of reimbursement from any other Borrower, or
any other Person now or hereafter primarily or secondarily liable for any of the
Obligations, for any payment made by the Borrower with respect to the
Obligations in connection with the Loan Documents or otherwise and all rights
that it might have to benefit from, or to participate in, any security for the
Obligations as a result of any payment made by the Borrower with

                                       13
<PAGE>   16
respect to the Obligations in connection with the Loan Documents or otherwise.
Any agreement providing for indemnification, reimbursement or any other
arrangement prohibited under this Section 102 shall be null and void. If any
payment is made to a Borrower in contravention of this Section 102, such
Borrower shall hold such payment in trust for Bank and such payment shall be
promptly delivered to Bank for application to the Obligations, whether matured
or unmatured.

10.3  WAIVERS OF NOTICE.

      Each Borrower waives notice of acceptance hereof; notice of the existence,
creation or acquisition of any of the Obligations; notice of an Event of
Default; notice of the amount of the Obligations outstanding at any time; notice
of intent to accelerate; notice of acceleration; notice of any adverse change in
the financial condition of any other Borrower or of any other fact that might
increase the Borrower's risk; presentment for payment demand; protest and notice
thereof as to any instrument default; and all other notices and demands to which
the Borrower would otherwise be entitled. Each Borrower waives any defense
arising from any defense of any other Borrower, or by reason of the cessation
from any cause whatsoever of the liability of any other Borrower. Bank's failure
at any time to require strict performance by any Borrower of any provision of
the Loan Documents shall not waive, alter or diminish any right of Bank
thereafter to demand strict compliance and performance therewith. Nothing
contained herein shall prevent Bank from foreclosing on the Lien of any deed of
trust mortgage or other security instrument or exercising any rights available
thereunder, and the exercise of any such rights shall not constitute a legal or
equitable discharge of any Borrower. Each Borrower also waives any defense
arising from any act or omission of Bank that changes the scope of the
Borrower's risks hereunder. Each Borrower hereby waives any right to assert
against Bank any defense (legal or equitable), setoff, counterclaim, or claims
that such Borrower individually may now or hereafter have against another
Borrower or any other Person liable to Borrower with respect to the Obligations
in any manner or whatsoever.

10.4  SUBROGATION DEFENSES.

      Each Borrower hereby waives any defense based on impairment or destruction
of its subrogation or other rights against any other Borrower and waives all
benefits which might otherwise be available to it under California Civil Code
Sections 2809, 2810, 2819, 2839, 2845, 2848, 2850, 2899 and 3433 and California
Code of Civil Procedure Sections 580a, 580b, 580d and 726, as those statutory
provisions are now in effect and hereafter amended, and under any other similar
statutes now and hereafter in effect.

10.5  RIGHT TO SETTLE, RELEASE.

      (a) The liability of Borrowers hereunder shall not be diminished by (i)
any agreement, understanding or representation that any of the Obligations is or
was to be guaranteed by another Person or secured by other property, or (ii) any
release or

                                       14
<PAGE>   17
unenforceability, whether partial or total, or rights, if any, which Borrower
may now or hereafter have against any other Person, including another Borrower,
or property with respect to any of the Obligations.

      (b) Without notice to any Borrower and without affecting the liability of
any Borrower hereunder, Bank may (i) compromise, settle, renew, extend the time
for payment, change the manner or terms of payment, discharge the performance
of, decline to enforce, or release all or any of the Obligations with respect to
a Borrower, (ii) grant other indulgences to a Borrower in respect of the
Obligations, (iii) modify in any manner any documents, relating to the
Obligations with respect to a Borrower, (iv) release, surrender or exchange any
deposits or other property securing the Obligations, whether pledged by a
Borrower or any other Person, or (v) compromise, settle, renew, or extend the
time for payment, discharge the performance of, decline to enforce, or release
all or any obligations of any guarantor, endorser or other Person who is now or
may hereafter be liable with respect to any of the Obligations.

11.   CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER

      California law governs the Loan Documents without regard to principles of
conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction of
the State and Federal courts in Santa Clara County, California.

BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY CONTEMPLATED
TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS
WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT.
EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.

12.   GENERAL PROVISIONS

12.1  SUCCESSORS AND ASSIGNS.

      This Agreement binds and is for the benefit of the successors and
permitted assigns of each party. Borrower may not assign this Agreement or any
rights under it without Bank's prior written consent which may be granted or
withheld in Bank's discretion. Bank has the right, without the consent of or
notice to Borrower, to sell, transfer, negotiate, or grant participation in all
or any part of, or any interest in, Bank's obligations, rights and benefits
under this Agreement.

12.2  INDEMNIFICATION.

      Borrower will indemnify, defend and hold harmless Bank and its officers,
employees, and agents against (a) all obligations, demands, claims, and
liabilities asserted

                                       15
<PAGE>   18
by any other party in connection with the transactions contemplated by the Loan
Documents; and (b) all losses or Bank Expenses incurred, or paid by Bank from,
following, or consequential to transactions between Bank and Borrower (including
reasonable attorneys fees and expenses), except for losses caused by Bank's
gross negligence or willful misconduct.

12.3  TIME OF ESSENCE.

      Time is of the essence for the performance of all obligations in this
Agreement.

12.4  SEVERABILITY OF PROVISION.

      Each provision of this Agreement is severable from every other provision
in determining the enforceability of any provision.

12.5  AMENDMENTS IN WRITING, INTEGRATION.

      All amendments to this Agreement must be in writing and signed by Borrower
and Bank. This Agreement represents the entire agreement about this subject
matter, and supersedes prior negotiations or agreements. All prior agreements,
understandings, representations, warranties, and negotiations between the
parties about the subject matter of this Agreement merge into this Agreement and
the Loan Documents.

12.6  COUNTERPARTS.

      This Agreement may be executed in any number of counterparts and by
different parties on separate counterparts, each of which, when executed and
delivered, are an original, and all taken together, constitute one Agreement.

12.7  SURVIVAL.

      All covenants, representations and warranties made in this Agreement
continue in full force while any Obligations remain outstanding. The obligations
of Borrower in Section 12.2 to indemnify Bank will survive until all statutes of
limitations for actions that may be brought against Bank have run.

12.8  CONFIDENTIALITY.

      In handling any confidential information, Bank will exercise the same
degree of care that it exercises for its own proprietary information, but
disclosure of information may be made (i) to Bank's subsidiaries or affiliates
in connection with their business with Borrower, (ii) to prospective transferees
or purchasers of any interest in the loans, (iii) as required by law,
regulation, subpoena, or other order, (iv) as required in connection with Bank's
examination or audit and (v) as Bank considers appropriate exercising remedies
under this Agreement. Confidential information does not include information that
either:

                                       16
<PAGE>   19
      (a) is in the public domain or in Bank's possession when disclosed to
Bank, or becomes part of the public domain after disclosure to Bank; or (b) is
disclosed to Bank by a third party, if Bank does not know that the third party
is prohibited from disclosing the information.

12.9  ATTORNEYS' FEES, COSTS AND EXPENSES.

      In any action or proceeding between Borrower and Bank arising out of the
Loan Documents, the prevailing party will be entitled to recover its reasonable
attorneys' fees and other reasonable costs and expenses incurred, in addition to
any other relief to which it may be entitled.

13.   DEFINITIONS

13.1  DEFINITIONS.

      In this Agreement:

      "ACCOUNTS" are all existing and later arising accounts, contract rights,
and other obligations owed Borrower in connection with its sale or lease of
goods (including licensing software and other technology) or provision of
services, all credit insurance, guaranties, other security and all merchandise
returned or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.

      "ADVANCE" or "ADVANCES" is a loan advance (or advances) under the
Committed Revolving Line.

      "AFFILIATE" of a Person is a Person that owns or controls directly or
indirectly the Person, any Person that controls or is controlled by or is under
common control with the Person, and each of that Person's senior executive
officers, directors, partners and, for any Person that is a limited liability
company, that Person's managers and members.

      "BANK EXPENSES" are all audit fees and expenses and reasonable costs and
expenses (including reasonable attorneys' fees and expenses) for preparing,
negotiating. administering, defending and enforcing the Loan Documents
(including appeals or Insolvency Proceedings).

      "BORROWER'S BOOKS" are all Borrower's books and records including ledgers,
records regarding Borrower's assets or liabilities, the Collateral, business
operations or financial condition and all computer programs or discs or any
equipment containing the information.

      "BORROWING BASE" is (i) 80% of Eligible Accounts as determined by Bank
from Borrower's most recent Borrowing Base Certificate.

                                       17
<PAGE>   20
      "BUSINESS DAY" is any day that is not a Saturday, Sunday or a day on which
the Bank is closed.

      "CASH MANAGEMENT SERVICES" are defined in Section 2.1.3.

      "CLOSING DATE" is the date of this Agreement.

      "CODE" is the California Uniform Commercial Code.

      "COLLATERAL" is the property described on Exhibit A.

      "COMMITTED REVOLVING LINE" is an Advance of up to $3,000,000.

      "CONTINGENT OBLIGATION" is, for any Person, any direct or indirect
liability, contingent or not, of that Person for (i) any indebtedness, lease,
dividend, letter of credit or other obligation of another such as an obligation
directly or indirectly guaranteed, endorsed, co-made, discounted or sold with
recourse by that Person, or for which that Person is directly or indirectly
liable; (ii) any obligations for undrawn letters of credit for the account of
that Person; and (iii) all obligations from any interest rate, currency or
commodity swap agreement, interest rate cap or collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; but "Contingent
Obligation" does not include endorsements in the ordinary course of business.
The amount of a Contingent Obligation is the stated or determined amount of the
primary obligation for which the Contingent Obligation is made or, if not
determinable, the maximum reasonably anticipated liability for it determined by
the Person in good faith; but the amount may not exceed the maximum of the
obligations under the guarantee or other support arrangement.

      "CREDIT EXTENSION" is each Advance, Letter of Credit or any other
extension of credit by Bank for Borrower's benefit.

      "CURRENT LIABILITIES" are the aggregate amount of Borrower's Total
Liabilities which mature within one (1) year.

      "ELIGIBLE ACCOUNTS" are Accounts in the ordinary course of Borrower's
business that meet all Borrower's representations and warranties in Section 5;
but Bank may change eligibility standards by giving Borrower notice. Unless Bank
agrees otherwise in writing, Eligible Accounts will not include:

      (a) Accounts that the account debtor has not paid within 90 days of
      invoice date;

      (b) Accounts for an account debtor, 50% or more of whose Accounts have not
      been paid within 90 days of invoice date. At Borrower's request Bank may
      consider as eligible current accounts due from a debtor with past due
      payments so

                                       18
<PAGE>   21

      long as those accounts represent receivables on a separate contract and so
      long as the delinquency is related to "testing on silicon";

      (c) Credit balances over 90 days from invoice date;

      (d) Accounts for an account debtor, including Affiliates, whose total
      obligations to Borrower exceed 25% of all Accounts, for the amounts that
      exceed that percentage, unless the Bank approves in writing;

      (e) Accounts for which the account debtor does not have its principal
      place of business in the United States except for Eligible Foreign
      Accounts;

      (f) Accounts for which the account debtor is a federal, state or local
      government entity or any department agency, or instrumentality;

      (g) Accounts for which Borrower owes the account debtor, but only up to
      the amount owed (sometimes called "contra" accounts, accounts payable,
      customer deposits or credit accounts);

      (h) Accounts for demonstration or promotional equipment, or in which goods
      are consigned, sales guaranteed, sale or return, sale on approval, bill
      and hold, or other terms if account debtor's payment may be conditional;

      (i) Accounts for which the account debtor is Borrower's Affiliate,
      officer, employee, or agent except Tower Semiconductor LTD, Aspec
      Technology, Inc. and Credence Systems Corporation;

      (j) Accounts in which the account debtor disputes liability or makes any
      claim and Bank believes there may be a basis for dispute (but only up to
      the disputed or claimed amount), or if the Account Debtor is subject to an
      Insolvency Proceeding, or becomes insolvent, or goes out of business; (k)
      Accounts for which Bank reasonably determines collection to be doubtful.

      "ELIGIBLE FOREIGN ACCOUNTS" are Accounts for which the account debtor does
not have its principal place of business in the United States but are: (1)
covered by credit insurance satisfactory to Bank, less any deductible; or (2)
supported by letter(s) of credit advised and negotiated by Bank or (3) that Bank
approves in writing, or (4) accounts owing from Seiko, Philips, Toshiba,
Fujitsu, Sony, Hitachi, Tower Semiconductor and Siemens (Infineon).

      "EQUIPMENT" is all present and future machinery, equipment tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.

                                       19
<PAGE>   22
      "ERISA" is the Employment Retirement Income Security Act of 1974, and its
regulations.

      "GAAP" is generally accepted accounting principles.

      "INDEBTEDNESS" is (a) indebtedness for borrowed money or the deferred
price of property or services, such as reimbursement and other obligations for
surety bonds and letters of credit, (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) capital lease obligations and (d)
Contingent Obligations.

      "INSOLVENCY PROCEEDINGS" are proceedings by or against any Person under
the United States Bankruptcy Code, or any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, compositions, extensions
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.

      "INVENTORY" is present and future inventory in which Borrower has any
interest including merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products intended for sale or
lease or to be furnished under a contract of service, of every kind and
description now or later owned by or in the custody or possession, actual or
constructive, of Borrower, including inventory temporarily out of its custody or
possession or in transit and including returns on any accounts or other proceeds
(including insurance proceeds) from the sale or disposition of any of the
foregoing and any documents of title.

      "INVESTMENT" is any beneficial ownership of (including stock, partnership
interest or other securities) any Person, or any loan, advance or capital
contribution to any Person.

      "LETTER OF CREDIT" is defined in Section 2.1.2.

      "LIEN" is a mortgage, lien, deed of trust charge, pledge, security
interest or other encumbrance.

      "LOAN DOCUMENTS" are, collectively, this Agreement, any note, or notes or
guaranties executed by Borrower or Guarantor, and any other present or future
agreement between Borrower and/or for the benefit of Bank in connection with
this Agreement all as amended, extended or restated.

      "MATERIAL ADVERSE CHANGE" is defined in Section 8.3.

      "OBLIGATIONS" are debts, principal, interest, Bank Expenses and other
amounts Borrower owes Bank now or later, including cash management services,
letters of credit and foreign exchange contracts, if any and including interest
accruing after Insolvency Proceedings begin and debts, liabilities, or
obligations of Borrower assigned to Bank.

                                       20
<PAGE>   23
      "PERMITTED INDEBTEDNESS" is:

      (a) Borrower's indebtedness to Bank under this Agreement or any
other Loan Document;

      (b) Indebtedness existing on the Closing Date and shown on the
Schedule;

      (c) Subordinated Debt;

      (d) Indebtedness to trade creditors incurred in the ordinary
course of business; and

      (e) Indebtedness secured by Permitted Liens.

      "PERMITTED INVESTMENTS" are:

      (a) Investments shown on the Schedule and existing on the Closing
Date; and

      (b) (i) marketable direct obligations issued or unconditionally guaranteed
by the United States or its agency or any State maturing within 1 year from its
acquisition, (ii) commercial paper maturing no more than 1 year after its
creation and having the highest rating from either Standard & Poors Corporation
or Moody's Investors Service, Inc., and (iii) Bank's certificates of deposit
issued maturing no more than 1 year after issue.

      "PERMITTED LIENS" are:

      (a) Liens existing on the Closing Date and shown on the Schedule
or arising under this Agreement or other Loan Documents;

      (b) Liens for taxes, fees, assessments or other government charges or
levies, either not delinquent or being contested in good faith and for which
Borrower maintains adequate reserves on its Books, if they have no priority over
any of Bank's security interests;

      (c) Purchase money Liens (i) on Equipment acquired or held by Borrower or
its Subsidiaries incurred for financing the acquisition of the Equipment, or
(ii) existing on equipment when acquired, if the Lien is confined to the
property and improvements and the proceeds of the equipment;

      (d) Leases or subleases and licenses or sublicenses granted in the
ordinary course of Borrower's business and any interest or title of a lessor,
licensor or under any lease or license, if the leases, subleases, licenses and
sublicenses permit granting Bank a security interest;

      (e) Liens incurred in the extension, renewal or refinancing of the
indebtedness secured by Liens described in (a) through (c), but any extension,
renewal or replacement

                                       21
<PAGE>   24
Lien must be limited to the property encumbered by the existing Lien and the
principal amount of the indebtedness may not increase.

      "PERSON" is any individual, sole proprietorship, partnership, limited
liability company, joint venture, company association, trust, unincorporated
organization, association, corporation, institution, public benefit corporation,
firm, joint stock company, estate, entity or government agency.

      "PRIME RATE" is Bank's most recently announced "prime rate," even if it is
not Bank's lowest rate.

      "QUICK ASSETS" is, on any date, the Borrower's consolidated, unrestricted
cash, cash equivalents, net billed accounts receivable and investments with
maturities of fewer than 12 months determined according to GAAP.

      "RESPONSIBLE OFFICER" is each of the Chief Executive Officer, the
President. the Chief Financial Officer and the Controller of Borrower.

      "REVOLVING MATURITY DATE" is July 27, 2000.

      "SCHEDULE" is any attached schedule of exceptions.

      "SUBORDINATED DEBT" is debt incurred by Borrower subordinated to
Borrower's debt to Bank (and identified as subordinated by Borrower and Bank).

      "SUBSIDIARY" is for any Person, or any other business entity of which more
than 50% of the voting stock or other equity interests is owned or controlled,
directly or indirectly, by the Person or one or more Affiliates of the Person.

      "TANGIBLE NOT WORTH" is, on any date, the consolidated total assets of
Borrower and its Subsidiaries minus, (i) any amounts attributable to (a)
goodwill, (b) intangible items such as unamortized debt discount and expense,
Patents, trade and service marks and names, Copyrights and research and
development expenses except prepaid expenses, and (c) reserves not already
deducted from assets, and (ii) Total Liabilities.

      "TOTAL LIABILITIES" is on any day, obligations that should, under GAAP, be
classified as liabilities on Borrower's consolidated balance sheet, including
all Indebtedness, and current portion Subordinated Debt allowed to be paid, but
excluding all other Subordinated Debt.

                                       22
<PAGE>   25

BORROWER:
VIRAGE LOGIC CORPORATION

By:    /s/ GEORGE RASSAM
       -----------------------------------
Title: Controller

VIRAGE LOGIC INTERNATIONAL

By:    /s/ GEORGE RASSAM
       -----------------------------------
Title: Controller

BANK:
SILICON VALLEY BANK

By:    /s/ TERRI AUWAERTER
       -----------------------------------
Title: Vice President
       -----------------------------------

                                       23
<PAGE>   26
                                    EXHIBIT A

      The Collateral consists of all of Borrower's right title and interest in
and to the following:

      All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;

      All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above;

      All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;

      All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower;

      All documents, cash, deposit accounts, securities, securities
entitlements, securities accounts, investment property, financial assets,
letters of credit certificates of deposit instruments and chattel paper now
owned or hereafter acquired and Borrower's Books relating to the foregoing;

      All copyright rights, copyright applications, copyright registrations and
like protections in each work of authorship and derivative work thereof, whether
published or unpublished, now owned or hereafter acquired; all trade secret
rights, including all rights to unpatented inventions, know-how, operating
manuals, license rights and agreements and confidential information, now owned
or hereafter acquired; all mask work or similar rights available for the
protection of semiconductor chips, now owned or hereafter

<PAGE>   27
acquired; all claims for damages by way of any past present and future
infringement of any of the foregoing; and

      All Borrower's Books relating to the foregoing and any and all claims,
rights and interests in any of the above and all substitutions for, additions
and accessions to and proceeds thereof.

                                       2
<PAGE>   28
                                    EXHIBIT B

                   LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM

              DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M.. P.S.T.

TO: CENTRAL CLIENT SERVICE DIVISION                         DATE:_______________

FAX#: (408) 496-2426                                        TIME:_______________

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

FROM:      VIRAGE LOGIC CORPORATION and VIRAGE LOGIC INTERNATIONAL
           ---------------------------------------------------------------------
                             CLIENT NAME (BORROWER)
REQUESTED BY:
              ------------------------------------------------------------------
                            AUTHORIZED SIGNER'S NAME
AUTHORIZED SIGNATURE:
                      ----------------------------------------------------------
PHONE NUMBER:
              ------------------------------------------------------------------

FROM ACCOUNT #                  TO ACCOUNT #
               ----------------             ------------------------------------

<TABLE>
<CAPTION>
REQUESTED TRANSACTION TYPE                      REQUESTED DOLLAR AMOUNT
--------------------------                      -----------------------
<S>                                             <C>
PRINCIPAL INCREASE (ADVANCE)                        $_______________
PRINCIPAL PAYMENT (ONLY)                            $_______________
INTEREST PAYMENT (ONLY)                             $_______________
PRINCIPAL AND INTEREST (PAYMENT)                    $_______________
</TABLE>

OTHER INSTRUCTIONS:
                    ------------------------------------------------------------

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

All Borrower's representations and warranties in the Loan and Security Agreement
are true, correct and complete in all material respects on the date of the
telephone request for and Advance confirmed by this Borrowing Certificate; but
those representations and warranties expressly referring to another date shall
be true, correct and complete in all material respects as of that date.

                                  BANK USE ONLY

--------------------------------------------------------------------------------
TELEPHONE REQUEST:

The following person is authorized to request the loan payment transfer/Loan
advance on the advance designated account and is known to me.

---------------------------------         --------------------------------------
     Authorized Requester                                   Phone #

---------------------------------         --------------------------------------
     Received By (Bank)                                     Phone #

                       ---------------------------------
                           Authorized Signature (Bank)

<PAGE>   29
                                    EXHIBIT C

                           BORROWING BASE CERTIFICATE

--------------------------------------------------------------------------------
Borrower:
VIRAGE LOGIC CORPORATION and VIRAGE LOGIC            Bank: Silicon Valley Bank
 INTERNATIONAL                                             3003 Tasman Drive
                                                           Santa Clara, CA 95054
Commitment Amount:  $3,000,000
--------------------------------------------------------------------------------

<TABLE>
<S>                                                        <C>              <C>
ACCOUNTS RECEIVABLE
1.    Accounts Receivable Book Value as of ___                              $________________
2.    Additions (please explain on reverse)                $________________
3.    TOTAL ACCOUNTS RECEIVABLE                            $________________

ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4.    Amounts over 90 days due                             $________________
5.    Balance of 50% over 90 day accounts*                 $________________
6.    Credit balances over 90 days                         $________________
7.    Concentration Limits                                 $________________
8.    Foreign Accounts**                                   $________________
9.    Governmental Accounts                                $________________
10.   Contra Accounts                                      $________________
11.   Promotion or Demo Accounts                           $________________
12.   Intercompany/Employee Accounts***                    $________________
13.   Other (please explain on reverse)                    $________________
14.   TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS                                  $________________
15.   Eligible Accounts (#3 minus #14)                                      $________________
16.   LOAN VALUE OF ACCOUNTS (80% of #15)                                   $________________
*     Other than those that Bank approves
**    Seiko, Philips, Toshiba. Fujitsu, Sony,
      Hitachi, Tower Semiconductor and Siemens
      (Infineon) eligible Foreign
***   Other than Tower Semiconductor LTD. Aspec
      Technology, Inc. and Credence Systems Corporation

BALANCES
17.   Maximum Loan Amount                                  $________________
18.   Total Funds Available [Lesser of #17 or (#16)]                        $________________
19.   Present balance owing on Line of Credit              $________________
20.   Outstanding under Sublimits (LC)                     $________________
21.   RESERVE POSITION (#18 minus #19 and #20)                              $________________
</TABLE>

The undersigned represents and warrants that this is true, complete and correct,
and that the information in this Borrowing Base Certificate complies with the
representations and warranties in the Loan and Security Agreement between the
undersigned and Silicon Valley Bank

COMMENTS:

VIRAGE LOGIC CORPORATION

By:
    ----------------------------------
    Authorized Signer

<PAGE>   30

VIRAGE LOGIC INTERNATIONAL

By:
    ----------------------------------
    Authorized Signer

                                       2
<PAGE>   31
                                    EXHIBIT D

                             COMPLIANCE CERTIFICATE

TO:   SILICON VALLEY BANK
      3003 Tasman Drive
      Santa Clara, CA 95054

FROM:  VIRAGE LOGIC CORPORATION AND VIRAGE LOGIC INTERNATIONAL

      The undersigned authorized officers of VIRAGE LOGIC CORPORATION and VIRAGE
LOGIC INTERNATIONAL ("Borrower") certify that under the terms and conditions of
the Loan and Security Agreement between Borrower and Bank (the "Agreement), (i)
Borrower is in complete compliance for the period ending ____________________
with all required covenants except as noted below and (ii) all representations
and warranties in the Agreement are true and correct in all material respects on
this date. Attached are the required documents supporting the certification. The
Officer certifies that these are prepared in accordance with Generally Accepted
Accounting Principles (GAAP) consistently applied from one period to the next
except as explained in an accompanying letter or footnotes. The Officer
acknowledges that no borrowings may be requested at any time or date of
determination that Borrower is not in compliance with any of the terms of the
Agreement and that compliance is determined not just at the date this
certificate is delivered.

PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES" COLUMN.

<TABLE>
<CAPTION>
REPORTING COVENANT                                REQUIRED              COMPLIES
------------------                       ------------------------       --------
<S>                                      <C>                            <C>   <C>
Monthly financial statements + CC        Monthly within 30 days         Yes   No
Annual (Audited)                         FEY within 120 days            Yes   No
A/R & A/P Aging                          Monthly within 30 days         Yes   No
AIR Audit                                Initial and Semi-Annual        Yes   No
Borrowing Base Certificate               Monthly within 30 days         Yes   No
</TABLE>

<TABLE>
<CAPTION>
FINANCIAL COVENANT                REQUIRED        ACTUAL            COMPLIES
------------------                --------       ---------        -------------
<S>                               <C>            <C>              <C>       <C>
Maintain on a Monthly Basis:

Minimum Quick Ratio               1.30:1.00      ____:1.00        Yes       No

Profitability:                    Quarterly      $_______         Yes       No
</TABLE>

COMMENTS REGARDING EXCEPTIONS: See Attached.

                                                       BANK USE ONLY

                                            Received By:______________________
                                                           AUTHORIZED SIGNER
                                            Date:_____________________________

                                            Verified:_________________________
                                                         AUTHORIZED SIGNER
                                            Date:_____________________________

                                            Compliance Status:   Yes        No

<PAGE>   32

Sincerely,

VIRAGE LOGIC CORPORATION

------------------------------------
Signature

------------------------------------
Title

------------------------------------
Date

VIRAGE LOGIC INTERNATIONAL

------------------------------------
Signature

------------------------------------
Title

------------------------------------
Date

                                       2
<PAGE>   33

                            NEGATIVE PLEDGE AGREEMENT

      This Negative Pledge Agreement is made as of July 28, 1999 by and between
VIRAGE LOGIC CORPORATION and VIRAGE LOGIC INTERNATIONAL "Borrower") and Silicon
Valley Bank ("Bank").

In connection with, among other documents, the Loan and Security Agreement (the
"Loan Documents") being concurrently executed herewith between Borrower and
Bank, Borrower agrees as follows:

      1.    Borrower shall not sell, transfer, assign, mortgage, pledge, lease,
            grant a security interest in, or encumber any of Borrower's
            intellectual property, including, without limitation, the following:

            a.    Any and all copyright rights. copyright applications,
                  copyright registrations and like protections in each work or
                  authorship arid derivative work thereof whether published or
                  unpublished and whether or not the same also constitutes a
                  trade secret, now or hereafter existing, created, acquired or
                  held;

            b.    All mask works or similar rights available for the protection
                  of semiconductor chips. now owned or hereafter acquired;

            c.    Any and all trade secrets, and any and all intellectual
                  property rights in computer software and computer software
                  products now or hereafter existing, created, acquired or held;

            d.    Any and all design rights which may be available to Borrower
                  now or hereafter existing, created, acquired or held;

            e.    All patents, patent applications and like protections
                  including, without limitation, improvements, divisions,
                  continuations, renewals, reissues, extensions and
                  continuations-in-part of the some, including without
                  limitation the patents and patent applications;

            f.    Any trademark and servicemark rights. whether registered or
                  not. applications to register and regulation of the same and
                  like protections, and the entire goodwill of the business of
                  Borrower connected with and symbolized by such trademarks.
                  including without limitation;

            g.    Any and all claims for damages by way of past, present and
                  future infringements of any of the rights included above, with
                  the right but not the obligation, to sue for and collect such
                  damages for said use or infringement of the intellectual
                  property rights certified above;

<PAGE>   34
            h.    All licenses or other rights to use any of the Copyrights,
                  Patents, Trademarks or Mask Works, and all license fees and
                  royalties arising from such use to the extent permitted by
                  such license or rights; and

            i.    All amendments, extensions, renewals and extensions of any of
                  the Copyrights, Trademarks, Patents, or Mask Works; and

            j.    All proceeds and products of the foregoing. including without
                  limitation all payments under insurance or any indemnity or
                  warranty payable in respect of any of the foregoing;

      2.    It shall be an event of default under the Loan Documents between
            Borrower and Bank if there is a breach of any term of this Negative
            Pledge Agreement.

      3.    Capitalized terms used but not otherwise defined herein shall have
            the same meaning as in the Loan Documents.

BORROWER:

VIRAGE LOGIC CORPORATION

By:    /s/
       --------------------------------------
Name:  George Rassam
       --------------------------------------
Title: Controller
       --------------------------------------

VIRAGE LOGIC INTERNATIONAL

By:    /s/
       --------------------------------------
Name:  George Rassam
       --------------------------------------
Title: Controller
       --------------------------------------

BANK:

SILICON VALLEY BANK

By:    /s/
       --------------------------------------
Name:  Terri Auwaerter
       --------------------------------------
Title: Vice President
       --------------------------------------

                                       2
<PAGE>   35

THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.

                            WARRANT TO PURCHASE STOCK

Corporation:  VIRAGE LOGIC CORPORATION, a California corporation
Number of Shares: 30,000
Class of Stock: Series C Preferred provided, however, if the Series C round does
not close on or before July 27, 2000 then the Class of Stock shall be that of
Series B Preferred
Initial Exercise Price: $3.35 per share
Issue Date: July 28, 1999
Expiration Date: July 28, 2004

        THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for
other good and valuable consideration, SILICON VALLEY BANK ("Holder") is
entitled to purchase the number of fully paid and nonassessable shares of the
class of securities (the "Shares") of the corporation (the "Company") at the
initial exercise price per Share (the "Warrant Price") all as set forth above
and as adjusted pursuant to Article 2 of this Warrant subject to the provisions
and upon the terms and conditions set forth in this Warrant.

ARTICLE 1. EXERCISE.

        1.1 Method of Exercise. Holder may exercise this Warrant by delivering a
duty executed Notice of Exercise in substantially the form attached as Appendix
1 to the principal office of the Company. Unless Holder is exercising the
conversion right set forth in Section 12, Holder shall also deliver to the
Company a check for the aggregate Warrant Price for the Shares being purchased.

        1.2 Conversion Right. In lieu of exercising this Warrant as specified in
Section 1.1, Holder may from time to time convert this Warrant. in whole or in
part into a number of Shares determined by dividing (a)the aggregate fair market
value of the Shares or other sea otherwise issuable upon exercise of this
Warrant minus the aggregate Warrant Price of such Shares by (b) the fair market
value of one Share. The fair market value of the Shares shall be determined
pursuant to Section 1.4.

        1.3 Intentionally Omitted

<PAGE>   36

        1.4 Fair Market Value. If the Shares are traded in a public market, the
fair market value of the Shares shall be the closing price of the Shares (or the
closing price of the Company stock into which the Shares are convertible)
reported for the business day immediately before Holder delivers its Notice of
Exercise to the Company. If the Shares are not traded in a public market, the
Board of Directors of the Company shall determine fair market value in its
reasonable good faith judgment. The foregoing notwithstanding, if Holder advises
the Board of Directors in writing that Holder disagrees with such determination,
then the Company and Holder shall promptly agree upon a reputable investment
banking firm to undertake such valuation. If the valuation of such investment
banking firm is greater than that determined by the Board of Directors, then all
fees and expenses of such investment banking firm shall be paid by the Company.
In all other circumstances, such fees and expenses shall be paid by Holder.

        1.5 Delivery of Certificate and New Warrant. Promptly after Holder
exercises or converts this Warrant the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.

        1.6 Replacement of Warrants. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, on surrender and cancellation of this Warrant,
the Company shall execute and deliver, in lieu of this Warrant, a new warrant of
like tenor.

        1.7 Repurchase on Sale, Merger, or Consolidation of the Company.

               1.7.1. "Acquisition". For the purpose of this Warrant,
"Acquisition" means any sale, license, or other disposition of all or
substantially all of the assets of the Company, or any reorganization,
consolidation, or merger of the Company where the holders of the Company's
securities before the transaction beneficially own less than 50% of the
outstanding voting securities of the surviving entity after the transaction.

               1.7.2. Assumption of Warrant. Upon the closing of any Acquisition
the successor entity shall assume the obligations of this Warrant, and this
Warrant shall be exercisable for the same securities, cash, and property as
would be payable for the Shares issuable upon exercise of the unexercised
portion of this Warrant as if such Shares were outstanding on the record date
for the Acquisition and subsequent closing. The Warrant Price shall be adjusted
accordingly.

ARTICLE 2. ADJUSTMENTS TO THE SHARES.

        2.1 Stock Dividends, Splits, Etc. If the Company declares or pays a
dividend on its common stock (or the Shares if the Shares are securities other
than common stock)

                                       2
<PAGE>   37

payable in common stock, or other securities, subdivides the outstanding common
stock into a greater amount of common stock, or, if the Shares are securities
other than common stock, subdivides the Shares in a transaction that increases
the amount of common stock into which the Shares are convertible, then upon
exercise of this Warrant, for each Share acquired. Holder shall receive, without
cost to Holder, the total number and kind of securities to which Holder would
have been entitled had Holder owned the Shares of record as of the date the
dividend or subdivision occurred.

        2.2 Reclassification, Exchange or Substitution. Upon any
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon exercise
or conversion of this Warrant the number and kind of securities and property
that Holder would have received for the Shares if this Warrant had been
exercised immediately before such reclassification, exchange, substitution. or
other event. Such an event shall include any automatic conversion of the
outstanding or issuable securities of the Company of the same class or series as
the Shares to common stock pursuant to the terms of the Company's Articles of
Incorporation upon the closing of a registered public offering of the Company's
common stock. The Company or its successor shall promptly issue to Holder a new
Warrant for such new securities or other property. The new Warrant shall provide
for adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article 2 including, without limitation,
adjustments to the Warrant Price and to the number of securities or property
issuable upon exercise of the new Warrant. The provisions of this Section 2.2
shall similarly apply to successive reclassification, exchanges, substitutions,
or other events.

        2.3 Adjustments for Combinations. Etc. If the outstanding shares are
combined or consolidated, by or otherwise, into a lesser number of shares, the
Warrant Price shall be proportionately increased.

        2.4 Adjustments for Diluting Issuances. The Warrant Price and the number
of Shares issuable upon exercise of this Warrant or, if the Shares are Preferred
Stock, the number of shares of common stock issuable upon conversion of the
Shares, shall be subject to adjustment, from time to time in the manner set
forth on Exhibit A in the event of Diluting Issuances (as defined on Exhibit A).

        2.5 No Impairment. The Company shall not by amendment of its Articles of
Incorporation or through a reorganization, transfer of assets, consolidation,
merger, dissolution, issue, or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed under this Warrant by the Company, but shall at all times
in good faith assist in carrying out of all the provisions of this Article 2 and
in taking all such action as may be necessary or appropriate to protect Holder's
rights under this Article against impairment. If the Company takes any action
affecting the Shares or its common stock other than as

                                       3
<PAGE>   38

described above that adversely affects Holder's rights under this Warrant the
Warrant Price shall be adjusted downward and the number of Shares issuable upon
exercise of this Warrant shall be adjusted upward in such a manner that the
aggregate Warrant Price of this Warrant is unchanged.

        2.6 Fractional Shares. No fractional shares shall be issuable upon
exercise or conversion of the Warrant and the number of Shares to be issued
shall be rounded down to the nearest whole Share. If a fractional share interest
arises upon any exercise or conversion of the Warrant the Company shall
eliminate such fractional share interest by paying an Holder amount computed by
multiplying the fractional interest by the fair market value of a full share.

        2.7 Certificate as to Adjustments. Upon each adjustment of the Warrant
Price, the Company at its expense shall promptly compute such adjustment and
furnish Holder with a certificate of its Chief Financial Officer setting forth
such adjustment and the facts upon which such adjustment is based. The Company
shall, upon written request, furnish Holder a certificate setting forth the
Warrant Price in effect upon the date thereof and the series of adjustments
leading to such Warrant Price.

ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.

        3.1 Representations and Warranties. The Company hereby represents and
warrants to the Holder as follows:

               (a) The initial Warrant Price referenced on the first page of
this Warrant is not greater than (i) the price per share at which the Shares
were last issued in an arms-length transaction in which at least $500,000 of the
Shares were sold and (ii) the fair market value of the Shares as of the date of
this Warrant.

               (b) All Shares which may be issued upon the exercise of the
purchase right represented by this Warrant and all securities, if any, issuable
upon conversion of the Shares, shall, upon issuance, be duly authorized, validly
issued, fully paid and nonassessable, and free of any liens and encumbrances
except for restrictions on transfer provided for herein or under applicable
federal and state securities laws.

               (c) The Capitalization table attached hereto is true and correct.

        3.2 Notice of Certain Events. If the Company proposes at any time (a) to
declare any dividend or distribution upon its common stock, whether in cash.
property. stock, or other securities and whether or not a regular cash dividend;
(b) to offer for subscription pro rate to the holders of any class or series of
its stock any additional shares of stock of any class or series or other rights;
(c) to effect any reclassification or recapitalization of common stock, (d) to
merge or consolidate with or into any other corporation, or sell, lease,
license. or convey all or substantially all of its assets, or to

                                       4
<PAGE>   39

liquidate, dissolve or wind up; or (e) offer holders of registration rights the
opportunity to participate in an underwritten public offering of the company's
securities for cash, then, in connection with each such event. the Company shall
give Holder (1) at least 20 days prior written notice of the date on which a
record will be taken for such dividend. distribution, or subscription rights
(and specifying the date on which On holders of common stock will be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to in (c) and (d) above; (2) in the case of the matters referred to in
(c) and (d) above at least 20 days prior written notice of the date when the
same will take place (and specifying the date on which the holders of common
stock will be entitled to exchange their common stock for securities or other
property deliverable upon the occurrence of such event); and (3) in the case of
the matter referred to in (e) above, the same notice as is given to the holders
of such registration rights.

        3.3 Information Rights. So long as the Holder holds this Warrant and/or
any of the Shares, the Company shall deliver to the Holder (a) promptly after
mailing, copies of all notices or other written communications to the
shareholders of the Company, (b) within 90 days after the end of each fiscal
year of the Company. the annual audited financial statements of the Company
certified by independent public accountants of recognized standing and (c) such
other financial statements required under and in accordance with any loan
documents between Holder and the Company (or if there are no such requirements
[or if the subject loan(s) no longer are outstanding]), then within 45 days
after the end of each of the first three quarters of each fiscal year, the
Company's quarterly, unaudited financial statements.

        3.4 Registration Under Securities Act of 1933, as amended. The Company
agrees that the Shares or, if the Shares are convertible into common stock of
the Company, such common stock, shall be subject to the registration rights set
forth on Exhibit B, if attached.

ARTICLE 4. MISCELLANEOUS.

        4.1 Term. This Warrant is exercisable, in whole or in part, at any time
and from time to time on or before the Expiration Date set forth above.

        4.2 Legends. This Warrant and the Shares (and the securities issuable.
directly or indirectly, upon conversion of the Shares, if any) shall be
imprinted with a legend in substantially the following form:

        THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
        AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED
        WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO
        RULE 144 OR AN OPINION OF COUNSEL

                                       5
<PAGE>   40

        REASONABLY SATISFACTORY TO THE CORPORATION AND ITS COUNSEL THAT SUCH
        REGISTRATION IS NOT REQUIRED.

        4.3 Compliance with Securities Laws on Transfer. This Warrant and the
Shares issuable upon exercise this Warrant (and the securities issuable,
directly or indirectly. upon conversion of the Shares, if any) may not be
transformed or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company. as reasonably
requested by the Company). The Company shall not require Holder to provide an
opinion of counsel if the transfer is to an affiliate of Holder or if there is
no material question as to the availability of current information as referenced
in Rule 144(c). Holder represents that it has compiled with Rule 144(d) and (e)
in reasonable detail, the selling broker represents that it has complied with
Rule 144(f), and the Company is provided with a copy of Holder's notice of
proposed sale.

        4.4 Transfer Procedure. Subject to the provisions of Section 4.3 Holder
may transfer all or part of this Warrant or the Shares issuable upon exercise of
this Warrant (or the securities issuable, directly or indirectly. upon
conversion of the Shares, if any) at any time to Silicon Valley Bancshares or
The Silicon Valley Bank Foundation, or, to any other transferee by giving the
Company notice of the portion of the Warrant being transferred setting forth the
name. address and taxpayer identification number of the transferee and
surrendering this Warrant to the Company for resistance to the transferee(s)
(and Holder if applicable). Unless the Company is filing financial information
with the SEC pursuant to the Securities Exchange Act of 1934, the Company shall
have to right to refuse to transfer any portion of this Warrant to any person
who directly competes with the Company.

        4.5 Notices. All notices and other communications from the Company to
the Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail, at such
address as may have been furnished to the Company or the Holder, as the case may
be, in writing by the Company or such holder from time to time. All notices to
be provided under this Warrant shall be send to the following address:

               Silicon Valley Bank
               Attn: Treasury Department HG100
               3003 Tasman Drive
               Santa Clara, CA 95054

        4.6 Waiver. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought

                                       6
<PAGE>   41

        4.7 Attorneys Fees. In the event of any dispute between the parties
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorneys' fees.

        4.8 Governing Law. This Warrant shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
its principles regarding conflicts of law.

                                    "COMPANY"

                                    VIRAGE LOGIC CORPORATION

                                    By: /s/ ALEX SHUBAT
                                       -----------------------------------------
                                    Name: Alex Shubat
                                         ---------------------------------------
                                          (Print)
                                    Title: Chairman of the Board, President or
                                           Vice President

                                    By: /s/ GEORGE RASSAM
                                       -----------------------------------------
                                    Name: George Rassam
                                         ---------------------------------------
                                         (Print)
                                    Title: Chief Financial Officer, Secretary,
                                           Assistant Treasurer or Assistant
                                           Secretary

                                       7
<PAGE>   42

                                   APPENDIX I

                               NOTICE OF EXERCISE

        1. The undersigned hereby elects to purchase _____ shares of the
Common/Preferred Series [Strike one] Stock of VIRAGE LOGIC CORPORATION pursuant
to the terms of the attached Warrant and tenders herewith payment of the
purchase price of such shares in full.

or

        1. The undersigned hereby elects to convert the attached Warrant into
Shares/cash [strike one] in the manner specified in the Warrant. This conversion
is exercised with respect to __________ of the Shares covered by the Warrant.

        2. Please issue a certificate or certificates representing said shares
in the name of the undersigned or in such other name as is specified below:

               ----------------------------------
                      (Name)

               ----------------------------------
               ==================================
                      (Address)

        3. The undersigned represents 4 is acquiring the shares solely for its
own account and not as a nominee for any other party and not with a view toward
the resale or distribution thereof except in compliance with applicable
securities laws.

                                            ------------------------------------
                                                   (Signature)

------------------
      (Date)

<PAGE>   43

                                    EXHIBIT A

                            Anti-Dilution Provisions
               (For Preferred Stock or Common Stock Warrants Where
             Anti-Dilution Protection is Inadequate or Non-existent)

        In the event of the issuance (a "Diluting Issuance") by the Company,
after the Issue Date of the Warrant, of securities at a price per share less
than the Warrant Price, or, if the Shares are common stock, less than the then
conversion price of the Company's Series ___ Preferred Stock, then the number of
shares of common stock issuable upon conversion of the Shares, or if the Shares
are common stock, the number of Shares issuable upon exercise of the Warrant
shall be adjusted as a result of Diluting Issuances in accordance with the
Holder's standard form of Anti-Dilution Agreement in effect on the Issue Date.

        Under no circumstances shall the aggregate Warrant Price payable by the
Holder upon exercise of the Warrant increase as a result of any adjustment
arising from a Diluting Issuance.

<PAGE>   44

                                    EXHIBIT B

                               REGISTRATION RIGHTS

        The Shares (if common stock), or the common stock issuable upon
Conversion of the Shares, shall be deemed registrable securities or otherwise
entitled to "piggy back" registration rights in accordance with the terms of the
following agreement (the "Agreement") between the Company and its investor(s):

        ---------------------------------------------------
           [Identify Agreement by date, title and parties.
           If no Agreement exists, indicate by "none".]

        The Company agrees that no amendments will be made to the Agreement
which would have an adverse impact on Holders registration rights thereunder
without the consent of Holder. By acceptance of the Warrant to which this
Exhibit B is attached, Holder shall be deemed to be a party to the Agreement,
unless Holder otherwise elects not to become or to cease being a party thereto.

        If no Agreement exists, then the Company and the Holder shall enter into
Holder's standard form of Registration Rights Agreement as in effect on the
Issue Date of the Warrant.

<PAGE>   45

                             INTERCREDITOR AGREEMENT
                              (COLLATERAL SHARING)

        This INTERCREDITOR AGREEMENT is made by and between Silicon Valley Bank
("Bank") and Matsco Financial Corporation ("Matsco").

                                    RECITALS

        A. Virage Logic Corporation and Virage Logic International
(collectively, "Borrower") has borrowed funds from MATSCO (the "Lease") pursuant
to a Master Lease Agreement dated as of ________________ (the "Lease"). The
Lease Agreement is secured by all of Borrower's personal property, including
that certain leased equipment as more particularly described on Exhibit W
together with all cash and insurance proceeds of such equipment (the "Leased
Equipment"), pursuant to a Lease Agreement.

        B. Borrower has requested that Bank lend Borrower funds pursuant to that
certain Loan and Security Agreement dated July 28, 1999. The Loan and Security
Agreement is to be secured by, among other things, a first security interest in
all Borrower's assets. Bank is willing to make such loan (the "Bank Loan").
provided MATSCO subordinates its security interest in all of Borrower's personal
property, with the exception of the Leased Equipment to the security interest of
Bank. MATSCO is willing to subordinate its interest in accordance with the terms
of this Agreement

        C. MATSCO subordinates its security interest in all of Borrower's
personal property, except for the Leased Equipment, to the security interest of
Bank. MATSCO is willing to subordinate its interest in accordance with the terms
of this Agreement

        NOW THEREFORE, the parties agree as follows:

        1. Bank Collateral. As used in this Agreement 1110h Collateral means the
following: all assets of Borrower set forth on Exhibit "B" hereto, excluding,
however, the Leased Equipment.

        2. MATSCO Collateral. As used in this Agreement, "MATSCO Collateral"
means the Leased Equipment described on Exhibit "A." ("Collateral" as used in
this Agreement shall mean MATSCO Collateral or Bank Collateral, as the case may
be.)

        3. Subordination.

               (a) All security interests now or hereafter acquired by Bank in
Bank Collateral shall at all times be prior and superior to any security
interest or other interest or claim now hold or hereafter acquired by MATSCO in
Bank Collateral. (MATSCO and Bank are sometimes referred to herein as the
"Lenders.")

<PAGE>   46

               (b) All security interests now or hereafter acquired by MATSCO in
the MATSCO Collateral shall at all times be prior and superior to any security
interest ownership interest or other interest or claim now held or hereafter
acquired by Bank in MATSCO Collateral.

               (c) The priorities specified in this Agreement shall be
applicable irrespective of the time or order of attachment or perfection of any
security interest or the time or order of fling of any financing statements or
other documents. or the giving of any notices of purchase money security
interests or other notices. or possession of any Collateral, or any statutes,
rules or law. or court decisions to the contrary.

        4. Termination Statements.

               (a) MATSCO agrees to execute and deliver to Bank, promptly upon
Bank's request, appropriate UCC termination statements or partial releases with
respect to any Bank Collateral being sold or otherwise disposed of in connection
with the liquidation of Borrower's assets upon or after the declaration of a
default or an event of default by Bank under any present or future instrument or
agreement between the Borrower and Bank. The proceeds of any Bank Collateral so
sold or disposed of shall be applied, after the deduction of any and all costs
relating to such sale or disposition (including attorneys' fees, advertising
costs and auctioneer's fees) to any and all outstanding present or future
indebtedness, liabilities, guaranties or other obligations of the Borrower to
Bank (the "Bank Obligations") in such order as Bank may, in its discretion,
determine and, only if all Bank Obligations have been indefeasibly paid in full,
then to all or any part of the present or future indebtedness, liabilities,
guaranties or other obligations of the Borrow to MATSCO (the "MATSCO
Obligations") in such order as MATSCO may, in its discretion, determine.

        5. Remedies. MATSCO shall not collect, take possession of, foreclose
upon, or exercise any other rights or remedies with respect to Bank Collateral,
judicially or nonjudicially, or attempt to do any of the foregoing, without the
prior written consent of Bank, which shall be a matter of Bank's sole
discretion. Bank shall not collect, take possession of, foreclose upon, or
exercise any other rights or remedies with respect to MATSCO Collateral,
judicially or nonjudicially, or attempt to do any of the foregoing, without the
prior written consent of MATSCO. which shall be a matter of MATSCO's sole
discretion.

        6. Bankruptcy Financing. In the event of any financing of the Borrower
by MATSCO or Bank during any bankruptcy, arrangement or reorganization of the
Borrower, each Lender agrees that the other's "Secured Obligations" shall
Include without limitation all Indebtedness. liabilities and obligations
incurred by the Borrower in any such proceeding, and the other's "Collateral"
shall include without limitation all Collateral arising during any such
proceeding, and this Agreement shall continue to apply during any such
proceeding.

                                       2
<PAGE>   47

        7. No Contest. Neither Bank nor MATSCO shall contest the validity,
perfection, priority or enforceability of any lion or security interest granted
to the other, and each agrees to cooperate in the defense of any action
contesting the validity, perfection, priority or enforceability of such lions or
security interest at the cost of the party defending such action.

        8. Revivor. If, after payment of the Bank Obligations, the Borrower
thereafter becomes liable to Bank on account of the Bank Obligations, or any
payment made on the Bank Obligations shall for any reason be required to be
returned or refunded by AWL this Agreement shall thereupon in all respects
become effective with respect to such subsequent or reinstated Bank Obligations,
without the necessity of any further act or agreement between Bank and MATSCO,
if, after payment of the MATSCO Obligations, the Borrower thereafter becomes
liable to MATSCO on account of the MATSCO Obligations, or any payment made on
the MATSCO Obligations shall for any reason be required to be returned or
refunded by MATSCO, this Agreement shall thereupon in all respects become
effective with respect to such subsequent or reinstated MATSCO Obligations,
without the necessity of any further act or agreement between MATSCO and Bank.

        9. Waiver of Jury Trial. MATSCO AND BANK EACH HEREBY WAIVER THE RIGHT TO
TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY
WAY RELATING TO: (i) THIS AGREEMENT; OR (ii) ANY OTHER PRESENT OR FUTURE
INSTRUMENT OR AGREEMENT BETWEEN MATSCO AND BANK RELATING TO THE BORROWER, OR
(III) ANY CONDUCT, ACTS OR OMISSIONS OF MATSCO OR BANK OR ANY OF THEIR
DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS
AFFILIATED WITH MATSCO OR BANK, RELATING TO BORROWER, IN EACH OF THE FOREGOING
CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.

        10. General. Bank and MATSCO are not in any manner to be construed to be
Partners or joint venturers or to have any other legal relationship other than
as expressly set forth in written agreements between them. Bank and MATSCO each
agrees to execute all such documents and instruments and take all such actions
as the other shall reasonably request in order to carry out the purposes of this
Agreement, including without limitation appropriate amendments to Financing
Statements executed by the Borrower in favor of Bank or MATSCO in order to refer
to this Agreement (but this Agreement shall remain fully effective
notwithstanding any failure to execute any additional documents, instruments, or
amendments). Bank and MATSCO each represents and warrants to the other that it
has not heretofore transferred to assigned any Financing Statement naming the
Borrower as and it as debtor secured party, and that it will not do so without
first notifying the other in writing, and delivering a copy of this Agreement to
the proposed transferee or assignee, and obtaining the acknowledgment of the
proposed transferee or assignee that the transfer or assignment is subject to
all of the terms of this Agreement This Agreement is solely for the benefit of
MATSCO and Bank and the successors and

                                       3
<PAGE>   48

assigns, and neither the Borrower nor any other person shall have any right,
benefit, priority or interest under, or because of the existence of, this
Agreement This Agreement sets forth in full the terms of agreement between Bank
and MATSCO with respect to the subject matter hereof, and may not be modified or
amended, nor may any rights hereunder be waived, except in a writing signed by
Bank and MATSCO. In the event of any litigation between the parties based upon
or arising out of this Agreement, the prevailing party shall be entitled to
recover all of its costs and expenses (including without limitation attorneys'
fees) from the non-prevailing party. This Agreement shall be binding upon the
parties hereto and their respective successors and assigns, and shall be
construed in accordance with, and governed by, the taws of the State of
California. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which shall constitute the same
instrument.

        IN WITNESS WHEREOF. the undersigned have executed this Intercreditor
Agreement as of July 28,1999.

                                      MATSCO FINANCIAL CORPORATION

                                      By:
                                         ---------------------------------------
                                      Title:
                                            ------------------------------------

                                      SILICON VALLEY BANK

                                      By:
                                         ---------------------------------------
                                      Title:
                                            ------------------------------------

                                       4
<PAGE>   49

                        BORROWER'S CONSENT AND AGREEMENT

        Borrower consents to the terms of this Intercreditor Agreement and
agrees not to take any actions inconsistent therewith. Borrower shall obtain
satisfactory Lender's Loss Payable Endorsements naming both Bank and MATSCO, as
their interests may appear, with respect to policies which insure Collateral
hereunder, or with such other designation as Bank and MATSCO may agree. Borrower
agrees to execute all such documents and instruments and take all such actions
as Bank or MATSCO shall reasonably request in order to carry out the purposes of
this Agreement including without limitation appropriate amendments to financing
statements.

                                      "Borrower"

                                      VIRAGE LOGIC CORPORATION

                                      By:
                                         ---------------------------------------
                                      Title:
                                            ------------------------------------

                                      VIRAGE LOGIC INTERNATIONAL

                                      By:
                                         ---------------------------------------
                                      Title:
                                            ------------------------------------

<PAGE>   50

                         CORPORATE BORROWING RESOLUTION

Borrower: VIRAGE LOGIC INTERNATIONAL                Bank: Silicon Valley Bank
          46501 Landing Parkway Fremont, CA 94538         3003 Tasman Drive
                                                          Santa Clara, CA 95054
                                                          -1191

I, the Secretary or Assistant Secretary of VIRAGE LOGIC INTERNATIONAL
("Borrower"), CERTIFY that Borrower is a corporation existing under the laws of
the State of California.

I certify that at a meeting of Borrower's Directors (or by other authorized
corporate action) duly held the following resolutions were adopted.

It is resolved that any one of the following officers of Borrower, whose name,
title and signature is below:

         NAMES                       POSITIONS               ACTUAL SIGNATURES
         -----                       ---------               -----------------
Alex Shubat                 VP Engineering, CTO             /s/ ALEX SHUBAT
------------------------    --------------------------      --------------------
George Rassam               Controller                      /s/ GEORGE RASSAM
------------------------    --------------------------      --------------------

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

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

may act for Borrower and:

        BORROW MONEY. Borrow money from Silicon Valley Bank ("Bank").

        EXECUTE LOAN DOCUMENTS. Execute any loan documents Bank requires.

        GRANT SECURITY. Grant Bank a security interest in any of Borrower's
assets.

        NEGOTIATE ITEMS. Negotiate or discount all draft, trade acceptances,
promissory notes, or other indebtedness in which Borrower has an interest and
receive cash or otherwise use the proceeds.

        LETTERS OF CREDIT. Apply for letters of credit from Bank.

        FOREIGN EXCHANGE CONTRACTS. Execute spot or forward foreign exchange
contracts.

        ISSUE WARRANTS. Issue warrants for Borrowers stock.

        FURTHER ACTS. Designate other individuals to request advances, pay fees
and costs and execute other documents or agreements (including documents or
agreement that waive Borrowers right to a jury trial) they think necessary to
effectuate these Resolutions.

<PAGE>   51

Further resolved that all acts authorized by these Resolutions and performed
before they were adopted are ratified. These Resolutions remain in effect and
Bank may rely on them until Bank receives written notice of their revocation.

I certify that the persons listed above are Borrower's officers with the titles
and signatures shown following their names and that these resolutions have not
been modified are currently effective.

CERTIFIED TO AND ATTESTED BY:

X   /s/ ALEX SHUBAT
 ------------------------------------------
 Secretary or Assistant Secretary

X
 ------------------------------------------
 NOTE: In case the Secretary or other certifying officer is designated by the
foregoing resolutions as one of the signing officers, this resolution should
also be signed by a second Officer or Director of Borrower.

                                       2<PAGE>   1
                                                                  EXHIBIT 10.12

*CERTAIN INFORMATION WITHIN THIS EXHIBIT HAS BEEN OMITTED AND THE NON-PUBLIC
INFORMATION HAS BEEN FILED SEPARATELY WITH THE SEC. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

                              DISTRIBUTION AGREEMENT

        This AGREEMENT is made and entered into as of the October 1st 1998,
(hereinafter called "Effective Date") by and between Seiko Instruments Inc. a
corporation organized and existing under the laws of Japan, and having its
registered office at 1-8 Nakase, Mihama-ku, Chiba-shi, Chiba 261 Japan
(hereinafter called "SII"), and Virage Logic Corporation, a corporation
organized and existing under the laws of California, and having its registered
office at 46824 Lakeview Blvd., Fremont, CA. 94538 USA (hereinafter called
"VIRAGE").

1.      Definition

        1.1    As used in this Agreement, "Agreement" shall mean this agreement
               and all attachments and addendum hereto.

               As used in this Agreement, "SLA" shall mean software license
               agreement which is concluded between SII and SII's customers
               according to Article 3 hereof.

               As used in this Agreement, "Maintenance Agreement" shall mean
               software maintenance agreement which is concluded between SII and
               SII's customers according to Article 13 hereof. As used in this
               Agreement, "LOI" shall mean the document which is concluded on
               March 11th 1998, between SII and VIRAGE for the purpose of
               confirming the mutual intent of the parties for the distribution
               of Product(s) in Japan.

               As used in this Agreement, "Product(s)" shall mean the software
               set forth in Appendix A hereto which SII is authorized by VIRAGE
               hereunder and its derivatives to sell and market in Japan.

2.      Distribution Rights. VIRAGE shall grant SII the non-exclusive right to
        market and distribute Products and to provide customers with technical
        support in Japan.

3.      SLA. SII shall conclude and execute with its customers for the
        Product(s) a Japanese version of the attached and VIRAGE approved SLA
        with its customers when SII sells Products to customers. VIRAGE
        recognizes, as authorized, the standard SLA prepared by SII which is
        written in Japanese and shall be governed by and interpreted in
        accordance with the laws of Japan. SII shall use no other form of SLA
        without VIRAGE prior written consent, which shall nor be unreasonably
        withheld. SII shall indemnify and hold VIRAGE harmless from all losses,
        damages, costs (including reasonable attorney's fees) and expenses from
        any license or warranty term which was nor authorized by VIRAGE in
        writing.

4.      Term of Agreement. This Agreement, unless terminated in accordance with
        Article 17 hereof, shall continue for a period of three (3) years from
        Effective Date, and shall be automatically renewed and continued one (1)
        year thereafter on a year-to-year basis unless either party gives at
        least thirty (30) days prior written notice to terminate this Agreement

                                      -1-
<PAGE>   2

        to the other party before the expiration of the original term or
        extension period of this Agreement.

5.      Responsibilities of VIRAGE

        5.1    VIRAGE shall provide quantities of Products sufficient to meet
               the requirements of SII.

        5.2    VIRAGE agrees to provide, free of charge, product training for
               SII personnel at VIRAGE offices as well as technical support to
               aid in SII's sales of Products.

        5.3    VIRAGE agrees to provide and distribute to SI, free of charge,
               two copies of the latest released version of each Product
               considered for demonstration, evaluation and technical purposes.
               These copies shall nor be used for sales, or for internal SSI
               design.

6.      Responsibilities of 511

        6.1    SII agrees to make its best efforts to promote the distribution
               of Products in Japan and to provide its customers with such
               support as set forth in Article 6.3 hereof

        6.2    SII shall nor represent any other manufacturers of devices,
               components or other products which are competitive with those
               manufactured by VIRAGE.

        6.3    SII shall offer its customers under the maintenance agreement set
               forth in Article 13.3 the following technical support in relation
               to the use of Products.

               (a)    Telephone support, through which the customers are
                      provided with necessary advice and information during
                      SII's business hours;

               (b)    On-site support, through which SII personnel are
                      dispatched to address customers' problems;

               (c)    Product training, through which the customers are given
                      necessary instruction on the proper usage of Products;

        6.4    SII shall provide to VIRAGE, on a quarterly basis, forecasts for
               Products for the three (3) month period following the date of the
               forecast.

        6.5    SII shall quote to its customers and potential customers' prices
               for VIRAGE's products based on direct solicitation from the
               VIRAGE's main office.

7.      Purchase Order. SII shall issue purchase orders to VIRAGE at least seven
        (7) days prior to the date of delivery required by such purchase orders.
        VIRAGE shall issue a notice of acceptance or non-acceptance to each
        purchase order

                                      -2-
<PAGE>   3

        in writing within three (3) business days from the receipt of such
        order. Any and all purchase orders shall be deemed accepted by VIRAGE
        unless a notice of non-acceptance is issued during such period. Accepted
        orders shall not be allocated, changed or canceled without mutual
        agreement of both parties hereto.

8.      Price and Payment

        8.1    VIRAGE transfer prices from VIRAGE to SII for Products shall be
               in accordance with Appendix B attached hereto.

        8.2    The delivery of Products hereunder shall be made on the condition
               of CIF, Kameido, Tokyo.

        8.3    VIRAGE shall give SII written notice at least ninety (90) days
               prior to any and all price changes in the U.S. Price List. VIRAGE
               shall provide SII with the latest U.S. Price List as it becomes
               available.

        8.4    Terms of payment by 311 shall be sixty (60) days after SII's
               receiving invoice from VIRAGE. Amounts payable to VIRAGE will be
               paid to VIRAGE in United States dollars by wire transfer in
               immediately available funds to an account designated in writing
               by VIRAGE from time to time. As of Effective Date,

               VIRAGE's account is:

               Bank name: Silicon Valley Bank

               Bank Address: 3003 Tasman Drive Santa Clara, CA. 95054

               Account Number: ***

               ABA Number: ***

               Contact Name: Gayle Nickel

               Telephone Number; 1-408-654-7318

        All bank charges and commissions associated with payment inside Japan
        hereunder will be borne by SII

        8.5    All trade terms provided in this Agreement shall be interpreted
               in accordance with the latest Incoterms of the International
               Chamber of Commerce.

        8.6    SII shall pay withholding tax by deducting the same from amounts
               of transfer price. SII shall send VIRAGE an official certificate
               evidencing such payment.

        8.7    The Yen-Dollar exchange rate used is T.T.S. rate of Fuji Bank on
               the last day of the previous month of the payment.

9.      Title and Risk of Loss. Title and risk of loss to any Products shall be
        passed from VIRAGE to SII at the C.T.F point Kameido, Tokyo.

                                      -3-
<PAGE>   4

10.     Advertising and Promotion. VIRAGE may advertise products and lists SII's
        name in its advertising from time to time.

        SII may likewise advertise and hold itself our as an authorized
        distributor of the VIRAGE and may promote the sale of the VIRAGE's
        products through all appropriate media.

        VIRAGE shall supply, free of charge, masters of advertising materials
        for marketing of the products, such as catalogs, brochures, pamphlets,
        and the like.

11.     Proprietary Rights

        11.1   VIRAGE retains all titles and reserves all rights of ownership to
               the documentation, manuals, information, and promotional
               materials furnished by VIRAGE to SII, and to all intellectual
               property rights in or to Product.

        11.2   VIRAGE hereby grants SII the right to translate documentation
               attached to Products into Japanese and distribute such
               translations to customers for the sale and support of Products.
               SII and VIRAGE shall own an equal share of the copyright and
               ownership of the translated documentation in Japan.

        11.3   SII may during the term of this Agreement use any trade mark and
               trade name registered by VIRAGE in connection with the sale of
               Products in Japan. VIRAGE shall possess the sole ownership of the
               trade marks and trade name in Japan. Other than SII's right to
               promote, distribute and sell the products covered by this
               Agreement within the territory granted to SII, no rights or
               licenses with respect to VIRAGE's trademarks, service marks,
               trade names copyrights, parents and other intellectual property
               rights are granted or deemed granted hereunder or in connection
               herewith, other than those rights or licenses expressly granted
               in this Agreement.

        11.4   SII shall not reverse-engineer, copy, disassemble or decompile
               any Product and shall make its best efforts to ensure that its
               employees arid affiliated companies do not do so.

12.     Confidentiality. Both SII and VIRAGE shall keep in the strictest
        confidence any and all trade secrets, information and know-how disclosed
        by the other party (hereinafter referred to as the "Confidential
        Information") and shall not disclose to any third party nor use any
        Confidential Information for any other purpose than those provided
        herein for a period of seven (7) years from the date of receipt of such
        Confidential Information.

        This obligation of confidence shall not apply to the following
        information;

        (1)    at the time of such disclosure is in the public domain, or

        (2)    after such disclosure becomes part of the public domain through
               no fault of the receiving party, or

        (3)    was known to the receiving party without breach of any duty to or
               violation of any right of the disclosing

                                      -4-
<PAGE>   5

               party before it was obtained from the disclosing party, or

        (4)    is acquired by the receiving party on a non-confidential basis
               from a third party who is not under a secrecy obligation to and
               did not violate any obligation of non-disclosure of the
               disclosing party, or

        (5)    is developed by or for the receiving party independently of the
               disclosing party's Confidential Information received hereunder,
               or

        (6)    is disclosed by the receiving party under the obligation created
               by any country or government action.

        This Agreement extends to and covers only Confidential Information which
        (1) is marked by the Disclosing Party as confidential or proprietary
        nature (e.g., "Confidential"), if the Confidential Information is
        disclosed in an tangible form; or (2) is treated, and is notified the
        Receiving Party by the Disclosing Party as confidential at the rune of
        oral or other intangible disclosure and confirmed in writing provided by
        the Disclosing Party within thirty, (30) days after the date of such
        disclosure, which writing shall be marked by the Disclosing Party as
        confidential or proprietary nature, if the Confidential Information is
        disclosed orally or in other intangible form.

13.     Warranty and Maintenance

        13.1   VIRAGE declares that it owns the copyrights to Products sold
               hereunder, and has legal right to sell such product. VIRAGE shall
               warrant that Products do not infringe any third party's patents,
               copyrights, trade secret or other proprietary right.

        13.2   VIRAGE shall warrant that Products distributed by VIRAGE is free
               from defects in workmanship as well as materials and conforms to
               the technical standards as set forth in the product
               specifications defined as Appendix C for a period of one (1) year
               from the date of shipment to the customer by SI. For CTMC and
               Custom Compilers, the customer may purchase an additional Foundry
               Maintenance Agreement which provides updates to the libraries and
               compilers as a result of design rule changes, changes in the
               spice models or process and updates to EDA tools. Foundry
               Maintenance will appear on the price list separately as an
               option. The price to SII is in Appendix B.

        13.3   After this one (1) year warranty period, customers may enter into
               Maintenance Agreement covering any Product with SII. SII will
               promote the Maintenance Agreement with customers. SII shall pay
               the software maintenance fee stated in Appendix B on a quarterly
               basis to VIRAGE for the tern-i of each Maintenance Agreement
               only.

        13.4   VIRAGE recognizes, as authorized, the standard Maintenance
               Agreement prepared by SII which is written in Japanese and shall
               be governed by and interpreted in accordance with the laws of
               Japan. SII shall use no other form of Maintenance Agreement
               without VIRAGE prior written consent, which shall not be
               unreasonably withheld.

                                      -5-
<PAGE>   6

        13.5   In case SII or the customers finds a defect in Products, VIRAGE
               shall according to the SII's or customers' demands repair,
               correct or replace for such Products without charge and/or
               compensate for losses incurred thereby during warranty and the
               software maintenance period, VIRAGE's and SII's total liability
               to any particular SII customer shall be limited to fees received
               by SII from such customer.

               VIRAGE's non-exclusive warranty shall be:

               (i)    to repair, correct or replace the Product; or

               (ii)   to compensate for losses incurred thereby during warranty
                      and the software maintenance period, provided that
                      VIRAGE's and SII's total liability to any particular SII
                      customer shall be limited to fees received by SII from
                      such customer.

        This express warranty granted is in lieu of all other warranties,
        express or implied, including the implied warranties of merchantability
        and fitness for particular purpose. VIRAGE shall not be liable to any
        other party for special, incidental, or consequential damages (including
        any claims for lost profits or disruption of business or loss of use).
        VIRAGE's total liability to SII shall be limited to all fees received by
        VIRAGE from SII.

        13.6   During warranty and the software maintenance period which means
               an effective period specified on Maintenance Agreement entered in
               customers and 511, VIRAGE shall provide the following maintenance
               and support services:

               (a)    SII may report to VIRAGE any error that may be found in
                      Products and VIRAGE shall rectify such error or to provide
                      a work-around solution.

               (b)    VIRAGE will provide to SII any new versions of Products,
                      the documentation and manuals that are released and SII
                      will be granted to use such new Versions in accordance
                      with this Agreement.

        13.7   VIRAGE shall provide any new versions of Products free of charge
               for all Products which include the Products of SII's inventory,
               the demonstration Products referred in the Article 5.3 hereof and
               the Products lent to the customers from SII.

        13.8   In the event of a resumption of any Maintenance Agreement under
               Section 13.9, SII shall pay VIRAGE a maintenance fee under the
               same conditions as 13.9. The payment shall be made within sixty
               (60) days of the last day of each quarter.

               When a Maintenance Agreement is entered into in the middle of a
               quarter, the maintenance fee for the quarter shall be prorated
               according to the exact number of days between the effective date
               of the Maintenance Agreement and the last day of the quarter.

        13.9   With regard to the resumption of any Maintenance Agreement,
               VIRAGE shall agree to the following conditions:

               After the termination of the Maintenance Agreement, the customer
               may resume the Maintenance Agreement within three (3) years from
               the date of termination of the Maintenance Agreement on the
               condition that the

                                      -6-
<PAGE>   7

               customer pays an amount 1.3 times the maintenance fee
               retroactive to the date of termination. This resumption policy
               is not applicable, if longer than three (3) years has passed
               since the date of termination of the Maintenance Agreement.
               After the three year period, the customer will have to buy
               Products for upgrade.

        13.10  VIRAGE shall not charge SII a maintenance fee for any Products as
               in Article 5.3.

14.     Products Liability. Should any claim, demand or suit be made or filed
        against SII as a result of any defect, whether patent or latent, in
        products, under the theory of breach warranty, express or implied, or
        under the theory of products liability, Company shall indemnity and hold
        SII harmless for any claims suit, demands, proceeding or expenses
        including attorney's fees.

15.     Notices. All necessary notices or requests to each party in performing
        this Agreement shall be sent to the following addresses:

        VIRAGE:46824 Lakeview Blvd. Fremont CA. 94538 USA

        SII: SII Kameido Bldg.-West 4F, 41-6 Kameido 6-chome, Koto-ku Tokyo 136,
        Japan

        Such notices or requests shall be deemed to take effect upon receipt by
        the addressee. Each party shall notify the other in writing about an;
        changes in address to which all notices or requests shall be sent.

16.     Patent and Copyright Indemnity

        16.1   VIRAGE shall defend or settle at its expense any action brought
               against SII alleging that Products Furnished under this Agreement
               infringe on American or Japanese patents, copyrights, and
               intellectual proprietary rights such as trade secrets, except
               when SII is deemed primarily responsible, and VIRAGE shall pay
               all costs, damages and reasonable attorney's fees finally awarded
               against SII that are attributed to such claims, provided that
               SII:

               (a)    notifies VIRAGE promptly in writing of the action,

               (b)    provides VIRAGE all reasonable information and assistance
                      to settle or defend the action,

               (c)    grants VIRAGE sole authority and control of the defense or
                      settlement of the action.

               If an injunction is issued as the result of any such alleged
               infringement, SII shall permit VIRAGE, at VIRAGE option and
               expense, either to (a) replace or modify Products to avert any
               infringement or (b) procure for SII or customers the right to
               continue distributing or using Products.

               VIRAGE shall nor be responsible for any infringement claim due to
               any Product change or modification done by SII or a SII customer.

        16.2   In the event that VIRAGE provides SII with Products with embedded
               products developed and manufactured

                                      -7-
<PAGE>   8

               by such third by the third parties, VIRAGE shall warrant that
               VIP-AGE is authorized parties to modify such products and
               distributed SII for the use of such modified Products.

17.     Termination

        17.1   This Agreement may be terminated;

               (a)    by an agreement duly signed by the parties hereto; or

               (b)    by either party with at least ninety (90) days prior
                      written notice to the other, with a material breach of
                      this Agreement in the payment of money that remains
                      uncured for 15 days after receipt of written notice or a
                      material breach of any other material term of the
                      Agreement that remains uncured for 30 days after receipt
                      of written notice.

               Upon any allegation that a breach of this Agreement has occurred
               or is likely to occur, both parties agree to cooperate in using
               their best efforts to address and attempt to cure or prevent the
               alleged breach.

               As soon as possible after receiving notice of the alleged breach,
               the parties will investigate the circumstances surrounding the
               alleged breach and agree upon the steps necessary to remedy the
               breach. Throughout the process the parties will share any
               relevant information and materials that would be relevant to
               determining whether a breach has occurred or the steps necessary
               to remedy the breach.

        17.2   In the event either party voluntarily files a petition for
               bankruptcy or has such a petition involuntarily filed against IT,
               or is placed in receivership or recognition proceeding or is
               placed in trusteeship involving insolvency, or has ceased regular
               business operations, the other party may terminate this Agreement
               by giving a termination notice, upon which termination shall
               become effective thirty' (30) days after the issuance of such a
               notice, if the petition has not been dismissed, withdrawn or
               otherwise invalidated during said thirty (30) day period.
               Termination of this Agreement by either party shall not be deemed
               an ejection of remedies or waivers of any claim relating to the
               other party.

        17.3   After termination or expiration of this Agreement, VIRAGE shall
               take responsibility for distribution, maintenance and support of
               Products which SII was distributed from VIRAGE. and sold to
               customers.

        17.4   If VIRAGE should be acquired by any other company, then SII may,
               within thirty (30) days of written notice by VIRAGE to SII of the
               acquiSIion, request in writing that VIRAGE shall purchase SII's
               inventory at the price paid to VIRAGE upon placement of the
               purchase orders for such unsold Products.

        17.5   After termination or expiration of this Agreement, SII shall
               receive full sales commission as stated in Appendix B for orders
               received on quotations issued in the 3 months prior to
               termination or expiration of the agreement.

18.     Severability. Except as provided herein, the provisions of this
        Agreement can be severed and, if, by stature, regulation, court order or
        other action taken by any government or governmental subdivision having
        jurisdiction over this

                                      -8-
<PAGE>   9

        Agreement, any provision of this Agreement is voided or declared
        unlawful, then, within the jurisdiction of the said government or
        governmental subdivision, the said provision shall be of no effect and
        it shall be as if said provision had never been included in this
        Agreement, provided that in the event such statute, regulation, court
        order or other action frustrates the economic assumptions of this
        Agreement or renders performance impossible, the party affected thereby
        shall have the right to terminate this Agreement.

19.     Force Majeure. In the event of an occurrence of an emergency or
        contingency of a natural disaster constituting a cause of force majeure
        to either or both of the parties hereto, with the result that the
        performance of any of its or their obligations under this Agreement is
        rendered impossible; thereby, neither party shall be liable in any way
        for any delay in its performance due to such a cause. Under this
        Agreement, a force majeure refers to any cause beyond the parties'
        control, including, but not limited to, strikes, lockouts, riots, war,
        accidents, failures or breakdowns of components necessary to completing
        orders, delays caused by subcontractors, suppliers or customers,
        inability to obtain or substantial increases in the cost of labor and/or
        manufacturing facilities, fire, Acts of God, curtailment of or failure
        to obtain sufficient electrical or other energy, whether valid or
        invalid, of any cognizant governmental body or any other instrumentality
        thereof, whether presently existing or hereafter created.

20.     Entire Agreement. This Agreement constitutes the entire agreement
        between the parties hereto and supersedes all provisions, negotiations,
        agreements and commitments in respect thereto, and shall not be
        released, discharged, changed or modified in any manner except by
        instruments signed by duly authorized officers or representatives of
        each of the parties hereto.

21.     Waiver. No delay or failure of each party in exercising any right, power
        or remedy hereunder shall operate as a waiver thereof nor shall any
        single or partial exercise of any such right, power or remedy preclude
        other or Further exercise thereof or the exercise of any other right,
        power or remedy.

22.     Arbitration. All disputes, controversies or differences which may arise
        between the parties, out of or in relation to or in connection with this
        Agreement or for the breach thereof, shall be referred to arbitration.
        If the arbitration is initiated by SI, the arbitration shall take place
        in Milpitas, California, before three arbitrators selected in accordance
        with the Commercial Rules of the American Arbitration Association. If
        the arbitration is initiated by VIRAGE, the arbitration shall take place
        at the Japan Commercial Arbitration Association in Tokyo in accordance
        with the Commercial Arbitration Rules of said Association. The award of
        arbitration rendered shall be final and binding upon both parties.

                                      -9-
<PAGE>   10

23.     Assignment. This Agreement is not assignable or transferable by either
        party in whole or in part without the express written consent of the
        other party, which shall not be unreasonably withheld.

24.     Governing Law. The validity, construction and performance of this
        Agreement and/or each individual contract shall be governed by and
        interpreted in accordance with the laws of Japan.

25.     Survival. The following provisions shall survive the expiration or
        termination of this Agreement, Article 11 (Proprietary Rights), Article
        12 (Confidentiality), Article 13 (Warranty and Maintenance), Article 16
        (Patent and Copyright Indemnity), Article 17.6 (Termination), Article 18
        (Severability), Article 22 (Arbitration), Article 24 (Governing Law) and
        Article 24 (Survival) shall survive such expiration or termination.

                                      -10-
<PAGE>   11

        Seiko Instruments, Inc.                  Virage Logic Corporation

        By:   /s/ Ishibashi Shinichi             By:   /s/ Adam Kablanian
            --------------------------               ---------------------------
        Title:  General Manager                  Title:  President & CEO
               -----------------------                 -------------------------
        Date:   Oct. 1, 1998                     Date:   10/7/98
               -----------------------                 -------------------------

                                      -11-
<PAGE>   12
                                                                 October 1, 1998

                                   Appendix A

                                    Products

(1)  MD-PRO

(2)  Custom RAM

(3)  Fixed Libraries (STMC,CTMC,MBA)

(4)  MD - Pro Maintenance

(5)  Foundry Maintenance for Fixed Libraries or Custom RAM

                                      -12-
<PAGE>   13

                                   Appendix B

                                 Prices to SII

The prices to be paid by SII shall be equal to the actual customer purchase
price minus the discount as specified in the following table.

<TABLE>
<CAPTION>
Product                                 discount rate
<S>                                     <C>
MD-PRO                                  **%

Custom RAM                              **%

Fixed Libraries (STMC, CTMC, MBA)       **%

MD-PRO Maintenance                      **%

Foundry Maintenance                     **%
</TABLE>

(1) SII shall place orders to VIRAGE based on Japan list price. The Cap in
Japan mark-up should be decided by SII based on the market and/or competitive
price. This pricing is good for a year. After once year, the parties agree to
revisit the discount rate to make necessary adjustments if necessary.

(2) The quotation that VIRAGE has made to Hitachi (back in August 1997)
regarding Ultra Low Power memory compilers on 0.2um process is excluded from
this Agreement.

                                      -13-

<PAGE>   14
                                   Appendix C

VIRAGE shall meet the functions specified on each Product's User's Manual.

                                      -14-

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