10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the fiscal year ended September 30, 2007

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from              to             .

Commission file number 000-31089

Virage Logic Corporation

(Exact name of registrant as specified in its charter)

Delaware	77-0416232
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

47100 Bayside Parkway, Fremont, California 94538

(Address of principal executive offices)

Registrants’ telephone number, including area code:

(510) 360-8000

Securities registered pursuant to Section 12(b) of the Act:

Common stock, $0.001 par value

(Title of class)

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or non-accelerated filer (as defined in Exchange Act Rule 12b-2).

Large accelerated filer  ¨ Accelerated filer  x Non-accelerated filer  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  x

The aggregate market value of the registrant’s common stock held by non-affiliates of the Registrant as of March 31, 2007 was approximately $57 million based upon the closing price reported for such date on the Nasdaq Global Market. For purposes of this disclosure, shares of common stock held by persons who hold more than 5% of the outstanding shares of common stock and shares held by officers and directors of the Registrant have been excluded because such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

The number of shares of the registrant’s Common Stock outstanding as of November 30, 2007 was 23,470,470.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s proxy statement for its 2008 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on Form 10-K.

VIRAGE LOGIC CORPORATION

INDEX TO

ANNUAL REPORT ON FORM 10-K

FOR YEAR ENDED SEPTEMBER 30, 2007

TABLE OF CONTENTS

		Page
PART I
Item 1.	Business	3
Item 1A.	Risk Factors	17
Item 1B.	Unresolved Staff Comments	28
Item 2.	Properties	28
Item 3.	Legal Proceedings	29
Item 4.	Submission of Matters to a Vote of Security Holders	29
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	30
Item 6.	Selected Consolidated Financial Data	31
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	50
Item 8.	Financial Statements and Supplementary Data	50
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	50
Item 9A.	Controls and Procedures	51
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	53
Item 11.	Executive Compensation	53
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	53
Item 13.	Certain Relationships and Related Transactions and Director Independence	53
Item 14.	Principal Accountant Fees and Services	53
PART IV
Item 15.	Exhibits and Financial Statement Schedules	54
SIGNATURES		85

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PART I

With the exception of statements of historical fact, all statements made in this report on Form 10-K, including in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7, are forward-looking statements that involve risks and uncertainties. These forward-looking statements include statements relating to strategy, products, customers, business prospects, relationships and trends. In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “should,” “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” “potential,” or “continue,” the negative of these terms or other comparable terminology. Forward-looking statements are subject to a number of known and unknown risks and uncertainties which might cause actual results to differ materially from those expressed or implied by such statements. These risks include an ability to forecast our business, including our revenue, income and order flow outlook, to meet financial expectations, to deliver products that meet customer specifications, to deliver our customized products in the time-frame demanded by our customers, to execute on our strategy of being a leading provider of semiconductor IP platforms, to continue to develop new products and maintain and develop new relationships with pure-play foundries and integrated device manufacturers, to overcome the challenges associated with establishing licensing relationships with semiconductor companies, to obtain royalty revenues from customers in addition to license fees, to receive accurate information necessary for calculation of royalty revenues and to collect royalty revenues from customers, business and economic conditions generally and in the semiconductor industry in particular, pace of adoption of new technologies by our customers, competition in the market for semiconductor IP platform, and other risks and uncertainties including those set forth below under “Risk Factors”. These forward-looking statements speak only as of the date hereof; we do not intend, and undertake no obligation to release publicly any updates or revisions to any forward-looking statements contained herein. The discussion of our financial condition and results of operations in this report on Form 10-K should be read together with the consolidated financial statements and the notes thereto included elsewhere in this filing.

Item 1. Business

General

Founded in 1995, Virage Logic Corporation (Virage Logic or the Company) provides semiconductor intellectual property (IP) to more than 300 semiconductor companies worldwide. Historically we were primarily engaged in the development and marketing of embedded memory products. After the acquisition of In-Chip Systems, Inc. in May 2002, we expanded our physical IP product offering to also include logic and input/output interface components products. In August 2007, we acquired Ingot Systems, Inc. (Ingot), a privately held provider of functional, or application specific IP (ASIP), including Double Data Rate (DDR) memory controllers, Physical Interfaces (PHYs), and Delay Locked Loops (DLLs). The expansion of our product offerings positions us to be even more attractive to our customers’ semiconductor design efforts by providing high value IP across a broad spectrum of the functional elements of the chip.

These various forms of IP are utilized by our customers to design and manufacture System-on-Chip (SoC) integrated circuits that are forming the foundation of today’s consumer, communications and networking, hand-held and portable devices, computer and graphics, automotive, and defense applications. Our semiconductor IP offering consists of (1) embedded memories, (2) compilers that allow chip designers to configure our memories into different sizes and shapes on a single silicon chip, (3) IP and development infrastructure for embedded test and repair of on-chip memory instances, (4) software development tools used to design memory compilers, (5) embedded non-volatile memory instances, (6) logic cell libraries, (7) I/Os, and (8) DDR memory controller components. We also provide custom design services to the semiconductor industry.

Our customers include leading fabless semiconductor companies such as Agilent Technologies, Inc. (Agilent), Altera Corporation (Altera), Broadcom Corporation (Broadcom), Conexant Systems, Inc. (Conexant), Ikanos Communications Inc. (Ikanos), Intel Corporation (Intel), Kawasaki Microelectronics (K-Micro), LSI

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Corporation (formerly LSI Logic and Agere), Marvell Technology Group, Ltd (Marvell), PMC-Sierra, Inc. (PMC-Sierra), SigmaTel, Inc. (SigmaTel), TranSwitch Corporation (TranSwitch), Thomson Silicon Components (Thomson), and Via Technologies, Inc. (Via Technologies) as well as leading integrated device manufacturers (IDMs) such as, Avago Technologies (Avago), AMI Semiconductor, Inc. (AMI Semiconductor), Analog Devices, Inc. (Analog Devices), Atmel Corporation (Atmel), Freescale Semiconductor, Inc. (Freescale), Infineon Technologies, Inc. (Infineon), NEC Corporation (NEC), NXP (formerly Philips Semiconductor B.V.), Sharp Electronics Corporation (Sharp), Sony Corporation (Sony), STMicroelectronics (STMicro), Texas Instruments (TI), and Toshiba Corporation (Toshiba). Finally, we have strategic commercial relationships with semiconductor foundries such as Taiwan Semiconductor Manufacturing Company (TSMC), Chartered Semiconductor Manufacturing (Chartered), Dongbu HiTek Ltd. (Dongbu HiTek), Grace Semiconductor (Grace), HeJian, IBM Corporation (IBM), MagnaChip, SilTerra Malaysia Sdn. Dhd. (SilTerra), Silicon Manufacturing International Corporation (SMIC), Tower Semiconductor, Ltd. (Tower) and United Microelectronics Company (UMC).

We develop our embedded memory, logic, I/O, DDR, PHY and DLL products to comply with the silicon manufacturing processes used for our customers’ products. For our integrated device manufacturer customers, we develop our products to comply with the processes used by their internal manufacturing facilities. For our fabless semiconductor customers, we develop our products to comply with the processes of the pure-play semiconductor manufacturing facilities or foundries, which these companies rely on to manufacture the integrated circuits (ICs) for their products. We also pre-test certain products before their release to the market by designing and manufacturing specialty ICs containing our semiconductor IP targeted for specific processes, so that we can provide our customers with silicon data and help ensure that ICs designed with our semiconductor IP will be manufacturable, while providing desired production yields. Our products are certified for production by several of the established pure-play foundries such as Chartered, IBM, TSMC, and UMC, as well as some of the emerging pure-play foundries such as Dongbu HiTek, Grace, HeJian, MagnaChip, SilTerra, SMIC, and Tower that are used by fabless semiconductor companies. Because we ensure that certain products are silicon-proven and production ready, our customers can proceed with confidence and benefit from shorter design times for new product development and reduced design and manufacturing costs.

Corporate Information

We incorporated in California on November 27, 1995. We reincorporated in Delaware on July 25, 2000. Our principal executive offices are located at 47100 Bayside Parkway, Fremont, California 94538. Our telephone number is (510) 360-8000. Our website address is www.viragelogic.com. Information on our website, and websites linked to it, is not intended to be part of this report. We make available free of charge on our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file such material with, or otherwise furnish it to, the Securities and Exchange Commission, or the SEC.

The public may also read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Rooms by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet website that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. The SEC’s Internet website is located at http://www.sec.gov.

Industry Background

The proliferation of consumer and wireless products, the growth of the Internet, and the development of higher speed computers and more robust visual communication systems is creating demand for electronic devices that offer higher complexity and higher performance while consuming less power in order to meet complex functional requirements. The designers of these products are seeking semiconductor process technologies that will enable them to minimize the power, decrease the size, reduce the manufacturing costs and enhance the

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performance of their products. In response to this demand, semiconductor companies have developed technologies that permit entire electronic systems, including the microprocessor, communications, custom function logic, graphics and memory elements, to be contained on a single silicon chip, called System-on-Chip (SoC), rather than on a circuit board.

Successful SoC design depends upon the reliable integration of the various components of the chip. Each component must comply with the manufacturing standards, or design rules, of the manufacturing facility that will produce the chip. Since different technical expertise and IP is required for each component of a SoC, it is excessively expensive for many companies to internally develop all of the various IP needed for these components. In addition, the designers of products that use SoCs are facing increased market pressure to rapidly introduce new products, which shorten the time available for research and development involved in the design of a SoC and to reduce development costs. In order to meet the continuously increasing technical expertise requirements for the design of a SoC and the time constraints involved in such design, many semiconductor companies are focusing on their core competencies, or value-add, and are increasingly relying on external sources for the technical expertise and IP for various components of their SoC designs. The use of silicon-proven third party IP components helps enable semiconductor companies to meet market pressures while allowing them to continue to focus on the components of the SoC that constitute their core competencies.

The increasing demand for a broad range of consumer electronics, high-performance computing and communications applications and the availability of increased bandwidth for Internet applications has made memory an increasingly critical element of the overall operation of SoCs used for these applications. Historically, integrated circuit designs were dominated by the logic function, while memory storage was typically provided in external devices. However, the market demand for increased system operating speed and increasingly smaller consumer devices results in increased integration of the memory storage elements inside the SoCs, resulting in smaller, faster and more power efficient products. This trend of embedding memory also resulted in the requirement for more specialized memory elements. The need for this proximity, as well as advances in semiconductor technology and the ability to customize the size and configuration of memory functions within a SoC, is creating increased demand for embedded memory components. It is now common for SoCs to contain many memories with different functions configured in different sizes and shapes to optimize the area and functionality of the chip. The Semiconductor Industry Association (SIA) forecasts that the amount of area dedicated to memory in a typical SoC will grow to more than 80 percent by 2010.

Semiconductor companies face significant challenges in designing low power, high-performance and area efficient memories that can be easily integrated with other components for their SoC devices. Due to continuing advancements in the semiconductor manufacturing lithography processes, new circuit design elements have generally been required every few years. The internal design teams of semiconductor companies typically lack the dedicated resources necessary to keep pace with rapidly evolving memory design technology advancements. These factors have created a market need for third-party providers of highly reliable, low power, high-performance and area efficient IP components as memory, logic and I/O IP, as well as a variety of functional IP components such as high-speed interfaces, including highly complex memory controllers.

The Virage Logic Strategy

Our objective is to be the premier supplier of semiconductor IP solutions to the global semiconductor industry and our mission is to serve as the semiconductor industry’s trusted IP partner. With this in mind, the Company has identified four key goals that provide the foundation for building a scalable, profitable business.

Build Virage Logic into the Company that is Truly the Semiconductor Industry’s Trusted IP Partner

As the semiconductor industry continues to streamline and specialize in order to maximize differentiation and ultimately competitiveness and profitability, leading semiconductor companies are looking for reliable suppliers that can become a virtual extension of their internal research and

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development (R&D) groups. As such, we see great opportunity for Virage Logic to serve as the semiconductor industry’s trusted IP partner. Over the last decade, we have become a highly specialized, and therefore highly efficient developer of semiconductor IP, and today more than 300 customers look to Virage Logic to provide much of the core building blocks of their SoC designs.

We intend to be a preferred IP supplier and trusted IP partner to the leading fabless semiconductor companies. Most fabless semiconductor companies, or semiconductor companies that do not internally manufacture their own silicon chips, spend substantial sums of money purchasing memory, logic and I/O elements to incorporate in their chips because these elements may be outside of their core competencies. The leading fabless companies need access to physical IP very early in the life of a new process technology. In addition, leading foundries need reliable physical IP in order to offer manufacturing capabilities to their early adopters. Time-to-market pressure does not allow early adopters to wait for physical IP to be developed. For that reason, there is a need for tight partnership and concurrent development of manufacturing processes, physical IP and SoC designs. The concurrent nature of development does not allow for the traditional supplier-user relationship. It requires joint planning, collaboration and execution during the development process. For that reason, partnerships between foundries, fabless companies and physical IP providers are a necessary condition for the successful introduction of advanced SoCs on advanced process nodes. In addition, early mainstream customers often need customization of standard physical IP in order to accommodate advanced product specifications. This customization requires a reliable IP partner that can respond in a timely fashion with predictable quality in order to achieve first time silicon success. As a result, Virage Logic has established itself as a trusted IP partner and has licensed its IP to many leading semiconductor companies and pure-play foundries.

The four key qualifications that enable us to serve as the semiconductor industry’s trusted IP partner are the following:

• Technology Leadership—Engineering and R&D comprise more than 75 percent of our company’s headcount, which has enabled Virage Logic to establish a long history of being first to market with innovative, leading IP solutions. We have a proven track record of being first to market with products at the advanced manufacturing process technologies such as 90-nanometer, 65-nanometer, and now 45-nanometer. We were the first IP company with silicon-proven IP for TSMC’s 65-nanometer process and at 45-nanometer, TSMC named Virage Logic as their Early Development Partner. In addition to technology leadership, we have a proven record of technology innovation. Examples include the STAR™ Memory System, the industry’s first commercially available embedded self-test and repair memory system and NOVeA^®, the industry’s first commercially available non-volatile Flash memory on a standard CMOS logic process.

• Proven Execution—In early 2007 we made the decision to separate our R&D efforts from our Engineering activities and we established an Advanced Development group that is focused on building next generation standard products. Dr. Alex Shubat, the Company’s co-founder and CTO, leads the Advanced Technology group and in January 2007, Sherif Sweha, a 20+ year Intel engineering executive, joined Virage Logic to run the Engineering group. The two groups have worked to improve quality and delivery performance; and improve our overall productivity to aid in the fundamental scalability of the organization. They created a new suite of advanced memory compilers and logic libraries to allow us to be first to market with the advanced nodes, as well as allow us to now offer standard products as opposed to solely custom solutions which again is aiding in the fundamental scalability of the Company. The focus in these areas has been significant and reinforces the Company’s proven execution reputation.

• An Integral Part of the SoC Design and Manufacturing Ecosystem—as a provider of third-party semiconductor IP, we work closely with our partners–including Design Services, Electronic Design Automation (EDA) and Test, IP and Foundry companies–to help increase interoperability and provide access to complete solutions that enable mutual customers to reduce their design time and improve manufacturability of their electronics products.

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We work with all of the established pure-play foundries to qualify our semiconductor IP for high-volume production in their manufacturing processes. In this manner, we are in a position to provide embedded memories, logic and I/O elements that are silicon-proven for a specific foundry’s manufacturing process, directly to that foundry’s customer base. Our close associations with these foundries also gives us early access to information for advanced processes, thereby enabling us to be among the first to market products on smaller process geometries.

• Portfolio of Business and Engagement Models—We offer a variety of business and engagement models that offer fabless, integrated device manufacturer (IDM) and Foundry customers the flexibility to engage with us to a level that is most beneficial for their business objectives. From a single instance or project based engagement to a multi-year, multi-product engagement, we offer engagement models that suite the broad range of end-customer requirements.

Another example of our broad range of engagement models was developed in direct response to the emerging pure-play foundries’ desire to strengthen their competitive position by introducing an expanded distribution model. The “Foundry Pays” model was developed to enable emerging foundries to license Virage Logic’s IPrima^® Foundation IP platform and make it available free-of-charge to their end customers. Customers benefit with free access to Virage Logic’s advanced IP and have the option to tap into Virage Logic’s superior customer support services offering. When this was first introduced in 2005, Dongbu HiTek, SilTerra, SMIC and Tower took advantage of the new Foundry Pays distribution model. Today, this model has been expanded and is being used in a targeted way at TSMC, UMC, and Chartered. We believe the expansion of our business model, from a customer-paid licensing and wafer-based royalty-bearing model to include an option for foundries to license and provide IPrima Foundation IP free-of-charge, underscores the growing demand for our advanced process technology IP solutions and enables our foundry partners to better meet the needs of their global customers.

Make Virage Logic the Company that is Always First to Market.

As semiconductor manufacturers develop advanced manufacturing processes that enable increasing density and speed as well as lower power consumption, we intend to lead the market for semiconductor IP components. We have assembled a global team of engineers to design and develop first to market semiconductor IP products for advanced manufacturing processes and we believe executing on this strategy should enable us to gain market share among early adopters of advanced processes. In addition we have demonstrated the ability to be first to market in supporting new industry standards such as the DDR3 protocol.

Broaden Virage Logic’s Product Portfolio

We have a two pronged strategy that calls for the expansion of our product portfolio through both organic and inorganic growth. Our Advanced Development group is leading the organic or internal product development efforts while the recent acquisition of Ingot Systems and their Double Data Rate IP business is an example of how we have expanded, and intend to continue to expand our product portfolio with complementary IP product offerings.

Build a Strong Demand Creation Capability

In FY2007, we analyzed sales productivity in all regions and made personnel and structural changes to improve overall efficiency and strengthen our global demand creation capability. As a result of these changes, our license pipeline has grown throughout the year.

We also intend to expand our existing distribution channels by continuing to selectively hire direct sales force members to serve key markets worldwide. In addition to our sales subsidiary in Japan and distributors in Taiwan, China and Korea, we expanded our reach in Asia by adding another well-established, independent distributor in China, and forged new distributor relationships in Malaysia and Singapore. We also intend to continue developing partnerships with value-added-resellers and other distributors of IP through our Virage Logic Intellectual Property Partner (VIP) Program to leverage their extensive United States and international sales organizations.

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In summary, we believe that by focusing the Company on the four key objectives outlined above, we will be able to firmly establish Virage Logic as the semiconductor industry’s trusted IP partner.

The Virage Logic Overview

Founded in 1995, Virage Logic rapidly established itself as a technology and market leader in providing advanced embedded memory intellectual property (IP) for the design of complex integrated circuits. In May 2002, the Company acquired In-Chip Systems and added logic libraries and I/Os to its growing product portfolio.

In 2005, to help SoC designers address the complex predictability and manufacturability challenges at advanced process nodes, Virage Logic pioneered a new class of semiconductor IP called Silicon Aware IP™. The Company's Silicon Aware IP offering (embedded memories, logic libraries and I/Os) incorporates silicon behavior knowledge for increased predictability and manufacturability. This intelligence includes hardware implementations for optimal yield in the design phase and extends to include test, repair, and diagnostics for manufacturability. Because Silicon Aware IP understands the behavior of silicon and is able to address post-silicon issues, it is key in helping designers maximize yield, increase test quality, increase reliability, speed time-to-volume, and improve overall manufacturability.

Most recently, through its acquisition of Ingot Systems in August 2007, Virage Logic further expanded its product offering to include Application Specific IP solutions such as Double Data Rate memory controllers and design services.

As the semiconductor industry's trusted IP partner, Virage Logic has focused its efforts on developing a highly differentiated product portfolio that provides higher performance, lower power, higher density and optimal yield to foundries, integrated device manufacturers and fabless customers. Our customers develop products for the consumer, communications and networking, hand-held and portable, computer and graphics, automotive and defense markets.

The company makes its products available for the manufacturing processes of both the established and emerging pure-play semiconductor foundries in order to provide customers with flexibility in manufacturing choices. Further, the Company uses its FirstPass-Silicon Characterization Lab™ for certain products to help ensure high quality, reliable IP across a wide range of foundries and process technologies. Finally, the company prides itself on providing superior customer support and was named the 2006 Customer Service Leader of the Year in the Semiconductor IP Market by Frost & Sullivan.

Key benefits of Virage Logic’s solution include the following:

• Single Source Supplier. By integrating and tuning embedded memories, logic and I/Os and providing them as an integrated semiconductor IP platform, we are able to save our customers time and costs in product development. In addition, with our new Application Specific IP product portfolio, we are able to expand our position as a single source supplier for the global SoC design community.

• Memory Design Expertise. Our memory design expertise allows us to provide our customers with leading-edge memory technologies for advanced manufacturing processes. We have assembled a global team of engineers focused exclusively on memory design. This team includes senior level engineers with significant expertise in various types of memory design, including SRAM, DRAM and non-volatile.

• Logic Design Expertise. Our Logic cell libraries are developed based on patented technology that addresses the key challenges of advanced manufacturing processes. We have a dedicated design team of engineers focused exclusively on logic cell library research, development and design.

• Memory Controller Design Expertise. Through the acquisition of Ingot Systems in August 2007, we gained an engineering team specialized in the specification and design of highly efficient DDR memory controllers, a critical component for efficient utilization of on-board dynamic memory devices.

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• Broad Product Line. We offer multiple types of memory compilers, logic libraries, I/Os, DDRs, PHYs and DLLs for advanced 0.15 micron, 0.13 micron, 90-nanometer, 65-nanometer and 45-nanometer (nm) processes, along with the older 0.25 micron and 0.18 micron processes. Our compilers allow our customers to generate the exact configuration of embedded memory needed for their SoC designs. The increasingly smaller process geometries provide designers the opportunity for greater chip functionality as well as lower cost chips.

• Silicon Verified Solutions. Many of our physical IP products are verified and tested at a particular manufacturing process using specialized ICs (commonly referred to as silicon-proven), before being delivered to a customer. This verification substantially reduces the risk that the physical IP element will be incompatible with the host manufacturing process and thereby reduces costly development and manufacturing delays which our customers might experience from using IP that has not been silicon-proven. Our physical IP alone has been purchased by over 300 customers for manufacture at leading pure-play foundries and internal manufacturing processes.

Virage Logic’s Semiconductor IP Product Portfolio

We offer a wide range of semiconductor IP including the following:

• Semiconductor IP platforms

• Embedded memory, logic and I/O elements;

• IP and development infrastructure for embedded test and repair of on-chip memory instances;

• Software development tools used to build memory compilers; and

• DDR memory controllers, PHYs and DLLs.

Our Semiconductor IP Platforms. We provide semiconductor IP platforms called IPrima^® Foundation. These platforms, comprising the ASAP™ Memory High-Density (HD) Memories, ASAP™ Logic HD Standard Cells and Base I/O Libraries are technology optimized, meaning they are tuned to a particular foundry and process and are built to satisfy a wide range of design requirements. IPrima^® Foundation users also have optional access to Virage Logic’s rich portfolio of highly differentiated IP, including the industry’s first commercially available integrated embedded self-test and repair memory, the STAR™ Memory System, as well as the ASAP Memory High-Speed (HS) and Ultra-Low Power (ULP) product lines, the patented ASAP Logic Ultra-High-Density (UHD), High-Density (HD), and High-Speed (HS) Standard Cell Libraries and the patented ASAP Logic HD and HS Metal Programmable Cell Libraries. The IPrima Foundation platforms meet the critical requirements of reducing SoC costs, boosting performance and ensuring reliability, while satisfying shrinking development budgets and improving time-to-profitability.

Our Embedded Memory Semiconductor IP. We provide embedded memory semiconductor IP in predetermined shapes, sizes and types that can be incorporated by semiconductor designers into their SoC designs. We deliver our memory semiconductor IP to our customers through downloads from secure servers or on computer disks in a form that can be integrated directly into the design of the SoC.

Our Embedded Memory Compilers. A compiler is a software program that allows semiconductor designers to configure memories to the desired specifications for their SoC designs. Our compiler products include:

• SiWare™ Memory. The SiWare Memory product line of silicon aware compilers provides what we believe to be the world’s most power-optimized memories for advanced processes at 65-nanometer and 45-nanometer. These high performance memory compilers minimize both static and dynamic power consumption and provide optimal yields. SiWare Memory high-density compilers are optimized to generate memories with the absolute minimum area. SiWare Memory high-speed compilers are designed to help designers achieve the most aggressive critical path requirements.

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• ASAP™ Memory. These compilers are optimized for high-density, high-performance and low power consumption and can generate memories up to 512 kilobits in size. The ASAP Memory product line is available in many different memory types including single- or dual-port register file, single- or dual-port SRAM, synchronous or asynchronous SRAM and ROM.

• STAR Memory System. Our STAR Memory System provides what we believe to be the most integrated solution for the cost effective embedding, on-chip testing and repairing of multi-megabit memories. SiWare Memories, High-Speed, High-Density and Ultra-Low-Power STAR and ASAP memories can be incorporated into a STAR Memory System to address a broad range of SoC design requirements. The STAR Memory System consists of a complete solution allowing users to select and automatically integrate all of the pieces associated with the system. The STAR Shared Fuse Processor allows users to reduce routing complexity and drastically reduce fuse area while the STAR Builder automated integration tool enables users to better meet aggressive time-to-market requirements. With some customers experiencing yield improvements of up to 250 percent, the STAR Memory System can potentially save millions of dollars in recovered silicon, substantially reduce test costs, and achieve shorter time-to-volume.

• STAR™ Yield Accelerator. The new STAR Yield Accelerator product is offered as an add-on to the STAR Memory System. It delivers a complete solution for automated silicon verification, vector generation, silicon analysis, and yield ramping of embedded memories. Integrated with the industry leading STAR Memory System embedded test and repair solution, STAR Yield Accelerator dramatically reduces silicon time-to-test, time-to-product bring-up, and time-to-volume production.

• NOVeA^®. This innovative non-volatile electrically alterable embedded memory can be manufactured using standard logic processes. NOVeA can retain its data at power-off while allowing data to be reprogrammed and erased during normal operation. NOVeA provides on-chip storage of calibration data, passwords, critical access information, etc. It also helps the designer reduce overall system size, achieve lower power operation and increase system performance.

Our Logic Semiconductor IP. We provide logic libraries through our SiWare™ Logic and ASAP™ Logic product lines. These products are designed to improve logic block area utilization and SoC performance while decreasing the price and power consumption of the overall chip. We deliver our logic semiconductor IP to our customers through the same manner as our embedded memory semiconductor IP.

• SiWare Logic. The SiWare Logic product line includes yield-optimized standard cells for a wide variety of design applications at 65-nanometer and 45-nanometer with multiple threshold process variants. SiWare logic libraries are offered using three separate architectures to optimize circuits for Ultra-High-Density, High-Speed, or general use. SiWare Ultra-Low-Power extension libraries provide designers with the most advanced power management capabilities.

• ASAP Logic High-Speed (HS) and High-Density (HD) Metal Programmable Cell Libraries. These cell libraries provide significant non-recurring engineering (NRE) cost savings during SoC design revisions since only a few mask layers need to be changed to modify the chip functionality.

• ASAP Logic Ultra-High-Density (UHD), High-Density (HD), and High-Speed (HS) Standard Cell Libraries. The architecture used in these cell libraries provides significantly increased pin accessibility, which along with other features results in logic block area savings. This equates to an overall reduction in chip size and lower fabrication costs independent of the performance requirements that the customer may have.

Our Base I/O Library. Our Base Input/Output (I/O) Library contains all necessary elements to complete an I/O ring, a key element for the SoC’s communication with external electrical components.

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Our Software Development Tools. Our memory development environment, Embed-It!^® allows semiconductor design companies to develop their own memory compilers with re-characterization capabilities. In addition, we also provide an end-user development tool, Embed-It! Integrator, used to create unique memory instances from a compiler database.

Our Application Specific IP Product Portfolio. Our Application Specific IP (ASIP) products are designed to meet the highest quality and performance standards for functional IP. Virage Logic ASIP products contain application specific functional IP targeted to a variety of market requirements. ASIP products are commonly based on Virage Logic’s proprietary and patented logic libraries, memory, routing methodology, and cell architecture.

• Intelli™ DDR—the Intelli DDR memory product family offers what we believe to be the highest performance, lowest latency intelligent memory controllers for DDR1, DDR2, and DDR3, the lowest power, highest bandwidth Mobile SDR/Mobile DDR memory controllers, full featured Graphics DDR (GDDR) memory controllers, high-speed, full digital DDR SDRAM PHY+DLL solutions and memory models for popular DRAM parts.

• Intelli™ PHY+DLL—the Intelli PHY+DLL companion for the Intelli DDR memory product is a full-digital DDR SDRAM PHY+DLL hard macro (GDSII) solution optimized for high frequency operation, as well as small die size.

• Intelli™ Models—the Intelli Models provide flexible, easy to use, vendor independent simulation models for popular DRAM devices that enable designers to verify the functionality of an entire memory sub-system.

During fiscal year 2007, our license revenue for 0.18 micron technology accounted for 10 percent of our total license revenues, license revenue for 0.13 micron technology was 28 percent of total license revenue, license revenue for 90-nanometer technology was 36 percent of total license revenue, license revenue for 65-nanometer technology was 23 percent of total license revenue and license revenue from the sale of other products was 3 percent of total license revenue. Included within the 3 percent other products category are our products on the older process nodes, 0.25 and 0.35 micron technology. We expect royalty revenue from these products to be declining and license revenue to be insignificant in future periods. In fiscal year 2006, our license revenue for 0.18 micron technology accounted for 12 percent of our total license revenue, license revenue for 0.13 micron technology was 33 percent of total license revenue, license revenue for 90-nanometer technology was 43 percent of total license revenue, license revenue for 65-nanometer technology was 10 percent of total license revenue and license revenue from the sale of other products was 2 percent of total license revenue. Included within the 2 percent other products category are our products on the older process nodes of 0.25 and 0.35 micron technology.

ASAP Memory, ASAP Logic, SiWare Memory, SiWare Logic, Silicon Aware IP, STAR Memory System, Intelli DDR, Intelli PHY and Intelli DLL are trademarks of Virage Logic Corporation. Embed-It!, NOVeA and IPrima are registered trademarks of Virage Logic Corporation in the United States. IPrima and Silicon Aware IP are registered trademarks of Virage Logic Corporation in Europe and Japan.

Markets and Applications

We focus on markets and companies that utilize SoC technologies with high-performance, low power architectures and high-density requirements where we believe our semiconductor IP offering provides customers with significant time-to-market, design, and manufacturing cost advantages. Examples of the markets and applications in which our IP is implemented include the following:

• Consumer Products. Digital appliances increasingly require more functionality, Internet connectivity and low power consumption. Our IP can be found in video game players, cellular phones, MP3 players, PDAs, digital cameras, high-definition televisions, cable set-top boxes and DVD players.

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• Communications and Networking Products. Communications and networking SoCs are used throughout the Internet, including in routers, switches, DSL modems, gigabit ethernet equipment, and high-bandwidth set-top boxes.

• Computers and Graphics Products. Computation and graphics equipment such as personal computers, workstations and servers require more complex chip sets and embedded memory to achieve new features, such as advanced 3D graphics and digital signal processing, or DSP.

• Security, Digital Rights Management (DRM), and Radio Frequency Identification (RFID) Products. With our NOVeA product, we are able to address customers’ needs for small amounts of embedded, multiple time programmable memories to enable DRM for such applications as wired and wireless network cards, secure memory cards, video games, DVD players and recorders, set-top boxes, PDAs, cellular phones, bridges and routers, DSL and cable modems, and Bluetooth enabled devices. Radio Frequency Identification applications require ultra-low-power and a small footprint. We believe that NOVeA provides the most cost-effective way to meet these requirements because it is available on standard CMOS logic processes.

• Automotive Products. By 2010, market forecasters predict that vehicles will be expected to have data connectivity while in motion and drivers will require ever increasing interaction with information such as infotainment, navigation, and traffic monitoring as well as assistance in complex or dangerous traffic situations such as with an automated emergency braking system. As the automotive industry looks to SoCs to provide this ever increasing set of functionalities, while reducing overall costs and handling the complexity of in-car electronic systems, our semiconductor IP is well suited to help them meet these SoC design requirements.

• Defense Products. Development of next generation of military, aerospace, security devices and special communications devices sponsored by government agencies, also known as high reliability devices, are increasingly based on complex SoCs due to the increased functionality requirements. Recently, we have experienced increased interest and business opportunities in this market segment.

Research and Development

We believe that our future success will depend in large part on our ability to continue developing new products and expanding our existing products for advanced manufacturing processes. To this end, we have assembled a team of engineers with significant experience in the design and development of semiconductor IP. Currently, we are focusing our research and development efforts on semiconductor IP products that support the latest manufacturing processes such as 65-nanometer, 45-nanometer and 32-nanometer.

We have entered into agreements with Chartered, Dongbu HiTek, Grace, IBM, SilTerra, SMIC, Tower, TSMC, and UMC for the development and licensing of various semiconductor IP products that are targeted to these foundries’ design rules. Leveraging our relationship with these foundries, we are able to shape the focus of our research and development activities. Under our agreement with each foundry, Virage Logic owns its own IP and the foundry owns its own IP, however, both Virage Logic and the foundry jointly own any IP that is co-developed by the parties during the term of the agreement. Following any such development, we license the developed IP to third-parties that manufacture their silicon chips at the foundry. As consideration for our development efforts, the foundries pay us licensing fees, as well as royalties based on silicon chips manufactured at the foundries using our semiconductor IP. In addition, both parties agree to provide technical, marketing and sales support as appropriate.

As of October 31, 2007, we had 331 employees focused in the engineering-related activities within research, development and operations. We expect to identify and hire additional technical personnel in fiscal year 2008 to fulfill anticipated future needs in our research and development activities, and we expect that these personnel related costs will increase in the future in order to maintain a lead position as a third-party provider of silicon infrastructure in the form of semiconductor IP.

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Sales and Marketing

We are primarily engaged in direct sales in North America, Europe and Asia. In Asia, and more recently in Europe, we also derive indirect sales through distributors or representatives.

Direct Sales. We maintain a network of direct sales representatives and field application engineers serving the United States, Asia, and Europe. Substantially all of our direct sales representatives and field application engineers are located in North America, Europe and Japan and serve our customers in those regions. The sales force is distributed throughout North America with employees in the following locations: Austin, Texas; Londonderry, NH; Fremont and Irvine, CA; and West Palm Beach, FL. To serve our European customers, we have a direct sales organization based in the United Kingdom with additional sales personnel in Germany and Israel. We also have direct sales personnel in Japan. Our sales force’s primary responsibility is to secure and maintain direct account relationships with fabless semiconductor companies and integrated device manufacturers for the license of our products. Developing a customer relationship typically involves weeks or months and can extend well beyond this timeframe.

Indirect Sales. In addition to our direct sales force, we also sell our technologies through distributors in China, Korea, Malaysia, Singapore, and Taiwan, and through representatives in Europe. These indirect sales organizations have expertise in selling semiconductor IP and software design tools. None of these relationships are exclusive.

We enter into license agreements with our customers for a range of embedded memory, logic, I/O and memory controller technologies. For our ASAP Memory, ASAP Logic, SiWare Memory, SiWare Logic, STAR Memory and Base I/O products, in addition to collecting license and consulting fees from the customers, we receive royalties from pure-play foundries that manufacture chips for our fabless customers. For our STAR Memory System and NOVeA products, we receive both license and royalty fees directly from our customers, as well as royalties from the pure-play foundries that manufacture their chips.

We have developed relationships through the Virage Logic IP (VIP) Partner Program with the following types of companies:

• Pure-Play Foundries. We have entered into marketing and technology relationships with several pure-play foundries, including Chartered, Dongbu HiTek, Grace, HeJian, IBM, MagnaChip, SilTerra, SMIC, Tower, TSMC, and UMC. These relationships provide us with early access to new process technologies and endorsements from their direct sales force to our mutual customer base.

• EDA and Test Vendors. We have entered into joint marketing relationships with a number of electronic design automation (EDA) and test vendors, including Cadence Design Systems, Inc. (Cadence), Magma Design Automation, Inc. (Magma), Mentor Graphics Corporation (Mentor Graphics) and Synopsys, Inc. (Synopsys). These relationships allow us to validate our interoperability with these EDA vendors’ software design tools.

• Design Services. We have developed technology alliances with several design service companies, including Alchip Technologies, eSilicon and OpenSilicon, who have experience with Virage Logic semiconductor IP. This allows our customers to augment their design teams or outsource their chip designs to these design service companies.

• IP Providers. We have established technology and joint marketing relationships with numerous IP providers including ARC International plc (ARC), MIPS Technologies (MIPS), QualCore Logic (QualCore) and Tensilica, Inc. (Tensilica), and in some cases offer Virage Logic Core Optimized IP Kits that complement the microprocessor IP products these vendors provide. By working in partnership with other leading IP suppliers to test silicon and provide reference designs, we help customers access the functionality of the IP prior to committing it to their design.

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Customers

Our customers are semiconductor companies that use our semiconductor IP to design complex SoCs. Purchasers of our semiconductor IP products include fabless semiconductor companies, integrated device manufacturers and pure-play foundries. For fabless semiconductor and integrated device manufacturer customers, we license our semiconductor IP on either a single or multiple-project basis. The following chart provides a representative list of our major customers by customer type.

Fabless Semiconductor Companies	Agilent, Altera, Broadcom, Conexant, Ikanos*, Intel, K-Micro, LSI Logic, Marvell, PMC-Sierra*, Sandisk, Sigmatel, TranSwitch, Thomson , Via Technologies
Integrated Device Manufacturers	AMI Semiconductor*, Analog Devices, Atmel, Freescale*, Infineon*, NEC, NXP, Sharp*, Sony, STMicro, Toshiba
Pure-Play Foundries	Chartered*, Dongbu HiTek, Grace, HeJian, IBM, MagnaChip, SilTerra, SMIC*, Tower*, TSMC*, UMC*

* Indicates the eleven customers that generated the highest level of revenues for us in fiscal year 2007.

We expect a small number of companies to collectively represent between 20% and 40% of our revenues for the next few years. In fiscal year 2007, 2006, and 2005, TSMC represented 11%, 17%, and 10% of our revenues, respectively. As our customer base grows and the number of fabless semiconductor companies increases, we expect our dependence on any one customer for revenues to decline. We expect that our sales to fabless semiconductor companies will grow, and as a result we will become more dependent on the availability of new manufacturing process technologies and capacity from pure-play foundries to manufacture our customers’ products.

Proprietary and Intellectual Property

We rely on a combination of nondisclosure agreements and other contractual provisions, as well as patent, trademark, trade secret and copyright law to protect our proprietary rights. Our general policy has been to seek patent protection for those inventions and improvements likely to be incorporated in our technologies or otherwise expected to be of value. We have an active program to protect our proprietary technology through the filing of patents.

As of October 31, 2007, we had 68 U.S. patents issued and 34 U.S. patent applications on file with the U.S. Patent and Trademark Office (USPTO). Our patents expire at various dates between 2019 and 2026, and we expect that once granted, the duration of patents covered by patent applications will be 20 years from the filing of the application. These patents will allow us to prevent others from infringing on some of our core technologies in the United States. We intend to continue to file patent applications as appropriate in the future. We cannot be sure, however, that our pending patent applications will be allowed, that any issued patents will protect our IP or will not be challenged by third parties, or that the patents of others will not seriously harm our ability to do business. In addition, others may independently develop similar or competing technology or design around any of our patents. We also have not secured patent protection in foreign countries, and we cannot be certain that the steps we have taken to protect our IP abroad will be effective.

In addition to patent protection, as of September 30, 2007, we had five U.S. trademarks registered and seven pending U.S. trademark applications on file with the USPTO. If the applications mature to registrations, these registrations would allow us to prevent others from using other similar marks on similar goods and services in the United States. We cannot be sure, however, that the USPTO will issue trademark registrations for any of our pending applications. Further, any trademark rights we hold or may hold in the future may be challenged or may

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not be of sufficient scope to provide meaningful protection. In addition, we had four foreign trademarks registered: two in the European Community and two in Japan. We also had two foreign trademark applications pending in China. The foreign applications are subject to the same conditions as the U.S. trademark applications with respect to their applicable jurisdictions.

We protect the source code of our technologies as both trade secrets and unpublished copyrighted works. We license the object code to our customers for limited uses and maintain contractual controls over the use of our software, but we may not have the resources to enforce such controls, and further such contractual controls may be declared invalid or unenforceable. Wide dissemination of our software makes protection of our proprietary rights difficult, particularly outside the United States, and we may not be able to assert equivalent rights with respect to source code developed by our employees in the Republic of Armenia (Armenia) and India as we could if it were developed in the United States.

We protect our trade secrets and other proprietary information through NDAs with our employees and customers and other security measures, although others may still gain access to our trade secrets or discover them independently.

Although we believe that our technologies do not infringe any patent, copyright or other intellectual proprietary rights of third parties, from time to time, third parties, which may include our competitors, may assert claims of infringement of patent, copyright or other intellectual property rights to technologies that are important to us. There is no such claim to date.

Competition

The semiconductor IP industry is very competitive and is characterized by constant technological change, rapid rates of technology obsolescence and the emergence of new suppliers. Our primary competition comes from the internal development groups of large integrated device manufacturers (IDMs) that develop semiconductor IP for their own use. In addition, we face competition from other third-party providers of semiconductor IP, such as ARM Ltd.’s Physical IP Division (formerly Artisan Components which was acquired by ARM in December 2004), Dolphin Technologies (Dolphin), and certain DRAM IP providers, such as MoSys Inc. (MoSys). Additionally, electronic design automation companies such as Cadence Design Systems, Mentor Graphics, Magma Design Automation and Synopsys, Inc., could play a more significant role in the IP marketplace as they elect to either acquire third-party IP providers or develop their own IP product offerings. An example of this would be Synopsys’ acquisition of MOSAID Technologies, Inc., a provider of double data rate memory controller, PHY and DLL semiconductor IP products. This product offering is competitive to the DDR, PHY and DLL product line that Virage Logic acquired through Ingot Systems, Inc.

Finally, pure-play foundries may decide to distribute embedded memories, logic and I/O components themselves, in addition to manufacturing chips containing third-party IP. TSMC, one of our pure-play foundry customers, has historically produced intellectual property components for use by third-parties in designs to be manufactured at TSMC’s foundry. These components are designed to serve the same purpose as components produced by Virage Logic. The intellectual property components developed by TSMC compete, and are expected to continue to compete with our products. We believe that TSMC is more aggressively developing and distributing these products to encourage its customers to use TSMC to manufacture their current and future designs. TSMC has substantially greater financial, manufacturing and other resources, name recognition and market presence than we do, and the internal design group at TSMC has greater access to technical information about TSMC’s manufacturing processes. If TSMC is successful in supplying its own intellectual property components to third-parties, either directly or through distribution arrangements with other companies, our revenue from TSMC, our revenue from other customers and our operating results could be negatively affected.

We believe that important competitive factors in our market include performance and functionality of products, the ability to customize products for customer requirements, length of development cycle, price,

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compatibility with prevailing design methodologies, interoperability with other devices or subsystems, reputation for successful designs and installed base, overall product quality and reliability, and the level of technical service and support provided.

Employees

As of October 31, 2007, we had 417 employees, including 60 in sales and marketing, 286 in engineering, 45 in operations and 26 in general and administrative functions. A total of 237 of our employees are located outside of the United States. We believe that our future success will depend in part on our continued ability to attract, hire and retain qualified personnel. None of our employees are represented by a labor union, and we believe our employee relations are good.

Executive Officers

The names and ages of our executive officers as of November 30, 2007 are set forth below:

Name	Age	Position(s)
J. Daniel McCranie	64	President and Chief Executive Officer
Christine Russell	58	Vice President of Finance and Chief Financial Officer
Alexander Shubat	45	Vice President of Research and Development, Chief Technical Officer and Director
Pete Rodriguez	46	Chief Marketing Officer
Ehsan Rashid	42	Vice President of Operations

J. Daniel McCranie has served as our Chief Executive Officer since January 2007. Previously, Mr. McCranie was our Chairman of the Board of Directors, from August 2003 to December 2006. Prior to this, Mr. McCranie was Vice President of Sales and Marketing for Cypress Semiconductor, from September 1993 to February 2001. Mr. McCranie was Chairman, Chief Executive Officer and President of SEEQ Technology, from February 1984 to September 1993. Mr. McCranie serves as Chairman of the Board of Directors of ON Semiconductor Corp. and also as a member of the Board of Directors of Actel Company and a member of the Board of Directors of Cypress Semiconductor. Mr. McCranie holds a B.S. in Electrical Engineering from Virginia Polytechnic Institute.

Christine Russell joined Virage Logic as our Vice President of Finance and Chief Financial Officer in June 2006. Ms. Russell has served as a financial executive in Silicon Valley for over twenty years with experience in both emerging and larger companies. Before joining Virage Logic, Ms. Russell served as Chief Financial Officer of OuterBay Technologies, Inc., a database archiving company, from May 2005 to June 2006. Previously, Ms. Russell served as Chief Financial Officer of Ceva, Inc., a digital signal processing IP company, from October 2003 to May 2005, and as Chief Financial Officer of Persistence Software, Inc., a software company, from October 1997 to October 2003. She also held Chief Financial or senior financial positions at Cygnus Solutions, Valence Technology, Inc., Covalent Systems, Stellar Systems, Inc. and Xerox Corporation, from the period May 1978 to October 1997. Ms. Russell serves as a member of the board and chairperson of the audit committee for Peak International Limited, and as a member of the board and chairperson of the audit committee for QuickLogic Corporation. Ms. Russell holds bachelors and masters of business administration degrees in Finance from Santa Clara University.

Alexander Shubat co-founded Virage Logic and has served as our Vice President of Research and Development and Chief Technical Officer and a member of the Board of Directors since January 1996. Before co-founding Virage Logic, Mr. Shubat was a Director of Engineering at Waferscale Integration from November 1985 to December 1995, where he managed various groups, including design, application-specific integrated circuit and high-speed memory. He holds fourteen patents and has contributed to more than 25 publications. Mr. Shubat holds a B.S. and a M.S. in Electrical Engineering from the University of Toronto, Canada and a Ph.D. in Electrical Engineering from Santa Clara University.

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Pete Rodriguez joined Virage Logic as our Chief Marketing Officer in June 2007. From May 2000 to August 2006, Mr. Rodriguez served as Chief Executive Officer and President of Xpedion Design Systems, Inc., a private venture-funded developer of electronic design automation solutions for wireless communication which was acquired by Agilent Technologies in 2006. Mr. Rodriguez stayed at Agilent Technologies until February 2007 in a post acquisition transitional role. Prior to Xpedion, Mr. Rodriguez held senior management positions in sales and marketing at Escalade Corporation, a provider of software for chip design acquired by Mentor Graphics. Mr. Rodriguez also held senior sales management positions at LSI Logic, as well as product management and process engineering positions at Aerojet Electronics, Teledyne Microwave and Siliconix. Mr. Rodriguez currently serves as a director for EXAR, a manufacturer of mixed signal ICs. Mr. Rodriguez holds a B.S. in Chemical Engineering from California Institute of Technology, and M.S. in Electrical Engineering from California Polytechnic University and an MBA from Pepperdine University.

Ehsan Rashid has been our Vice President of Operations since October 2004 and prior to that served as our Senior Director of Operations from April 2003. Before joining Virage Logic, Mr. Rashid served as Senior Vice President and General Manager, Access Product Division, at Com21, Inc., from January 2000 to April 2003. Previously, Mr. Rashid served as Senior Director at Philips Semiconductor after it acquired VLSI Technology from May 1999 to January 2000. Mr. Rashid served as Senior Director of Hardware and Software Engineering, and System Applications in the Consumer Digital Entertainment Division of VLSI Technology, from December 1997 to May 1999, and as Director of Engineering at Hitachi Micro Systems, Inc. Mr. Rashid holds a B.S. in Electrical Engineering from the University of California, Berkeley.

Item 1A. Risk Factors

Risk Related to Our Business

Inability or delayed execution on our strategy to be a leading provider of semiconductor IP could adversely affect our revenues and profitability.

From inception to May 2002, most of our revenues derived from the license of our embedded memory products. In May 2002, we expanded our product offering to also include logic products. In 2003, we added I/Os to our product offering to enable us to offer semiconductor IP platforms. During fiscal 2007, we acquired Ingot Systems, Inc., a provider of memory controller products and design services. If our strategy to be a provider of semiconductor IP platforms is not broadly accepted by potential customers or acceptance is delayed for any reason, our revenues and profitability could be adversely affected. In addition, our profitability could also be adversely affected due to investment of resources directed to the development and/or acquisition of logic and I/O products and due to lower than anticipated revenues from the sale of such products. Factors that could prevent us from gaining market acceptance of our semiconductor IP products include the following:

• difficulties in convincing customers of our memory products to purchase other products from us;

• difficulties and delays in expanding our logic and I/O product offerings; and

• hurdles we may encounter in building and expanding customer relationships.

We may have difficulty sustaining profitability and may experience additional losses in the future.

We recorded a net loss of $4.6 million for the fiscal year ended September 30, 2007 and a net loss of $0.9 million for fiscal 2006. In order to improve our profitability, we will need to continue to generate new sales while controlling our costs. As we plan on continuing the growth of our business while implementing cost control measures, we may not be able to successfully generate enough revenues to return to profitability with this growth. Any failure to increase our revenues and control costs as we pursue our planned growth would harm our profitability and would likely negatively affect the market price of our stock. In addition, if we incurred losses for a sustained period we may be prevented from being able to fully utilize our deferred tax assets which would result in the need for a valuation allowance to be recorded.

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If we are unable to continue establishing relationships on favorable contractual terms with semiconductor companies to license our IP, our business will be harmed.

We rely on license fees from the sale of perpetual and term licenses to generate a large portion of our revenues. These licenses produce streams of revenue in the periods in which the license fees are recognized, but are not necessarily indicative of a commensurate level of revenue from the same customers in future periods. In addition, our agreements with our customers do not obligate them to license new or future generations of our IP. As a result, the growth of our business depends significantly on our ability to expand our business with existing customers and attract new customers.

We face numerous challenges in entering into license agreements with semiconductor companies on terms beneficial to our business, including the following:

• the lengthy and expensive process of building a relationship with potential customers;

• competition with the customers’ internal design teams and other providers of semiconductor IP as our customers may evaluate these alternatives for each design; and

• the need to persuade semiconductor companies to rely on us for critical technology.

These factors may make it difficult for us to maintain our current relationships or establish new relationships with additional customers. Further, there are a finite number of fabless semiconductor companies and integrated device manufacturers to which we can license our IP. If we are unable to establish and maintain these relationships, we will be unable to generate license fees, and our revenues will decrease.

If we are unable to maintain existing relationships and/or develop new relationships with pure-play semiconductor manufacturers or foundries, we will be unable to verify our technologies on their processes and license our IP to them or their customers and our business will be harmed.

Our ability to verify our technologies for new manufacturing processes depends on entering into development agreements with pure-play foundries to provide us with access to these processes. In addition, we rely on pure-play foundries to manufacture our silicon test chips, to provide referrals to their customer base and to help define the focus of our research and development activities. We currently have foundry agreements with Chartered, Dongbu HiTek, SilTerra, SMIC, Tower, TSMC, and UMC. If we are unable to maintain our existing relationships with these foundries or enter into new agreements with other foundries, we will be unable to verify our technologies for their manufacturing processes and our ability to develop products for emerging technologies will be hampered. As of consequence, we would be unable to license our IP to fabless semiconductor companies that use these foundries to manufacture their silicon chips, which is a significant source of our revenues.

We must appropriately manage our relationships with foundries and other strategic partners in order to effectively execute on our business strategy.

In relying on pure-play manufacturing relationships and/our other strategic alliances, we face the following risks:

• reduced control over delivery schedules and product costs;

• manufacturing costs that may be higher than anticipated;

• inability of our manufacturing partners to develop manufacturing methods appropriate for our products and their unwillingness to devote adequate capacity to produce our products;

• decline in product reliability;

• inability to maintain continuing relationships with our pure-play manufacturers due to competition or market consolidation; and

• restricted ability to meet customer demand when faced with product shortages.

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If any of these risks are realized, we could experience an interruption in our supply chain or an increase in costs, which could delay or decrease our revenue or adversely affect our business, financial condition and results of operations.

If we are unsuccessful in increasing our royalty revenues, our revenues and profitability may not grow as desired.

We have agreements with pure-play semiconductor foundries to pay us royalties on their sales of silicon chips they manufacture for our fabless customers. Beginning with our STAR™ Memory System and more recently with the introduction of our NOVeA^® technology, in addition to collecting royalties from pure-play semiconductor foundries, we intend to increase our royalty base by collecting royalties directly from our integrated device manufacturer and fabless customers. However, we may not be successful in convincing all customers to agree to pay us royalties. For fiscal 2007 and 2006, we recorded royalty revenues of approximately $12.1 million and $16.1 million, respectively. The growth of our revenues depends in part on increasing our royalty revenues, but we may not be successful in increasing our royalty revenues as expected and we face difficulties in forecasting our royalty revenues because of many factors beyond our control, such as fluctuating sales volumes of products that incorporate our IP, short or unpredictable product life cycles for some customer products containing our IP, potential slow down for manufacturing of certain newer process technology, foundry rate adjustments, the cyclical nature of the semiconductor industry that affects the number of designs, commercial acceptance of these products, accuracy of revenue reports received from our customers and difficulties in the royalty collection process. In addition, occasionally we have completed agreements whereby significant upfront license fees are reduced or limited in exchange for higher royalty rates, which should result in future royalty revenues, but these royalty arrangements may not provide us with the anticipated benefits as sales of products incorporating our IP may not offset lower license fees.

It is difficult for us to verify royalty amounts owed to us under our licensing arrangements.

The standard terms of our license agreements require our customers to document the manufacture and sale of products that incorporate our technology and report this data to us on a quarterly basis. While standard license terms give us the right to audit the books and records of our customers to verify this information, audits can be expensive, time consuming and potentially detrimental to our ongoing business relationship with our customers. Our inability to audit all of our customers’ books and records may result in us receiving more or less royalty revenue than we are entitled to under the terms of our license agreements. The results of such audits could also result in an increase, as a result of a customers’ underpayment, or decrease, as a result of a customers’ overpayment, to royalty revenues. Such adjustments, as a result of the audit, are recorded in the period they are determined. Any adverse material adjustments resulting from royalty audits may cause our revenues and operating results to be below market expectations, which could cause our stock price to decline. The royalty audit may also trigger disagreements over contractual terms with our customers and such disagreements could adversely affect customer relationship, divert the efforts and attention of our management from normal operations and impact our business operations.

We may be unable to deliver our customized memory, logic and I/O products in the time-frame demanded by our customers, which could damage our reputation and future sales.

A portion of our agreements require us to provide customized products to our customers within a specified delivery timetable. While we have experienced delays in delivering products to our customers, the durations of these delays have typically been short in length so as to not materially damage our relationship with our customers. However, these delays could adversely impact our operations and our financial performance. Future failures to meet significant customer milestones could damage our reputation in our industry and harm our ability to attract new customers.

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We have a long and unpredictable sales cycle, which can result in uncertainty and delays in generating additional revenues.

It can take a significant amount of time and effort to negotiate a sale. Typically, it generally takes at least three to nine months after our first contact with a prospective customer before we start licensing our IP to that customer. In addition, purchase of our products is usually made in connection with new design starts, the timing of which is out of our control. Accordingly, we may be unable to predict accurately the timing of any significant future sales of our products. We may also spend substantial time and management attention on potential license agreements that are not consummated, thereby foregoing other opportunities.

Winning business is subject to a competitive selection process that can be lengthy and requires us to incur significant expense, and we may not be selected.

Our primary focus is on winning competitive bid selection processes, known as “design wins,” to develop products for use in our customers’ equipment. These selection processes can be lengthy and can require us to incur significant design and development expenditures. We may not win the competitive selection process and may never generate any revenue despite incurring significant design and development expenditures. Because we typically focus on only a few customers in a product area, the loss of a design win can sometimes result in our failure to offer a generation of a product. This can result in lost sales and could hurt our position in future competitive selection processes because we may be perceived as not being a technology leader.

After winning a product design for one of our customers, we may still experience delays in generating revenue from our products as a result of the lengthy development and design cycle. In addition, a delay or cancellation of a customer’s plans could significantly adversely affect our financial results, as we may have incurred significant expense and generated no revenue. Finally, if our customers fail to successfully market and sell their equipment it could materially adversely affect our business, financial condition and results of operations as the demand for our products falls.

Products that do not meet customer specifications or contain material defects could damage our reputation and cause us to lose customers and revenue.

The complexity and ongoing development of our products could lead to design or manufacturing problems. Our semiconductor IP products may fail to meet our customers’ design or technical requirements, or may contain defects, which may cause our customers to fail to complete the design and manufacturing of their products in a timely manner. Any of these problems may harm our customers’ businesses. If any of our products fail to meet specifications or have reliability or quality problems, our reputation could be damaged significantly and customers might be reluctant to buy our products, which could result in a decline in revenue, an increase in product returns and the loss of existing customers or failure to attract new customers. These problems may adversely affect customer relationships, as well as our business, financial condition and results of operations.

As advanced process nodes become more complex we may have difficulty in delivering product specifications in similar timeframes and at comparable costs to older process nodes.

The increasing complexity of our products at advanced nodes requires different customer engagements and validation strategies. Such changes require the acceptance of different business terms and schedules by our customers. They also may require an increase of test silicon for purposes of validating performance parameters. Such changes may impact our ability to acquire new customers and could increase our operating expenses.

Our international operations may be adversely affected by instability in the countries in which we operate.

We currently have subsidiaries or branches in the Republic of Armenia, India, the United Kingdom, Israel, Germany and Japan. In addition, a significant portion of our IP is being developed in development centers

located in the Republic of Armenia and India. Israel continues to face an increased level of violence and terror.

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India is experiencing rising costs and in certain industries, intense competition for highly qualified personnel. Armenia has in recent years suffered significant political and economic instability. Accordingly, conditions in areas of the world in which we operate may adversely affect our business in a number of ways, including the following:

• changes in the political or economic conditions in Armenia and changes in the economic conditions in India and the surrounding region, such as fluctuations in exchange rates, changes in laws protecting IP, the imposition of currency transfer restrictions or limitations, or the adoption of burdensome trade or tax policies, procedures, rules, regulations or tariffs, changes in the demand for technical personnel could adversely affect our ability to develop new products, to take advantage of the cost savings associated with operations in Armenia and India, and to otherwise conduct business effectively in Armenia and India;

• our ability to continue conducting business in Israel and other countries in the normal course may be adversely affected by increased risk of social and political instability; and

• our Israeli customers’ demand for our products may be adversely affected because of negative economic consequences associated with reduced levels of safety and security in Israel.

Problems associated with international business operations could affect our ability to license our IP.

Sales to customers located outside North America accounted for 54% and 60% of our revenues for fiscal years ended September 30, 2007 and 2006, respectively. We anticipate that sales to customers located outside North America will increase and will continue to represent a significant portion of our total revenues in future periods. In addition, most of our customers that do not own their own fabrication plants rely on pure-play foundries located outside of North America. Accordingly, our operations and revenues are subject to a number of risks associated with doing business in international markets, including the following:

• managing distributors and sales partners outside the U.S.;

• staffing and managing non-U.S. branch offices and subsidiaries;

• political and economic instability;

• greater difficulty in collecting account receivables resulting in longer collection periods;

• foreign currency exchange fluctuations;

• changes in tax laws and tariffs or the interpretation of such laws and tariffs;

• trade protection measures that may be adopted by other countries;

• compliance with, and unexpected changes in, a wide variety of foreign laws and regulatory environments with which we are not familiar;

• timing and availability of export licenses;

• inadequate protection of IP rights in some countries;

• different labor standards; and

• United States government licensing requirements for exports, which may lengthen the sales cycle or restrict or prohibit the sale or licensing of certain products.

If these risks actually materialize, our international operations may be adversely affected and sales to international customers, as well as those domestic customers that use foreign fabrication plants, may decrease.

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We rely on a small number of customers for a substantial portion of our revenues and our accounts receivables are concentrated among a small number of customers.

We have been dependent on a limited number of customers for a substantial portion of our annual revenues in each fiscal year, although the customers comprising this group have changed from time to time. We have one customer that generated 10% or more of our revenue for fiscal 2007. The license agreements we enter into with our customers do not obligate them to license future generations of our IP and, as a result, we cannot predict if and when they will purchase additional products from us. As a result of this customer concentration, we could experience a significant reduction in our revenues if we lose one or more of our significant customers and are unable to replace them. In addition, since our accounts receivable are concentrated in a relatively small number of customers, a significant change in the liquidity, financial position, or issues regarding timing of payments of any one of these customers could have a material adverse impact on the collectibility of our accounts receivable, revenues recorded and our future operating results.

Our quarterly operating results may fluctuate significantly and the failure to meet financial expectations for any fiscal quarter may cause our stock price to decline.

Our quarterly operating results are likely to fluctuate in the future from quarter to quarter and on an annual basis due to a variety of factors, many of which are outside of Virage Logic’s control. Factors that could cause our revenues and operating results to vary materially from quarter to quarter include the following:

• large orders unevenly spaced over time, or the cancellation or delay of orders;

• pace of adoption of new technologies by customers;

• timing of introduction of new products and technologies and technology enhancements by us and our competitors;

• our lengthy sales cycle and fluctuations in the demand for our products and products that incorporate our IP;

• constrained or deferred spending decisions by customers;

• delays in new process qualification or verification;

• capacity constraints at the facilities of our foundries;

• inability to collect or delay in collection of receivables;

• the timing and completion of milestones under customer agreements;

• the impact of competition on license revenues or royalty rates;

• the cyclical nature of the semiconductor industry and the general economic environment;

• consolidation, merger and acquisition activity of our customer base may cause delays or loss of sales;

• the amount and timing of royalty payments;

• changes in development schedules; and

• research and development expenditures.

As a result, we believe that quarter-to-quarter comparisons of our results of operations are not necessarily meaningful and may not be reliable as indicators of future performance. These factors make it difficult for us to accurately predict our revenues and operating results and may cause them to be below market analysts’ expectations in some quarters, which could cause the market price of our stock to decline.

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If we are unable to effectively manage our growth, our business may be harmed.

Our future success depends on our ability to successfully manage our growth. Our ability to manage our business successfully in a rapidly evolving market requires an effective planning and management process. Our customers rely heavily on our technological expertise in designing and testing our products. Relationships with new customers may require significant engineering resources. As a result, any increase in the demand for our products will increase the requirements on our personnel, particularly our engineers.

Our historical growth, international expansion, and our strategy of being the semiconductor industry’s trusted IP partner, have placed, and are expected to continue to place, a significant challenge on our managerial and financial resources as well as our financial and management controls, reporting systems and procedures. Although some new controls, systems and procedures have been implemented, our future growth, if any, will depend on our ability to continue to implement and improve operational, financial and management information and control systems on a timely basis, together with maintaining effective cost controls. Our inability to manage any future growth effectively would be harmful to our revenues and profitability.

We have recently acquired a small company, and we intend to engage in acquisitions, joint ventures and other transactions that may complement or expand our business. We may not be able to complete such transactions and such transactions, if executed, pose significant risks and could have a negative effect on our operations.

In August 2007 we acquired Ingot Systems, Inc., a provider of memory controller products and design services. Together with its subsidiary in India, Ingot consisted of approximately 30 employees. Achievement of our business goals may be dependent on opportunities to buy other businesses or technologies that could complement, enhance or expand our current business or products or that might otherwise offer us growth opportunities. We may not be able to complete such transactions for a variety of reasons, including our inability to structure appropriate financing for larger transactions. Any transactions that we are able to identify and complete may involve a number of risks, including the following:

• the diversion of our management’s attention from our existing business to integrate the operations and personnel of the acquired or combined business or technology;

• possible adverse effects on our operating results during the integration process; and

• our possible inability to achieve the intended objectives of the transaction.

In addition, we may not be able to successfully or profitably integrate, operate, maintain and manage our newly acquired operations or employees. We may not be able to maintain uniform standards, controls, procedures and policies, and this may lead to operational inefficiencies. Moreover, successful acquisitions in the semiconductor industry may be more difficult to accomplish than in other industries because such acquisitions require, among other things, integration of product offerings, manufacturing relationships and coordination of sales and marketing and research and development efforts. The difficulties of such integration may be increased by the need to coordinate geographically separated organizations and the complexity of the technologies being integrated. Furthermore, products acquired in connection with acquisitions may not gain acceptance in our markets, and we may not achieve the anticipated or desired benefits of such transactions. The inability of management to successfully integrate any future acquisition could harm our business.

We have received assessment orders from the Government of India, Income Tax Department, Office of the Director of Income Tax (Indian Tax Authorities) proposing a tax deficiency in certain of our tax returns, and the outcome of the assessment or any future assessment involving similar claims may have an adverse effect on our consolidated statements of operations.

The Indian Tax Authorities completed its assessment of our tax returns for the tax years 2000 through 2005 and issued assessment orders in which the Indian Tax Authorities proposes to assess an aggregate tax deficiency

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for the three year period of approximately $1.0 million, plus interest, which interest will accrue until the matter is resolved. The assessment orders are not final notices of deficiency, and we have immediately filed appeals to the appellate tax authorities. We believe that the assessments are inconsistent with the applicable tax laws and that we have meritorious defense to the assessments. However, the ultimate outcome cannot be predicted with certainty, including the amount payable or the timing of any such payments upon resolution of the matter. Should the Indian Tax Authorities assess additional taxes as a result of a current or a future assessment, we may be required to record charges to operations in future periods that could have an adverse effect on our consolidated statements of operations.

We may be unable to attract and retain key personnel who are critical to the success of our business.

We believe our future success depends on our ability to attract and retain engineers and other highly skilled personnel and senior managers. In addition, in order to grow our business we must increase our sales force, both domestic and international, with qualified employees. Hiring qualified technical, sales and management personnel is difficult due to a limited number of qualified professionals and competition in our industry for these types of employees. We have in the past experienced delays and difficulties in recruiting and retaining qualified technical and sales personnel and believe that at times our employees are recruited aggressively by our competitors and start-up companies. Our employees are “at will” and may leave our employment at any time, and under certain circumstances, start-up companies can offer more attractive equity incentives than we offer. As a result, we may experience significant employee turnover. Failure to attract and retain personnel, particularly sales and technical personnel would make it difficult for us to develop and market our technologies.

We may need additional capital that may not be available to us and, if raised, may dilute our stockholders’ ownership interest in us.

We may need to raise additional funds to fund growth of our business and any acquisitions we may pursue, to respond to competitive pressures or to acquire complementary products or technologies. Additional equity or debt financing may not be available on terms that are acceptable to us. If we raise additional funds through the issuance of equity or convertible debt securities, the ownership of our stockholders would be diluted and these securities might have rights, preferences and privileges senior to those of our current stockholders. If adequate funds are not available on acceptable terms, our ability to fund our expansion, take advantage of unanticipated opportunities, develop or enhance our products or services, or otherwise respond to competitive pressures would be significantly limited.

Risk Related to Our Industry

We operate in the highly cyclical semiconductor industry, which is subject to significant downturns.

The semiconductor industry is highly cyclical and is characterized by constant and rapid technological change, rapid product obsolescence and price erosion, evolving standards, short product life-cycles and wide fluctuations in product supply and demand. The industry has experienced significant downturns, often in connection with, or in anticipation of, maturing product cycles of both semiconductor companies’ and their customers’ products and declines in general economic conditions. These downturns have been characterized by diminished product demand, production overcapacity, high inventory levels and accelerated erosion of average selling prices. We have experienced these conditions in our business in the past and may experience such downturns in the future. We may not be able to manage these downturns. Any future downturns of this nature could have a material adverse effect on our business, financial condition and results of operations.

If demand for products incorporating complex semiconductors and semiconductor IP does not increase, our business may be harmed.

Our business and the adoption and continued use of our IP by semiconductor companies depends on continued demand for products requiring complex semiconductors, embedded memories and logic elements, such

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as cellular and digital phones, pagers, PDAs, digital cameras, DVD players, switches and modems. The demand for such products is uncertain and difficult to predict, and it depends on factors beyond our control such as the competition faced by each customer, market acceptance of products that incorporate our IP and the financial and other resources of each customer. A reduction in the demand for products incorporating complex semiconductors and semiconductor IP or a decline in the general economic environment which results in the cutback of research and development budgets or capital expenditures would likely result in a reduction in demand for our products and could harm our business. In addition, with increasing complexity in each successive generation of semiconductors, we face the risk that the rate of adoption of smaller technology processes may slow down.

In addition, the semiconductor industry is highly cyclical. Significant economic downturns characterized by diminished demand, erosion of average selling prices, production overcapacity and production capacity constraints are other factors affecting the semiconductor industry. As a result, we may face a reduced number of design starts, tightening of customers’ operating budgets, extensions of the approval process for new orders and projects and consolidation among our customers, all of which may adversely affect the demand for our products and may cause us to experience substantial period-to-period fluctuations in our operating results.

The market for semiconductor IP can be highly competitive and dynamic. We may experience loss in market share to larger competitors with greater resources and/or our customer base may choose to develop semiconductor IP using their own internal design teams.

We face competition from both existing suppliers of third-party semiconductor IP, as well as new suppliers that may enter the market. We also compete with the internal design teams of large, integrated device manufacturers. Many of these internal design teams have substantial programming and design resources and are part of larger organizations with substantial financial and marketing resources. These internal teams may develop technologies that compete directly with our technologies or may actively seek to license their own technologies to third parties, which could negatively affect our revenue and operating results. In addition, our existing customers may choose to develop their own technology solutions internally.

Many of our existing competitors have longer operating histories, greater brand recognition and larger customer bases, as well as greater financial and marketing resources, than we do. This may allow them to respond more quickly than we can to new or emerging technologies and changes in customer requirements. It may also allow them to devote greater resources than we can to the development and promotion of their products. In addition, the intense competition in the market for semiconductor IP could result in pricing pressures, reduced license revenues, reduced margins or lost market share, any of which could harm our operating results and cause our stock price to decline.

The technology used in the semiconductor industry is rapidly changing and if we are unable to develop new technologies and adapt our existing IP to new processes, we will be unable to attract or retain customers.

The semiconductor industry has been characterized by an increasingly rapid rate of development of new technologies and manufacturing processes, rapid changes in customer requirements, frequent product introductions and ongoing demands for greater speed and functionality. Our future success depends on our ability to develop new technologies and introduce new products to the marketplace in a timely manner, and to adapt our existing IP to satisfy the requirements of new processes and our customers. If our development efforts are not successful or are significantly delayed, or if the enhancements or new generations of our products do not achieve market acceptance, we may be unable to attract or retain customers and our operating results could be harmed.

Our ability to continue developing technical innovations involves several risks, including the following:

• our ability to anticipate and respond in a timely manner to changes in the requirements of semiconductor companies;

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• the emergence of new semiconductor manufacturing processes and our ability to enter into strategic relationships with pure-play semiconductor foundries to develop and test technologies for these new processes and provide customer referrals;

• the significant research and development investment that we may be required to make before market acceptance, if any, of a particular technology;

• the possibility that the industry may not accept a new technology or may delay use of a new technology after we have invested a significant amount of resources to develop it; and

• new technologies introduced by our competitors.

If we are unable to adequately address these risks, our IP will become obsolete and we will be unable to sell our products. Further, as new technologies or manufacturing processes are announced, customers may defer licensing our IP until those new technologies become available or our IP has been adopted for that manufacturing process.

In addition, research and development requires a significant expense and resource commitment. We may not have the financial and other resources necessary to develop the technologies demanded in the future and may be unable to attract or retain customers.

General economic conditions and future terrorist attacks may reduce our revenues and harm our business.

As our business has grown, we have become increasingly subject to the risks arising from adverse changes in domestic and global economic conditions. Continued unrest in Israel and the Middle East may negatively impact the investments that our worldwide customers make in these geographic regions. If businesses or consumers defer or cancel purchases of new products that contain complex semiconductors, purchases by fabless semiconductor companies, integrated device manufacturers and production levels by semiconductor manufacturers could decline. This could adversely affect our revenues which in turn would have an adverse effect on our results of operations and financial condition.

Risk Related to Our Intellectual Property Rights

We rely on our proprietary technologies and we cannot assure you that the precautions taken to protect our rights will be adequate or that we will continue to be able to adequately secure such proprietary technologies from third parties.

We rely on a combination of patent, trademark, copyright, mask work and trade secret laws to protect our proprietary rights in our technologies. We cannot be sure that the United States Patent and Trademark Office will issue patents or trademarks for any of our pending applications. Further, any patents or trademark rights that we hold or may hold in the future may be challenged, invalidated or circumvented or may not be of sufficient scope or strength to provide meaningful protection or any commercial advantage to us Furthermore, the laws of some foreign countries may not adequately protect our IP to the same extent as applicable laws protect our IP in the United States. For instance, some portion of our IP developed outside of the United States may not receive the same copyright protection that it would receive if it was developed in the United States. As we increase our international presence, we expect that it will become more difficult to monitor the development of competing technologies that may infringe on our rights as well as unauthorized use of our technologies.

We use license agreements, confidentiality agreements and employee nondisclosure and assignment agreements to limit access to and distribution of our proprietary information and to obtain ownership of technology prepared on a work-for-hire basis. We cannot be sure that we have taken adequate steps to protect our IP rights and deter misappropriation of these rights or that we will be able to detect unauthorized uses and take effective steps to enforce our rights. Since we also rely on unpatented trade secrets to protect some of our proprietary technology, we cannot be certain that others will not independently develop and patent the same

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technologies or otherwise acquire the same or substantially equivalent technologies or otherwise gain access to our proprietary technology or disclose that technology. We also cannot be sure that we can ultimately protect our rights to and improperly disclose our proprietary technologies to others.

Third parties may claim we are infringing or assisting others to infringe their IP rights, and we could suffer significant litigation or licensing expenses or be prevented from licensing our technology.

We believe that our technologies do not infringe the IP rights of third parties to date. However, there are numerous patents in the semiconductor industry and new patents are being issued at a rapid rate. It is not always practicable to determine in advance whether our technologies infringe the patent right of others. As a result, we may be compelled to respond to infringement claims by third parties to protect our rights or defend our customers’ rights. These infringement claims, regardless of merit, could be costly and time-consuming, and divert our management and key personnel from our business operations. In settling these claims, we may be required to pay significant damages and may be prevented from licensing some of our technologies unless we enter into a royalty or license agreement. In addition, if challenging a claim is not feasible, we might be required to enter into royalty or license agreements. If available, the royalty or license agreement may include terms which require us to obtain a license from the third-party to sell or use the relevant technology which may result in significant expenses to the Company or to redesign the technology which would be time consuming and costly to the Company. In the event that we are not be able to obtain such royalty or license agreements on terms acceptable to us, we may be prevented from licensing or developing our technology.

Risk Related to Our Stock

Our stock price may be volatile and could decline substantially.

The market price of our common stock has fluctuated significantly in the past, will likely continue to fluctuate in the future and may decline. Fluctuations or a decline in our stock price may occur regardless of our performance. Among the factors that could affect our stock price, in addition to our performance, are the following:

• variations between our operating results and the published expectations of securities analysts;

• changes in financial estimates or investment recommendations by securities analysts who follow our business;

• announcements by us or our competitors of significant contracts, new products or services, acquisitions, or other significant transactions;

• the inclusion or exclusion of our stock in various indices or investment categories, especially as compared to the investment profiles of our stockholders at a given time;

• changes in economic and capital market conditions;

• changes in business regulatory conditions; and

• the trading volume of our common stock.

A sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.

Sales of a substantial number of shares of our common stock in the public market could adversely affect the market price of our common stock. Adam Kablanian, Chairman of the Board of Directors, and Alexander Shubat, Vice President of Research and Development, Chief Technology Officer and a member of the Board of Directors, each hold a large block of our common stock. Each of Messrs. Kablanian and Shubat has established sales plans, or other sales accounts, to sell shares of our common stock and diversify their holdings. Significant sales by insiders, or the perception that large sales could occur, could adversely impact the public market for our

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stock. Sales transactions are also subject to the restrictions and filing requirements mandated by Securities and Exchange Commission Rule 144. Our officers, directors and principal stockholders controlled as of September 30, 2007 approximately 54% of our common stock. As a result, this significant concentration of share ownership may adversely affect the trading price of our common stock because investors often perceive disadvantages to owning stock in companies with significant block stockholders.

Our certificate of incorporation and bylaws as well as Delaware law contain provisions that could discourage transactions resulting in a change in control, which may negatively affect the market price of our common stock.

Our certificate of incorporation, our bylaws and Delaware law contain provisions that make it more difficult for another company to acquire control of our Company. In addition, these provisions could limit the price that investors would be willing to pay in the future for shares of our common stock. These provisions include:

• our Board of Directors is authorized, without prior stockholder approval, to create and issue preferred stock, commonly referred to as “blank check” preferred stock, with rights senior to those of common stock;

• our Board of Directors is staggered into three classes, only one of which is elected at each annual meeting;

• stockholder action by written consent is prohibited;

• nominations for election to our Board of Directors and the submission of matters to be acted upon by stockholders at a meeting are subject to advance notice requirements;

• certain provisions in our bylaws and certificate may only be amended with the approval of stockholders holding 80% of our outstanding voting stock;

• the ability of our stockholders to call special meetings of stockholders is prohibited; and

• our Board of Directors is expressly authorized to make, alter or repeal our bylaws.

We are also subject to Section 203 of the Delaware General Corporation Law, which provides, subject to enumerated exceptions, that if a person acquires 15% or more of our outstanding voting stock, the person is an “interested stockholder” and may not engage in any “business combination” with us for a period of three years from the time the person acquired 15% or more of our outstanding voting stock. In addition, in February 2007, we executed change in control agreements with our executive officers, which provide severance benefits following a termination without cause, or for good reason, following a change in control. The existence of these agreements and potential pay-outs could act as a deterrent to a potential acquirer.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Facilities

Our principal administrative, sales, marketing and research and development facility is in Fremont, California, and occupies approximately 61,500 square feet. This facility is leased through June 2008. We also lease an office space in Clinton, New Jersey, that is occupied mainly by research and development and engineering personnel. The Clinton office, which occupies approximately 10,900 square feet, is leased through November 2010. In addition, we have development centers in Armenia and India. In September 2003, our development center in Armenia moved into a building owned by us. The office space is approximately 40,000 square feet and the total cost of the building was approximately $2.3 million. We have a development

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center in India located in Noida, near Delhi, which occupies approximately 26,000 square feet in a building leased with a lease term under which the Company has the right, but not the obligation, to occupy the facility through July 2009. Our other development center in India is located in Pune, and occupies approximately 2,010 square feet in a building leased with a short-term lease through August 2008. Our Seattle, Washington lease was terminated in the fourth quarter of 2007.

Item 3. Legal Proceedings

The Company is not a party to any material legal proceeding which would have a material adverse effect on our consolidated financial position or results of operations.

Item 4. Submission of Matters to a Vote of Security Holders

None.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Price and Dividends on Virage Logic Common Stock

Our common stock is traded on the NASDAQ Global Market under the symbol VIRL. The following table sets forth, for the periods indicated, the high and low closing sales prices for the common stock as reported on the NASDAQ Global Market.

	Fiscal Year 2007				Fiscal Year 2006
	High		Low		High		Low
First Quarter	$	9.96	$	8.65	$	10.93	$	7.40
Second Quarter		9.04		7.25		11.41		10.05
Third Quarter		7.92		6.79		12.50		8.85
Fourth Quarter		7.78		6.69		9.84		7.82

As of November 30, 2007, there were approximately 63 stockholders of record of our common stock.

The Company has never paid or declared any cash dividends on our common stock or other securities and does not anticipate paying cash dividends in the foreseeable future.

During the year ended September 30, 2007, we did not issue and sell any shares of common stock, or securities exercisable for or exchangeable into common stock, or any other securities that were not registered under the Securities Act of 1933.

There were no purchases of common stock of the Company made by the Company or any “affiliated purchaser” of the Company as defined in Rule 10b-18(a)(3) under the Exchange Act during the year ended September 30, 2007.

Equity Compensation Plan Information

The equity compensation plan information required to be provided in this Annual Report on Form 10-K is incorporated by reference to the Company’s proxy statement for the 2008 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after the end of our fiscal year ended September 30, 2007.

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Performance Measurement Comparison of Shareholder Return

The graph below compares the cumulative 5-year total return of our common stock with the cumulative total returns of the NASDAQ composite index and the Philadelphia Semiconductor index. The graph tracks the performance of a $100 investment in our common stock, a peer, and the NASDAQ index (with the reinvestment of all dividends) from September 30, 2002 to September 30, 2007.

	Fiscal 2002	Fiscal 2003	Fiscal 2004	Fiscal 2005	Fiscal 2006	Fiscal 2007
Virage Logic Corporation	100.00	80.59	130.75	82.18	96.61	78.69
NASDAQ Composite	100.00	150.59	162.89	185.48	196.37	236.60
Philadelphia Semiconductor	100.00	186.79	153.97	193.70	185.07	210.02

Item 6. Selected Consolidated Financial Data

The selected consolidated financial data set forth below should be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the notes thereto included elsewhere in this filing. The consolidated statements of operations data for each of the fiscal years ended September 30, 2007, 2006 and 2005 and the consolidated balance sheet data as of September 30, 2007 and 2006 have been derived from our audited consolidated financial statements included elsewhere in this filing. The consolidated statements of operations data for the fiscal years ended September 30, 2004 and 2003 and the consolidated balance sheet data as of September 30, 2005, 2004, and 2003 have been derived from our audited consolidated financial statements not included in this filing. The historical financial information may not be an accurate indicator of our future performance.

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SELECTED CONSOLIDATED CONDENSED FINANCIAL DATA

	Year Ended September 30,
	2007			2006			2005			2004			2003
	(In thousands, except per share data)
Consolidated Statements of Operations Data:
Revenues	$	46,527		$	59,303		$	53,389		$	53,003		$	40,657
Cost and expenses:
Cost of revenues		12,938			14,803			13,035			11,244			9,511
Research and development		20,346			21,407			19,841			18,476			19,177
Sales and marketing		15,464			16,858			15,608			14,652			13,103
General and administrative		8,891			10,319			9,083			6,618			4,987
Restructuring		580			—			—			—			—
Total cost and expenses		58,219			63,387			57,567			50,990			46,778
Operating income (loss)		(11,692	)		(4,084	)		(4,178	)		2,013			(6,121	)
Interest income		4,002			3,055			1,740			719			812
Other income (expenses), net		(157	)		270			(37	)		37			(73	)
Income (loss) before taxes		(7,847	)		(759	)		(2,475	)		2,769			(5,382	)
Income tax provision (benefit)		(3,242	)		120			(2,160	)		859			(1,532	)
Net income (loss)	$	(4,605	)	$	(879	)	$	(315	)	$	1,910		$	(3,850	)
Basic and diluted net income (loss) per share	$	(0.20	)	$	(0.04	)	$	(0.01	)	$	0.09		$	(0.19	)
Shares used in computing basic net income (loss) per share		23,111			22,812			22,187			21,391			20,750
Shares used in computing diluted net income (loss) per share		23,111			22,812			22,187			22,139			20,750
	September 30,
	2007			2006			2005			2004			2003
	(In thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents	$	14,820		$	20,815		$	26,841		$	28,746		$	38,930
Marketable securities		60,368			56,786			40,997			34,366			20,180
Working capital		62,315			76,501			67,084			63,055			62,453
Total assets		128,871			126,275			114,494			109,188			96,562
Accumulated deficit		(26,739	)		(22,134	)		(21,255	)		(20,940	)		(22,850	)
Total stockholders’ equity		110,219			108,818			99,368			91,511			87,373

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our financial condition and results of operations should be read together with the consolidated financial statements and the notes thereto included elsewhere in this Annual Report on Form 10-K . This discussion contains forward-looking statements, which involve risk and uncertainties. Our actual results could differ materially from those anticipated in the forward looking statements as a result of certain factors, including but not limited to those discussed in “Risk Factors” and in other documents we file from time to time with the Securities and Exchange Commission. See “Forward Looking Statements” in Part I of this Annual Report on Form 10-K.

Overview

Business Environment

Virage Logic provides semiconductor intellectual property (IP) to the global semiconductor industry. Our semiconductor IP offering consists of (1) embedded memories, (2) compilers that allow chip designers to configure our memories into different sizes and shapes on a single silicon chip, (3) IP and development infrastructure for embedded test and repair of on-chip memory instances, (4) software development tools used to design memory compilers, (5) embedded non-volatile memory instances, (6) logic cell libraries, (7) I/Os, and (8) DDR memory controller components. These various forms of IP are utilized by our customers to design and manufacture System-on-Chip (SoC) integrated circuits that are forming the foundation of today’s consumer, communications and networking, hand-held and portable devices, computer and graphics, automotive, and defense applications. We also provide custom design services to the semiconductor industry.

Our customers include fabless semiconductor companies, integrated device manufacturers and foundries. As semiconductor companies face increasing pressures to bring products to market faster and semiconductors have shorter product cycles, we focus on providing our customers a broad product offering as a means to satisfy a larger portion of our customers’ semiconductor IP needs, while positioning ourselves to offer advanced products as the semiconductor industry migrates to smaller geometries.

The timing of customer purchases of our products is typically related to new design starts by fabless companies and migration to new manufacturing processes by integrated device manufacturers and foundries. Because of the high costs involved in new design starts and migration to new manufacturing processes, our customers’ decision regarding these matters is heavily dependent on their long-term business outlook. As a result, our business, and specifically our license revenues, is likely to grow at times of positive outlook for the semiconductor industry.

In fiscal year 2007, we derived 59% of our license revenue from the more advanced processes, 90-nanometer and 65-nanometer technologies and 41% from the older process nodes, predominantly 0.13, 0.18, 0.25 and 0.35 micron technologies. The Company expects the 90-nanometer, 65-nanometer and 45-nanometer technologies to drive revenue growth in the foreseeable future while license revenues from the older process nodes decline. Our royalty revenue to date has been from production on the older process nodes, and we expect future growth in royalty revenues to be driven by the advanced processes, 45-nanometer, 65-nanometer and 90-nanometer technologies, in addition to continued production on the 0.13 and 0.18 micron technologies.

We sell our product early in the design process, and there are time delays of 24 to 36 months between the sale of our products and the time we expect to receive royalty revenues. These time delays are due to the length of time required for our customers to implement our semiconductor IP into their designs, and then to manufacture, market and sell a product incorporating our products. As a result, we expect our royalty revenues to increase in periods in which manufacturing volumes of semiconductors are growing. Future growth of our royalty revenue is dependent on our ability to increase the number of designs incorporating our products and on such designs achieving substantial manufacturing volumes.

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Sources of Revenues

Our revenues are derived principally from licenses of our semiconductor IP products, which include:

• semiconductor IP platforms;

• embedded memory, logic and I/O elements;

• standard and custom memory compilers;

• memory test processor and fuse box components for embedded test and repair of defective memory cells; and

• Double Date Rate memory controllers, Physical Interfaces, and Delay Locked Loops.

We also derive revenues from royalties, custom design services, maintenance services and library development and consulting services related to the license of logic components. Our revenues are reported in two separate categories: license revenues and royalty revenues. License revenues are derived from license fees, maintenance fees, fees for custom design services, library design services and consulting services. Royalty revenues are derived from fees paid by a customer or a third-party foundry based on production volumes of wafers containing chips utilizing our semiconductor IP technologies.

The license of our semiconductor IP typically covers a range of platform, embedded memory, logic, I/O, DDR memory controller, PHY and DLL products. Licenses of our semiconductor IP products can be either perpetual or term-based. In addition, maintenance can be purchased for both types of licenses.

We derive our royalty revenues from pure-play foundries that manufacture chips incorporating our Area, Speed and Power (ASAP) Memory, ASP Logic, SiWare Memory, SiWare Logic and STAR Memory products for our fabless customers, and from integrated device manufacturers and fabless customers that utilize our STAR Memory System^tm and NOVeA^® technologies. Royalty payments are in addition to the license fees we collect from our customers, and are calculated based on production volumes of wafers containing chips utilizing our semiconductor IP technologies based on a rate per-chip or rate per-wafer depending on the terms of the respective license agreement. Royalty revenues are generally determined and recognized one quarter in arrears, when a production volume report is received from the customer or foundry.

Royalty revenues for the years ended September 30, 2007, 2006, and 2005 were $12.1 million, $16.1 million, and $11.0 million, respectively.

We have been dependent on a limited number of customers for a substantial portion of our annual revenues, although that dependency continues to decrease. Customers comprising our top 10 customer group have changed from time to time. In each of fiscal year 2007, 2006, and 2005 one customer, TSMC, generated 10% or more of our revenues.

Sales to customers located outside North America accounted for 54%, 60% and 63% of our revenues in fiscal years 2007, 2006 and 2005, respectively. Substantially all of our direct sales representatives and field application engineers are located in North America and Europe and serve those regions. In Japan and the rest of Asia, we use both indirect sales through distributors and direct sales through sales representatives. All revenues to date have been denominated in U.S. dollars.

Significant Events in Fiscal Year 2007

• We completed the acquisition of Ingot Systems, Inc. a leading provider of application specific IP solutions and design services to the semiconductor industry. The acquisition expands our ability to serve the Company's chosen markets by adding new products and services required in the rapid development of System-on-Chip integrated circuits to our current family of physical IP products including memory compilers, logic libraries and related development tools.

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• We signed a total of 33 agreements for our 90-nanometer product offerings, 17 agreements on 65-nanometer, and 3 agreements on 45-nanometer. For direct royalty bearing agreements, we have signed 6 NOVeA non-volatile embedded memory product and 16 STAR Memory System products. During the fiscal year 2007, we signed agreements with a total of 39 new customers.

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with generally accepted accounting principles in the United States requires that we make estimates and judgments, which affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. We continually evaluate our estimates, including those related to percentage-of-completion, allowance for doubtful accounts, investments, intangible assets, income taxes, and contingencies such as litigation. We base our estimates on historical experience and other assumptions that we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

We have identified the following as critical accounting policies to our Company:

• revenue recognition;

• valuation of accounts receivable;

• valuation of purchased intangibles, including goodwill;

• valuation of long-lived assets;

• stock-based compensation; and

• accounting for income taxes.

Revenue Recognition

The Company’s revenue recognition policy is based on the American Institute of Certified Public Accountants Statement of Position 97-2, “Software Revenue Recognition”, as amended by Statement of Position 98-4 and Statement of Position 98-9. Additionally, revenue is recognized on some of our products, according to Statement of Position 81-1, “Accounting for Performance of Construction-Type and Certain Production-Type Contracts.”

Revenues from perpetual licenses for the semiconductor IP products are generally recognized when persuasive evidence of an arrangement exists, delivery of the product has occurred, the fee is fixed or determinable, and collectibility is reasonably assured. If any of these criteria are not met, revenue recognition is deferred until such time as all criteria are met. Revenues from term-based licenses are recognized ratably over the term of the license, which are generally between twelve to thirty-six months in duration, provided the criteria mentioned above are met.

License of custom memory compilers and logic libraries may involve customization to the functionality of the software; therefore revenues from such licenses are recognized in accordance with Statement of Position 81-1 over the period that services are performed. Revenue derived from library development services are recognized using a percentage-of-completion method, and revenues from technical consulting services are recognized as the services are performed. For all license and service agreements accounted for using the percentage-of-completion method, the Company determines progress-to-completion based on labor hours incurred in comparison to the estimated total service hours required to complete the development or service or on the value of contract milestones completed. The Company believes that it is able to reasonably and reliably estimate the costs to complete projects accounted for using the percentage-of-completion method based on historical experience of similar project requirements. If the Company cannot reasonably and reliably estimate the costs to complete a project, the completed contract method of accounting is used, such that costs are deferred until the project is completed, at which time revenues and related costs are recognized. A provision for estimated losses on any project is made in the period in which the loss becomes probable and can be reasonably estimated. Costs incurred

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in advance of revenue recognition are recorded as costs in excess of related revenue on uncompleted contracts. If customer acceptance is required for completion of specified milestones, the related revenue is deferred until the acceptance criteria are met. If a portion of the value of a contract is contingent based on meeting a specified criteria, then the contingent value of the contract is deferred until the contingency has been satisfied or removed.

For agreements that include multiple elements, the Company recognizes revenues attributable to delivered or completed elements when such elements are completed or delivered. The amount of such revenues is determined by applying the residual method of accounting by deducting the aggregate fair value of the undelivered or uncompleted elements, which the Company determines by each such element’s vendor-specific objective evidence of fair value, from the total revenues recognizable under such agreement. Vendor-specific objective evidence of fair value of each element of an arrangement is based upon the higher of the normal pricing for such licensed product and service when sold separately or the actual price stated in the contract, and for maintenance, it is determined based on 20% of the net selling price of the license for new agreements starting in fiscal 2007 or the higher of the actual price stated in the contract or the stated renewal rate in each contract for all contracts entered prior to fiscal 2007. Revenues are recognized once the Company delivers the element identified as having vendor-specific objective evidence or once the provision of the services is completed. Maintenance revenues are recognized ratably over the remaining contractual term of the maintenance period from the date of delivery of the licensed materials receiving maintenance, which is generally twelve months.

The Company assesses whether the fee associated with each transaction is fixed or determinable and collection is reasonably assured and evaluates the payment terms. If a portion of the fee is due beyond normal payment terms, the Company recognizes the revenues on the payment due date, as long as collection is reasonably assured. The Company assesses collectibility based on a number of factors, including past transaction history and the overall credit-worthiness of the customer. If collection is not reasonably assured, revenue is deferred and recognized at the time collection becomes reasonably assured, which is generally upon receipt of the payment.

Amounts invoiced to customers in excess of recognized revenues are recorded as deferred revenues. Amounts recognized as revenue in advance of invoicing the customer are recorded as unbilled accounts receivable. The timing and amounts invoiced to customers can vary significantly depending on specific contract terms and can therefore have a significant impact on deferred revenues and unbilled accounts receivable in any given period. All of the criteria under SOP 97-2 or SOP 81-1, as applicable, have been met, prior to the recognition of any revenue that would create an unbilled accounts receivable balance.

Royalty revenues are generally determined and recognized one quarter in arrears based on SOP 97-2, when a production volume report is received from the customer or foundry, and are calculated based on actual production volumes of wafers containing chips utilizing our semiconductor IP technologies based on a rate per-chip or rate per-wafer depending on the terms of the respective license agreement. Prepaid royalties are recognized as revenue upon either the receipt of a corresponding royalty report or after all related license deliverables have been made.

Valuation of Accounts Receivable

We monitor collections and payments from our customers and maintain an allowance for estimated credit losses based upon specific customer collection risks that we have identified. While such credit losses have historically been within our expectations and the allowance we have established, we cannot guarantee that we will continue to experience the same credit loss rates that we have in the past. Since our accounts receivable are concentrated in a relatively small number of customers, a significant change in the liquidity or financial position of any one of these customers could have a material adverse impact on the quality of our accounts receivables and our future operating results.

Valuation of Purchased Intangibles, Including Goodwill

We periodically evaluate purchased intangibles, including goodwill, for impairment at least annually. An assessment of goodwill is subjective by nature, and significant management judgment is required to forecast

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future operating results, projected cash flows and current period market capitalization levels. If our estimates or related assumptions change in the future, these changes in conditions could require material write-downs of net intangible assets, including impairment charges for goodwill. The valuation of intangible assets was based on management’s estimates. Intangible assets with finite useful lives are amortized over the estimated life of each asset. As of September 30, 2007, management believes no impairment of intangible assets has occurred. The carrying value of purchased intangibles, including goodwill, is $14.1 million and $11.8 million as of September 30, 2007 and 2006, respectively. If the asset is deemed impaired, the maximum amount of impairment would be the full carrying value of the asset.

Valuation of Long-Lived Assets

We review the carrying value of our long-lived assets whenever events or changes in business circumstances or our planned use of assets indicate that their carrying amounts may not be fully recoverable or that their useful lives are no longer appropriate. This review is based upon our projections of anticipated future cash flows from such assets. While we believe that our estimates of future cash flows are reasonable, different assumptions regarding such cash flows could materially affect our evaluations, which could result in an impairment charge. As of September 30, 2007 the Company had an intangible asset of $2.5 million related to technology and other intangibles acquired through the acquisitions of In-Chip Systems, Inc. and Ingot Systems, Inc.

Stock-based compensation

In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 123 (revised 2004), “Shared-Based Payments” (SFAS 123R), which requires the measurement of all employee share-based payments to employees, including grants of employee stock options and other equity based awards, using a fair-value based method and the recording of such expense in our consolidated statements of operations. The accounting provisions of SFAS 123R are effective for fiscal periods beginning after June 15, 2005.

As of October 1, 2005, we adopted SFAS 123R. We now use the fair value method to apply the provisions of SFAS 123R with a modified prospective application which provides for certain changes to the method for valuing stock-based compensation. The valuation provisions of SFAS 123R apply to new awards and to unvested awards that were outstanding on the effective date. Under the modified prospective application, prior periods are not revised for comparative purposes. Total SFAS 123R compensation expense recognized for fiscal years ended September 30, 2007 and 2006 was $4.3 million and $6.7 million, respectively. As of September 30, 2007, total unrecognized estimated compensation expense net of forfeitures related to non-vested equity awards granted prior to that date was $8.0 million and will be amortized over the average of 2.6 years.

Prior to October 1, 2005, we accounted for stock-based awards under the intrinsic value method, which followed the recognition and measurement principles of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB Opinion No. 25), and related interpretations. The intrinsic value method of accounting resulted in compensation expense for restricted stock and restricted stock units at fair value on date of grant based on the number of shares granted and the quoted price of our common stock, and for stock options to the extent option exercise prices were set below market prices on the date of grant. Also, to the extent stock awards were subject to an exchange offer, other modifications, or performance criteria, such awards were subject to variable accounting treatment. To the extent stock awards were forfeited prior to vesting, the corresponding previously recognized expense was reversed as an offset to operating expenses.

We value our stock-based awards on the date of grant using the Black-Scholes model. Prior to the adoption of SFAS 123R, the value of each stock-based award was estimated on the date of grant using the Black-Scholes option-pricing model (Black-Scholes model) for the pro forma information required to be disclosed under Statement of Financial Accounting Standards No. 123 (SFAS 123). The determination of the fair value of stock-based payment awards on the date of grant using a pricing model is affected by our stock price as well as

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assumptions regarding a number of complex and subjective variables. These variables include, but are not limited to, our expected stock price volatility over the term of the awards, actual and projected employee equity awards exercise behaviors, risk-free interest rate and expected dividends.

For purposes of estimating the fair value of equity awards granted during the fiscal year ended September 30, 2007 and 2006 using the Black-Scholes model, we have made an estimate regarding our stock price volatility using the historical volatility in our stock price for the expected volatility assumption input to the model. This approach is consistent with the guidance in SFAS 123R and the Securities and Exchange Commission’s Staff Accounting Bulletin No. 107 (SAB 107).

The risk-free interest rate is based on the implied yield currently available on United States Treasury zero-coupon issues with a remaining term equal to the expected term of the awards on the grant date.

Furthermore, as required under SFAS 123R, we estimate forfeitures for equity awards granted which are not expected to vest. We calculate the pre-vesting forfeiture rate by using our historical equity grants cancellation information.

If factors change and we employ different assumptions in the application of SFAS 123R in future periods, the compensation expense that we record under SFAS 123R may differ significantly from what we have recorded in the current period. Therefore, we believe it is important for investors to be aware of the high degree of subjectivity involved when using pricing models to estimate stock-based compensation under SFAS 123R. There is a risk that our estimates of the fair values of our stock-based compensation awards on the grant dates may bear little resemblance to the actual values realized upon the exercise, expiration, early termination or forfeiture of those stock-based payments in the future. Certain stock-based payments may expire worthless or otherwise result in zero intrinsic value as compared to the fair values originally estimated on the grant date and reported in our consolidated financial statements. Alternatively, value may be realized from these instruments that are significantly in excess of the fair values originally estimated on the grant date and reported in our consolidated financial statements. There is currently no market-based mechanism or other practical application to verify the reliability and accuracy of the estimates stemming from these valuation models, nor is there a means to compare and adjust the estimates to actual values. Although the fair value of employee stock-based awards is determined in accordance with SFAS 123R and SAB 107 using a pricing model, such value may not be indicative of the fair value observed in a willing buyer /willing seller market transaction.

Accounting for Income Taxes

We calculate our income taxes based on an estimated annual effective tax rate in compliance with SFAS No. 109 “Accounting for Income Taxes.” Under SFAS No. 109, income tax expense (benefit) is recognized for the amount of taxes payable or refundable for the current year, and for deferred tax assets and liabilities for the tax consequences of events that have been recognized in an entity’s financial statements or tax returns. However, as required by FASB Interpretation No. 18, “Accounting for Income Taxes in Interim Periods” (FIN 18), the impact of items of tax expense (or benefit) that do not relate to “ordinary income” in the current year generally should be accounted for discretely in the period in which it occurs and be excluded from the effective tax rate calculation. As a result the Company reported a discrete tax benefit of approximately $331,000 relating primarily to research and development credit claimed due to the re-enactment of the research and development credit and disqualifying dispositions of incentive stock options which had previously been expensed for generally accepted accounting principles purposes. Significant components affecting the tax rate include an increase from stock-based compensation relating to non-deductible incentive stock options and the composite state tax rate.

For financial statement purposes, we make certain estimates and judgments in determining income tax expense. These estimates and judgments occur in the calculation of tax credits, tax benefits, deductions and in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes. If actual results differ from our estimates, future income tax expense could be materially affected.

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We record the estimated future tax effects of temporary differences between the tax bases of assets and liabilities and amounts reported in the accompanying consolidated balance sheets. These differences resulted in deferred tax assets of $15.1 million and deferred tax liabilities of $1.0 million as of September 30, 2007. We assess the likelihood that we will be able to recover our deferred tax assets. If recovery is not more likely than not, we increase our provision for taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable. We believe that substantially all of the deferred tax assets recorded on our balance sheet will ultimately be recovered. However, should there be a change in our ability to recover our deferred tax assets, our tax provision would increase in the period in which we determined that the recovery was not more likely than not.

In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. We recognize liabilities for anticipated tax audit issues in the United States and other tax jurisdictions based on our estimate of whether, and the extent to which, additional tax payments are probable. If we ultimately determine that payment of these amounts is unnecessary, we reverse the liability and recognize a tax benefit during the period in which we determine that the liability is less than we expect the ultimate assessment to be. Taxes payable were $3.0 million and $2.6 million as of September 30, 2007 and 2006, respectively.

Results of Operations

Comparison of the Years Ended September 30, 2007 and 2006

Revenues

The table below sets forth the changes in revenues from fiscal year 2006 to fiscal year 2007 (in thousands, except percentage data):

	Year Ended September 30, 2007				Year Ended September 30, 2006
	Amount		% of Total Revenues		Amount		% of Total Revenues		Year-Over-Year Change
Revenues:
License	$	34,379	73.9	%	$	43,214	72.9	%	$	(8,835	)	(20.4	)%
Royalties		12,148	26.1	%		16,089	27.1	%		(3,941	)	(24.5	)%
Total revenues	$	46,527	100.0	%	$	59,303	100.0	%	$	(12,776	)	(21.5	)%

Revenues decreased $12.8 million or 21.5% from fiscal year 2006 to fiscal year 2007. The decrease resulted from an $8.8 million decrease in license revenue and a $3.9 million decrease in royalty revenue.

The following table lists the percentage of license revenues by process node for the years ended September 30, 2007 and 2006.

	Year Ended September 30,
	2007		2006
Total License Revenues by Process Node:
65-nanometer technology	23	%	10	%
90-nanometer technology	36		43
0.13 micron technology	28		33
0.18 micron technology	10		12
Other	3		2

License revenues for the year ended September 30, 2007 were $34.4 million, representing a decrease of $8.8 million or 20.4% as compared to $43.2 million for fiscal year 2006. License revenue decreased in fiscal year

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2007 mainly attributable to decreases of $6.4 million on our 90-nanometer technology, $6.5 million on our 0.13 micron and 0.18 micron technologies, partially offset by increases of $4.1 million on our 65-nanometer and older technologies. From a product perspective, 90-nanometer technology contributed sales of 36% of total in fiscal year 2007 down from 43% in fiscal year 2006, while 65-nanometer technology license revenue grew from 10% in fiscal year 2006 to 23% of total license revenue in fiscal year 2007. These sales were derived from all categories of our customers: integrated device manufacturers, fabless and foundry semiconductor customers.

Royalties decreased $3.9 million from fiscal year 2006 to fiscal year 2007. The fiscal year 2007 decrease was primarily attributed to a decline in royalties associated with our 90-nanometer technology processes. In fiscal 2007, we received our first royalties from our 65-nanometer technology. We expect 65-nanometer royalties to grow in fiscal year 2008.

For the years ended September 30, 2007 and 2006, total revenues by geographic area are as follows:

	Year Ended September 30,				Increase (Decrease)
	2007		2006
Total Revenues by Geographic Area:
United States	$	19,862	$	20,387	$	(525	)
Taiwan		9,446		15,734		(6,288	)
Europe, Middle East and Africa (EMEA)		9,200		9,105		95
Japan		2,358		3,244		(886	)
Canada		1,492		3,091		(1,599	)
Other Asia		4,169		7,742		(3,573	)
Total	$	46,527	$	59,303	$	(12,776	)

From a geographic perspective, the decrease in fiscal year 2007 revenues resulted from significant sales decreases due to a decline in license agreements with certain existing customers using our memory systems substantially in Taiwan of $6.3 million and in North America and Other Asia of $5.7 million.

Cost and Expenses

The table below sets forth the changes in cost and expenses from fiscal year 2006 to fiscal year 2007 (in thousands, except percentage data):

	Year Ended September 30, 2007			Year Ended September 30, 2006			Year-Over-Year Change
	Amount		% of Total Revenues	Amount		% of Total Revenues
Cost and expenses:
Cost of revenues	$	12,938	27.8%	$	14,803	25.0%	$	(1,865	)	(12.6)%
Research and development		20,346	43.7%		21,407	36.1%		(1,061	)	(5.0)%
Sales and marketing		15,464	33.2%		16,858	28.4%		(1,394	)	(8.3)%
General and administrative		8,891	19.1%		10,319	17.4%		(1,428	)	(13.8)%
Restructuring charges		580	1.2%		—	—		580		—
Total cost and expenses	$	58,219	125.0%	$	63,387	106.9%	$	(5,168	)	(8.2)%

Cost of Revenues

Cost of revenues is determined principally based on allocation of costs associated with custom contracts and maintenance contracts, which consist primarily of personnel expenses, allocation of facilities costs, and depreciation expenses of acquired software and capital equipment. Cost of revenues in fiscal year 2007 totaled

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$12.9 million, representing a decrease of $1.9 million or 12.6% compared to $14.8 million in fiscal year 2006. The decreases from fiscal year 2006 to fiscal year 2007 was primarily attributable to a decrease of $0.9 million of cost allocation driven by lower engineering consulting fees and software maintenance contracts expenses, a decrease of $0.7 million in deferred contract expenses associated with custom projects, and a decrease of $0.3 million in stock-based compensation expense related to SFAS 123R. We believe that cost of revenues will continue to fluctuate in the future, both in absolute dollars and as a percentage of revenues, based on the impact on SFAS 123R and the level of license revenues.

Research and Development

Research and development expenses primarily include personnel expense, software license and maintenance fees, as well as capital equipment depreciation expenses. Research and development expense for the year ended September 30, 2007 was $20.3 million, representing a decrease of $1.1 million or 5.0%, from $21.4 million for the year ended September 30, 2006. Research and development expense as a percentage of total revenue for the year ended September 30, 2007 increased to 43.7% from 36.1% for fiscal year 2006. The decreases in research and development expense from fiscal year 2006 to fiscal year 2007 was primarily due to a decrease of $0.9 million in facilities and other support costs, a decrease of $0.7 million in consulting fees, and a decrease of $0.5 million in stock-based compensation related to SFAS 123R, partially offset by an increase of $1.0 million in personnel related expenses. In addition, research and development expense included $123,000 of in-process research and development and amortization of intangibles in fiscal year 2007 related to our acquisition of Ingot Systems, Inc.

Sales and Marketing

Sales and marketing expense consists mainly of personnel expenses, commissions, advertising and promotion-related costs. Sales and marketing expense for the year ended September 30, 2007 was $15.5 million, representing a decrease of $1.4 million or 8.3% over $16.9 million for the same period in fiscal year 2006. For the year ended September 30, 2007, sales and marketing expense as a percentage of revenue was 33.2%, compared to 28.4% for the same period in fiscal year 2006. The decrease in sales and marketing expense in fiscal year 2007 was primarily due to a decrease of $0.5 million expense in stock-based compensation related to SFAS 123R and a decrease of $0.9 million in personnel related expenses.

General and Administrative

General and administrative expense consists primarily of personnel, corporate governance and other costs associated with the management of our business. General and administrative expense for the year ended September 30, 2007 was $8.9 million, representing a decrease of $1.4 million or 13.8% over $10.3 million for the year ended September 30, 2006. General and administrative expense as a percentage of total revenue was 19.1% for the year ended September 30, 2007, compared to 17.4% for the same period in fiscal year 2006. The decrease in general and administrative expense from fiscal year 2006 to fiscal year 2007 was primarily due to a decrease of $1.0 million expense in stock-based compensation related to SFAS 123R, a decrease of $0.3 million in consulting fees, and a decrease of $1.2 million of professional fees related to accounting and auditing expenses, partially offset by decreases of $0.7 million related to recoveries of previously written-off bad debt and $0.4 million of personnel related expenses.

Restructuring Charges

Restructuring charges consist primarily of severance payments, severance-related benefits, lease costs associated with a vacated facility, and charges for assets written off as a result of the restructuring plan. During 2007, the Company initiated a plan of restructuring in an effort to reduce operating expenses and improve operating margins and cash flows. The restructuring plan was intended to decrease costs through workforce reductions and facility and resource consolidation, in order to improve our cost structure. For the fiscal year

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ended 2007, restructuring expense totaled $0.6 million of which $0.4 million were personnel related costs due to severance payments and severance related benefits and $0.2 million were related to facility closure costs including asset write-off costs.

Interest Income and Other Income (Expenses), net

The table below sets forth the changes in interest income and other income (expenses), net from fiscal year 2006 to fiscal year 2007 (in thousands, except percentage data):

	Year Ended September 30, 2007					Year Ended September 30, 2006				Year-Over-Year Change
	Amount			% of Total Revenues		Amount		% of Total Revenues
Interest income and other income (expenses), net:
Interest income	$	4,002		8.6	%	$	3,055	5.1	%	$	947		31.0	%
Other income (expenses), net		(157	)	(0.3	)%		270	0.5	%		(427	)	(158.1	)%
Total interest income and other income (expenses), net	$	3,845		8.3	%	$	3,325	5.6	%	$	520		15.6	%

Interest Income

Interest income was $4.0 million and $3.1 million for the years ended September 30, 2007 and 2006, respectively. Interest income increased from fiscal year 2006 to fiscal year 2007 due to increased average balances of our investment holdings and higher interest rates received on our portfolio of marketable securities.

Other Income (Expenses), net

Other income (expenses), net resulted in a net other expense of $157,000 in the year ended September 30, 2007 and net other income of $270,000 for the year ended September 30, 2006. The net other expense in fiscal year 2007 and net other income in fiscal year 2006 were primarily due to foreign exchange gains (losses) on transactions denominated in foreign currencies.

Income Tax Provision (Benefit)

The table below sets forth the changes in income tax provision (benefit) from fiscal year 2006 to fiscal year 2007 (in thousands, except percentage data):

	Year Ended September 30, 2007					Year Ended September 30, 2006				Year-Over-Year Change
	Amount			% of Total Revenues		Amount		% of Total Revenues
Income tax provision (benefit)	$	(3,242	)	(7.0	)%	$	120	0.2	%	$	(3,362	)	(2,802	)%

For fiscal year 2007, we recorded a tax benefit of $3.2 million on a pre-tax loss of $7.8 million, yielding an effective tax rate of 41%. For fiscal year 2006, we recorded a tax provision of $0.1 million on a pre-tax loss of $0.8 million, yielding an effective tax rate of (16%). The change in the effective tax rate from fiscal year 2006 to fiscal year 2007 was primarily due to the change in the Company’s pre-tax position, research credits, stock-based compensation related to the non-deductibility of incentive stock options and recovery of tax deductions for stock-based compensation.

The Indian Tax Authorities completed its assessment of our tax returns for the tax years 2000 through 2005 and issued assessment orders in which the Indian Tax Authorities proposes to assess an aggregate tax deficiency

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for the five year period of approximately $1.0 million, plus interest, which interest will accrue until the matter is resolved. The Indian Tax Authorities may also make similar claims for years subsequent to 2005 in future assessment. The assessment orders are not final notices of deficiency, and we have immediately filed appeals. We believe that the assessments are inconsistent with applicable tax laws and that we have meritorious defense to the assessments.

In fiscal year 2005, we made a deposit in local currency equivalent to approximately $260,000 U.S. dollars with the Indian Tax Authorities, as required. The ultimate outcome of the tax assessment cannot be predicted with certainty, including the amount payable or the timing of any such payments upon resolution of the matter. Should the Indian Tax Authorities assess additional taxes as a result of a current or a future assessment, we may be required to record charges to operations that could have an adverse effect on our consolidated statements of operations.

Comparison of the Years Ended September 30, 2006 and 2005

Revenues

The table below sets forth the changes in revenues from fiscal year 2005 to fiscal year 2006 (in thousands, except percentage data):

	Year Ended September 30, 2006				Year Ended September 30, 2005				Year-Over-Year Change
	Amount		% of Total Revenues		Amount		% of Total Revenues
Revenues:
License	$	43,214	72.9	%	$	42,425	79.5	%	$	789	1.9	%
Royalties		16,089	27.1	%		10,964	20.5	%		5,125	46.7	%
Total revenues	$	59,303	100.0	%	$	53,389	100.0	%	$	5,914	11.1	%

Revenues increased $5.9 million or 11.1% from fiscal year 2005 to fiscal year 2006. The fiscal year 2006 increase in revenue was primarily due to increase in royalty revenue of $5.1 million.

The following table lists the percentage of license revenues by process node for the years ended September 30, 2006 and 2005.

	Year Ended September 30,
	2006		2005
Total License Revenues by Process Node:
65-nanometer technology	10	%	6	%
90-nanometer technology	43		36
0.13 micron technology	33		40
0.18 micron technology	12		12
Other	2		6

License revenues for the year ended September 30, 2006 were $43.2 million, representing an increase of $0.8 million or 1.9% as compared to $42.4 million for fiscal year 2005. License revenue increased in fiscal year 2006 mainly attributable to increases of $3.5 million on our 90-nanometer technology and $1.6 million on our 65-nanometer, partially offset by decreases of $2.4 million on the 0.13 micron and $1.9 million on the older technologies. From a product perspective, 90-nanometer technology contributed sales of 43% of total in fiscal year 2006 up from 36% in fiscal year 2005, while 65-nanometer technology license revenue grew from 6% in fiscal year 2005 to 10% of total license revenue in fiscal year 2006. These sales were derived from all categories of our customers: integrated device manufacturers, fabless and foundry semiconductor customers.

Royalties increased $5.1 million from fiscal year 2005 to fiscal year 2006. The fiscal year 2006 increase was primarily attributed to the growth in royalties associated with our 90-nanometer technology processes.

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For the years ended September 30, 2006 and 2005, total revenues by geographic area are as follows:

	Year Ended September 30,				Increase (Decrease)
	2006		2005
Total Revenues by Geographic Area:
United States	$	20,387	$	18,306	$	2,081
Taiwan		15,734		11,919		3,815
Europe, Middle East and Africa (EMEA)		9,105		9,239		(134	)
Japan		3,244		4,490		(1,246	)
Canada		3,091		1,378		1,713
Other Asia		7,742		8,057		(315	)
Total	$	59,303	$	53,389	$	5,914

From a geographic perspective, the fiscal year 2006 increase was a result from significant sales increases due to new license agreements with customers using our memory systems primarily in Taiwan of $3.8 million and in North America of $3.8 million, partially offset by declining volumes in Japan of $1.2 million.

Cost and Expenses

The table below sets forth the changes in cost and expenses from fiscal year 2005 to fiscal year 2006 (in thousands, except percentage data):

	Year Ended September 30, 2006				Year Ended September 30, 2005				Year-Over-Year Change
	Amount		% of Total Revenues		Amount		% of Total Revenues
Cost and expenses:
Cost of revenues	$	14,803	25.0	%	$	13,035	24.4	%	$	1,768	13.6	%
Research and development		21,407	36.1	%		19,841	37.2	%		1,566	7.9	%
Sales and marketing		16,858	28.4	%		15,608	29.2	%		1,250	8.0	%
General and administrative		10,319	17.4	%		9,083	17.0	%		1,236	13.6	%
Total cost and expenses	$	63,387	106.9	%	$	57,567	107.8	%	$	5,820	10.1	%

Cost of Revenues

Cost of revenues is determined principally based on allocation of costs associated with custom contracts and maintenance contracts, which consist primarily of personnel expenses, allocation of facilities costs, and depreciation expenses of acquired software and capital equipment. Cost of revenues in fiscal year 2006 totaled $14.8 million, representing an increase of $1.8 million or 13.6% compared to $13.0 million in fiscal year 2005. The increase from fiscal year 2005 to fiscal year 2006 was primarily attributable to $1.0 million of stock-based compensation expense related to the adoption of SFAS 123R and $0.4 million related to previously deferred contract expenses associated with custom projects.

Research and Development

Research and development expenses primarily include personnel expense, software license and maintenance fees, as well as capital equipment depreciation expenses. Research and development expense for the year ended September 30, 2006 was $21.4 million, representing an increase of $1.6 million or 7.9%, from $19.8 million for the year ended September 30, 2005. Research and development expense as a percentage of total revenue for the year ended September 30, 2006 decreased to 36.1% from 37.2% for the same period in fiscal year 2005. The

44

increase in research and development expense from fiscal year 2005 to fiscal year 2006 was primarily due to $1.6 million expense in stock-based compensation related to the adoption of SFAS 123R and an increase of $0.6 million in software license and maintenance fees, partially offset by decreases of $0.3 million in depreciation and $0.3 million of bonus expenses.

Sales and Marketing

Sales and marketing expense consists mainly of personnel expenses, commissions, advertising and promotion-related costs. Sales and marketing expense for the year ended September 30, 2006 was $16.9 million, representing an increase of $1.3 million or 8.0% over $15.6 million for the same period in fiscal year 2005. For the year ended September 30, 2006, sales and marketing expense as a percentage of revenue was 28.4%, compared to 29.2% for the same period in fiscal year 2005. The increase in sales and marketing expense in fiscal year 2006 was primarily due to $1.7 million expense in stock-based compensation related to the adoption of SFAS 123R and an increase of $1.0 million in personnel related expenses mainly in commissions for internal sales reps, partially offset by decreases in marketing programs of $0.8 million related to tradeshow and advertising expenses and travel expenses of $0.3 million due to cost reduction. In addition, the increase was partially offset by stock-based compensation expense under APB Opinion No. 25 of $0.3 million in fiscal year 2005 related to the accelerated vesting of certain stock options.

General and Administrative

General and administrative expense consists primarily of personnel, corporate governance and other costs associated with the management of our business. General and administrative expense for the year ended September 30, 2006 was $10.3 million, representing an increase of $1.2 million or 13.6% over $9.1 million for the year ended September 30, 2005. General and administrative expense as a percentage of total revenue was 17.4% for the year ended September 30, 2006, compared to 17.0% for the same period in fiscal year 2005. The increase in general and administrative expense from fiscal year 2005 to fiscal year 2006 was primarily due to $2.4 million expense in stock-based compensation related to the adoption of SFAS 123R and an increase of $0.3 million of personnel related expenses due to increase in headcount, partially offset by decreases in bad debt expenses of $1.1 million primarily related to the collection of previously reserved accounts receivable and professional fees of $0.4 million primarily related to accounting fees and insurance.

Interest Income and Other Income (Expenses), net

The table below sets forth the changes in interest income and other income (expenses), net from fiscal year 2005 to fiscal year 2006 (in thousands, except percentage data):

	Year Ended September 30, 2006				Year Ended September 30, 2005					Year-Over-Year Change
	Amount		% of Total Revenues		Amount			% of Total Revenues
Interest income and other income (expenses), net:
Interest income	$	3,055	5.1	%	$	1,740		3.3	%	$	1,315	75.6	%
Other income (expenses), net		270	0.5	%		(37	)	(0.1	)%		307	829.7	%
Total interest income and other income (expenses), net	$	3,325	5.6	%	$	1,703		3.2	%	$	1,622	95.2	%

Interest Income

Interest income was $3.1 million and $1.7 million for the years ended September 30, 2006 and 2005, respectively. Interest income increased from fiscal year 2005 to fiscal year 2006 due to increased average balances of our investment holdings and higher interest rates received on our portfolio of marketable securities.

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Other Income (Expenses), net

Other income (expenses), net resulted in a net other income of $270,000 in the year ended September 30, 2006 and net other expense of $37,000 for the year ended September 30, 2005. The net other income in fiscal year 2006 and net other expense in fiscal year 2005 were primarily due to foreign exchange gain (loss) on foreign currencies.

Income Tax Provision (Benefit)

The table below sets forth the changes in income tax provision (benefit) from fiscal year 2005 to fiscal year 2006 (in thousands, except percentage data):

	Year Ended September 30, 2006				Year Ended September 30, 2005					Year-Over-Year Change
	Amount		% of Total Revenues		Amount			% of Total Revenues
Income tax provision (benefit)	$	120	0.2	%	$	(2,160	)	(4.0	)%	$	2,280	105.6	%

For fiscal year 2006, we recorded a tax provision of $0.1 million on a pre-tax loss of $0.8 million, yielding an effective tax rate of (16%). For fiscal year 2005, we recorded a tax benefit of $2.2 million on a pre-tax loss of $2.5 million, yielding an effective benefit tax rate of 87%. The fiscal year 2005 effective tax rate differs from the United States statutory tax rate primarily due to benefits related to current year research credits, recovery of tax deductions related to stock-based compensation and other immaterial items. The change in the effective tax rate from fiscal year 2005 to fiscal year 2006 was primarily due to the change in the Company’s pre-tax position, research credits, stock-based compensation related to the non-deductibility of incentive stock options and recovery of tax deductions for stock-based compensation.

Liquidity and Capital Resources

	September 30, 2007			Change from 2006			September 30, 2006			Change from 2005			September 30, 2005
	(In thousands, except percentage data)
Cash and cash equivalents	$	14,820		$	(5,995	)	$	20,815		$	(6,026	)	$	26,841
Short-term and long-term investments		60,368			3,582			56,786			15,789			40,997
Total cash, cash equivalents and investments	$	75,188		$	(2,413	)	$	77,601		$	9,763		$	67,838
Percentage of total assets		58.3	%					61.5	%					59.3	%
Cash provided by (used in) operating activities	$	(598	)	$	(9,085	)	$	8,487		$	5,992		$	2,495
Cash used in investing activities		(6,541	)		10,454			(16,995	)		(6,520	)		(10,475	)
Cash provided by financing activities		906			(1,856	)		2,762			(3,288	)		6,050
Effect of exchange rates on cash		238			518			(280	)		(305	)		25
Net decrease in cash and cash equivalents	$	(5,995	)	$	31		$	(6,026	)	$	(4,121	)	$	(1,905	)

As of September 30, 2007, cash, cash equivalents and investments were $75.2 million compared to $77.6 million as of September 30, 2006, and $67.8 million as of September 30, 2005. We had a decrease of $2.4 million in cash, cash equivalents and investments from fiscal year 2006 to fiscal year 2007 and an increase of $9.8 million from fiscal year 2005 to fiscal year 2006. In fiscal years 2007, 2006 and 2005, operations were funded primarily from cash collections from customers for accounts receivable.

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Net cash provided by (used in) operating activities was ($0.6) million, $8.5 million and $2.5 million for fiscal years 2007, 2006 and 2005, respectively. Net cash used in operating activities was $0.6 million for the year ended September 30, 2007 representing a decrease of $9.1 million over net cash provided by operating activities of $8.5 million for the year ended September 30, 2006. The decreases in cash provided by operating activities was attributable to changes in operating assets and liabilities of $3.2 million primarily related to decreases in deferred tax assets and prepaid expenses related to software license contracts partially offset by changes in accounts receivable due to more billings at the end of fiscal year 2007. In addition, the decrease in cash provided in operating activities was due to an increase in net loss of $3.7 million and decrease in adjustments for non-cash charges of $2.2 million primarily associated with stock based compensation.

Net cash provided by operating activities was $8.5 million for the year ended September 30, 2006, representing an increase of $6.0 million over net cash provided in operating activities of $2.5 million for the year ended September 30, 2005. The increase in cash provided by operating activities was due to an increase of $3.6 million in non-cash items primarily associated with stock-based compensation expense due to the adoption of SFAS 123R, partially offset by a decrease in provision for (recovery of) doubtful accounts, lower cash generated from tax benefit on employee stock plans and less depreciation and amortization due to more fully depreciated assets during the current fiscal year compared to the same period in prior year. In addition, we had a change in operating assets and liabilities that resulted in cash increases of $3.0 million primarily related to increases in income taxes payable, accrued expenses, deferred tax assets and prepaid expenses related to software license contracts partially offset by changes in accounts receivable due to more billings at the end of fiscal year 2006 and in taxes receivable. These increases were partially offset by an increase in net loss of $0.6 million.

Net cash used in investing activities was $6.5 million, $17.0 million and $10.5 million for fiscal years 2007, 2006 and 2005, respectively. The decrease of $10.5 million in net cash used in investing activities in fiscal year 2007 from fiscal year 2006 was due to higher proceeds from the maturity of investments, partially offset by higher purchases of investments related to short-term treasury investing activities. The increase of $6.5 million in net cash used in investing activities in fiscal year 2006 from fiscal year 2005 was primarily due to lower proceeds from the maturity of investments reinvested.

Net cash provided by financing activities was $0.9 million, $2.8 million and $6.1 million for fiscal years 2007, 2006 and 2005, respectively. Net cash provided by financing activities in fiscal 2007, fiscal 2006 and fiscal 2005 reflects proceeds from the issuance of common stock of $0.9 million, $2.8 million and $6.1 million, respectively, associated with our employee stock options and employee stock purchase plans during the respective periods. The decrease in fiscal year 2007 and fiscal year 2006 was due to lower employee stock purchase plan purchases during those years as compared to fiscal year 2005.

The Company has no off-balance-sheet financing arrangements other than operating leases.

Our future capital requirements will depend on many factors, including the rate of sales growth, market acceptance of our existing and new technologies, the amount and timing of research and development expenditures, the timing of the introduction of new technologies, expansion of sales and marketing efforts, potential acquisitions, and levels of working capital, primarily accounts receivable. There can be no assurance that additional equity or debt financing, if required, will be available on satisfactory terms. We believe that our current capital resources and cash generated from operations will be sufficient to meet our needs for at least the next twelve months, although we may seek to raise additional capital during that period and there can be no assurance that we will not require additional financing beyond this time frame.

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The following table summarizes our contractual obligations (in thousands):

Contractual Obligations	Total		Less than 1 Year		1-3 Years		4-5 Years		After 5 Years
Operating lease obligations	$	1,655	$	906	$	709	$	40	$	—
Purchase obligations(1)		9,043		3,650		5,140		253		—
Total operating lease and purchase obligations	$	10,698	$	4,556	$	5,849	$	293	$	—

(1) Reflects amounts payable under contracts for product development software licenses and maintenance.

Recent Accounting Pronouncements

In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109” or FIN 48. FIN 48 prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. We are currently evaluating the impact of adopting FIN 48 on our financial statements.

In September 2006, the FASB issued FASB Statement No. 157, “Fair Value Measurements,” or SFAS 157. The standard provides guidance for using fair value to measure assets and liabilities. The standard also responds to investors’ requests for expanded information about the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings. The standard applies whenever other standards require or permit assets or liabilities to be measured at fair value. The standard does not expand the use of fair value in any new circumstances. SFAS 157 must be adopted prospectively as of the beginning of the year it is initially applied. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. We are still evaluating the impact of this standard on our financial position or results of operations.

In February 2007, the FASB issued FASB Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities,” or SFAS 159. SFAS 159 permits companies to choose to measure certain financial instruments and certain other items at fair value. The standard requires that unrealized gains and losses on items for which the fair value option has been elected be reported in earnings. SFAS 159 is effective for the Company beginning in the first quarter of fiscal year 2009, although earlier adoption is permitted. We are currently evaluating what impact this standard will have on our financial position or results of operations.

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Quarterly Results of Operations

The following tables contain unaudited consolidated statement of operations data for our eight most recent quarters. The first table contains revenue and expense data expressed in dollars, while the second table contains the same data expressed as a percentage of our revenues for the periods indicated. This data has been derived from unaudited consolidated financial statements that, in our opinion, include all adjustments necessary, consisting only normal recurring adjustments, for a fair statement of the information. Our quarterly results have been in the past, and in the future may be, subject to fluctuations. As a result, we believe that results of operations for the interim periods may not be an accurate indicator of results for any future period.

	Quarter Ended
	Sept. 30, 2007			June 30, 2007			March 31, 2007			Dec. 31, 2006			Sept. 30, 2006			June 30, 2006			March 31, 2006			Dec. 31, 2005
	(Unaudited)
	(In thousands, except per share data)
Consolidated Statements of Operations Data:
Revenues	$	13,149		$	11,286		$	10,567		$	11,525		$	15,036		$	15,346		$	15,196		$	13,725
Cost and expenses:
Cost of revenues		2,966			2,869			3,376			3,727			3,437			4,151			3,500			3,715
Research and development		5,146			5,301			4,823			5,076			4,978			5,473			5,328			5,628
Sales and marketing		3,997			4,050			3,763			3,654			4,272			4,027			4,299			4,260
General and administrative		2,020			1,789			2,418			2,664			2,704			2,150			2,709			2,756
Restructuring charges		—			580			—			—			—			—			—			—
Total cost and expenses		14,129			14,589			14,380			15,121			15,391			15,801			15,836			16,359
Operating income (loss)		(980	)		(3,303	)		(3,813	)		(3,596	)		(355	)		(455	)		(640	)		(2,634	)
Interest income		998			1,014			1,003			987			988			776			668			623
Other income (expenses), net		(31	)		(53	)		(29	)		(44	)		129			148			(3	)		(4	)
Income (loss) before taxes		(13	)		(2,342	)		(2,839	)		(2,653	)		762			469			25			(2,015	)
Income tax provision (benefit)		363			(1,106	)		(1,062	)		(1,437	)		(15	)		2,059			(151	)		(1,773	)
Net income (loss)	$	(376	)	$	(1,236	)	$	(1,777	)	$	(1,216	)	$	777		$	(1,590	)	$	176		$	(242	)
Basic net income (loss) per share	$	(0.02	)	$	(0.05	)	$	(0.08	)	$	(0.05	)	$	0.03		$	(0.07	)	$	0.01		$	(0.01	)
Diluted net income (loss) per share	$	(0.02	)	$	(0.05	)	$	(0.08	)	$	(0.05	)	$	0.03		$	(0.07	)	$	0.01		$	(0.01	)
As a Percentage of Revenue:
Revenues		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%
Cost and expenses:
Cost of revenues		22.5			25.4			32.0			32.4			22.9			27.0			23.0			27.1
Research and development		39.1			47.0			45.6			44.0			33.1			35.7			35.1			41.0
Sales and marketing		30.4			35.9			35.6			31.7			28.4			26.3			28.3			31.0
General and administrative		15.4			15.9			22.9			23.1			18.0			14.0			17.8			20.1
Restructuring charges		—			5.1			—			—			—			—			—			—
Total cost and expenses		107.4			129.3			136.1			131.2			102.4			103.0			104.2			119.2
Operating income (loss)		(7.4	)		(29.3	)		(36.1	)		(31.2	)		(2.4	)		(3.0	)		(4.2	)		(19.2	)
Interest income		7.4			8.5			9.2			8.2			6.6			5.0			4.4			4.5
Other income (expenses), net		(0.0	)		(0.0	)		(0.0	)		(0.0	)		0.9			1.0			(0.0	)		(0.0	)
Income (loss) before taxes		(0.0	)		(20.8	)		(26.9	)		(23.0	)		5.1			3.0			0.2			(14.7	)
Income tax provision (benefit)		2.9			(9.8	)		(10.1	)		(12.4	)		(0.1	)		13.4			(1.0	)		(12.9	)
Net income (loss)		(2.9	)%		(11.0	)%		(16.8	)%		(10.6	)%		5.2	%		(10.4	)%		1.2	%		(1.8	)%

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Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Our core business, the sale of semiconductor IP for the design and manufacture of system-on-a-chip integrated circuits, has exposure to financial market risks, including changes in foreign currency exchange rates and interest rates. A significant portion of our customers are located in Asia, Canada and Europe. However, to date, our exposure to foreign currency exchange fluctuations has been minimal because all of our license agreements provide for payment in U.S. dollars.

Our international business is subject to risks typical of an international business, including, but not limited to differing economic conditions, changes in political climate, differing tax environments, other regulations and restrictions and foreign exchange rate volatility. Our foreign subsidiaries incur most of their expenses in the local currency. To date these expenses have not been significant, therefore, we do not anticipate our future results to be materially adversely impacted by changes in factors affecting international operations.

We are exposed to the impact of interest rate changes and changes in the market values of our investments. We maintain an investment portfolio of various issuers, types and maturities. These securities are classified as available-for-sale and, consequently, are recorded on the balance sheet at fair value with unrealized gains or losses reported as a separate component of stockholders’ equity. Our investments primarily consist of short-term money market mutual funds, United States government obligations, mortgage-backed securities, corporate bonds, and commercial paper. Our short term investments balance of $42.8 million at September 30, 2007 consists of instruments with original maturities of less than one year. We also hold approximately $17.5 million in U.S. government obligation with maturities greater than one year. The estimated fair value of our investment portfolio as of September 30, 2007, assuming a 100 basis point increase in market interest rates, would decrease by approximately $0.4 million, which would not materially affect our operations. We have the ability to generally hold our fixed income investments until maturity and therefore we would not expect our operating results or cash flows to be affected to any significant degree by the effect of a sudden change in market interest rates on our securities portfolio. If necessary, we may sell short-term investments prior to maturity to meet our liquidity needs.

The table below presents the carrying values and related weighted average interest rates for our cash, cash equivalents and investments. The carrying values approximate fair values as of September 30, 2007 and 2006.

Cash, Cash Equivalents and Investments:	Carrying Value at September 30, 2007		Annualized Rate of Return at September 30, 2007		Carrying Value at September 30, 2006		Annualized Rate of Return at September 30, 2006
	(In thousands)		(Annualized)		(In thousands)		(Annualized)
Cash and cash equivalents—fixed rate	$	14,820	4.3	%	$	18,166	3.7	%
Money market fund—variable rate		—	—			2,649	5.2	%
Total cash and cash equivalents		14,820				20,815
Investments—fixed rate		60,368	5.3	%		56,786	5.0	%
Total cash, cash equivalents and investments	$	75,188			$	77,601

Item 8. Financial Statements and Supplementary Data

The Consolidated Financial Statements required by this Item are set forth on the pages indicated at Item 15(a). The unaudited quarterly results of our operations for our two most recent fiscal years are incorporated herein by reference under Item 7 “Selected Consolidated Financial Data.”

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

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Item 9A. Controls and Procedures

We conducted an evaluation required by Rule 13a-15 of the Securities Exchange Act of 1934, as amended (the Exchange Act), under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of September 30, 2007.

The evaluation of our disclosure controls and procedures included a review of our processes and implementation and the effect on the information generated for use in this Annual Report on Form 10-K. In the course of this evaluation, we sought to identify any significant deficiencies or material weaknesses in our disclosure controls and procedures, to determine whether we had identified any acts of fraud involving personnel who have a significant role in our disclosure controls and procedures and to confirm that any necessary corrective action, including procedure improvements, was documented. Based on our evaluation as of September 30, 2007, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective to ensure that the information required to be disclosed by us in our reports filed or submitted under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

There was no change in our internal control over financial reporting during the most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining an adequate system of internal control over financial reporting, as such term is defined in Rule 13(a)-15(f) under the Exchange Act. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company, (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company, and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements. Further, because of changes in conditions, effectiveness of internal controls over financial reporting may vary over time.

Management conducted an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the system of our internal control over financial reporting as of September 30, 2007 based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was effective as of September 30, 2007.

51

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL

CONTROL OVER FINANCIAL REPORTING

To the Board of Directors and Stockholders

of Virage Logic Corporation

We have audited the internal control over financial reporting of Virage Logic Corporation (the “Company”) as of September 30, 2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying management’s report on internal control over financial reporting. Our responsibility is to express an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Virage Logic Corporation maintained, in all material respects, effective internal control over financial reporting as of September 30, 2007, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the balance sheets of Virage Logic Corporation as of September 30, 2007 and 2006, and the related statements of operations, stockholders’ equity, and cash flows for each of the two years in the period ended September 30, 2007, and the related financial statement schedule as of and for the years ended September 30, 2007 and 2006 and our report dated December 14, 2007 expressed an unqualified opinion on those consolidated financial statements and the related financial statement schedule.

/s/ Burr, Pilger & Mayer LLP

San Jose, California

December 14, 2007

52

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information required by this item concerning our directors and nominees is incorporated by reference to our definitive Proxy Statement for our 2008 Annual Meeting of Stockholders (the “2008 Proxy Statement”) under the caption “Election of Directors.” Information on our nominating committee process, and on our audit committee members including our audit committee financial experts is incorporated by reference to the headings “Governance Committee” and “Audit Committee” in our 2008 Proxy statement. Information regarding Section 16(a) beneficial ownership reporting compliance is incorporated by reference to the material under the heading “Security Ownership of Certain Beneficial Owners and Management” in our 2008 Proxy Statement. Information relating to our executive officers is contained in Part I of this annual report under the caption “Executive Officers”.

Our Board of Directors has adopted a Code of Ethics applicable to our directors and all of our officers and employees. The Code of Ethics is available, free of charge, through the investor relations section of our website at http://investors.viragelogic.com/governance.cfm. We intend to disclose any amendment to, or waiver from, the Code of Ethics by posting such amendment or waiver, as applicable, on our website.

Item 11. Executive Compensation

The information required by this item is incorporated by reference to the 2008 Proxy Statement under the captions “Executive Compensation” and “Director Compensation.”

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this item is incorporated by reference to the 2008 Proxy Statement under the captions “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information.”

Item 13. Certain Relationships and Related Transactions and Director Independence

The information required by this item is incorporated by reference to the 2008 Proxy Statement under the captions “Management and Certain Security Holders of Virage Logic—Certain Transactions” and “Director Independence.”

Item 14. Principal Accountant Fees and Services

The information required by this item is incorporated by reference to the 2008 Proxy Statement under the caption “Information Regarding Our Independent Registered Public Accounting Firm.”

53

PART IV

Item 15. Exhibits and Financial Statement Schedules

The following documents are being filed as part of this report on Form 10-K:

(a) Index to Consolidated Financial Statements:

	Page
(1)    Report of Burr, Pilger & Mayer LLP, Independent Registered Public Accounting Firm	56
Report of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm	57
(2)    Consolidated Balance Sheets	58
(3)    Consolidated Statements of Operations	59
(4)    Consolidated Statement of Stockholders’ Equity	60
(5)    Consolidated Statements of Cash Flows	61
(6)    Notes to Consolidated Financial Statements	62
(b)    Index to Financial Statement Schedules:
(1)    Schedule II Valuation and Qualifying Accounts	86

Schedules, other than those listed above, have been omitted since they are not required, or the information is included elsewhere herein.

(c) Exhibits:

Exhibit Number	Description of Document
3.1	Amended and Restated Certificate of Incorporation
3.2	Amended and Restated Bylaws(13)
4.1	Specimen Common Stock Certificate(1)
10.1	1997 Equity Incentive Plan, as amended(2)*
10.2	Form of Option Agreement under 1997 Equity Incentive Plan(3)*
10.3	2000 Employee Stock Purchase Plan, as amended(4)*
10.4	2001 Foreign Subsidiary Employee Stock Purchase Plan(4)*
10.6	Development and Licensing Agreement between Taiwan Semiconductor Manufacturing Co. Ltd. and Virage Logic dated as of March 3, 1999(1)#
10.7	Memory Compiler Licensing Agreement between United Microelectronics Corporation and Virage Logic dated as of March 21, 2000(1)#
10.8	Office Lease between Roshan Polymers Limited and Virage Logic International dated August 1, 2001(5)
10.9	Virage Logic Corporation 2002 Equity Incentive Plan, as amended(6)*
10.10	Form of Notice of Grant of Stock Options under the Virage Logic Corporation 2002 Equity Incentive Plan(7)*
10.11	Amended and Restated In-Chip Systems, Inc. 2001 Incentive And Non-Statutory Stock Option Plan(8)*
10.12	Master License Agreement, dated June 8, 2001 and Exhibit No. 2 dated April 1, 2002 between Virage Logic Corporation and STMicroelectronics S.A.(8)#
10.13	Sublease between Ciena Corporation and Virage Logic Corporation dated July 11, 2002 and Consent to Sublease between Ciena Corporation, Virage Logic Corporation and Renco Equities IV dated August 11, 2002(9)
10.14	Real Estate Purchase-Sale Agreement between Nikolay Khachaturov and Virage Logic Corporation dated October 2, 2002 (English translation)(9)

54

Exhibit Number	Description of Document
10.15	Virage Logic Corporation 2007 Profit Sharing Bonus Plan(12)*
10.16	Lease between the Neidig Family and Virage Logic Corporation dated October 12, 2006 and First Amendment to Lease dated October 25, 2007
10.17	Agreement and Release dated January 22, 2007 entered into by and between Virage Logic Corporation and Adam A. Kablanian(10)
10.18	Agreement and Release dated July 10, 2007 entered into by and between Virage Logic Corporation and James R. Bailey(11)
10.19	Virage Logic Corporation 2008 Profit Sharing Bonus Plan*
10.20	Virage Logic Corporation 2008 Executive MBO Plan*
21.1	Subsidiaries of Registrant
23.1	Consent of Burr, Pilger & Mayer LLP, Independent Registered Public Accounting Firm
23.2	Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm
31.1	Certification Pursuant to Rule 13(a)-14(a) of the Securities Exchange Act of 1934, as amended, as pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification Pursuant to Rule 13(a)-14(a) of the Securities Exchange Act of 1934, as amended, as pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(1) Incorporated by reference to Virage Logic’s Registration Statement on Form S-1, as amended (File No. 333-36108).

(2) Incorporated by reference to Virage Logic’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2001.

(3) Incorporated by reference Appendix B of Virage Logic’s Proxy Statement filed on January 13, 2005.

(4) Incorporated by reference to Virage Logic’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2001.

(5) Incorporated by reference to Virage Logic’s Annual Report on Form 10-K for the year ended September 30, 2001.

(6) Incorporated by reference to Appendix A of Virage Logic’s Proxy Statement filed on January 13, 2005.

(7) Incorporated by reference to Virage Logic’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2001.

(8) Incorporated by reference to Virage Logic’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.

(9) Incorporated by reference to Virage Logic’s Annual Report on Form 10-K for the year ended September 30, 2002.

(10) Incorporated by reference to Virage Logic’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2006.

(11) Incorporated by reference to Virage Logic’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007.

(12) Incorporated by reference to Virage Logic’s Annual Report on Form 10-K/A for the year ended September 30, 2006.

(13) Incorporated by reference to Virage Logic’s Annual Report on Form 10-K for the year ended September 30, 2003.

# Confidential treatment has been granted with respect to portions of the exhibit. A complete copy of the agreement, including the redacted terms, has been separately filed with the Securities and Exchange Commission.

* Management contract or compensatory plan or arrangement.

55

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

of Virage Logic Corporation

We have audited the accompanying consolidated balance sheets of Virage Logic Corporation and its subsidiaries (the “Company”) as of September 30, 2007 and 2006 and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the two years in the period ended September 30, 2007. Our audits also included the financial statement schedule listed in the Index to this Annual Report on Form 10-K at Part IV Item 15(b) (1), as of and for the years ended September 30, 2007 and 2006. These consolidated financial statements and the financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Virage Logic Corporation and its subsidiaries as of September 30, 2007 and 2006 and the results of their operations and their cash flows for each of the two years in the period ended September 30, 2007 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule as of and for the years ended September 30, 2007 and 2006, when considered in relation to the consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of September 30, 2007, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated December 14, 2007 expressed an unqualified opinion on the effective operation of internal control over financial reporting.

/s/ Burr, Pilger & Mayer LLP

San Jose, California

December 14, 2007

56

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

of Virage Logic Corporation:

In our opinion, the consolidated statements of operations, of stockholders’ equity and of cash flows for the year ended September 30, 2005 (appearing on pages 59 through 61 of Virage Logic Corporation’s 2007 Annual Report on Form 10-K) present fairly, in all material respects, the results of operations and cash flows of Virage Logic Corporation and its subsidiaries for the year ended September 30, 2005, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule for the year in the period ended September 30, 2005 listed in the index appearing under Item 15 (b) (1), present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audit. We conducted our audit of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

San Francisco, California

December 28, 2005

57

VIRAGE LOGIC CORPORATION

CONSOLIDATED BALANCE SHEETS

	September 30,
	2007			2006
	(In thousands, except share and per share amounts)
ASSETS
Current assets:
Cash and cash equivalents	$	14,820		$	20,815
Short-term investments		42,840			49,253
Accounts receivable, net		12,170			15,935
Costs in excess of related revenue on uncompleted contracts		1,134			656
Deferred tax assets—current		1,939			1,527
Prepaid expenses and other		4,766			3,369
Taxes receivable		2,320			1,711
Total current assets		79,989			93,266
Property, plant and equipment, net		3,643			4,842
Goodwill		11,355			9,782
Other intangible assets, net		2,705			1,990
Deferred tax assets—long-term		13,178			8,562
Long-term investments		17,528			7,533
Other long-term assets		473			300
Total assets	$	128,871		$	126,275
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,027		$	446
Accrued expenses		4,659			4,797
Deferred revenues		8,996			8,896
Income tax payable		2,992			2,626
Total current liabilities		17,674			16,765
Deferred tax liability		978			692
Total liabilities		18,652			17,457
Commitments and contingencies (Note 6)
Stockholders’ equity:
Common stock, $0.001 par value:
Authorized shares—150,000,000 as of September 30, 2007 and 2006; Issued and outstanding shares—23,190,857 and 23,027,662 as of September 30, 2007 and 2006, respectively		23			23
Additional paid-in capital		135,926			130,620
Accumulated other comprehensive income		1,009			309
Accumulated deficit		(26,739	)		(22,134	)
Total stockholders’ equity		110,219			108,818
Total liabilities and stockholders’ equity	$	128,871		$	126,275

See Notes to Consolidated Financial Statements.

58

VIRAGE LOGIC CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

	Year Ended September 30,
	2007			2006			2005
	(In thousands, except per share data)
Revenues:
License	$	34,379		$	43,214		$	42,425
Royalties		12,148			16,089			10,964
Revenues		46,527			59,303			53,389
Cost and expenses:
Cost of revenues		12,938			14,803			13,035
Research and development		20,346			21,407			19,841
Sales and marketing		15,464			16,858			15,608
General and administrative		8,891			10,319			9,083
Restructuring		580			—			—
Total cost and expenses		58,219			63,387			57,567
Operating loss		(11,692	)		(4,084	)		(4,178	)
Interest income		4,002			3,055			1,740
Other income (expenses), net		(157	)		270			(37	)
Loss before income taxes		(7,847	)		(759	)		(2,475	)
Income tax provision (benefit)		(3,242	)		120			(2,160	)
Net loss	$	(4,605	)	$	(879	)	$	(315	)
Basic and diluted net loss per share	$	(0.20	)	$	(0.04	)	$	(0.01	)
Shares used in computing basic net loss per share		23,111			22,812			22,187
Shares used in computing diluted net loss per share		23,111			22,812			22,187

See Notes to Consolidated Financial Statements.

59

VIRAGE LOGIC CORPORATION

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Income, net			Accumulated Deficit			Total Stockholders’ Equity
	Shares	Amount
	(In thousands, except share data)
Balance as of September 30, 2004	21,580,437		22		112,457		(28	)		(20,940	)		91,511
Common stock issued under stock option plan and stock purchase plan, net of repurchases	967,067		1		6,049		—			—			6,050
Amortization of stock-based compensation	—		—		339		—			—			339
Tax benefit from employee stock option plan	—		—		1,703					—			1,703
Cumulative foreign exchange translation adjustment	—		—				255			—			255
Change in unrealized gain (loss) on investments, net	—		—		—		(175	)		—			(175	)
Net loss	—		—		—		—			(315	)		(315	)
Balance as of September 30, 2005	22,547,504		23		120,548		52			(21,255	)		99,368
Common stock issued under stock option plan and stock purchase plan, net of repurchases	480,158		—		2,762		—			—			2,762
Stock-based compensation	—		—		6,770		—			—			6,770
Tax benefit from employee stock option plan	—		—		540					—			540
Cumulative foreign exchange translation adjustment	—		—				87			—			87
Change in unrealized gain (loss) on investments, net of tax	—		—		—		170			—			170
Net loss	—		—		—		—			(879	)		(879	)
Balance as of September 30, 2006	23,027,662		23		130,620		309			(22,134	)		108,818
Common stock issued under stock option plan and stock purchase plan, net of repurchases	163,195		—		906		—			—			906
Stock-based compensation	—		—		4,400		—			—			4,400
Cumulative foreign exchange translation adjustment	—		—		—		702			—			702
Change in unrealized gain (loss) on investments, net of tax	—		—		—		(2	)		—			(2	)
Net loss	—		—		—		—			(4,605	)		(4,605	)
Balance as of September 30, 2007	23,190,857	$	23	$	135,926	$	1,009		$	(26,739	)	$	110,219

See Notes to Consolidated Financial Statements.

60

VIRAGE LOGIC CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended September 30,
	2007			2006			2005
	(In thousands)
Operating activities
Net loss	$	(4,605	)	$	(879	)	$	(315	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Provision for (recovery of) doubtful accounts		—			(724	)		417
Depreciation and amortization		1,832			1,958			2,445
Amortization of intangible assets		385			386			387
Tax benefit on employee stock plans		—			540			1,703
Write off of acquired in-process technology		100
Stock-based compensation		4,341			6,715			339
Loss on disposal of fixed assets		4			7			—
Non-cash restructuring charges		31			—			—
Changes in operating assets and liabilities:
Accounts receivable		3,765			(1,011	)		3,138
Costs in excess of revenue on uncompleted contracts		(418	)		295			(226	)
Prepaid expenses and other		(1,298	)		1,179			(487	)
Deferred tax assets-current		(411	)		(1,527	)		—
Taxes receivable		(609	)		(1,218	)		809
Deferred tax assets		(4,614	)		43			(3,379	)
Other long term assets		(171	)		398			(285	)
Accounts payable		575			(323	)		264
Accrued expenses		(239	)		1,173			(896	)
Deferred revenues		100			456			892
Income tax payable		348			1,179			(2,128	)
Deferred tax liability		286			(160	)		(183	)
Net cash provided by (used in) operating activities		(598	)		8,487			2,495
Investing activities
Purchase of property, plant and equipment		(285	)		(1,376	)		(3,169	)
Purchase of investments		(111,535	)		(52,880	)		(51,609	)
Proceeds from maturity of investments		108,050			37,258			44,803
Proceeds from sale of property, plant and equipment		1			3			—
Net cash paid for business combination		(2,772	)		—			(500	)
Net cash used in investing activities		(6,541	)		(16,995	)		(10,475	)
Financing activities
Net proceeds from issuance of stock		906			2,762			6,050
Net cash provided by financing activities		906			2,762			6,050
Effect of exchange rates on cash		238			(280	)		25
Net decrease in cash and cash equivalents		(5,995	)		(6,026	)		(1,905	)
Cash and cash equivalents at beginning of year		20,815			26,841			28,746
Cash and cash equivalents at end of year	$	14,820		$	20,815		$	26,841
Supplemental disclosures of cash flow information
Cash paid for income taxes	$	(226	)	$	(510	)	$	(34	)

See Notes to Consolidated Financial Statements.

61

VIRAGE LOGIC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Organization and Summary of Significant Accounting Policies

Description of Business

Virage Logic Corporation, or the Company, was incorporated in California in November 1995 and subsequently reincorporated in Delaware in July 2000. The Company provides semiconductor intellectual property (semiconductor IP) platforms based on memory, logic and I/Os (input/output interface components). These various forms of IP are utilized by the Company’s customers to design and manufacture system-on-a-chip (SoC) integrated circuits that power today’s consumer, communications and networking, handheld and portable, computer and graphics, and automotive applications.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Virage Logic and its wholly-owned subsidiaries conducting business in the Republic of Armenia, Germany, India, Israel, Japan and the United Kingdom. All significant intercompany balances and transactions have been eliminated in consolidation.

Reclassification

Certain amounts in the prior year financial statements have been reclassified to conform to the current year presentation. Specifically, the Company has reclassified certain prior year amounts relating to short- and long-term deferred tax assets. The effects of these reclassifications are not material to the consolidated financial statements.

Foreign Currency

The financial position and results of operations of the Company’s foreign operations are measured using currencies other than the U.S. dollar as their functional currencies. Accordingly, for these operations all assets and liabilities are translated into U.S. dollars at the current exchange rates as of the respective balance sheet dates. Revenue and expense items are translated using the weighted average exchange rates prevailing during the period. Cumulative gains and losses from the translation of these operations’ financial statements are reported as a separate component of stockholders’ equity, while foreign currency transactions gains or losses, resulting from remeasuring local currency to the U.S. dollar are recorded in the consolidated statements of operations. The net transaction gains and losses recorded in the consolidated statements of operations were not significant for the periods presented.

Use of Estimates

The preparation of consolidated financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Revenue Recognition

The Company’s revenue recognition policy is based on the American Institute of Certified Public Accountants Statement of Position 97-2, “Software Revenue Recognition” as amended by Statement of Position 98-4 and Statement of Position 98-9. Additionally, revenue is recognized on some of our products, according to Statement of Position 81-1, “Accounting for Performance of Construction-Type and Certain Production-Type Contracts.”

62

VIRAGE LOGIC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Revenues from perpetual licenses for the semiconductor IP products are generally recognized when persuasive evidence of an arrangement exists, delivery of the product has occurred, the fee is fixed or determinable, and collectibility is reasonably assured. If any of these criteria are not met, revenue recognition is deferred until such time as all criteria are met. Revenues from term-based licenses are recognized ratably over the term of the license, which is generally between twelve to thirty-six months in duration, provided the criteria mentioned above are met.

License of custom memory compilers and logic libraries may involve customization to the functionality of the software; therefore revenues from such licenses are recognized in accordance with Statement of Position 81-1 over the period that services are performed. Revenue derived from library development services are recognized using a percentage-of-completion method, and revenues from technical consulting services are recognized as the services are performed. For all license and service agreements accounted for using the percentage-of-completion method, the Company determines progress-to-completion based on labor hours incurred in comparison to the estimated total service hours required to complete the development or service or on the value of contract milestones completed. The Company believes that it is able to reasonably and reliably estimate the costs to complete projects accounted for using the percentage-of-completion method based on historical experience of similar project requirements. If the Company cannot reasonably and reliably estimate the costs to complete a project, the completed contract method of accounting is used, such that costs are deferred until the project is completed, at which time revenues and related costs are recognized. A provision for estimated losses on projects is made in the period in which the loss becomes probable and can be reasonably estimated. Costs incurred in advance of revenue recognition are recorded as costs in excess of related revenue on uncompleted contracts. If customer acceptance is required for completion of specified milestones, the related revenue is deferred until the acceptance criteria are met. If a portion of the value of a contract is contingent based on meeting a specified criteria, then the contingent value of the contract is deferred until the contingency has been satisfied or removed.

For agreements that include multiple elements, the Company recognizes revenues attributable to delivered or completed elements when such elements are completed or delivered. The amount of revenues is determined by applying the residual method of accounting by deducting the aggregate fair value of the undelivered or uncompleted elements, which the Company determines by each such element’s vendor-specific objective evidence of fair value, from the total revenues recognizable under such agreement. Vendor-specific objective evidence of fair value of each element of an arrangement is based upon the higher of the normal pricing for such licensed product and service when sold separately or the actual price stated in the contract, and for maintenance, it is determined based on 20% of the net selling price of the license for new agreements starting in fiscal 2007 or the higher of the actual price stated in the contract or the stated renewal rate in each contract for all contracts entered prior to fiscal 2007. Revenues are recognized once the Company delivers the element identified as having vendor-specific objective evidence or once the provision of the services is completed. Maintenance revenues are recognized ratably over the remaining contractual term of the maintenance period from the date of delivery of the licensed materials receiving maintenance, which is generally twelve months.

The Company assesses whether the fee associated with each transaction is fixed or determinable and collection is reasonably assured and evaluates the payment terms. If a portion of the fee is due beyond normal payment terms, the Company recognizes the revenues on the payment due date, as long as collection is reasonably assured. The Company assesses collectibility based on a number of factors, including past transaction history and the overall credit-worthiness of the customer. If collection is not reasonably assured, revenue is deferred and recognized at the time collection becomes reasonably assured, which is generally upon receipt of the payment.

Amounts invoiced to customers in excess of recognized revenues are recorded as deferred revenues. Amounts recognized as revenue in advance of invoicing the customer are recorded as unbilled accounts

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receivable. The timing and amounts invoiced to customers can vary significantly depending on specific contract terms and can therefore have a significant impact on deferred revenues and unbilled accounts receivable in any given period. All of the criteria under SOP 97-2 or SOP 81-1, as applicable, have been met, prior to the recognition of any revenue that would create an unbilled accounts receivable balance.

Royalty revenues are generally determined and recognized one quarter in arrears based on SOP 97-2, when a production volume report is received from the customer or foundry, and are calculated based on actual production volumes of wafers containing chips utilizing our semiconductor IP technologies based on a rate per-chip or rate per-wafer depending on the terms of the respective license agreement. Depending on the contractual terms, prepaid royalties are recognized as revenue upon either the receipt of a corresponding royalty report or after all related license deliverables have been made.

Fair Value of Financial Instruments

The Company’s financial instruments, including cash equivalents, investments, accounts receivable and accounts payable are recorded at cost, which approximates their fair value because of the short-term maturity of these instruments.

Cash and Cash Equivalents, Short-term and Long-term Investments

For purposes of the accompanying consolidated statements of cash flows, the Company considers all highly liquid instruments with an original maturity on the date of purchase of three months or less to be cash equivalents. Cash and cash equivalents as of September 30, 2007 and 2006 consisted of money market funds and commercial paper. The Company determines the appropriate classification of investment securities at the time of purchase. As of September 30, 2007 and 2006, all investment securities are designated as “available-for-sale.” The Company considers all investments that are available-for-sale that have a maturity date longer than three months and less than twelve months to be short-term investments. The Company considers all investments that have a maturity of more than twelve months to be long-term investments. Long-term investments include government and federal agency bonds of $17.5 million and $7.5 million with maturity dates greater than one year for the fiscal years ended September 30, 2007 and 2006, respectively.

The available-for-sale securities are carried at fair value based on quoted market prices, with the unrealized gains (losses) reported as a separate component of stockholders’ equity. The Company periodically reviews the realizable value of its investments in marketable securities. When assessing marketable securities for other-than-temporary declines in value, the Company considers such factors as the length of time and extent to which fair value has been less than the cost basis, the market outlook in general and the Company’s intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value. If an other-than-temporary impairment of the investments is deemed to exist, the carrying value of the investment would be written down to its estimated fair value.

Property, Plant and Equipment

Property, plant and equipment are recorded at cost, net of accumulated depreciation and amortization. Depreciation and amortization are provided on a straight-line basis over the useful lives of the assets, generally three years, or the shorter of the lease term or the estimated useful lives of the assets, if applicable. The office building in the Republic of Armenia (Armenia) is being depreciated over a life of twenty years.

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Accounting for Internal-Use Computer Software

In March 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use” (SOP 98-1). SOP 98-1 provides guidance on accounting for the costs of computer software developed or obtained for internal use and identifies the characteristics of internal-use software. SOP 98-1 permits the capitalization of certain external and internal costs, including internal payroll costs, incurred in the connection with the development or acquisition of software for internal use. These costs are capitalized beginning when the Company has entered the application development stage and ceases when the software is substantially complete and is ready for its intended use. In accordance with SOP 98-1, the Company purchased and capitalized costs of approximately $42,000 and $0.1 million during the years ended September 30, 2007 and 2006, respectively. Software is amortized using the straight-line method over the estimated useful life of three years.

Goodwill and Intangible Assets

In accordance with Statement of Financial Accounting Standards (SFAS) No. 141, “Business Combinations”, and SFAS No. 142, “Goodwill and Other Intangible Assets” (SFAS 142), goodwill and intangible assets deemed to have indefinite lives are no longer to be amortized, but instead are subject to annual impairment tests. As of September 30, 2007, the Company had an indefinite lived intangible asset balance of $0.2 million related to the acquisition of Mentor Graphics Corporation’s Physical Libraries Business on December 1, 1999, and $9.8 million of goodwill related to the acquisition of In-Chip Systems, Inc. in 2002. In addition, the Company recorded $1.6 million of goodwill related to the acquisition of Ingot Systems, Inc. on August 14, 2007. In accordance with SFAS 142, the Company does not amortize goodwill.

The Company evaluates goodwill and intangible assets deemed to have indefinite lives in accordance with SFAS 142. The Company assesses these assets for impairment on an annual basis. On adoption of SFAS 142, the Company determined its operations represent a single reporting unit. To assess goodwill for impairment, the Company performs the following procedures:

Step 1: The Company will compare the fair value of its reporting unit(s) to the carrying value, including goodwill, of each of those unit(s). The fair value will consider the Company’s market capitalization during the reporting period. If a unit’s fair value exceeds the carrying value, no impairment charge is necessary. For each reporting unit where the carrying value, including goodwill, exceeds the unit’s fair value, the Company will move on to step two as described below.

Step 2: The Company performs an allocation of the fair value of its identifiable tangible and non-goodwill intangible assets and liabilities. This derives an implied fair value for its goodwill. The Company then compares the implied fair value of goodwill with the carrying amount of its goodwill. If the carrying amount of the goodwill is greater than the implied fair value of its goodwill, an impairment loss is recognized for the excess of such amount.

As required by the provisions of SFAS 142, the Company evaluates goodwill for impairment on an annual basis on September 30 or more frequently if impairment indicators arise. A significant impairment could have a material adverse effect on the Company’s financial position and results of operations. No impairment charge or amortization of goodwill was recorded during the years ended September 30, 2007 and 2006.

Impairment of long-lived assets

The Company evaluates the recoverability of long-lived assets with finite lives in accordance with SFAS No. 144, “Accounting for the Impairment of Long-Lived Assets” (SFAS 144). Finite-lived intangible

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assets are being amortized on a straight-line basis over their estimated useful lives of four to ten years. SFAS 144 requires recognition of impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment charge is recognized in the event the net book value of such assets exceeds the future undiscounted cash flows attributable to such assets. As of September 30, 2007, the Company had an intangible asset of $1.4 million related to technology acquired through the acquisition of In-Chip Systems, Inc. and an intangible asset of $1.1 million related to technology and other intangibles acquired through the acquisition of Ingot Systems, Inc.

Stock-Based Compensation

In December 2004, Financial Accounting Standards Board (FASB) issued SFAS No. 123 (revised 2004), “Share-Based Payment” (SFAS 123R), that addresses the accounting for share-based payment transactions in which a company receives employee services in exchange for either equity instruments of the company or liabilities that are based on the fair value of the company’s equity instruments or that may be settled by the issuance of such equity instruments. SFAS 123R eliminates the ability to account for stock-based compensation transactions using the intrinsic method and generally requires that such transactions be accounted for using a fair value-based method and recognized as expense in the consolidated statements of operations. In March 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 107 regarding the Staff’s interpretation of SFAS 123R. This interpretation provides the Staff’s views regarding interactions between SFAS 123R and certain Securities and Exchange Commission rules and regulations and provides interpretations of the valuation of stock-based payments for public companies. The interpretive guidance is intended to assist companies in applying the provisions of SFAS 123R and investors and users of the financial statements in analyzing the information provided.

Following the guidance prescribed in SAB 107, on October 1, 2005, the Company adopted SFAS 123R using the modified prospective method, and accordingly, the Company has not restated the consolidated statements of operations from prior fiscal years. Under SFAS 123R, the Company is required to measure compensation cost for all stock-based awards at fair value on date of grant and recognize compensation expense on a straight-line basis over the service period that the awards are expected to vest. Stock options generally vest over a four-year service period. Since our adoption of SFAS 123R, there have been no changes to our equity plans or modifications to outstanding stock-based awards. Total SFAS 123R compensation expense recognized for the years ended September 30, 2007 and 2006 was $4.3 million and $6.7 million, respectively. As of September 30, 2007, total unrecognized estimated compensation expense net of forfeitures related to non-vested equity awards granted prior to that date was $8.0 million and will be amortized over the average period of 2.6 years.

Prior to October 1, 2005, the Company accounted for employee stock-based compensation using the intrinsic method in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25) as permitted by SFAS 123, “Accounting for Stock-Based Compensation” (SFAS 123), and SFAS 148, “Accounting for Stock-Based Compensation-Transition and Disclosure” (SFAS 148). Under the intrinsic method, the difference between the market price on the date of grant and the exercise price is charged to the results of operations over the vesting period on a straight-line method. For the year ended September 30, 2005 the Company did not have any options that were granted below fair value as of the measurement date. Accordingly, the Company was not required to recognize compensation cost for stock options issued to the Company’s employees or shares issued under the employee stock purchase plan.

The Company accounts for stock options or warrants granted to non-employees, excluding non-employee directors, under SFAS 123 and Emerging Issues Task Force No. 96-18, “Accounting for Equity Instruments with Variable Terms that are Issued for Consideration Other Than Employee Services under SFAS 123,” (EITF 96-18). The Company records the expense of such services based upon the estimated fair value of the

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equity instrument using the Black-Scholes pricing model. Assumptions used to value the equity instruments are consistent with equity instruments issued to employees. The Company charges the value of the equity instrument to earnings over the term of the service agreement. There were no stock options grants to non-employees, excluding non-employee directors, and no expenses recorded for stock options granted to non-employees in the years ended September 30, 2007, 2006 and 2005.

For the fiscal year ended September 30, 2005, had the Company accounted for all employee stock-based compensation based on the estimated grant date fair values, as defined by SFAS 123, the Company’s net loss and net loss per share would have been adjusted to the following proforma amounts (in thousands, except per share data):

	Year Ended September 30, 2005
Net loss—as reported	$	(315	)
Add: Employee stock-based compensation expense included in reported net loss, net of tax		207
Deduct: Employee stock-based compensation expense determined under fair value based method for all awards, net of tax		(4,455	)
Proforma net loss	$	(4,563	)
Net loss per share—as reported basic and diluted	$	(0.01	)
Net loss per share—Proforma basic and diluted	$	(0.21	)
Weighted average shares used in computing net loss per share
Basic		22,187
Diluted		22,187

Upon adoption of SFAS 123R, for options vested in fiscal year 2006, the Company recognized the compensation expense associated with awards granted after October 1, 2005, and the unvested portion of previously granted awards that remain outstanding as of October 1, 2005. SFAS 123R also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as cash flow from financing activities rather than as cash flow from operating activities as previously required under Emerging Issues Task Force (EITF) issue No. 00-15, “Classification in the Statement of Cash Flow of the Income Tax Benefit Received by a Company upon Exercise of a Nonqualified Employee Stock Option.”

The stock-based compensation expense related to the Company’s stock-based awards for the fiscal years ended September 30, 2007 and 2006 were as follows (in thousands, except per share data):

	Year Ended September 30, 2007			Year Ended September 30, 2006
Cost of revenues	$	715		$	1,041
Research and development		1,155			1,633
Sales and marketing		1,130			1,673
General and administrative		1,341			2,368
Stock-based compensation expense		4,341			6,715
Related income tax benefits		(1,152	)		(1,443	)
Stock-based compensation expense, net of tax benefits	$	3,189		$	5,272
Net stock-based compensation expense, per common share:
Basic	$	0.14		$	0.23
Diluted	$	0.14		$	0.23

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As of September 30, 2007 and 2006, the Company capitalized approximately $114,000 and $55,000, respectively, of stock-based compensation expense related to our custom contracts which have not been completed.

Consistent with our valuation method for the disclosure-only provisions of SFAS 123, the Company is using the Black-Scholes option pricing model to value the compensation expense associated with our stock-based awards under SFAS 123R. In addition, the Company estimates forfeitures when recognizing compensation expense, and the Company will adjust our estimate of forfeitures over the requisite service period based on the extent to which actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures will be recognized through an adjustment in the period of change and will also impact the amount of compensation expense to be recognized in future periods.

The following weighted average assumptions were used in the estimated grant date fair value calculations for equity awards:

	Year Ended September 30,
	2007		2006		2005
Volatility	51	%	69	%	61	%
Risk-free interest rate	4.54	%	4.63	%	3.61	%
Dividend yield	0	%	0	%	0	%
Expected life (years)	4.3		4.3		3.6

The expected stock price volatility rates are based on the historical volatility of our common stock. The risk free interest rates are based on the United States Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option. The average expected life represents the weighted average period of time that options granted are expected to be outstanding giving consideration to vesting schedules and our historical exercise patterns. The Black-Scholes weighted average fair values of options granted during the fiscal years ended September 30, 2007, 2006 and 2005 were $3.53, $5.22 and $5.11 per share, respectively.

Business Risks and Concentration of Credit Risk

The Company operates in the competitive semiconductor industry, which has been characterized by rapid technological change, short product life cycles and cyclical market patterns. Significant technological changes in the industry could adversely affect operating results.

The Company markets and sells its technology to a broad base of customers, which are primarily located in the United States, Asia, Canada and Europe. The Company performs ongoing credit evaluations of its customers’ financial condition, and generally, no collateral is required.

Customer Concentrations

In fiscal years 2007, 2006, and 2005 only one customer accounted for 10% or more of total revenues.

Advertising Expense

The Company expenses costs of producing advertisements at the time production occurs and expenses promotional advertising in the period during which the promotion is distributed or aired. Advertising costs totaled approximately $640,000, $566,000, and $1,258,000 for the years ended September 30, 2007, 2006, and 2005, respectively.

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Research and Development

In accordance with SFAS No. 86, “Accounting for Costs of Computer Software to be Sold, Leased or Otherwise Marketed,” costs incurred in the research and development of new software products and enhancements to existing software products are expensed as incurred until technological feasibility has been established. The Company believes its current process for developing software is essentially completed concurrently with the establishment of technological feasibility which is evidenced by a working model; accordingly, costs incurred after the establishment of technological feasibility have not been significant and, therefore, have been expensed. Research and development costs are charged to operations as incurred.

Net Loss Per Share

Basic and diluted net loss per share is presented in conformity with SFAS No. 128, “Earnings Per Share” (SFAS 128). Accordingly, basic and diluted net loss per share have been computed using the weighted average number of shares of common stock outstanding during the period, less weighted average shares outstanding that are subject to repurchase by the Company plus weighted average share equivalents, unless anti-dilutive.

The following table presents the computation of basic and diluted net loss per share applicable to common stockholders:

	Year Ended September 30,
	2007			2006			2005
	(In thousands, except per share data)
Net loss	$	(4,605	)	$	(879	)	$	(315	)
Weighted average shares of common stock outstanding		23,217			22,812			22,187
Less weighted average unvested restricted stock subject to repurchase		(106	)		—			—
Shares used in computing basic and diluted net loss per share		23,111			22,812			22,187
Net loss per share:
Basic and diluted	$	(0.20	)	$	(0.04	)	$	(0.01	)

The Company has excluded all outstanding options and other equity-settled awards from the calculation of diluted net loss per share because these securities are anti-dilutive for the years ended September 30, 2007 and 2006. Options and other awards to purchase approximately 4.8 million, 5.6 million and 5.7 million shares of common stock have been excluded for the years ended September 30, 2007, 2006, and 2005, respectively, as they are anti-dilutive. There were no shares subject to repurchase as of September 30, 2007, 2006 and 2005.

Comprehensive Income (Loss)

In June 1997, the FASB released SFAS No. 130, “Reporting Comprehensive Income” (SFAS 130). SFAS 130 established standards for the reporting and display of comprehensive income (loss). Comprehensive income (loss) includes unrealized gains and losses on investments and foreign currency translation adjustments, and is presented in the statements of stockholders’ equity.

Total comprehensive loss is as follows (in thousands):

	Year Ended September 30,
	2007			2006			2005
Net loss	$	(4,605	)	$	(879	)	$	(315	)
Foreign currency translation adjustment		702			87			157
Change in net unrealized gain (loss) on investment, net of tax		(2	)		170			(105	)
Total comprehensive loss, net of tax	$	(3,905	)	$	(622	)	$	(263	)

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Income Taxes

Income taxes are accounted for using an asset and liability approach, which requires the recognition of deferred tax assets and liabilities for expected future tax events that have been recognized differently in the Company’s consolidated financial statements and tax returns. The measurement of current and deferred tax assets and liabilities are based on provisions of the enacted tax law and the effects of future changes in tax laws or rates. A valuation allowance is established when necessary to reduce deferred tax assets to amounts expected to be realized.

Segment Information

In June 1997, the FASB issued SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information” (SFAS 131), which establishes standards for reporting information about operating segments in annual financial statements. The Company operates only in one segment, the sale of technology-optimized semiconductor IP platforms based on memory, logic and I/Os.

Recent Accounting Pronouncements

In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109” (FIN 48). FIN 48 prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. We are currently evaluating the impact of adopting FIN 48 on our consolidated financial statements.

In September 2006, the FASB issued FASB Statement No. 157, “Fair Value Measurements,” or SFAS 157. The standard provides guidance for using fair value to measure assets and liabilities. The standard also responds to investors’ requests for expanded information about the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings. The standard applies whenever other standards require or permit assets or liabilities to be measured at fair value. The standard does not expand the use of fair value in any new circumstances. SFAS 157 must be adopted prospectively as of the beginning of the year it is initially applied. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. We are still evaluating the impact of this standard on our financial position or results of operations.

In February 2007, the FASB issued FASB Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities,” or SFAS 159. SFAS 159 permits companies to choose to measure certain financial instruments and certain other items at fair value. The standard requires that unrealized gains and losses on items for which the fair value option has been elected be reported in earnings. SFAS 159 is effective for the company beginning in the first quarter of fiscal year 2009, although earlier adoption is permitted. We are currently evaluating what impact this standard will have on our financial position or results of operations.

Note 2. Business Segment Information

The Company operates in one industry segment, the sale of semiconductor IP platforms based on memory, logic, and I/Os, and the sale of the individual platform components and has one reportable segment.

Our Company’s Chief Executive Officer has been identified as the Chief Operating Decision Maker (CODM) because he has final authority over resource allocation decisions and performance assessment.

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Revenues by geographic area are based on the region the customers are located. They are as follows:

	Year Ended September 30,
	2007		2006		2005
	(In thousands)
Total Revenues by Geographic Area:
United States	$	19,862	$	20,387	$	18,306
Taiwan		9,446		15,734		11,919
Europe, Middle East, and Africa (EMEA)		9,200		9,105		9,239
Japan		2,358		3,244		4,490
Canada		1,492		3,091		1,378
Other Asia		4,169		7,742		8,057
Total	$	46,527	$	59,303	$	53,389

Percentage of license revenues by process node are as follows:

	Year Ended September 30,
	2007		2006		2005
Total License Revenues by Process Node:
65-nanometer technology	23	%	10	%	6	%
90-nanometer technology	36		43		36
0.13 micron technology	28		33		40
0.18 micron technology	10		12		12
Other	3		2		6

Long-lived assets are located primarily in the United States, with the exception of a building in the Republic of Armenia, which is owned by the Company. The Armenian building and leasehold improvements are valued at cost less accumulated depreciation and amortization and amounted to approximately $2.3 million and $2.2 million as of September 30, 2007 and 2006, respectively.

The Company has only one product line, and as such disclosure by product groupings is not applicable.

Note 3. Balance Sheet Components

Investments, classified as available-for-sale securities, included the following (in thousands):

	September 30, 2007							September 30, 2006
	Amortized Cost		Unrealized Gain (Loss)			Fair Value		Amortized Cost		Unrealized Gain (Loss)			Fair Value
Investments:
Government and federal agency bonds	$	6,012	$	4		$	6,016	$	27,246	$	(39	)	$	27,207
Commercial paper		30,674		(69	)		30,605		19,407		(27	)		19,380
Corporate bonds		4,968		(6	)		4,962		2,450		(3	)		2,447
Certificates of deposits		1,257		—			1,257		219		—			219
Short-term investments		42,911		(71	)		42,840		49,322		(69	)		49,253
Long-term government and federal agency bonds		17,501		27			17,528		7,512		21			7,533
Long-term investments		17,501		27			17,528		7,512		21			7,533
Total investments	$	60,412	$	(44	)	$	60,368	$	56,834	$	(48	)	$	56,786

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Investments, classified as available-for-sale securities, are reported as:

	September 30,
	2007		2006
	(In thousands)
Short-term investments	$	42,840	$	49,253
Long-term investments		17,528		7,533
Total	$	60,368	$	56,786

The contractual maturities of investments are as follows (in thousands):

	September 30, 2007				September 30, 2006
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due within one year	$	42,911	$	42,840	$	49,322	$	49,253
Due after one year through five years		17,501		17,528		7,512		7,533
Total	$	60,412	$	60,368	$	56,834	$	56,786

The following table shows the gross unrealized losses and market value of the Company’s investments with unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of September 30, 2007 (in thousands):

	Less Than 12 Months				12 Months or Greater				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Government and federal agency bonds	$	—	$	—	$	—	$	—	$	—	$	—
Commercial paper		21,224		79		—		—		21,224		79
Corporate bonds		4,963		6		—		—		4,963		6
Total	$	26,187	$	85	$	—	$	—	$	26,187	$	85

The unrealized losses are of a temporary nature due to the Company’s intent and ability to hold the investments until maturity or until the par value is realizable. Based on our review of these securities, including the assessment of the duration and severity of the related unrealized losses, we have not recorded any other-than-temporary impairments on these securities.

Accounts receivable are as follows (in thousands):

	September 30,
	2007			2006
	(In thousands)
Accounts receivable, net:
Accounts receivable	$	12,364		$	16,230
Allowance for doubtful accounts		(194	)		(295	)
Total	$	12,170		$	15,935

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Write offs totaling $138,000 were recorded for the year ended September 30, 2006. No write-offs were recorded against the allowance for doubtful accounts in the years ended September 30, 2007 and September 30, 2005.

Property, plant and equipment are as follows (in thousands):

	September 30,
	2007			2006
	(In thousands)
Property, plant and equipment, net:
Building in Armenia	$	3,077		$	2,700
Furniture and fixtures		976			1,022
Computers and equipment		9,797			9,224
Software		10,638			10,508
Leasehold improvements		1,090			1,102
		25,578			24,556
Less accumulated depreciation and amortization		(21,935	)		(19,714	)
Total	$	3,643		$	4,842

Depreciation and amortization expense related to property, plant and equipment totaled $1.8 million, $2.0 million and $2.4 million for the years ended September 30, 2007, 2006 and 2005, respectively.

Intangible assets are as follows (in thousands):

	September 30, 2007							September 30, 2006
	Gross Amount		Accumulated Amortization			Total		Gross Amount		Accumulated Amortization			Total
Amortized intangible assets:
Patents	$	3,500	$	(2,035	)	$	1,465	$	3,500	$	(1,672	)	$	1,828
Customer lists		300		(5	)		295		—		—			—
Technology		800		(17	)		783		—		—			—
		4,600		(2,057	)		2,543		3,500		(1,672	)		1,828
Unamortized intangible assets:
Workforce		269		(202	)		67		269		(202	)		67
Customer lists		27		(20	)		7		27		(20	)		7
Other		353		(265	)		88		353		(265	)		88
Total(*)	$	5,249	$	(2,544	)	$	2,705	$	4,149	$	(2,159	)	$	1,990

* Intangible assets include approximately $162,000 related to assembled workforce and customer lists which are no longer amortized in accordance with SFAS 142.

The aggregate amortization expense related to acquired intangible assets totaled $0.4 million for the years ended September 30, 2007, 2006 and 2005.

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Estimated amortization expenses of intangible assets for the next five fiscal years and all years thereafter are as follows (in thousands):

Estimated Amortization Expense
2008	$	589
2009		589
2010		589
2011		566
2012		210
Thereafter		—
Total	$	2,543

Accrued expenses are as follows (in thousands):

	September 30,
	2007		2006
	(In thousands)
Accrued expenses:
Accrued payroll and related expenses	$	3,034	$	3,087
Other accruals		1,625		1,710
Total	$	4,659	$	4,797

The balance of accumulated other comprehensive income is as follows (in thousands):

	September 30,
	2007			2006
	(In thousands)
Accumulated other comprehensive income:
Unrealized loss on investments	$	(35	)	$	(33	)
Cumulative translation adjustment		1,044			342
Total	$	1,009		$	309

Note 4. Acquisition of Ingot Systems, Inc.

On August 14, 2007, the Company acquired Ingot Systems, Inc. (Ingot), a Santa Clara based provider of critical functional IP and design services to the semiconductor industry with global design centers located in the United States and India. The acquisition expands the Company’s ability to serve chosen markets by adding new products and services required in the rapid development of System-on-Chip (SoC) integrated circuits to the Company’s current family of physical IP products including memory compilers, logic libraries and related development tools.

The aggregate up front purchase price was $2.8 million, which included the payment of cash for common stock and the cancellation of options, and acquisition related costs. In addition, the former Ingot shareholders and employees have a potential for a series of earn-out and performance bonus payments totaling up to $8 million through the end of the Company’s fiscal 2009, provided that certain technology and product order milestones are achieved. These earn-outs payments will be treated as additional compensation when met as the milestones are

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linked to continued employment. The $1.6 million of goodwill the Company recorded in connection with the acquisition is not expected to be deductible for income tax purposes. The $1.1 million of acquired intangible assets the Company recorded in connection with the acquisition is expected to be amortized using an estimated life of four years. In accordance with SFAS No.141, “Business Combinations,” the Company accounted for this acquisition as a business combination. The results of operations and the estimated fair values of the assets acquired and liabilities assumed has been included in the Company’s consolidated financial statements from the date of acquisition. The financial results of Ingot Systems, Inc. prior to the acquisition are immaterial for purposes of pro forma financial disclosures.

The following tables summarize the components of the total purchase price and the estimated allocation (in thousands):

	Allocation
Cash paid for common stock	$	1,754
Cash paid for vested options		178
Other estimated acquisition related costs		840
Total estimated purchase price	$	2,772

The final purchase price allocation will be determined upon finalization of estimates for direct acquisition costs and a comprehensive final evaluation of the fair value of all assets and liabilities. The purchase price allocation, which is subject to change based on the Company’s final analysis, is as follows (in thousands):

	Allocation
Intangible assets	$	1,100
Net liabilities assumed		(1	)
Goodwill		1,573
In-process research and development		100
Total consideration	$	2,772

The net tangible assets acquired and liabilities assumed in the acquisition were recorded at fair value, which approximates the carrying amount as of the acquisition date. The Company determined the valuation of the identifiable intangible assets using future revenue assumptions. The amounts allocated to the identifiable intangible assets were determined through established valuation techniques accepted in the technology industry.

In connection with this acquisition, the Company recorded an expense of $0.1 million in fiscal year 2007 for the write-off of acquired in-process technology. The purchase price allocated to acquired in-process technology was determined through preliminary established valuation techniques. The acquired in-process technology was immediately expensed because technological feasibility had not been established, and no future alternative use existed. The write-off of acquired in-process technology is a component of research and development expense in the Consolidated Statements of Operations.

Note 5. Restructuring Charges

During fiscal 2007, the Company initiated a plan of restructuring in an effort to reduce operating expenses and improve operating margins and cash flows. The restructuring plan was intended to decrease costs through workforce reductions and facility and resource consolidation in order to improve our cost structure. The Company accounted for costs associated with a leased facility in accordance with SFAS No. 146 “Accounting for Costs Associated with

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Exit or Disposal Activities.” In addition, the Company accounted for the asset-related portions of the restructuring in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”

During fiscal 2007, the Company reduced our workforce by approximately 23 employees throughout the Company. Costs resulting from the restructuring plan included severance payments, severance-related benefits, lease costs associated with a vacated facility, and charges for assets written off as a result of the restructuring plan. Facility closure costs included in the restructuring were comprised of payments required under the lease less any applicable estimated sublease income after the property was abandoned. All severance payments and severance-related benefits will be paid by December 31, 2007. Total restructuring costs accrued as of September 30, 2007 were $0.1 million which are recorded in accrued expenses on the consolidated balance sheet.

The following table summarizes restructuring activity for the twelve months ended September 30, 2007 as follows (in thousands):

	Severance			Asset Related			Facility			Total
Restructuring expense	$	438		$	31		$	111		$	580
Non-cash charges		—			(31	)		—			(31	)
Cash payments		(356	)		—			(119	)		(475	)
Balance at September 30, 2007	$	82		$	—		$	(8	)	$	74

Note 6. Commitments and Contingencies

Except for the Armenia building, the Company leases its facilities under operating leases. Rent expense under operating leases was approximately $1.5 million, $2.1 million and $2.1 million for the years ended September 30, 2007, 2006 and 2005, respectively.

The following table summarizes our contractual obligations (dollars in thousands):

Contractual Obligations	Total		Less than 1 Year		1-3 Years		4-5 Years		After 5 Years
Operating lease obligations	$	1,655	$	906	$	709	$	40	$	—
Purchase obligations(1)		9,043		3,650		5,140		253		—
Total operating lease and purchase obligations	$	10,698	$	4,556	$	5,849	$	293	$	—

(1) Reflects amounts payable under contracts for product development software licenses and maintenance.

Aggregate future minimum lease payments under operating leases as of September 30, 2007 are as follows (in thousands):

	Operating Leases
2008	$	906
2009		455
2010		254
2011		40
Thereafter		—
Total minimum lease payments	$	1,655

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company had no future capital lease obligations as of September 30, 2007.

Indemnifications. The Company enters into standard license agreements in its ordinary course of business. Pursuant to these agreements, the Company agrees to indemnify its customers for losses suffered or incurred by them as a result of any patent, copyright, or other intellectual property infringement claim by any third party with respect to the Company’s products. These agreements generally have perpetual terms. The maximum amount of indemnification the Company could be required to make under these agreements is generally limited to the license fees received by the Company. The Company estimates the fair value of its indemnification obligation as insignificant, based upon its history of litigation concerning product and patent infringement claims. Accordingly, the Company has no liabilities recorded for indemnification under these agreements as of September 30, 2007 and 2006.

The Company has agreements whereby our officers and directors are indemnified for certain events or occurrences while the officer or director is, or was serving, at our request in such capacity. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited; however, the Company has a directors and officers insurance policy that reduces our exposure and enables us to recover a portion of any future amounts paid. As a result of our insurance policy coverage, we believe the estimated fair value of these indemnification agreements is minimal. Agreements entered into prior to December 31, 2002 were grandfathered under the provisions of FIN No. 45. Currently, the Company has no liabilities recorded for these agreements as of September 30, 2007 and 2006.

Warranties. The Company offers its customers a warranty that its software products will substantially conform to their functional specifications. To date, there have been no payments or material costs incurred related to fulfilling these warranty obligations. Accordingly, the Company has no liabilities recorded for these warranties as of September 30, 2007 and 2006. The Company assesses the need for a warranty reserve on a quarterly basis and there can be no guarantee that a warranty reserve will not become necessary in the future.

Note 7. Stockholders’ Equity

Common Stock

As of September 30, 2007, common stock was reserved for issuance as follows:

Equity Incentive Plans	6,895,613
Employee Stock Purchase Plans	64,957
Total	6,960,570

Equity Incentive Plans

In March 2001, the stockholders approved an amendment to the Company’s 1997 Equity Incentive Plan (1997 Plan) and in February 2002, the stockholders approved the adoption of the 2002 Equity Incentive Plan (2002 Plan). In May 2002, in connection with Virage Logic’s acquisition of In-Chip, Virage Logic assumed In-Chip’s 2001 Incentive and Non-statutory Stock Option Plan (2001 Plan), and all options outstanding under the plan. Under the 2001 Plan, the maximum number of options that can be exercised for common stock shares is 585,520. The plans provide for the granting of incentive stock options, nonstatutory stock options and stock awards as determined by the administrators of such plans. Under the terms of the plans, the exercise price of incentive stock options will not be less than 100% of the fair market value of the shares on the date of grant, and the exercise price of nonstatutory stock options will not be less than 85% of the fair market value of the shares on

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the date of grant. Under the 1997 Plan, the exercise price of options granted to an employee or a service provider and, under the 2002 Plan, the grant of incentive stock options granted to an employee, who, at the time of grant, owns stock representing more than 10% of the voting power of all classes of the stock of the Company, shall be no less than 110% of the fair market value of the common stock on the date of grant. All option grants may be exercisable within the times or upon the events determined by the Board of Directors. The term of each option grant will be no more than ten years. However, in the case of an incentive stock option issued to an optionee who, at the time of grant, owns stock representing more than 10% of the voting power of all classes of the stock of the Company, the term of the option will be no more than five years. All shares that are issued under these plans are subject to repurchase by the Company at the original exercise price until the underlying options have vested. As of September 30, 2007, there were no shares issued and outstanding under the plans that were subject to repurchase.

Rights to immediately purchase stock may also be granted under these plans with terms, conditions, and restrictions determined by the administrators of the 1997 Plan and the 2002 Plan. Under the 1997 Plan, except for shares purchased by officers, directors and consultants, shares acquired through stock purchase rights vest over a period not to exceed five years with 20% vesting each year. Any unvested shares acquired are subject to repurchase by the Company. As of September 30, 2007, no such shares have been granted. On September 30, 2007, a total of 190,269 shares expired unissued under the 1997 Plan.

In November 2006, the Company began issuing Stock Settled Appreciation Rights (“SSARs”) which provide the holder the right to receive an amount settled in shares of our common stock at the time of the exercise. Under our equity incentive plans, stock options and SSARs generally have a vesting period of four years, are exercisable for a period not to exceed ten years from the date of grant and are generally granted at prices not less than the fair value of our common stock at the time of grant.

Information with respect to the Equity Incentive Plans is summarized as follows:

	Shares Available For Grant		Number of Options/SSARs Outstanding		Weighted Average Exercise Price
Balance as of September 30, 2004	1,374,521		6,024,291		$	9.99
Additional options authorized	1,000,000		—			—
Options granted	(1,159,059	)	1,159,059		$	10.38
Options exercised	—		(705,610	)	$	6.03
Options canceled	773,070		(773,070	)	$	12.61
Balance as of September 30, 2005	1,988,532		5,704,670		$	10.12
Options granted	(1,344,659	)	1,344,659		$	9.09
Options exercised	—		(455,870	)	$	5.57
Options canceled	962,550		(961,759	)	$	10.70
Balance as of September 30, 2006	1,606,423		5,631,700		$	10.14
Options and SSARs granted	(1,571,150	)	1,571,150		$	7.71
RSUs granted	(195,615	)	—			—
Options and SSARs exercised	—		(152,241	)	$	5.37
Options and SSARs canceled	1,281,177		(1,281,177	)	$	10.90
RSUs cancelled	40,495		—			—
Options expired (unissued)	(190,269	)	—			—
Balance as of September 30, 2007	971,061		5,769,432		$	9.46

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The following table summarizes information about stock options and SSARs outstanding and exercisable as of September 30, 2007:

	Awards Outstanding							Awards Exercisable
Range of Exercise Prices	Number of Shares		Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Aggregate Intrinsic Value		Number of Shares	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Aggregate Intrinsic Value
			(In years)			(In thousands)			(In years)			(In thousands)
$  0.13-$  5.61	663,130		4.31	$	3.71	$	2,459	662,938	4.31	$	3.71	$	2,458
$  5.62-$  7.08	616,693		9.92	$	6.99	$	261	45,889	5.39	$	3.61	$	37
$  7.10-$  7.76	608,489		9.71	$	7.49	$	27	175,834	8.61	$	7.64	$	—
$  7.78-$  7.89	721,096		8.95	$	7.85	$	—	236,215	9.02	$	7.84	$	—
$  8.01-$  8.87	696,348		8.30	$	8.73	$	—	294,207	6.96	$	8.67	$	—
$  8.91-$10.11	595,122		7.12	$	9.45	$	—	430,923	6.66	$	9.50	$	—
$10.13-$11.62	599,612		7.36	$	10.74	$	—	549,467	7.29	$	10.71	$	—
$11.64-$16.11	1,027,892		5.02	$	14.89	$	—	1,011,421	4.97	$	14.89	$	—
$16.55-$22.37	240,800		4.93	$	17.07	$	—	229,817	4.79	$	17.46	$	—
$22.81-$22.81	250		4.78	$	22.81	$	—	250	4.78	$	22.81	$	—
Total	5,769,432	*	7.30	$	9.46	$	2,747	3,636,961	5.99	$	10.30	$	2,495
*  Table of awards outstanding does not include 155,120 unvested restricted stock units.
Vested and expected to vest as of September 30, 2007	5,453,533		6.11	$	9.54	$	2,706

The aggregate intrinsic value in the table above represents the total pretax intrinsic value, based on the Company’s closing stock price of $7.42 as of September 30, 2007, which would have been received by the option holders had all option holders exercised their options as of that date. The total number of in-the-money options exercisable as of September 30, 2007 was 0.7 million.

The total fair value of shares vested using the Black-Scholes method during the fiscal year ended September 30, 2007 was $2.4 million. The total intrinsic value of employee stock options exercised during the fiscal years ended September 30, 2007, 2006 and 2005 were $0.4 million, $2.1 million and $5.8 million, respectively. The total cash received from employees as a result of employee stock option exercises during the fiscal years ended September 30, 2007, 2006 and 2005 were $0.9 million, $2.5 million, and $4.3 million, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company issues new shares of common stock upon exercise of stock options. A summary of the status of the Company’s nonvested shares as of September 30, 2007 and changes during the fiscal year ended September 30, 2007 is presented below:

	Awards
	Number of Shares		Weighted- Average Grant- Date Fair Value
Nonvested as of September 30, 2006	2,417,164		$	5.17
Awards granted	1,571,150		$	3.53
Awards vested	(443,188	)	$	5.46
Awards canceled	(1,281,177	)	$	5.61
Nonvested as of September 30, 2007	2,263,949		$	3.77

Restricted Stock Units (“RSU”)

During the first quarter of fiscal year 2007, the Company began issuing restricted stock unit awards as an additional form of equity compensation to its employees and officers. Restricted stock units generally vest over a two or four year period and unvested restricted stock units are forfeited and cancelled as of the date that employment terminates. Restricted stock units are settled in shares of the Company’s common stock upon vesting. The cost of restricted stock and restricted stock unit awards is determined using the fair value of the Company’s common stock on the date of the grant, and compensation expense is recognized over the vesting period.

The following table summarizes the activity of the Company’s unvested restricted stock units as of September 30, 2007 and changes during the twelve months ended September 30, 2007, is presented below:

	Restricted Stock Units
	Number of shares		Weighted- average grant- date fair value
Nonvested as of September 30, 2006	—			—
RSU granted	195,615		$	8.37
RSU vested	—			—
RSU canceled	(40,495	)		8.70
Nonvested as of September 30, 2007	155,120		$	8.29

Stock-based compensation cost for restricted stock units for the year ended 2007 was $0.5 million. As of September 30, 2007, the total unrecognized compensation cost net of forfeitures relate to unvested awards not yet recognized is $0.9 million and is expected to be amortized over a weighted average period of 1.8 years.

Employee Stock Purchase Plans

In April 2000, the Board of Directors approved the adoption of the 2000 Employee Stock Purchase Plan (2000 Purchase Plan). A total of 491,137 shares of common stock have been reserved for issuance under this plan. In July 2001, the Board of Directors approved the adoption of the 2001 Foreign Subsidiary Employee Stock Purchase Plan (2001 Foreign Plan) as a sub-plan of the 2000 Purchase Plan and allocated 30,000 shares of common stock previously reserved for issuance under the 2000 Purchase Plan for issuance under the 2001

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Foreign Plan. A total of 70,716 shares have been reserved for issuance under the 2001 Foreign Plan. As of September 30, 2007, a total of 64,957 shares were reserved for issuance under both plans. During fiscal years 2007, 2006 and 2005, there were no transfers from the 2000 Purchase Plan share reserve to the 2001 Foreign Plan reserve. During fiscal year 2004, an additional 716 shares were transferred from the 2000 Purchase Plan share reserve to the 2001 Foreign Plan reserve to meet the requirements of the February 13, 2004 and August 13, 2004 purchases. On each October 1, starting in 2001, the number of shares is automatically increased by the lesser of: 0.75% of the then outstanding shares of common stock, 200,000 shares or a number determined by the Board of Directors. Each offering period will consist of six months. The initial offering period began on October 1, 2000. Offering period end dates were changed from March 31 and September 30 of each year, to February 15 and August 15, starting in fiscal year 2002.

Under the Company’s 2000 Purchase Plan and 2001 Foreign Plan, the employees purchased 10,954, 24,559, and 261,456 shares during the fiscal years ended September 30, 2007, 2006 and 2005, respectively. The employee stock purchase plan was terminated on February 16, 2007.

Common Stock Valuation

In connection with the Company’s initial public offering, the Company reevaluated the fair value of its common stock used to record stock-based compensation for employee stock options and the valuation of the warrants issued for professional services, the purchase of assets and in obtaining a line of credit. In connection with the Company’s acquisition of In-Chip Systems, Inc., the Company included in the purchase price the fair value of common stock and stock options and recorded the intrinsic value of the stock options as deferred stock-based compensation. In connection with all such stock option grants, during the years ended September 30, 2007 and 2006, we recorded stock-based compensation expense under SFAS 123R of $4.4 and $6.7 million, respectively. During the year ended September 30, 2005, the Company recorded a non-cash charge for stock-based compensation under APB 25 of $0.3 million.

Note 8. Related Party Transactions

Cathal Phelan who was appointed as a member of its Board of Directors in March 2006, also serves as Chief Executive Officer at Ubicom, Inc. which is one of our customers. Revenue from Ubicom was approximately $137,000 and $93,000 for the years ended September 30, 2007 and 2006, respectively.

The Company’s promissory note from an executive officer in the principal amount of $200,000 issued in March 2002 was substantially repaid in fiscal year 2005 when the officer left the Company. Approximately $20,000 was not repaid and subsequently written-off.

Note 9. Agreements with Foundries

The Company has entered into agreements with third-party semiconductor foundries in Asia, under which the Company has agreed to develop memory, logic and I/O elements for certain of the foundries’ manufacturing processes and in return the foundries are obligated to pay the Company royalties on sales of silicon chips manufactured by the foundries for the Company’s fabless customers. For the years ended September 30, 2007, 2006 and 2005, total royalty revenues were $12.1 million, $16.1 million and $11.0 million, respectively.

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Note 10. Income Taxes

The domestic and foreign components of income (loss) before taxes are as follows:

	Year Ended September 30,
	2007			2006			2005
	(In thousands)
Domestic	$	(8,587	)	$	(883	)	$	(2,563	)
Foreign		740			124			88
Total	$	(7,847	)	$	(759	)	$	(2,475	)

The income tax provision (benefit) for the years ended September 30, 2007, 2006 and 2005 consists of the following:

	Year Ended September 30,
	2007			2006			2005
	(In thousands)
Current:
Federal	$	—		$	468		$	(889	)
State		80			358			(622	)
Foreign		1,314			752			218
Deferred:
Federal		(4,060	)		(949	)		(1,279	)
State		(576	)		(509	)		412
Foreign		—			—			—
	$	(3,242	)	$	120		$	(2,160	)

The income tax provision (benefit) differed from the amounts computed at the US statutory federal income tax rate of 34% in 2007, 2006, and 2005 as a result of the following:

	Year Ended September 30,
	2007			2006			2005
	(In thousands)
Federal tax at statutory rate	$	(2,668	)	$	(258	)	$	(842	)
State taxes		(523	)		(273	)		(139	)
Stock-based compensation		649			984			(236	)
Tax exempt interest		—			(20	)		(20	)
Research and development credit		(738	)		(184	)		(671	)
Foreign taxes, net of credit		25			57			0
Other		13			(186	)		(252	)
Total	$	(3,242	)	$	120		$	(2,160	)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Significant components of the Company’s deferred tax assets (liabilities) are as follows:

	Year Ended September 30,
	2007			2006
	(In thousands)
Deferred tax assets current:
Deferred revenue	$	145		$	32
Compensation accrual		593			559
Net operating loss carryforwards		—			449
Other accruals/reserves not currently deductible		1,201			487
		1,939			1,527
Deferred tax assets non-current:
Net operating loss carryforwards		1,204			—
Stock compensation		2,197			1,354
Research and development credits		8,945			6,493
Depreciation and amortization		832			713
Other accruals/reserves not currently deductible		—			2
Total deferred tax assets		15,117			10,089
Deferred tax liabilities:
Acquired intangibles		(978	)		(692	)
Net deferred tax assets	$	14,139		$	9,397

The FASB’s SFAS No. 109, “Accounting for Income Taxes”, provides for the recognition of deferred tax assets if realization of such assets is more likely than not. The Company recorded a deferred tax asset as of September 30, 2007 and 2006 based on the expectation of future taxable income. Management believes that it is more likely than not that the deferred tax assets will be realized and has determined that no valuation allowance is considered necessary.

For the year ended September 30, 2007, the Company also has research and development tax credit carryforwards of approximately $4.9 million and $4.1 million for federal and state income tax purposes, respectively. If not utilized, the federal carryforwards will expire in various amounts beginning in 2022. The state tax credits can be carried forward indefinitely.

For the year ended September 30, 2007, the Company has federal net operating loss carryforwards of approximately $3.4 million which expire beginning in the years 2026.

For the year ended September 30, 2007, the Company has foreign tax credit carryforwards of approximately $3.4 million which expire beginning in the year 2014.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 11. Quarterly Results—Unaudited

	Quarter Ended
	Sept. 30, 2007			June 30, 2007			March 31, 2007			Dec. 31, 2006			Sept. 30, 2006			June 30, 2006			March 31, 2006			Dec. 31, 2005
	(Unaudited)
	(In thousands, except per share data)
Consolidated Statement of Operations Data:
Revenues	$	13,149		$	11,286		$	10,567		$	11,525		$	15,036		$	15,346		$	15,196		$	13,725
Cost and expenses:
Cost of revenues		2,966			2,869			3,376			3,727			3,437			4,151			3,500			3,715
Research and development		5,146			5,301			4,823			5,076			4,978			5,473			5,328			5,628
Sales and marketing		3,997			4,050			3,763			3,654			4,272			4,027			4,299			4,260
General and administrative		2,020			1,789			2,418			2,664			2,704			2,150			2,709			2,756
Restructuring charges		—			580			—			—			—			—			—			—
Total cost and expenses		14,129			14,589			14,380			15,121			15,391			15,801			15,836			16,359
Operating income (loss)		(980	)		(3,303	)		(3,813	)		(3,596	)		(355	)		(455	)		(640	)		(2,634	)
Interest income		998			1,014			1,003			987			988			776			668			623
Other income (expenses), net		(31	)		(53	)		(29	)		(44	)		129			148			(3	)		(4	)
Income (loss) before taxes		(13	)		(2,342	)		(2,839	)		(2,653	)		762			469			25			(2,015	)
Income tax provision (benefit)		363			(1,106	)		(1,062	)		(1,437	)		(15	)		2,059			(151	)		(1,773	)
Net income (loss)	$	(376	)	$	(1,236	)	$	(1,777	)	$	(1,216	)	$	777		$	(1,590	)	$	176		$	(242	)
Basic net income (loss) per share	$	(0.02	)	$	(0.05	)	$	(0.08	)	$	(0.05	)	$	0.03		$	(0.07	)	$	0.01		$	(0.01	)
Diluted net income (loss) per share	$	(0.02	)	$	(0.05	)	$	(0.08	)	$	(0.05	)	$	0.03		$	(0.07	)	$	0.01		$	(0.01	)

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Fremont, State of California, on this 14th day of December 2007.

VIRAGE LOGIC CORPORATION
By:	/s/    J. DANIEL MCCRANIE
	J. Daniel McCranie
	President and Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints J. Daniel McCranie and Christine Russell, jointly and severally, his attorney-in-fact, each with the power of substitution, for him in any and all capacities, to sign any amendments to this Report of Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue thereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/S/     J. DANIEL MCCRANIE         J. Daniel McCranie	Executive Chairman (President and Chief Executive Officer)	December 14, 2007
/S/     CHRISTINE RUSSELL         Christine Russell	Vice President of Finance and Chief Financial Officer (Principal Accounting Officer and Principal Financial Officer)	December 14, 2007
/S/     DR. ALEXANDER SHUBAT         Dr. Alexander Shubat	Vice President of Research and Development, Chief Technical Officer, Secretary and Director	December 14, 2007
/S/     MICHAEL HACKWORTH         Michael Hackworth	Director	December 14, 2007
/S/     ADAM K. KABLANIAN         Adam K. Kablanian	Director	December 14, 2007
/S/     ROBERT SMITH         Robert Smith	Director	December 14, 2007
/S/     MICHAEL STARK         Michael Stark	Director	December 14, 2007
/S/     CATHAL PHELAN         Cathal Phelan	Director	December 14, 2007

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VIRAGE LOGIC CORPORATION

SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS

	Balance at Beginning of Period		Additions Charged to Costs and Expenses		Deductions Write-Offs			Deductions Recoveries			Balance at End of Period
	(In thousands)
Allowance for Doubtful Accounts
Year ended September 30, 2005	$	738	$	417	$	—		$	—		$	1,155
Year ended September 30, 2006	$	1,155	$	295	$	(138	)	$	(1,017	)	$	295
Year ended September 30, 2007	$	295	$	—	$	—		$	(101	)	$	194

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EXHIBIT INDEX

Exhibit Number	Description of Document
3.1	Amended and Restated Certificate of Incorporation
3.2	Amended and Restated Bylaws(13)
4.1	Specimen Common Stock Certificate(1)
10.1	1997 Equity Incentive Plan, as amended(2)*
10.2	Form of Option Agreement under 1997 Equity Incentive Plan(3)*
10.3	2000 Employee Stock Purchase Plan, as amended(4)*
10.4	2001 Foreign Subsidiary Employee Stock Purchase Plan(4)*
10.6	Development and Licensing Agreement between Taiwan Semiconductor Manufacturing Co. Ltd. and Virage Logic dated as of March 3, 1999(1)#
10.7	Memory Compiler Licensing Agreement between United Microelectronics Corporation and Virage Logic dated as of March 21, 2000(1)#
10.8	Office Lease between Roshan Polymers Limited and Virage Logic International dated August 1, 2001(5)
10.9	Virage Logic Corporation 2002 Equity Incentive Plan, as amended(6)*
10.10	Form of Notice of Grant of Stock Options under the Virage Logic Corporation 2002 Equity Incentive Plan(7)*
10.11	Amended and Restated In-Chip Systems, Inc. 2001 Incentive And Non-Statutory Stock Option Plan(8)*
10.12	Master License Agreement, dated June 8, 2001 and Exhibit No. 2 dated April 1, 2002 between Virage Logic Corporation and STMicroelectronics S.A.(8)#
10.13	Sublease between Ciena Corporation and Virage Logic Corporation dated July 11, 2002 and Consent to Sublease between Ciena Corporation, Virage Logic Corporation and Renco Equities IV dated August 11, 2002(9)
10.14	Real Estate Purchase-Sale Agreement between Nikolay Khachaturov and Virage Logic Corporation dated October 2, 2002 (English translation)(9)
10.15	Virage Logic Corporation 2007 Profit Sharing Bonus Plan(12)*
10.16	Lease between the Neidig Family and Virage Logic Corporation dated October 12, 2006 and First Amendment to Lease dated October 25, 2007
10.17	Agreement and Release dated January 22, 2007 entered into by and between Virage Logic Corporation and Adam A. Kablanian(10)
10.18	Agreement and Release dated July 10, 2007entered into by and between Virage Logic Corporation and James R. Bailey(11)
10.19	Virage Logic Corporation 2008 Profit Sharing Bonus Plan*
10.20	Virage Logic Corporation 2008 Executive MBO Plan*
21.1	Subsidiaries of Registrant
23.1	Consent of Burr, Pilger & Mayer LLP, Independent Registered Public Accounting Firm

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Exhibit Number	Description of Document
23.2	Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm
31.1	Certification Pursuant to Rule 13(a)-14(a) of the Securities Exchange Act of 1934, as amended, as pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification Pursuant to Rule 13(a)-14(a) of the Securities Exchange Act of 1934, as amended, as pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(1) Incorporated by reference to Virage Logic’s Registration Statement on Form S-1, as amended (File No. 333-36108).

(2) Incorporated by reference to Virage Logic’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2001.

(3) Incorporated by reference Appendix B of Virage Logic’s Proxy Statement filed on January 13, 2005.

(4) Incorporated by reference to Virage Logic’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2001.

(5) Incorporated by reference to Virage Logic’s Annual Report on Form 10-K for the year ended September 30, 2001.

(6) Incorporated by reference to Appendix A of Virage Logic’s Proxy Statement filed on January 13, 2005.

(7) Incorporated by reference to Virage Logic’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2001.

(8) Incorporated by reference to Virage Logic’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.

(9) Incorporated by reference to Virage Logic’s Annual Report on Form 10-K for the year ended September 30, 2002.

(10) Incorporated by reference to Virage Logic’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2006.

(11) Incorporated by reference to Virage Logic’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007.

(12) Incorporated by reference to Virage Logic’s Annual Report on Form 10-K/A for the year ended September 30, 2006.

(13) Incorporated by reference to Virage Logic’s Annual Report on Form 10-K for the year ended September 30, 2003.

# Confidential treatment has been granted with respect to portions of the exhibit. A complete copy of the agreement, including the redacted terms, has been separately filed with the Securities and Exchange Commission.

* Management contract or compensatory plan or arrangement.

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EX-3.1

Exhibit 3.1

AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION OF

VIRAGE LOGIC CORPORATION

Virage Logic Corporation, a corporation organized and existing under the General Corporation Law of the State of Delaware (the “Corporation”) does hereby certify that:

1. The original Certificate of Incorporation was filed with the Secretary of State of Delaware on March 14, 2000 under the name Virage Logic Corporation (Delaware).

2. The Amended and Restated Certificate of Incorporation in the form attached hereto as Exhibit A has been duly adopted in accordance with the provisions of Sections 242, 245 and 228 of the General Corporation Law of the State of Delaware by the directors and stockholders of the Corporation, and prompt written notice was duly given pursuant to Section 228 to those stockholders who did not approve the Amended and Restated Certificate of Incorporation by written consent.

3. The Amended and Restated Certificate of Incorporation so adopted reads in full as set forth in Exhibit A attached hereto and is hereby incorporated herein by this reference.

IN WITNESS WHEREOF, Virage Logic Corporation has caused this Certificate to be signed by the President and Chief Executive Officer this 3rd day of August, 2000.

VIRAGE LOGIC CORPORATION
By:	/s/ Adam Kablanian
	Adam Kablanian, President & CEO

STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 01:00 PM 08/03/2000
001392686 – 3193637

EXHIBIT A

AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF

VIRAGE LOGIC CORPORATION

FIRST. The name of the corporation is Virage Logic Corporation.

SECOND. The address of the registered office of the corporation in the State of Delaware is 615 South DuPont Highway, City of Dover, County of Kent. The name of its registered agent at such address is National Corporate Research Ltd.

THIRD. The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware.

FOURTH. The total number of shares of all classes of capital stock which the corporation shall have authority to issue is One Hundred Seventy Five Million (175,000,000) shares, comprised of One Hundred Fifty Million (150,000,000) shares of Common Stock with a par value of $0.001 per share (the “Common Stock”) and Twenty Five Million (25,000,000) shares of Preferred Stock with a par value of $0.001 per share (the “Preferred Stock”).

A description of the respective classes of stock and a statement of the designations, preferences, voting powers (or no voting powers), relative, participating, optional or other special rights and privileges and the qualifications, limitations and restrictions of the Preferred Stock and Common Stock are as follows:

A. PREFERRED STOCK

The Preferred Stock may be issued in one or more series at such time or times and for such consideration or considerations as the board of directors may determine. Each series shall be so designated as to distinguish the shares thereof from the shares of all other series and classes. Except as may be expressly provided in this Certificate of Incorporation, including any certificate of designations for a series of Preferred Stock, different series of Preferred Stock shall not be construed to constitute different classes of shares for the purpose of voting by classes.

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The board of directors is expressly authorized, subject to the limitations prescribed by law and the provisions of this Certificate of Incorporation, to provide for the issuance of all or any shares of the Preferred Stock, in one or more series, each with such designations, preferences, voting powers (or no voting powers), relative, participating, optional or other special rights and privileges and such qualifications, limitations or restrictions thereof as shall be stated in the resolution or resolutions adopted by the board of directors to create such series, and a certificate of designations setting forth a copy of said resolution or resolutions shall be filed in accordance with the General Corporation Law of the State of Delaware. The authority of the board of directors with respect to each such series shall include without limitation of the foregoing the right to specify the number of shares of each such series and to authorize an increase or decrease in such number of shares and the right to provide that the shares of each such series may be: (i) subject to redemption at such time or times and at such price or prices; (ii) entitled to receive dividends (which may be cumulative or non-cumulative) at such rates, on such conditions, and at such times, and payable in preference to, or in such relation to, the dividends payable on any other class or classes or any other series; (iii) entitled to such rights upon the dissolution of, or upon any distribution of the assets of, the corporation; (iv) convertible into, or exchangeable for, shares of any other class or classes of stock, or of any other series of the same or any other class or classes of stock of the corporation at such price or prices or at such rates of exchange and with such adjustments, if any; (v) entitled to the benefit of such limitations, if any, on the issuance of additional shares of such series or shares of any other series of Preferred Stock; or (vi) entitled to such other preferences, powers, qualifications, rights and privileges, all as the board of directors may deem advisable and as are not inconsistent with law and the provisions of this Certificate of Incorporation. The number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the Common Stock, without a vote of the holders of the Preferred Stock, or of any series thereof, unless a vote of such holder is required pursuant to the terms of any Preferred Stock designation.

B. COMMON STOCK

1. Relative Rights of Preferred Stock and Common Stock. All preferences, voting powers, relative, participating, optional or other special rights and privileges, and qualifications, limitations, or restrictions of the Common Stock are expressly made subject and subordinate to those that may be fixed with respect to any shares of the Preferred Stock.

2. Voting Rights. Except as otherwise required by law or this Certificate of Incorporation, each holder of Common Stock shall have one vote in respect of each share of stock held by such holder of record on the books of the corporation for the

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election of directors and on all matters submitted to a vote of stockholders of the corporation; provided, however, that, except as otherwise required by law, holders of Common Stock shall not be entitled to vote on any amendment to this Certificate of Incorporation (including any certificate of designations relating to any series of Preferred Stock) that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together as a class with the holders of one or more other such series, to vote thereon pursuant to this Certificate of Incorporation (including any certificate of designations relating to any series of Preferred Stock).

3. Dividends. Subject to the preferential rights of the Preferred Stock, the holders of shares of Common Stock shall be entitled to receive, when and if declared by the board of directors, out of the assets of the corporation which are by law available therefor, dividends payable either in cash, in property or in shares of capital stock.

4. Dissolution, Liquidation or Winding Up. In the event of any dissolution, liquidation or winding up of the affairs of the corporation, after distribution in full of the preferential amounts, if any, to be distributed to the holders of shares of Preferred Stock, holders of Common Stock shall be entitled, unless otherwise provided by law or this Certificate of Incorporation, including any certificate of designations for a series of Preferred Stock, to receive all of the remaining assets of the corporation of whatever kind available for distribution to stockholders ratably in proportion to the number of shares of Common Stock held by them respectively.

FIFTH. The corporation is to have perpetual existence.

SIXTH. In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware:

A. BOARD OF DIRECTORS

(a) The number of directors which shall constitute the whole Board of Directors of this corporation shall be determined in accordance with the bylaws of the corporation.

(b) Nomination of candidates for election to the Board of Directors shall be made as provided in the bylaws of the corporation.

(c) The Board of Directors shall be and is divided into three classes: Class I, Class II and Class III, which shall be as nearly equal in number as possible. Each director shall serve for a term ending on the date of the third annual meeting of stockholders following the annual meeting at which the director was elected; provided,

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however, that each initial director in Class I shall hold office until the annual meeting of stockholders in 2001; each initial director in Class II shall hold office until the annual meeting of stockholders in 2002; and each initial director in Class III shall hold office until the annual meeting of stockholders in 2003. Notwithstanding the foregoing provisions of this Article, each director shall serve until his successor is duly elected and qualified or until his death, resignation or removal.

(d) Directors may be removed only for cause by the affirmative vote of at least a majority of the outstanding shares of capital stock entitled to vote in an election of directors.

(e) In the event of any increase or decrease in the authorized number of directors, the newly created or eliminated directorships resulting from such increase or decrease shall be apportioned by the Board of Directors among the three classes of directors so as to maintain such classes as nearly equal as possible. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.

(f) Newly created directorships resulting from any increase in the number of directors and any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other cause shall be filled by the affirmative vote of a majority of the remaining directors then in office (and not by stockholders), even though less than a quorum of the Board of Directors. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until such director’s successor shall have been elected and qualified.

(g) The provisions set forth in this Article 6 may not be amended or repealed in any respect without (i) the affirmative vote of not less than 75 percent of the Board of Directors; or (ii) the affirmative vote of not less than 80 percent of the outstanding shares of capital stock of the corporation entitled to vote in an election of directors.

B. The board of directors of the corporation is expressly authorized:

(i) To make, alter or repeal the bylaws of the corporation. Amendment of the bylaws shall require an affirmative vote of a majority of the Whole Board (as defined herein) or the affirmative vote of the holders of at least 80% of the voting power of all the men outstanding shares entitled to vote.

(ii) To authorize and cause to be executed mortgages and liens upon the real and personal property of the corporation.

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(iii) To set apart out of any of the funds of the corporation available for dividends a reserve or reserves for any proper purpose and to abolish any such reserve in the manner in which it was created.

(iv) By a majority of the board, to designate one or more committees, each committee to consist of one or more of the directors of the corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member of any committee. The bylaws may provide that in the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the board of directors, or in the bylaws of the corporation, shall have and may exercise all the powers and authority of the board of directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the Certificate of Incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the board of directors as provided in Section 151 (a) of the General Corporation Law of the State of Delaware, fix any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the corporation), adopting an agreement of merger or consolidation under Sections 251 or 252 of the General Corporation Law of the State of Delaware, recommending to the stockholders the sale, lease or exchange, of all or substantially all of the corporation’s property and assets, recommending to the stockholders a dissolution of the corporation or a revocation of a dissolution, or amending the bylaws of the corporation; and, unless the resolution or bylaws expressly so provided, no such committee shall have the power or authority to declare a dividend, to authorize the issuance of stock, or to adopt a certificate of ownership and merger pursuant to Section 253 of the General Corporation Law of the State of Delaware.

(v) When and as authorized by the stockholders in accordance with statute, to sell, lease or exchange all or substantially all of the property and assets of the corporation, including its good will and its corporate franchises, upon such terms and conditions and for such consideration, which may consist in whole or in part of money or property, including shares of stock in, and/or other securities of, any other corporation or corporations, as its board of directors shall deem expedient and for the best interests of the corporation.

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C. Elections of directors need not be by written ballot unless the bylaws of the corporation shall so provide

D. The books of the corporation may be kept at such place within or without the State of Delaware as the bylaws of the corporation may provide or as may be designated from time to time by the board of directors of the corporation.

E. Special meetings of stockholders of the corporation may be called only (1) by the President, Chairman of the Board or board of directors acting pursuant to a resolution adopted by a majority of the Whole Board or (2) by the holders of not less than twenty five percent of all the shares entitled to cast votes at the meeting. For purposes of this Certificate of Incorporation, the term “Whole Board” shall mean the total number of authorized directors whether or not there exist any vacancies in previously authorized directorships.

F. At any time when the corporation has more than one stockholder of any class of capital stock, no action required to be taken or which may be taken at any annual or special meeting of the stockholders of such class of capital stock of the corporation may be taken without a meeting, and the power of stockholders to consent in writing, without a meeting, to the taking of any action is specifically denied.

SEVENTH. Whenever a compromise or arrangement is proposed between this corporation and its creditors or any class of them and/or between this corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this corporation under the provisions of Section 279 of Title 8 of the Delaware Code, order a meeting of the creditors or classes of creditors, and/or of the stockholders or classes of stockholders of this corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this corporation, as the case may be, agree to any compromise or arrangement and to arty reorganization of this corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this corporation, as the case may be, and also on this corporation.

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EIGHTH. A director of this corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director’s duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived any improper personal benefit. If the Delaware General Corporation Law is amended hereafter to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended.

Any repeal or modification of the foregoing paragraph by the stockholders of the corporation shall not adversely affect any right or protection of a director of the corporation existing at the time of repeal or modification.

NINTH.

A. RIGHT TO INDEMNIFICATION FOR DIRECTORS AND OFFICERS

Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (“proceeding”), by reason of the fact that he or she or a person of whom he or she is the legal representative, is or was a director or officer of the corporation or, in such person’s capacity as a director or officer of the corporation, is or was serving at the request of the corporation as a director or officer, employee or agent of another corporation, or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director or officer or in any other capacity while serving as a director or officer, shall be indemnified and held harmless by the corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended, (but, in the case of such amendment, only to the extent that such amendment permits the corporation to provide broader indemnification rights than said Law permitted the corporation to provide prior to such amendment) against all expenses, liability and loss (including attorneys’ fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director or officer of the corporation and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that the corporation shall indemnify any such person seeking indemnity in connection with an action, suit or proceeding (or part thereof) initiated by such person only if such action, suit or proceeding (or part thereof) was authorized by the board of directors of the corporation. Such right shall be a contract right and shall include the right to be paid by

7

the corporation expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that the payment of such expenses incurred by a director or officer of the corporation in his or her capacity as a director or officer and not in any other capacity in which service was or is rendered by such person while a director or officer (including without limitation, service to an employee benefit plan) in advance of the final disposition of such proceeding, shall be made only upon delivery to the corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it should be determined ultimately that such director or officer is not entitled to be indemnified under this Section or otherwise.

B. RIGHT OF CLAIMANT TO BRING SUIT

If a claim under Paragraph A of Article NINTH is not paid in full by the corporation within ninety (90) days after a written claim has been received by the corporation, the claimant may at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any, has been tendered to this corporation) that the claimant has not met the standards of conduct which make it permissible under the Delaware General Corporation Law for the corporation to indemnify the claimant for the amount claimed, but the burden of proving such a defense shall be on the corporation. Neither the failure of the corporation (including its board of directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the corporation (including its board of directors, independent legal counsel, or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct.

C. NON-EXCLUSIVITY OF RIGHTS

The rights conferred on any person by Paragraphs A and B of Article NINTH shall not be exclusive of any other right which such persons may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, bylaw, agreement, vote of stockholders or disinterested directors or otherwise.

D. PERMISSIVE INDEMNIFICATION

The corporation may, if approved by the board of directors, indemnify and hold harmless any other person who was or is made a party or is threatened to be made a party to or is involved in any proceeding, by reason of the fact that he or she or a person of

8

whom he or she is the legal representative, is or was an employee or agent of the corporation or is or was serving at the request of the corporation as a director or officer, employee or agent of another corporation, or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, to the extent permitted by the Delaware General Corporation Law, as the same exists or may be amended, against all expenses, liability and loss (including attorneys’ fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith.

E. INSURANCE

The corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the corporation or another corporation, partnership, joint venture, trust or other enterprise against, any expense, liability or loss reasonably incurred or suffered by such person in connection with his or her service as a director, officer, employee or agent of such entity, whether or not the corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law.

TENTH. The corporation reserves the right to amend or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon a stockholder herein are granted subject to this reservation; provided, however, that, notwithstanding any other provision of this Certificate of Incorporation or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any vote of the holders of any class or series of the stock of this Corporation required by law or by this Certificate of incorporation, the affirmative vote of the holders of at least 80% of the voting power of all of the then outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to amend or repeal this Article TENTH, or Article SIXTH.

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EX-10.16

Exhibit 10.16

File No.                             

INDUSTRIAL SPACE LEASE

(SINGLE TENANT NET)

THIS LEASE, dated October 12, 2006, for reference purposes only, is made by and between: the Neidig Family Trust U/D/T July 25, 1986 (“Landlord”), and Virage Logic, a California Corporation (“Tenant”), to be effective and binding upon the parties as of the date the last of the designated signatories to this Lease shall have executed this Lease (the “Effective Date of this Lease”).

ARTICLE 1

REFERENCES

1.1 REFERENCES: All references in this Lease (subject to any further clarifications contained in this Lease) to the following terms shall have the following meaning or refer to the respective address, person, date, time period, amount, percentage, calendar year or fiscal year as below set forth:

A. Tenant’s Address for Notices:	47100 Bayside Parkway
	Fremont, California 94538
B. Tenant’s Representative:	Ms. Christine Russell
Phone Number:	510.360.8000
C. Landlord’s Address for Notices:	615 National Avenue,
	Mountain View, California 94043
D. Landlord’s Representative:	William Neidig Email Neidig@riverii.com
Phone Number:	650.428.1400
E. Commencement Date:	The earlier of January 1, 2007 or the expiration of the existing lease with Ciena Corporation, Tenant’s current sublessor.
F. Term:	One (1) Year
G. Lease Expiration Date:	December 31, 2007
H. Tenant’s Punchlist Period:	“As Is” Tenant takes the Property in its currently existing condition as Tenant is currently in occupancy as the subtenant of Ciena Corporation.
I. First Month’s Prepaid Rent:	Forty One Thousand Six Hundred Seventy Dollars ($41,670.00)
J. Last Month’s Prepaid Rent:	None
K. Tenant’s Security Deposit:	Forty One Thousand Six Hundred Seventy Dollars ($41,670.00)
L. Late Charge Amount:	Ten (10%) Percent of the late amount
M. Tenant’s Required Liability Coverage:	Three Million ($3,000,000.00) Dollars single limit
N. Brokers:	Cornish & Carey Commercial

O. Property or Project: That certain real property, situated in the City of Fremont, County of Alameda, State of California, as presently improved with one building, which real property is shown on the Site Plan attached hereto as Exhibit “A” and is commonly known as or otherwise described as follows:

A building identified as Renco 50 located at 47100 Bayside Parkway in Fremont, California

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P. Buildings: Those certain Buildings located on the Property, which Buildings are shown outlined in red on Exhibit “B” hereto.

Q. Outside Areas: The “Outside Areas” shall mean all areas within the Property which are located outside the buildings, such as covered and uncovered walkways, parking areas, landscaped areas, open areas and enclosed trash disposal areas.

R. Leased Premises: All of the space which is located within the Building, consisting of approximately 61,454 square feet of gross leaseable area and, for purposes of this Lease, agreed to contain said number of square feet measuring to the outside edge of the outside walls and drip lines, including the electrical room and other common spaces and, for purposes of this Lease, agreed between Landlord and Tenant to contain said number of square feet.

S. Base Monthly Rent: The term “Base Monthly Rent” shall mean the following monthly sums:

The initial Base Monthly Rent shall be Forty One Thousand Six Hundred Seventy Dollars ($41,670.00). This is based on Tenant having approximately one hundred thirty five (135) employees using the Premises on a regular basis. Tenant shall report to Landlord the Tenant’s employee headcount on a monthly basis. When Tenant’s headcount exceeds one hundred seventy (170) employees, then the Base Monthly Rent shall increase by two hundred fifty dollars ($250.00) for each additional employee above one hundred seventy (170). For purposes of this section employees shall include contract workers and any individual retained to perform a service for Tenant on a regular basis whether such individual is legally employed by Tenant or by a third party so long as the individual’s principal responsibility is performing a service for Tenant while located on the Premises. The Base Monthly Rent shall not decrease below the initial Base Monthly Rent nor shall the Base Monthly Rent decrease once it has increased.

T. Permitted Use: The term “Permitted Use” shall mean the following:

The design, assembly, repair, sale, and distribution of small electronic parts and components, general office and support functions, and for no other purpose.

U. Exhibits: The term “Exhibits” shall mean the Exhibits to this Lease which are described as follows;

Exhibit “A”     Site Plan showing the Property and delineating the Building in which the Leased Premises are located.

Exhibit “B”     Floor Plan outlining the Leased Premise

Exhibit “D”     Acceptance Agreement

V. Addenda: The term “Addenda” shall mean the Addendum (or Addenda) to this Lease which is (or are) described as follows:

First Addendum to Lease

ARTICLE 2:

LEASED PREMISES, TERM AND POSSESSION

2.1 DEMISE OF LEASED PREMISES: Landlord hereby leases to Tenant and Tenant hereby leases from Landlord for Tenant’s own use in the conduct of Tenant’s business and not for purposes of speculating in real estate, for the Lease Term and upon the terms and subject to the conditions of this Lease, that certain interior space described in Article I as the Leased Premises, reserving and excepting to Landlord the exclusive right to all profits to be derived from any assignments or sublettings by Tenant during the Lease Term by reason of the appreciation in the fair market rental value of the Leased Premises. Tenant’s lease of the Leased Premises, together with the appurtenant right to use the Outside Areas as described in Article 2.2 below, shall be conditioned upon and be subject to the continuing compliance by Tenant with (i) all the terms and conditions of this Lease, (ii) all Laws governing the use of the Leased Premises and the Property, (iii) all Private Restrictions, easements and other matters now of public record respecting the use of the Leased Premises and the Property, and (iv) all reasonable rules and regulations from time to time established by Landlord.

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2.2 RIGHT TO USE OUTSIDE AREAS: As an appurtenant right to Tenant’s right to the use and occupancy of the Leased Premises, Tenant shall have the right to use the Outside Areas in conjunction with its use of the Leased Premises solely for the purposes for which they were designed and intended and for no other purposes whatsoever. Tenant’s right to so use the Outside Areas shall be subject to the limitations on such use as set forth in Article 4 and shall terminate concurrently with any termination of this Lease.

2.3 LEASE COMMENCEMENT DATE AND LEASE TERM: The term of this Lease shall begin, and the Lease Commencement Date shall be deemed to have occurred, on the earlier of the termination of the existing Ciena lease or January 1, 2007. The term of the Lease shall end on the Lease Expiration Date (as set forth in Article I), irrespective of whatever date the Lease Commencement Date is determined to be pursuant to the foregoing sentence. The Lease Term shall be that period of time commencing on the Lease Commencement Date and ending on the Lease Expiration Date (the “Lease Term”).

2.4 DELIVERY OF POSSESSION: Tenant is currently in possession of the Premises by virtue of a sublease with Ciena Corporation. If Landlord is unable to deliver possession of the Leased Premises in the agreed condition to Tenant within the described delivery grace period (including any extensions thereof by reason of Force Majeure or the actions of Tenant), then Tenant’s sole remedy shall be to cancel and terminate this Lease, and in no event shall Landlord be liable in damages to Tenant for such delay. Tenant may not cancel this Lease at any time after the date Landlord notifies Tenant that the Leased Premises have been put into the agreed condition and are Ready for Occupancy.

2.5 ACCEPTANCE OF POSSESSION: Tenant has accepted possession of the Premises in its condition as of the commencement of the Ciena lease which was December 6, 1999 (this is pursuant to the Ciena sublease).

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2.6 SURRENDER OF POSSESSION: Immediately prior to the expiration or upon the sooner termination of this Lease, Tenant shall remove all of Tenant’s signs from the exterior of the Building and shall remove all of Tenant’s equipment, trade fixtures, furniture, supplies, wall decorations and other personal property from the Leased Premises, and shall vacate and surrender the Leased Premises to Landlord in the same condition existing as of December 6, 1999 which is the date Ciena Corporation accepted possession of the Premises (Tenant’s current sublease requires Tenant to return the Premises to the condition existing as of that date and Tenant acknowledges that this same obligation continues with this Lease), broom clean. Tenant shall repair all damage to the Leased Premises caused by Tenant’s removal of Tenant’s property and all damage to the exterior of the Building caused by Tenant’s removal of Tenant’s signs. Tenant shall patch and refinish, to Landlord’s reasonable satisfaction, all penetrations made by Tenant or its employees to the floor, walls or ceiling of the Leased Premises, whether such penetrations were made with Landlord’s approval or not. Tenant shall clean, repair or replace all stained or damaged ceiling tiles, wall coverings and clean or replace as may be required floor coverings to the reasonable satisfaction of Landlord. Tenant shall replace all burned out light bulbs and damaged light lenses, and clean and repaint all painted walls. Landlord shall retain a mechanical contractor at Tenant’s expense to service all heating, ventilating, and air-conditioning equipment, and Tenant shall pay the cost for the service and the cost to restore (or replace as required) said equipment to good working order. Tenant shall pay the cost of restoring or replacing all trees, shrubs, plants, lawn and ground cover, and repair (or replace as required) all paved surfaces of the Property, and otherwise satisfy all requirements to repair any damage or excessive wear to the Leased Premises, Building, Outside Areas, and/or Property. Tenant shall repair all damage caused by Tenant to the exterior surface of the Building and the paved surfaces of the outside areas adjoining the Leased Premises and, where necessary, replace or resurface same. Additionally, Tenant shall, prior to the expiration or sooner termination of this Lease, remove any improvements constructed or installed by Tenant (or Tenant’s predecessor Ciena Corporation) which Landlord requests be so removed by Tenant and repair all damage caused by such removal. If the Leased Premises are not surrendered to Landlord in the condition required by this Article at the expiration or sooner termination of this Lease, Landlord may, at Tenant’s expense, so remove Tenant’s signs, property and/or improvements not so removed and make such repairs and replacements not so made or hire, at Tenant’s expense, independent contractors to perform such work. Tenant shall be liable to Landlord for all costs incurred by Landlord in returning the Leased Premises to the required condition, plus interest on all costs incurred from the date paid by Landlord at the then maximum rate of interest not prohibited by Law until paid, payable by Tenant to Landlord within ten days after receipt of a statement therefore from Landlord, and Tenant shall be deemed to have impermissibly held over until such time as such required work is completed, and Tenant shall pay Base Monthly Rent and Additional Rent in accordance with the terms of Section 13.2 (Holding Over) until such work is completed. Tenant shall indemnify Landlord against loss or liability resulting from delay by Tenant in so surrendering the Leased Premises, including, without limitation, any claims made by any succeeding tenant or any losses to Landlord due to lost opportunities to lease to succeeding tenants.

2.7 EARLY OCCUPANCY: If Tenant enters into possession of the Leased Premises prior to the Intended Commencement Date (or permits its contractors to enter the Leased Premise prior to the Intended Commencement Date), unless otherwise agreed in writing by Landlord, the Lease Commencement Date shall be deemed to have occurred on such sooner date, and Tenant shall be obligated to perform all its obligations under this Lease, including the obligation to pay rent, from that sooner date.

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ARTICLE 3:

RENT, LATE CHARGES AND SECURITY DEPOSITS

3.1 BASE MONTHLY RENT: Commencing on the Lease Commencement Date (as determined pursuant to Article 2.3 above) and continuing throughout the Lease Term, Tenant shall pay to Landlord, without prior demand therefore, in advance on the first day of each calendar month, as base monthly rent, the amount set forth as “Base Monthly Rent” in Article 1 (the “Base Monthly Rent”).

3.2 ADDITIONAL RENT: Commencing on the Lease Commencement Date (as determined pursuant to Article 2.3 above) and continuing throughout the Lease Term, in addition to the Base Monthly Rent, Tenant shall pay to Landlord as additional rent (the “Additional Rent”) the following amounts:

A. An amount equal to all Property Operating Expenses (as defined in Article 13) incurred by Landlord. Payment shall be made by whichever of the following methods (or combination of methods) is (are) from time to time designated by Landlord:

(1) Landlord may bill to Tenant, on a periodic basis not more frequently than monthly, the amount of such expenses (or group of expenses) as paid or incurred by Landlord, and Tenant shall pay to Landlord the amount of such expenses within ten days after receipt of a written bill therefore from Landlord; and/or

(2) Landlord may deliver to Tenant Landlord’s reasonable estimate of any given expense (such as Landlord’s Insurance Costs or Real Property Taxes), or group of expenses, which it anticipates will be paid or incurred for the ensuing calendar or fiscal year, as Landlord may determine, and Tenant shall pay to Landlord an amount equal to the estimated amount of such expenses for such year in equal monthly, installments during such year with the installments of Base Monthly Rent.

(3) Landlord reserves the right to change from time to time the methods of billing Tenant for any given expense or group of expenses or the periodic basis on which such expenses are billed.

B. Landlord’s share of the consideration received by Tenant upon certain assignments and sublettings as required by Article 7;

C. Any legal fees and costs that Tenant is obligated to pay or reimburse to Landlord pursuant to Article 13; and

D. Any other charges or reimbursements due Landlord from Tenant pursuant to the terms of his Lease other than late charges and interest on defaulted rent.

3.3 YEAR-END ADJUSTMENTS: If Landlord shall have elected to bill Tenant for the Property Operating Expenses (or any group of such expenses) on an estimated basis in accordance with the provisions of Article 3.2A(2) above, Landlord shall furnish to Tenant within three months following the end of the applicable calendar or fiscal year, as the case may be, a statement setting forth (i) the amount of such expenses paid or incurred during the just ended calendar or fiscal year, as appropriate, and (ii) the amount that Tenant has paid to Landlord for credit against such expenses for such period. If Tenant shall have paid more than its obligation for such expenses for the stated period, Landlord shall, at its election, either (i) credit the amount of such overpayment toward the next ensuing payment or payments of Additional Rent that would otherwise be due or (ii) refund in cash to Tenant the amount of such overpayment. If such year-end statement shall show that Tenant did not pay its obligation for such expenses in full, then Tenant shall pay to Landlord the amount of such underpayment within ten days from Landlord’s billing of same to Tenant. The provisions of this Article shall survive the expiration or sooner termination of this Lease.

3.4 LATE CHARGE AND INTEREST ON RENT IN DEFAULT: Tenant acknowledges that the late payment by Tenant of any monthly installment of Base Monthly Rent or any Additional Rent will cause Landlord to incur certain costs and expense not contemplated under this Lease, the exact amounts of which are extremely difficult or impractical to fix. Such costs and expenses will include, without limitation, administration and collection

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costs and processing and accounting expenses. Therefore, if any installment of Base Monthly Rent is not received by Landlord from Tenant within six calendar days after receipt of written notice that the same becomes due, Tenant shall immediately pay to Landlord a late charge in an amount equal to the amount set forth in Article 1 as the “Late Charge Amount”, and if any Additional Rent is not received by Landlord within six calendar days after receipt of written notice that same becomes due, Tenant shall immediately pay to Landlord a late charge in an amount equal to ten percent of the Additional Rent not so paid. Landlord and Tenant agree that this late charge represents a reasonable estimate of such costs and expenses and is fair compensation to Landlord for the anticipated loss Landlord would suffer by reason of Tenant’s failure to make timely payment. In no event shall this provision for a late charge be deemed to grant to Tenant a grace period or extension of time within to pay any rental installment or prevent Landlord from exercising any right or remedy available to Landlord upon Tenant’s failure to pay each rental installment due under this Lease when due, including the right to terminate this Lease. If any rent remains delinquent for a period in excess of six calendar days, then, in addition to such late charge, Tenant shall pay to Landlord interest on any rent that is not so paid from said sixth day at the then maximum rate of interest not prohibited or made usurious by Law until paid.

3.5 PAYMENT OF RENT: All rent shall be paid in lawful money of the United States, without any abatement, reduction or offset for any reason whatsoever, to Landlord at such address as Landlord may designate from time to time. Tenant’s obligation to pay Base Monthly Rent and all Additional Rent shall be appropriately prorated at the commencement and expiration of the Lease Term. The failure by Tenant to pay any Additional Rent as required pursuant to this Lease when due shall be treated the same as a failure by Tenant to pay Base Monthly Rent when due, and Landlord shall have the same rights and remedies against Tenant as Landlord would have if Tenant failed to pay the Base Monthly Rent when due.

3.6 PREPAID RENT: Concurrent with the execution of this Lease, Tenant shall pay to Landlord the amount set forth in Article I as First Month’s Prepaid Rent” as prepayment of rent for credit against the first installment(s) of Base Monthly Rent due hereunder. Additionally, Tenant has paid to Landlord the amount set forth in Article I as “Last Month’s Prepaid Rent” as prepayment of rent for credit against the last installment(s) of Base Monthly Rent due hereunder, subject, however, to the provisions of Article 3.7 below.

3.7 SECURITY DEPOSIT: Concurrent with the execution of this Lease, Tenant shall deposit with Landlord the amount set forth in Article 1 as the “Security Deposit” as security for the performance by Tenant of the terms of this Lease to be performed by Tenant, and not as prepayment of rent. Landlord may apply such portion or portions of the Security Deposit as are reasonably necessary for the following purposes: (i) to remedy any default by Tenant in the payment of Base Monthly Rent or Additional Rent or a late charge or interest on defaulted rent; (ii) to repair damage to the Leased Premises, the Building or the Outside Areas caused by Tenant; (iii) to clean and repair the Leased Premises, the Building or the Outside Areas following their surrender to Landlord if not surrendered in the condition required pursuant to the provisions of Article 2; and (iv) to remedy any other default of Tenant to the extent permitted by Law including, without limitation, paying in full on Tenant’s behalf any sums claimed by materialmen or contractors of Tenant to be owing to them by Tenant for work done or improvements made at Tenant’s request to the Leased Premises. In this regard, Tenant hereby waives any restriction on the uses to which the Security Deposit may be applied as contained in Section 1950.7(c) of the California Civil Code and/or any successor statute. In the event the Security Deposit or any portion thereof is so used, Tenant shall pay to Landlord, promptly upon demand, an amount in cash sufficient to restore the Security Deposit to the full original sum. If Tenant fails to promptly restore the Security Deposit and if Tenant shall have paid to Landlord any sums as “Last Month’s Prepaid Rent”, Landlord may, in addition to any other remedy Landlord may have under this Lease, reduce the amount of Tenant’s Last Month’s Prepaid Rent by transferring all or portions of such Last Month’s Prepaid Rent to Tenant’s Security Deposit until such Security Deposit is restored to the amount set forth in Article 1. Landlord shall not be deemed a trustee of the Security Deposit. Landlord may use the Security Deposit in Landlord’s ordinary business and shall not be required to segregate it from its general accounts. Tenant shall not be entitled to any interest on the Security Deposit. If Landlord transfers the Building or the Property during the Lease Term, Landlord may pay the Security Deposit to any subsequent owner in conformity with the provisions of Section 1950.7 of the California Civil Code and/or any successor statute, in which event the transferring landlord shall be released from all liability for the return of the Security Deposit. Tenant specifically grants to Landlord (and Tenant hereby waives the provisions of California Civil Code Section 1950.7 to the contrary) a period of sixty days following a surrender of the Leased Premises by Tenant to Landlord within which to return the Security Deposit (less permitted deductions) to Tenant, it

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being agreed between Landlord and Tenant that sixty days is a reasonable period of time within which to inspect the Leased Premises, make required repairs, receive and verify workmen’s billings therefore, and prepare a final accounting with respect to such deposit. In no event shall the Security Deposit, or any portion thereof, be considered prepaid rent.

ARTICLE 4:

USE OF LEASED PREMISES AND OUTSIDE AREA

4.1 PERMITTED USE: Tenant shall be entitled to use the Leased Premises solely for the “Permitted Use” as set forth in Article 1 and for no other purpose whatsoever. Tenant shall use the Leased Premises for such purpose for the entire Lease Term. Any discontinuance of such use for a period of thirty consecutive calendar days shall be, at Landlord’s election, a default by, Tenant under the terms of this Lease. Tenant shall have the right to use the Outside Areas in conjunction with its Permitted Use of the Leased Premises solely for the purposes for which they were designed and intended and for no other purposes whatsoever.

4.2 GENERAL LIMITATIONS ON USE: Tenant shall not do or permit anything to be done in or about the Leased Premises, the Building, the Outside Areas or the Property which does or could (i) jeopardize the structural integrity of the Building or (ii) cause damage to any part of the Leased Premises, the Building, the Outside Areas or the Property. Tenant shall not operate any equipment within the Leased Premises which does or could (i) injure, vibrate or shake the Leased Premises or the Building, (ii) damage, overload, corrode, or impair the efficient operation of any electrical, plumbing, sewer, heating, ventilating or air conditioning systems within or servicing the Leased Premises or the Building or (iii) damage or impair the efficient operation of the sprinkler system (if any) within or servicing the Leased Premises or the Building. Tenant shall not install any equipment or antennas on or make any penetrations of the exterior walls or roof of the Building. Tenant shall not affix any equipment to or make any penetrations or cuts in the floor, ceiling or walls of the Leased Premises. Tenant shall not place any loads upon the floors, walls, ceiling or roof systems which could endanger the structural integrity of the Building or damage its floors, foundations or supporting structural components. Tenant shall not place any explosive, flammable or harmful fluids or other waste materials including Hazardous Materials in the drainage systems of the Leased Premises, the Building, the Outside Areas or the Property. Tenant shall not drain or discharge any fluids in the landscaped areas or across the paved areas of the Property. Tenant shall not use any of the Outside Areas for the storage of its materials, supplies, inventory or equipment, and all such materials, supplies, inventory or equipment shall at all times be stored within the Leased Premises. Tenant shall not commit nor permit to be committed any waste in or about the Leased Premises, the Building, the Outside Areas or the Property.

4.3 NOISE AND EMISSIONS: All noise generated by Tenant in its use of the Leased Premises shall be confined or muffled so that it does not interfere with the businesses of or annoy the occupants and/or users of adjacent properties. All dust, fumes, odors and other emissions generated by Tenant’s use of the Leased Premises shall be sufficiently dissipated in accordance with sound environmental practices and exhausted from the Leased Premises in such a manner so as not to interfere with the businesses of or annoy the occupants and/or users of adjacent properties, or cause any damage to the Leased Premises, the Building, the Outside Areas or the Property or any component part thereof or the property of adjacent property owners.

4.4 TRASH DISPOSAL: Tenant shall provide trash bins (or other adequate garbage disposal facilities) within the trash enclosure areas provided or permitted by Landlord outside the Leased Premises sufficient for the interim disposal of all of its trash, garbage and waste. All such trash, garbage and waste temporarily stored in such areas shall be stored in such a manner so that it is not visible from outside of such areas, and Tenant shall cause such trash, garbage and waste to be regularly removed from the Property at Tenant’s sole cost. Tenant shall at all times keep the Leased Premises, the Building, the Outside Areas and the Property in a clean, safe and neat condition free and clear of all trash, garbage, waste and/or boxes, pallets and containers containing same at all times.

4.5 PARKING: Tenant shall not, at any time, park or permit to be parked any recreational vehicles, inoperative vehicles or equipment in the Outside Areas or on any portion of the Property. Tenant agrees to assume responsibility for compliance by its employees and invitees with the parking provisions contained herein. If Tenant or its employees park any vehicle within the Property in violation of these provisions, then Landlord may, in addition to any other remedies Landlord may have under this Lease, charge Tenant, as Additional Rent, and Tenant agrees to pay, as Additional Rent, Fifty Dollars per day for each day or partial day that each such vehicle is so parked within the Property.

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4.6 SIGNS: Other than one business identification sign which is first approved by Landlord in accordance with this Article, Tenant shall not place or install on or within any portion of the Leased Premises, the exterior of the Building, the Outside Areas or the Property any sign, advertisement, banner, placard, or picture which is visible from the exterior of the Leased Premises. Tenant shall not place or install on or within any portion of the Leased Premises, the exterior of the Building, the Outside Areas or the Property any business identification sign which is visible from the exterior of the Leased Premises until Landlord shall have first approved in writing the location, size, content, design, method of attachment and material to be used in the making of such sign. Any sign, once approved by Landlord, shall be installed only in strict compliance with Landlord’s approval, at Tenant’s expense, using a person first approved by Landlord to install same. Landlord may remove any signs (which have not been first approved in writing by Landlord), advertisements, banners, placards or pictures so placed by Tenant on or within the Leased Premises, the exterior of the Building, the Outside Areas or the Property and charge to Tenant the cost of such removal, together with any costs incurred by Landlord to repair any damage caused thereby, including any cost incurred to restore the surface upon which such sign was so affixed to its original condition. Tenant shall remove all of Tenant’s signs, repair any damage caused thereby, and restore the surface upon which the sign was afixed to its original condition, all to Landlord’s reasonable satisfaction, upon the termination of this Lease.

4.7 COMPLIANCE WITH LAWS AND PRIVATE RESTRICTIONS: Tenant shall abide by and shall promptly observe and comply with, at its sole cost and expense, all Laws and Private Restrictions respecting the use and occupancy of the Leased Premises, the Building, the Outside Areas or the Property including, without limitation, all Laws governing the use and/or disposal of hazardous materials, and shall defend with competent counsel, indemnify and hold Landlord harmless from any claims, damages or liability resulting from Tenant’s failure to do so. The indemnity provision of this Article shall survive the expiration or sooner termination of this Lease, with respect to any activities of Tenant occurring on or about the Property while Tenant was in possession of the Leased Premises.

4.8 COMPLIANCE WITH INSURANCE REQUIREMENTS: With respect to any insurance policies required or permitted to be carried by Landlord in accordance with the provisions of this Lease, Tenant shall not conduct (or permit any other person to conduct) any activities nor keep, store or use (or allow any other person to keep, store or use) any item or tiling within the Leased Premises, the Building, the Outside Areas or the Property which (i) is prohibited under the terms of any of such policies, (ii) could result in the termination of the coverage afforded under any of such policies, (iii) could give to the insurance carrier the right to cancel any of such policies, or (iv) could cause an increase in the rates (over standard rates) charged for the coverage afforded under any of such policies. Tenant shall comply with all requirements of any insurance company, insurance underwriter, or Board of Fire Underwriters which are necessary to maintain, at standard rates, the insurance coverages carried by either Landlord or Tenant pursuant to this Lease.

4.9 LANDLORD’S RIGHT TO ENTER: Landlord and its agents shall have the right to enter the Leased Premises during normal business hours after giving Tenant reasonable notice and subject to Tenant’s reasonable security measures for the purpose of (i) inspecting the same; (ii) showing the Leased Premises to prospective purchasers, mortgagees or tenants; (iii) making necessary alterations, additions or repairs; (iv) performing any of Tenant’s obligations when Tenant has failed to do so. Landlord shall have the right to enter the Leased Premises during normal business hours (or as otherwise agreed), subject to Tenant’s reasonable security measures, for purposes of supplying any maintenance or services agreed to be supplied by Landlord. Landlord shall have the right to enter the Outside Areas during normal business hours for purposes of (i) inspecting the exterior of the Building and the Outside Areas, (ii) posting notices of non-responsibility, or “For Lease” of “For Sale” signs, and (iii) supplying any services to be provided by Landlord. Any entry into the Leased Premises or the Outside Areas obtained by Landlord in accordance with this Article shall not under any circumstances be construed or deemed to be a forcible or unlawful entry into, or a detainer of, the Leased Premises, or an eviction, actual or constructive of Tenant from the Leased Premises or any portion thereof.

4.10 USE OF OUTSIDE AREAS: Tenant, in its use of the Outside Areas, shall at all times keep the Outside Areas in a safe condition free and clear of all materials, equipment, debris, trash (except within existing enclosed trash areas), inoperable vehicles, and other items which are not specifically permitted by Landlord to be

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stored or located thereon by Tenant. If, in the opinion of Landlord, unauthorized persons are using any of the Outside Areas by reason of, or under claim of, the express or implied authority or consent of Tenant, then Tenant, upon demand of Landlord, shall restrain, to the fullest extent then allowed by Law, such unauthorized use, and shall initiate such appropriate proceedings as may be required to so restrain such use.

4.11 RULES AND REGULATIONS: Landlord shall have the right from time to time to establish reasonable rules and regulations and/or amendments or additions thereto resulting the use of the Leased Premises and the Outside Areas for the care and orderly management of the Property. Upon delivery to Tenant of a copy of such rules and regulations or any amendments or additions thereto, Tenant shall comply with such rules and regulations. A violation by Tenant of any of such rules and regulations shall constitute a default by Tenant under this Lease. If there is a conflict between the rules and regulations and any of the provisions of this Lease, the provisions of this Lease shall prevail. Landlord shall not be responsible or liable to Tenant for the violation of such rules and regulations by any other tenant of the Property.

4.12 ENVIRONMENTAL PROTECTION: Landlord may voluntarily cooperate in a reasonable manner with the efforts of all governmental agencies in reducing actual or potential environmental damage. Tenant shall not be entitled to terminate this Lease or to any reduction in or abatement of rent by reason of such compliance or cooperation. Tenant agrees at all times to cooperate fully with Landlord and to abide by all rules and regulations and requirements which Landlord may reasonably prescribe in order to comply with the requirements and recommendations of governmental agencies regulating, or otherwise involved in, the protection of the environment.

4.13 OUTSIDE AREAS: No materials, pallets, supplies, tanks or containers whether above or below ground level, equipment, finished products or semifinished products, raw materials, inoperable vehicles or articles of any nature shall be stored upon or permitted to remain outside of the Leased Premises except in fully fenced and screened areas outside the Building which have been designed for such purpose and have been approved in writing by Landlord for such use by Tenant.

4.14 HAZARDOUS MATERIALS: Landlord and Tenant agree as follows with respect to the existence or use of Hazardous Materials on the Property:

A. Any handling, transportation, storage, treatment, disposal or use of Hazardous Materials by Tenant, Tenant’s Agents, or any other party after the Effective Date of this Lease in or about the Property shall strictly comply with all applicable Hazardous Materials Laws. Tenant shall indemnify, defend upon demand with counsel reasonably acceptable to Landlord, and hold harmless Landlord from and against any and all liabilities, losses, claims, damages, lost profits, consequential damages, interest, penalties, fines, court costs, remediation costs, investigation costs, and other expenses which result from or arise in any manner whatsoever out of the use, storage, treatment, transportation, release, or disposal of Hazardous Materials on or about the Property by Tenant, Tenant’s Agents, Permits, or Invites after the Effective Date.

B. If the presence of Hazardous Materials on the Property caused or permitted by Tenant, Tenant’s Agents, Permits, or Invites after the Effective Date of this Lease results in contamination or deterioration of water or soil or any other part of the Property, then Tenant shall promptly take any and all action necessary to investigate and remedial such contamination. Tenant shall further be solely responsible for, and shall defend, indemnify and hold Landlord and its agents harmless from and against, all claims, costs and liabilities, including attorney’s fees and costs, arising out of or in connection with any investigation and remediation (including investigative analysis, removal, cleanup, and/or restoration work) required hereunder to return the Leased Premises, Building, Common Areas, Outside Areas, and/or Property and any other property of whatever nature to their condition existing prior to the appearance of such Hazardous Materials.

C. Landlord and Tenant shall each give written notice to the other as soon as reasonably practicable of (i) any communication received from any governmental authority concerning Hazardous Materials which relates to the Property, and (ii) any contamination of the Property by Hazardous Materials which constitutes a violation of any Hazardous Materials Law. Tenant acknowledges that Landlord, as the owner of the Property, at Landlord’s election, shall have the sole right at Tenant’s expense to negotiate, defend, approve, and/or appeal any action taken or order issued with regard to Hazardous Materials by any applicable governmental authority. Tenant may use small quantities of household chemicals such as adhesives, lubricants, and cleaning fluids in order to conduct its business at the Premises and such other Hazardous Materials as are necessary to the operation of Tenant’s business of which Landlord receives notice prior to such Hazardous Materials being brought onto the Property (or any portion thereof)

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and which Landlord consents in writing may be brought onto the Property. In granting Landlord’s consent, Landlord may specify the location and manner or use, storage, or handling of any Hazardous Material. Landlord’s consent shall in no way relieve Tenant from any of its obligations as contained herein. Tenant shall notify Landlord in writing at least ten (10) days prior to the first appearance of any Hazardous Material on the Leased Premises, Building, Common Areas, Outside Areas, and/or Property. Tenant shall provide Landlord with a list of all Hazardous Materials and the quantities of each Hazardous Material to be stored on any portion of the Property, and upon Landlord’s request Tenant shall provide Landlord with copies of any and all Hazardous Materials Management Plans, Material Safety Data Sheets, Hazardous Waste Manifests, and other documentation maintained or received by Tenant pertaining to the Hazardous Materials used, stored, or transported or to be used, stored, or transported on any portion of the Property. At any time during the Lease Term, Tenant shall, within five days after written request therefor received from Landlord, disclose in writing all Hazardous Materials that are being used by Tenant on the Property (or have been used on the Property), the nature of such use, and the manner of storage and disposal.

D. Landlord may cause testing wells to be installed on the Property, and may cause the ground water to be tested to detect the presence of Hazardous Material by the use of such tests as are then customarily used for such purposes. If Tenant so requests, Landlord shall supply Tenant with copies of such test results. The cost of such tests and of the installation, maintenance, repair and replacement of such wells shall be paid by Tenant if such tests disclose the existence of facts which give rise to liability of Tenant pursuant to its indemnity given in A and or B above. Landlord may retain consultants to inspect the Property, conduct periodic environmental audits, and review any information provided by Tenant. Tenant shall pay the reasonable cost of fees charged by Landlord and/or Landlord’s consultants as a Property Maintenance Cost.

E. Upon the expiration or earlier termination of the Lease, Tenant, at its sole cost, shall remove all Hazardous Materials from the Property and shall provide a certificate to Landlord from a registered consultant satisfactory to Landlord certifying that Tenant has caused no contamination of building (s), soil or groundwater in or about the Leased Premises, Building, Common Areas, Outside Areas, or Property. If Tenant fails to so surrender the Property, Tenant shall indemnify and hold Landlord harmless from all damages resulting from Tenant’s failure to surrender the Property as required by this Subsection, including, without limitation, any claims or damages in connection with the condition of the Property including, without limitation, damages occasioned by the inability to release the Property (or any portion thereof) or a reduction in the fair market and/or rental value of the Property, Building, Common Areas, Outside Areas, and/or Property by reason of the existence of any Hazardous Materials in or around the Leased Premises, Building, Common Areas, Outside Areas, and/or Property. If any action is required to be taken by a governmental authority to test, monitor, and/or clean up Hazardous Materials from the Leased Premises, Building, Common Areas, Outside Areas, and/or Property and such action is not completed prior to the expiration or earlier termination of the Lease, Tenant shall be deemed to have impermissibly held over until such time as such required action is completed, and Tenant shall pay Base Monthly Rent and Additional Rent in accordance with the terms of Section 13.2 (Holding Over). In addition, Landlord shall be entitled to all damages directly or indirectly incurred in connection with such holding over, including without limitation, damages occasioned by the inability to release the Property or a reduction of the fair market and/or rental value of the Leased Premises, Building, Common Areas, Outside Areas, and/or Property.

F. As used herein, the term “Hazardous Materials(s)” means any hazardous or toxic substance, material or waste, which is or becomes regulated by any federal, state, regional or local governmental authority because it is in any way hazardous, toxic, carcinogenic, mutagenic or otherwise adversely affects any part of the environment or creates risks of any such hazards or effects, including, but not limited to, petroleum; asbestos, and polychlorinated bipheyls and any material, substance, or waste (a) defined as a “hazardous waste,” “extremely hazardous waste” or “restricted hazardous waste” under Sections 25115, 25117 or 25122.7, or listed pursuant to Section 25140 of the California Health and Safety Code, Division 20, Chapter 6.5 (Hazardous Waste Control Law); (b) defined as a “hazardous substance” under Section 25316 of the California Health and Safety Code, Division 20, Chapter 6.8 (Carpenter-Presley Tanner Hazardous Substance Account Act); (c) defined as a “hazardous material,” “hazardous substance” or “hazardous waste” under Section 25501 of the California Health and Safety Code, Division 20, Chapter 6.95 (Hazardous Materials Release Response Plans and Inventory); (d) defined as a “hazardous substance” under Section 25281 of the California Health and Safety Code, Division 20, Chapter 6.7 (Underground Storage of Hazardous Substances); (e) defined as a “hazardous substance” pursuant to Section 311 of the Clean Water Act, 33 United States Code Sections 1251 et seq. (33 U.S.C. 1321) or listed pursuant to Section 307 of the Clean Water Act (33 U.S.C. 1317); (f) defined as a “hazardous waste” pursuant to Section 1004 of the Resource Conservation and Recovery Act, 42 United States Code Sections 6901 et seq. (42 U.S.C. 6903); or (g) defined as a “hazardous sub stance” pursuant to Section 101 of the Comprehensive Environmental Response, Compensation, and Liability Act,

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42 United States Code Section 9601 et seq. (42 U.S.C. 9601) or (h) defined as a “hazardous substance” pursuant to Section 311 of the Federal Water Pollution Control Act, 33 U.S.C. 1251 et seq or (i) listed pursuant to Section 307 of the Federal Water Pollution Control Act (33 U.S.C. 1317 ) or (j) regulated under the Toxic Substances Control Act (15 U.S.C. 2601 et seq.) or (k) defined as a “hazardous material “under Section 66680 or 66084 of Title 22 of the California Code of Regulations (Administrative Code) (l) listed in the United States Department of Transportation Hazardous Materials Table (49 C. F.R. 172.101) or (m) listed by the Environmental Protection Agency as “hazardous substances” (40 C.F.R. Part 302 ) and amendments thereto . The term “Hazardous Material Laws” shall mean (i) all of the foregoing laws as amended from time to time and (ii) any other federal, state, or local law, ordinance, regulation, or order regulating Hazardous Materials.

G. Tenant’s failure to comply with any of the requirements of this Section regarding the storage, use, disposal, or transportation of Hazardous Materials, or the appearance of any Hazardous Materials on the Leased Premises, Building, Common Area, Outside Area, and/or the Property without Landlord’s consent shall be an Event of Default as defined in this Lease. The obligations of Landlord and Tenant under this Section shall survive the expiration or earlier termination of the Lease Term. The rights and obligations of Landlord and Tenant within respect to issues relating to Hazardous Materials are exclusively established by this section. In the event of any inconsistency between any other part of this Lease and this Section, the terms of this Section shall control.

ARTICLE 5

REPAIRS, MAINTENANCE, SERVICES AND UTILITIES

5.1 REPAIR AND MAINTENANCE: Except in the case of damage to or destruction of the Leased Premises, the Building, the Outside Areas or the Property caused by an Act of God or other peril, in which case the provisions of Article 10 shall control, the parties shall have the following obligations and responsibilities with respect to the repair and maintenance of the Leased Premises, the Building and the Outside Areas.

A. Tenant’s Obligation: Tenant shall, at all times during the Lease Term and at its sole cost and expense, regularly clean and continuously keep and maintain in good order, condition and repair the Leased Premises and every part thereof including, without limiting the generality of the foregoing, (i) all interior walls, floors and ceilings, (ii) all windows, doors and skylights, (iii) all electrical wiring, conduits, connectors and fixtures, (iv) all plumbing, pipes, sinks, toilets, faucets and drains, (v) all lighting fixtures, bulbs and lamps, (vi) all heating, ventilating and air conditioning equipment, and (vii) all entranceways to the Leased Premises. Tenant, if requested to do so by Landlord shall hire, at Tenant’s sole cost and expense, a licensed heating, ventilating and air conditioning contractor to regularly and periodically (not less frequently than every three months) inspect and perform required maintenance on the heating, ventilating and air conditioning equipment and systems serving the Leased Premises, or alternatively, Landlord may, at its election, contract in its own name for such regular and periodic inspections of and maintenance on such heating, ventilating and air conditioning equipment and systems and charge to Tenant, as Additional Rent, the cost thereof. Tenant shall, at all times during the Lease Term, keep in a clean and safe condition the Outside Areas. Tenant shall regularly and periodically sweep and clean the driveways and parking areas. Tenant shall, at its sole cost and expense, repair all damage to the Leased Premises, the Building, the Outside Areas or the Property caused by the activities of Tenant, its employees, invitees or contractors promptly following written notice from Landlord to so repair such damage. If Tenant shall fail to perform the required maintenance or fail to make repairs required of it pursuant to this Article within a reasonable period of time following notice from Landlord to do so, then Landlord may, at its election and without waiving any other remedy it may otherwise have under this Lease or at Law, perform such maintenance or make such repairs and charge to Tenant, as Additional Rent, the costs so incurred by, Landlord for same. All glass within or a part of the Leased Premises, both interior and exterior, is at the sole risk of Tenant and any broken glass shall promptly be replaced by Tenant at Tenant’s expense with glass of the same kind, size and quality.

B. Landlord’s Obligation: Landlord shall, at all times during the Lease Term, maintain in good condition and repair: (i) the exterior and structural parts of the Building (including the foundation, subflooring, load-bearing and exterior walls, and roof); and (ii) the landscaped areas located outside the Building. The provisions of this Subarticle B shall in no way limit the right of Landlord to charge to Tenant, as Additional Rent pursuant to Article 3 (to the extent permitted pursuant to Article 3), the costs incurred by Landlord in performing such maintenance and/or making such repairs.

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5.2 UTILITIES: Tenant shall arrange, at its sole cost and expense and in its own name, for the supply of gas and electricity to the Leased Premises. In the event that such services are not separately metered, Tenant shall, at its sole expense, cause such meters to be installed. Landlord shall maintain the water meter(s) in its own name; provided, however, that if at any time during the Lease Term Landlord shall require Tenant to put the water service in Tenant’s name, Tenant shall do so at Tenant’s sole cost. Tenant shall be responsible for determining if the local supplier of water, gas and electricity can supply the needs of Tenant and whether or not the existing water, gas and electrical distribution systems within the Building and the Leased Premises are adequate for Tenant’s needs. Tenant shall be responsible for determining if the existing sanitary and storm sewer systems now servicing the Leased Premises and the Property are adequate for Tenant’s needs. Tenant shall pay all charges for water, gas, electricity, and storm and sanitary sewer services as so supplied to the Leased Premises, irrespective of whether or not the services are maintained in Landlord’s or Tenant’s name.

5.3 SECURITY: Tenant acknowledges that Landlord has not undertaken any duty whatsoever to provide security for the Leased Premises, the Building, the Outside Areas or the Property and, accordingly, Landlord is not responsible for the security of same or the protection of Tenant’s property or Tenant’s employees, invitees or contractors. To the extent Tenant determines that such security or protection services are advisable or necessary, Tenant shall arrange for and pay the costs of providing same.

5.4 ENERGY AND RESOURCE CONSUMPTION: Landlord may voluntarily cooperate in a reasonable manner with the efforts of governmental agencies and/or utility suppliers in reducing energy or other resource consumption within the Property. Tenant shall not be entitled to terminate this Lease or to any reduction in or abatement of rent by reason of such compliance or cooperation. Tenant agrees at all times to cooperate fully with Landlord and to abide by all reasonable rules established by Landlord (i) in order to maximize the efficient operation of the electrical, heating, ventilating and air conditioning systems and all other energy or other resource consumption systems within the Property and/or (ii) in order to comply with the requirements and recommendations of utility suppliers and governmental agencies regulating the consumption of energy and/or other resources.

5.5 LIMITATION OF LANDLORD’S LIABILITY: Landlord shall not be liable to Tenant for injury to Tenant, its employees, agents, invitees or contractors, damage to Tenant’s property or loss of Tenant’s business or profits, nor shall Tenant be entitled to terminate this Lease or to any reduction in or abatement of rent by reason of (i) Landlord’s failure to provide security services or systems within the Property for the protection of the Leased Premises, the Building or the Outside Areas, or the protection of Tenant’s property or Tenant’s employees, invitees, agents or contractors, or (ii) Landlord’s failure to perform any maintenance or repairs to the Leased Premises, the Building, the Outside Areas or the Property until Tenant shall have first notified Landlord, in writing, of the need for such maintenance or repairs, and then only after Landlord shall have had a reasonable period of time following its receipt of such notice within which to perform such maintenance or repairs, or (iii) any failure, interruption, rationing or other curtailment in the supply of water, electric current, gas or other utility service to the Leased Premises, the Building, the Outside Areas or the Property from whatever cause (other than Landlord’s sole active negligence or willful misconduct), or (iv) the unauthorized intrusion or entry into the Leased Premises by third parties (other than Landlord).

ARTICLE 6:

ALTERATIONS AND IMPROVEMENTS

6.1 BY TENANT: Tenant shall not make any alterations to or modifications of the Leased Premises or construct any improvements to or within the Leased Premises without Landlord’s prior written approval, and then not until Landlord shall have first approved, in writing, the plans and specifications therefore, which approval shall not be unreasonably withheld. All such modifications, alterations or improvements, once so approved, shall be made, constructed or installed by Tenant at Tenant’s expense, using a licensed contractor first approved by Landlord, in substantial compliance with the Landlord-approved plans and specifications therefore. All work undertaken by Tenant shall be done in accordance with all Laws and in a good and workmanlike manner using new materials of good quality that match or complement the original improvements existing as of the Lease Commencement Date. Tenant shall not commence the making of any such modifications or alterations or the construction of any such improvements until (i) all required governmental approvals and permits shall have been obtained, (ii) all requirements regarding insurance imposed by this Lease have been satisfied, (iii) Tenant shall have given Landlord

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at least five business days prior written notice of its intention to commence such work so that Landlord may post and file notices of non-responsibility, and (iv) if requested by Landlord, Tenant shall have obtained contingent liability and broad form builder’s risk insurance in an amount satisfactory to Landlord to cover any perils relating to the proposed work not covered by insurance carried by Tenant pursuant to Article 9. In no event shall Tenant make any modifications, alterations or improvements to the Common Areas or any areas outside of the Leased Premises. As used in this Article, the term “modifications, alterations and/or improvements” shall include, without limitation, the installation of additional electrical outlets, overhead lighting fixtures, drains, sinks, partitions, doorways, or the like. As a part of granting Landlord’s approval for Tenant to make alterations or modifications Landlord may require Tenant to increase the amount of it’s Security Deposit to cover the cost of removing Tenant’s alterations or modifications and to restore the condition of the Premises to it’s prior condition. Tenant shall pay Landlord’s reasonable costs to inspect the construction of Tenant’s alterations or modifications and to have Landlord’s architect revise Landlord’s drawings to show the work performed by Tenant.

6.2 OWNERSHIP OF IMPROVEMENTS: All modifications, alterations or improvements made or added to the Leased Premises by Tenant (other than Tenant’s inventory, equipment, movable furniture, wall decorations and trade fixtures) shall be deemed real property and a part of the Leased Premises, but shall remain the property of Tenant during the Lease Term. Any such modifications, alterations or improvements, once completed, shall not be altered or removed from the Leased Premises during the Lease Term without Landlord’s written approval first obtained in accordance with the provisions of Article 6.1 above. At the expiration or sooner termination of this Lease, all such modifications, alterations and improvements (other than Tenant’s inventory, equipment, movable furniture, wall decorations and trade fixtures) shall automatically become the property of Landlord and shall be surrendered to Landlord as a part of the Leased Premises as required pursuant to Article 2, unless Landlord shall require Tenant to remove any of such modifications, alterations or improvements in accordance with the provisions of Article 2, in which case Tenant shall so remove same. Landlord shall have no obligation to reimburse to Tenant all or any portion of the cost or value of any such modifications, alterations or improvements so surrendered to Landlord. All modifications, alterations or improvements which are installed or constructed on or attached to the Leased Premises by Landlord at Landlord’s expense shall be deemed real property and a part of the Leased Premises and shall be the property of Landlord. All lighting, plumbing, electrical, heating, ventilating and air conditioning fixtures, partitioning, window coverings, wall coverings and floor coverings installed by Tenant shall be deemed improvements to the Leased Premises and not trade fixtures of Tenant.

6.3 ALTERATIONS: Tenant shall, at its sole cost make all modifications, alterations and improvements to the Leased Premises that are required by any Law because of (i) Tenant’s use or occupancy of the Leased Premises, the Building, the Outside Areas, or the Property, (ii) Tenant’s application for any permit or governmental approval, or (iii) Tenant’s making of any modifications, alterations or improvements to or within the Leased Premises. If Landlord shall, at any time during the Lease Term, (i) be required by any governmental authority to make any modifications, alterations or improvements to the Building or the Project, (ii) modify the existing (or construct additional) capital improvements or provide building service equipment for the purpose of reducing the consumption of utility services or project maintenance costs for the property, the cost incurred by Landlord in making such modifications, alterations or improvements, including an eighteen percent per annum cost of money factor, shall be amortized by Landlord over the useful life of such modifications, alterations or improvements, as determined in accordance with generally accepted accounting standards, and the monthly amortized cost of such modifications, alterations and improvements as so amortized shall be considered a Property Maintenance Cost.

6.4 LIENS: Tenant shall keep the Property and every part thereof free from any liens and shall pay when due all bills arising out of any work performed, materials furnished, or obligations incurred by Tenant, its agents, employees or contractors relating to the Property. If any such claim of lien is recorded against Tenant’s interest in this Lease, the Property or any part thereof, Tenant shall bond against, discharge or otherwise cause such lien to be entirely released within ten days after the same has been so recorded. Tenant’s failure to do so shall be conclusively deemed a material default under the terms of this Lease.

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ARTICLE 7

ASSIGNMENT AND SUBLETTING BY TENANT

7.1 BY TENANT: Tenant shall not sublet the Leased Premises (or any portion thereof) or assign or encumber its interest in this Lease, whether voluntarily or by operation of Law, without Landlord’s prior written consent first obtained in accordance with the provisions of this Article 7. Any attempted subletting, assignment or encumbrance without Landlord’s prior written consent, at Landlord’s election, shall constitute a default by Tenant under the terms of this Lease. The acceptance of rent by Landlord from any person or entity other than Tenant, or the acceptance of rent by Landlord from Tenant with knowledge of a violation of the provisions of this Article, shall not be deemed to be a waiver by Landlord of any provision of this Article or this Lease or to be a consent to any subletting by Tenant or any assignment or encumbrance of Tenant’s interest in this Lease.

7.2 MERGER OR REORGANIZATION: If Tenant is a corporation, any dissolution, merger, consolidation or other reorganization of Tenant, or the sale or other transfer in the aggregate over the Lease Term of a controlling percentage of the capital stock of Tenant, shall be deemed a voluntary assignment of Tenant’s interest in this Lease. The phrase “controlling percentage” means the ownership of and the right to vote stock possessing more than fifty percent of the total combined voting power of all classes of Tenant’s capital stock issued, outstanding and entitled to vote for the election of directors. If Tenant is a partnership, a withdrawal or change, whether voluntary, involuntary or by operation of Law, of any general partner, or the dissolution of the partnership, shall be deemed a voluntary assignment of Tenant’s interest in this Lease.

7.3 LANDLORD’S ELECTION: If Tenant or Tenant’s successors shall desire to assign its interest under this Lease or to sublet the Leased Premises, Tenant and Tenant’s successors must first notify Landlord, in writing, of its intent to so assign or sublet, at least thirty days in advance of the date it intends to so assign its interest in this Lease or sublet the Leased Premises but not sooner than sixty days in advance of such date, specifying in detail the terms of such proposed assignment or subletting, including the name of the proposed assignee or sublessee, the proposed assignee’s or Sublessee’s intended use of the Leased Premises, a current financial statement of such proposed assignee or sublessee and the form of documents to be used in effectuating such assignment or subletting. Landlord shall have a period of fifteen days following receipt of such notice and receipt of all information requested by Landlord regarding the proposed assignee or sublessee within which to do one of the following: (a) terminate this Lease or, in the case of a sublease of less than all of the Leased Premises, terminate this Lease as to that part of the Leased Premises proposed to be so sublet Landlord may only terminate this Lease if Tenant subleases 80% or more of the space for substantially the remaining Term, either (i) on the condition that the proposed Transferee immediately enter into a direct lease of the Leased Premises with Landlord (or, in the case of a partial sublease, a lease for the portion proposed to be so sublet) on the same terms and conditions contained in Tenant’s (or Tenant’s successors’) notice, or (ii) so that Landlord is thereafter free to lease the Leased Premises (or, in the case of a partial sublease, the portion proposed to be so sublet) to whomever it pleases on whatever terms are acceptable to Landlord. In the event Landlord elects to so terminate this Lease, then (i) if such termination is conditioned upon the execution of a lease between Landlord and the proposed Transferee, Tenant’s and Tenant’s successors’ obligations under this Lease shall not be terminated until such Transferee executes a new lease with Landlord, enters into possession, and commences the payment of rent, and (ii) if Landlord elects simply to terminate this Lease (or, in the case of a partial sublease, terminate this Lease as to the portion to be so sublet), the Lease shall so terminate in its entirety (or as to the space to be so sublet) fifteen (15) days after Landlord has notified Tenant and Tenant’s successors in writing of such election. In the case of a partial termination of the Lease, the Base Monthly Rent and Tenant’s or Tenant’s successors’ proportionate share shall be reduced to an amount which bears the same relationship to the original amount thereof as the area of that part of the Leased Premises which remains subject to the Lease bears to the original area of the Leased Premises. Landlord and Tenant or Tenant’s successors shall execute a cancellation agreement with respect to the Lease to effect such termination or partial termination, or (b) if Landlord shall not have elected to cancel and terminate this Lease, to either (i) consent to such requested assignment or subletting subject to Tenant’s and Tenant’s successors’ compliance with the conditions set forth in Article 7.4 below or (ii) refuse to so consent to such requested assignment or subletting, provided that such consent shall not be unreasonably refused. It shall not be unreasonable for Landlord to withhold its consent to any proposed assignment or subletting if (i) the proposed assignee’s or subtenant’s anticipated use of the Premises involves the storage, use or disposal of a Hazardous Material; (ii) if the proposed assignee or subtenant has been required by any prior landlord, lender or governmental authority to clean up Hazardous Materials unlawfully discharged by the proposed assignee or subtenant; or (iii) if the proposed assignee or subtenant is subject to investigation or enforcement order or proceeding by any governmental authority in connection with the use, disposal or storage of a Hazardous Material. Tenant and Tenant’s successors covenant and agree to supply to Landlord, upon request, with all necessary or relevant

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information which Landlord may reasonably request respecting such proposed assignment or subletting and/or the proposed assignee or sublessee. Landlord’s review period shall not commence until Landlord has received all information requested by Landlord.

7.4 CONDITIONS TO LANDLORD’S CONSENT: If Landlord elects to consent, or shall have been ordered to so consent by a court of competent jurisdiction, to such requested assignment, subletting or encumbrance, such consent shall be expressly conditioned upon the occurrence of each of the conditions below set forth, and any purported assignment, subletting or encumbrance made or ordered prior to the full and complete satisfaction of each of the following conditions shall be void and, at the election of Landlord, which election may be exercised at any time following such a purported assignment, subletting or encumbrance shall constitute a material default by Tenant under this Lease giving Landlord the absolute right to terminate this Lease. The conditions are as follows:

A. Landlord having approved in form and substance the assignment or sublease agreement (or the encumbrance agreement), which approval shall not be unreasonably withheld by Landlord if the requirements of this Article 7 are otherwise complied with.

B. Each such sublessee or assignee having agreed, in writing satisfactory to Landlord and its counsel and for the benefit of Landlord, to assume, to be bound by, and to perform the obligations of this Lease to be performed by Tenant (or, in the case of an encumbrance, each such encumbrancer having similarly agreed to assume, be bound by and to perform Tenant’s obligations upon a foreclosure or transfer in lieu thereof).

C. Tenant having fully and completely performed all of its obligations under the terms of this Lease through and including the date of the requested consent, as well as through and including the date such assignment or subletting is to become effective.

D. Tenant having reimbursed to Landlord all reasonable costs and attorneys fees incurred by Landlord in conjunction with the processing and documentation of any such requested subletting, assignment or encumbrance.

E. Tenant having delivered to Landlord a complete and fully-executed duplicate original of such sublease agreement, assignment agreement or encumbrance (as applicable) and all related agreements.

F. Tenant having paid, or having agreed in writing to pay as to future payments, to Landlord one hundred percent of all assignment consideration or excess rentals to be paid to Tenant or to any other on Tenant’s be half or for Tenant’s benefit for such assignment or subletting as follows:

(1) If Tenant assigns its interest under the Lease and if all or a portion of the consideration for such assignment is to be paid by the assignee at the time of the assignment, that Tenant shall have paid to Landlord and Landlord shall have received an amount equal to one hundred percent of the assignment consideration so paid or to be paid whichever is the greater) at the time of the assignment by the assignee; or

(2) If Tenant assigns its interest under this Lease and if Tenant is to receive all or a portion of the consideration for such assignment in future installments, that Tenant and Tenant’s assignee shall have entered into a written agreement with and for the benefit of Landlord satisfactory to Landlord and its counsel whereby Tenant and Tenant’s assignee jointly agree to pay to Landlord an amount equal to one hundred percent of all such future assignment consideration installments to be paid by such assignee as and when such assignment consideration is so paid.

(3) If Tenant subleases the Leased Premises, that Tenant and Tenant’s sublessee shall have entered into a written agreement with and for the benefit of Landlord satisfactory to Landlord and its counsel whereby Tenant and Tenant’s sublessee jointly agree to pay to Landlord one hundred percent of all excess rentals to be paid by such sublessee as and when such excess rentals are so paid.

7.5 ASSIGNMENT CONSIDERATION AND EXCESS RENTALS DEFINED: For purposes of this article, the term “Assignment Consideration” shall mean all consideration to be paid by the Assignee as consideration for such assignment, and the term “Excess Rentals” shall mean all consideration to be paid by the Sublessee in excess of the rent to be paid by said Sublessee/Sublessor for the premises subleased for the same period. It is specifically intended and agreed that this provision is intended to be a one hundred percent profit sharing clause, such that neither Tenant nor any successor to Tenant shall make any profit whatsoever as a result of any transfer of an interest in the Lease or the Leased Premises or any other property, as more particularly described herein. Assignment Considerations and/or “Excess Rentals” shall include all payments made or to be made by any Assignee or Sublessee relating in any way to any transfer of an interest in the Lease or the Leased Premises including, but not limited to, any payment made with respect to property which would or shall become Landlord’s property upon the expiration or earlier termination of the lease, whether such property was installed or paid for by Landlord or by Tenant or Tenant’s successors. In the event Tenant or Tenant’s successors sublease a portion of the Leased Premises,

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“Excess Rentals” shall be calculated by subtracting the rent payable by the Sublessor for the portion of the Leased Premises so sublet from all consideration to be paid by such Sublessee. Rent payable by the Sublessor for the portion of the Leased Premises so sublet shall be calculated by multiplying the Base Monthly Rent payable by the Sublessor for the Leased Premises leased by such Sublessor by a fraction, the numerator of which is the area in square feet subleased and the denominator of which is the total floor area of the Leased Premises leased by such Sublessor also in square feet. Tenant and Tenant’s Successors agree that any Assignment Consideration and/or Excess Rentals hereunder shall be the property of Landlord and not the property of Tenant.

7.6 PAYMENTS: All payments required by this Article to be made to Landlord shall be made in cash in full as and when they become due. At the time Tenant, Tenant’s assignee or sublessee makes each such payment to Landlord, Tenant or Tenant’s assignee or sublessee, as the case may be, shall deliver to Landlord an itemized statement in reasonable detail showing the method by which the amount due Landlord was calculated and certified by the party making such payment as true and correct. Landlord may require that all payments of Excess Rentals and/or Assignment Consideration to be made hereunder be made directly to Landlord by such Transferee.

7.7 GOOD FAITH: The rights granted to Tenant by this Article are granted in consideration of Tenant’s express covenant that all pertinent allocations which are made by Tenant between the rental value of the Leased Premises and the value of any of Tenant’s personal property which may be conveyed or leased concurrently with and which may reasonably be considered a part of the same transaction as the permitted assignment or subletting shall be made fairly, honestly and in good faith. If Tenant shall breach this Covenant of Good Faith, Landlord may immediately declare Tenant to be in default under the terms of this Lease and terminate this Lease and/or exercise any other rights and remedies Landlord would have under the terms of this Lease in the case of a material default by Tenant under this Lease.

7.8 EFFECT OF LANDLORD’S CONSENT: No subletting, assignment or encumbrance, even with the consent of Landlord, shall relieve Tenant of its personal and primary obligation to pay rent and to perform all of the obligations to be performed by Tenant hereunder. Consent by Landlord to one or more assignments or encumbrances of Tenant’s interest in this Lease or to one or more sublettings of the Leased Premises shall not be deemed to be a consent to any subsequent assignment, encumbrance or subletting. If Landlord shall have been ordered by a court of competent jurisdiction to consent to a requested assignment or subletting, or such an assignment or subletting shall have been ordered over the objection of Landlord, such assignment or subletting shall not be binding between the assignee (or sublessee) and Landlord until such time as all conditions set forth in Article 7.4 above have been fully satisfied (to the extent not then satisfied) by the assignee or sublessee, including, without limitation, the payment to Landlord of all agreed assignment considerations and/or excess rentals then due Landlord.

7.9 PROHIBITED FINANCIAL TRANSACTIONS: Tenant shall not, without Landlord’s consent, enter into or do any of the following acts if to do so would result in Tenant having a net worth or net income after such action or event that is less than Tenant’s net worth and/or net income as of the date of this Lease: (i) make any distribution or declare or pay any cash dividends on, or purchase, acquire, redeem or retire any of its capital stock, of any class, whether now or hereafter outstanding, (ii) acquire, merge, or consolidate with or into any other business organization, (iii) make any changes in Tenant’s financial structure or (iv) borrow funds, pledge assets, or lease or sell equipment or other property. Landlord and Tenant understand and agree that the value of the Leased Premises is influenced by Tenant’s financial standing, and the provisions of this section are intended to prohibit those voluntary actions of Tenant that are not conducted in the normal course of its business which would reduce Tenant’s net worth and/or net income and thereby would adversely effect the value of the Leased Premises.

ARTICLE 8:

LIMITATION ON LANDLORD’S LIABILITY AND INDEMNITY

8.1 LIMITATION ON LANDLORD’S LIABILITY AND RELEASE: Landlord shall not be liable to Tenant for, and Tenant hereby releases Landlord and its partners, principals, officers, agents and employees from, any and all liability, whether in contract, tort or on any other basis, for any injury to or any damage sustained by Tenant, Tenant’s agents, employees, contractors or invitees; any damage to Tenant’s property; or any loss to Tenant’s business, loss of Tenant’s profits or other financial loss of Tenant resulting from or attributable to the condition of, the management of, the repair or maintenance of, the protection of, the supply of services or utilities to, the damage

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to or destruction of the Leased Premises, the Building, the Project or the Common Areas, including without limitation (i) the failure, interruption, rationing or other curtailment or cessation in the supply of electricity, water, gas or other utility service to the Project, the Building or the Leased Premises; (ii) the vandalism or forcible entry into the Building or the Leased Premises; (iii) the penetration of water into or onto any portion of the Leased Premises through roof leaks or otherwise; (iv) the failure to provide security and/or adequate lighting in or about the Project, the Building or the Leased Premises; (v) the existence of any design or construction defects within the Project, the Building or the Leased Premises; (vi) the failure of any mechanical systems to function properly (such as the HVAC systems); or (vii) the blockage of access to any portion of the Project, the Building or the Leased Premises, except that Tenant does not so release Landlord from such liability to the extent such damage was proximately caused by Landlord’s active negligence, willful misconduct, or Landlord’s failure to perform an obligation expressly undertaken pursuant to this Lease after a reasonable period of time shall have lapsed following receipt of written notice from Tenant to so perform such obligation. In this regard, Tenant acknowledges that it is fully apprised of the provisions of Law relating to releases, and particularly to those provisions contained in Section 1542 of the California Civil Code which reads as follows:

A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor.

Notwithstanding such statutory provision, and for the purpose of implementing a full and complete release and discharge, Tenant hereby (i) waives the benefit of such statutory provision and (ii) acknowledges that, subject to the exceptions specifically set forth herein, the release and discharge set forth in this Article is a full and complete settlement and release and discharge of all claims and is intended to include in its effect, without limitation, all claims which Tenant, as of the date hereof, does not know of or suspect to exist in its favor.

8.2 TENANT’S INDEMNIFICATION OF LANDLORD: Tenant shall defend with competent counsel satisfactory to Landlord any claims made or legal actions filed or threatened against Landlord with respect to the violation of any law, or the death, bodily injury, personal injury, property damage, or interference with contractual or property rights suffered by any third party (including other tenants within the Project) occurring within the Leased Premises or resulting from Tenant’s use or occupancy of the Leased Premises, the Building or the Outside Areas, or resulting from Tenant’s activities in or about the Leased Premises, the Building, the Outside Areas or the Property, and Tenant shall indemnify and hold Landlord, Landlord’s principals, employees, agents and contractors harmless from any loss, liability, penalties, or expense whatsoever (including any loss attributable to vacant space which otherwise would have been leased, but for such activities) resulting therefrom, except to the extent proximately caused by the active negligence or willful misconduct of Landlord. This indemnity agreement shall survive the expiration or sooner termination of this Lease, provided that Tenant shall not be required to indemnify Landlord under this section 8.2 with respect to events that first occur after the later of (a) the date of the expiration, or sooner termination, of this Lease, or (b) the date Tenant actually vacates the Premises, provided that Landlord has actual notice of such vacation.

ARTICLE 9:

INSURANCE

9.1 TENANT’S INSURANCE: Tenant shall maintain insurance complying with all of the following:

A. Tenant shall procure, pay for and keep in full force and effect, at all times during the Lease Term, the following:

(1) Commercial General Liability insurance insuring Tenant against liability for bodily injury, death, property damage and personal injury occurring at the Leased Premises, or resulting from Tenant’s use or occupancy of the Leased Premises or the Building, Outside Areas, Property, or Common Areas or resulting from Tenant’s activities in or about the Leased Premises. Such insurance shall be on an occurrence basis with a combined single limit of liability of not less than the amount of Tenant’s Required Liability Coverage (as set forth in Article 1). The policy or policies shall be endorsed to name Landlord and such others as are designated by Landlord as additional insureds in the form equivalent to CG20111185 or successor and shall contain the following additional endorsement: “The insurance afforded to the additional insureds is primary insurance. If the additional insureds have other insurance which is applicable to the loss on a contributing, excess or contingent basis, the amount of this insurance

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company’s liability under this policy shall not be reduced by the existence of such other insurance. Any insurance carried by the additional insureds shall be excess and non contributing with the insurance provided by the tenant.” The policy shall not be canceled or reduced without at least 30 days written notice to additional insureds. If the policy insures more than one location, it shall be endorsed to show that the limits and aggregate apply per location using endorsement CG25041185 or successor. Tenant’s policy shall also contain the severability of interest and cross-liability endorsement or clauses.

(2) Fire and property damage insurance in so-called Special Form plus earth quake and flood insuring Tenant against loss from physical damage to Tenant’s personal property, inventory, stock, trade fixtures and improvements within the Leased Premises with coverage for the full actual replacement cost thereof;

(3) Plate-glass insurance, at actual replacement cost;

(4) Boiler and machinery insurance, if applicable;

(5) Product Liability insurance (including without limitation Liquor Liability insurance for liability arising out of the distribution, sale, or consumption of food and/or beverages including alcoholic beverages at the Leased Premises for not less than the Tenant’s Required Liability Coverage as set forth in Article 1;

(6) Workers’ compensation insurance and any other employee benefit insurance sufficient to comply with all Laws which policy shall be endorsed to provide thirty (30) days written notice of cancellation to Landlord;

(7) With respect to making of alterations or the construction of improvements or the like undertaken by Tenant, contingent liability and builder’s risk insurance, in an amount and with coverage satisfactory to Landlord;

(8) Business Income Insurance at a minimum of 50% coinsurance including coverage for loss of business income due to damage to equipment from perils covered under the so called Special Form plus the perils of earth quake and flood; and

(9) Comprehensive Auto Liability insurance with a combined single limit coverage of not less than the amount of Tenant’s Required Liability Coverage (as set forth in Article I) for bodily injury and/or property damage liability for; a) Owned autos b) Hired or borrowed autos c) Non-owned autos d) Auto blanket contractual form CA0029. The policy shall be endorsed to provide 30 days written notice of cancellation to Landlord.

B. Each policy of liability insurance required to be carried by Tenant pursuant to this Article or actually carried by Tenant with respect to the Leased Premises or the Property (i) shall be in a form satisfactory to Landlord, (ii) Shall be provided by carriers admitted to do business in the state of California, with a Best rating of “A/VI” or better and/or acceptable to Landlord. Property insurance shall contain a waiver and/or a permission to waive by the insurer any right of subrogation against Landlord, its principal, employees, agents and contractors which might arise by reason of any payment under such policy or by reason of any act or omission of Landlord, its principals, employees, agents or contractors.

C. Prior to the time Tenant or any of its contractors enters the Leased Premises, Tenant shall deliver to the Landlord with respect to each policy of insurance required to be earned by Tenant pursuant to this article, a certificate of the insurer certifying, in a form satisfactory to the Landlord, that the policy has been issued and premium paid providing the coverage required by this Article and containing the provisions herein. Attached to such a certificate shall be endorsements naming Landlord as additional insured, and including the wording under primary insurance above. With respect to each renewal or replacement of any such insurance, the requirements of this Article must be complied with not less than 30 days prior to the expiration or cancellation of the policy being renewed or replaced. Landlord may at any time and from time-to-time inspect and/or copy any and all insurance policies required to be carried by Tenant pursuant to this article. If Landlord’s lender, insurance broker or advisor or counsel reasonably determines at any time that the form or amount of coverage set forth in Article 9.1.(A) for any policy of insurance Tenant is required to carry pursuant to this Article is not adequate, then Tenant shall increase the amount of coverage for such insurance to such greater amount or change the form as Landlord’s lender, insurance broker or advisor or counsel reasonably deems adequate (provided however such increase level of coverage may not exceed the level of coverage for such insurance commonly carried by comparable businesses similarly situated and operating under similar circumstances).

D. The Commercial General Liability insurance carried by Tenant shall specifically insure the performance by Tenant of the Indemnification provisions set forth in Article 8.2 of tills lease provided, however, nothing contained in this Article 9 shall be construed to limit the liability of Tenant under the Indemnification provisions set forth in said Article 8.2.

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9.2 LANDLORD’S INSURANCE: With respect to insurance maintained by Landlord:

A. Landlord shall maintain, as the minimum coverage required of it by this Lease, property insurance in so-called “Special” form insuring Landlord (and such others as Landlord may designate) against loss from physical damage to the Building with coverage of not less than one hundred percent of the full actual replacement cost thereof and against loss of rents for a period of not less than twelve months. Such property damage insurance, at Landlord’s election but without any requirement on Landlord’s behalf to do so, (i) may be written in so-called Special Form, excluding only those perils commonly excluded from such coverage by Landlord’s then property damage insurer; (ii) may provide coverage for physical damage to the improvements so insured for up to the entire full actual replacement cost thereof; (iii) may be endorsed to include (or separate policies may be carried to cover) loss or damage caused by any additional perils against which Landlord may elect to insure, including earthquake and/or flood; (iv) may provide coverage for loss of rents for a period of up to twelve months; and/or (v) may contain “deductibles” per occurrence in an amount reasonably acceptable to Landlord. Landlord shall not be required to cause such insurance to cover any of Tenant’s personal property, inventory and trade fixtures, or any modifications, alterations or improvements made or constructed by Tenant to or within the Leased Premises.

B. Landlord shall maintain Commercial General Liability insurance insuring Landlord (and such others as are designated by Landlord) against liability for personal injury, bodily injury, death, and damage to property occurring in, on or about, or resulting from the use or occupancy of the Property, or any portion thereof, with combined single limit coverage of at least Two Million Dollars. Landlord may carry such greater coverage as Landlord or Landlord’s Lender, insurance broker or advisor or counsel may from time to time determine is reasonably necessary for the adequate protection of Landlord and the Property.

C. Landlord may maintain any other insurance which in the opinion of its lender, insurance broker or advisor, or legal counsel is prudent to carry under the given circumstances.

9.3 MUTUAL WAIVER OF SUBROGATION: Landlord hereby releases Tenant, and Tenant hereby releases Landlord and its respective principals, officers, agents, employees and servants, from any and all liability for loss, damage or injury to the property of the other in or about the Leased Promises or the Property which is caused by or results from a peril or event or happening which would be covered by insurance required to be carried by the party sustaining such loss under the terms of this Lease, or is covered by insurance actually carried and in force at the time of the loss, by the party sustaining such loss; provided, however, that such waiver shall be effective only to the extent permitted by the insurance covering such loss and to the extent such insurance is not prejudiced thereby.

ARTICLE 10:

DAMAGE TO LEASED PREMISES

10.1 LANDLORD’S DUTY TO RESTORE: If the Leased Premises, the Building or the Outside Areas are damaged by any peril after the Effective Date of this Lease, Landlord shall restore the same, as and when required by this Article, unless this Lease is terminated by Landlord pursuant to Article 10.3 or by Tenant pursuant to Article 10.4. If this Lease is not so terminated, then upon availability, of the insurance proceeds to Landlord (if the loss is covered by insurance) and the issuance of all necessary governmental permits, Landlord shall commence and diligently prosecute to completion the restoration of the Leased Premises, the Building or the Outside Areas, as the case may be, to the extent then allowed by Law, to substantially the same condition in which it existed as of the Lease Commencement Date. Landlord’s obligation to restore shall be limited to the improvements constructed by Landlord. Landlord shall have no obligation to restore any improvements made by Tenant to the Leased Premises or any of Tenant’s personal property, inventory or trade fixtures. Upon completion of the restoration by Landlord, Tenant shall forthwith replace or fully repair all of Tenant’s personal property, inventory, trade fixtures and other improvements constructed by Tenant to like or similar condition as existed at the time of such damage or detraction.

10.2 INSURANCE PROCEEDS: All insurance proceeds available from the fire and property damage insurance carried by Landlord shall be paid to and become the property of Landlord. If this Lease is terminated pursuant to either Article 10. 3 or 10. 4, all insurance proceeds available from insurance carried by Tenant which cover loss of property that is Landlord’s property or would become Landlord’s property on termination of this Lease shall be paid to and become the property of Landlord, and the remainder of such proceeds shall be paid to and become the property of Tenant. If this Lease is not terminated pursuant to either Article 10.3 or 10.4, all insurance proceeds available from insurance carried by Tenant which cover loss to property that is Landlord’s property shall be paid to and become the property of Landlord, and all proceeds available from such insurance which cover loss to property which would only become the property of Landlord upon the termination of this Lease shall be paid to and remain the property of Tenant.

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10.3 LANDLORD’S RIGHT TO TERMINATE: Landlord shall have the option to terminate this Lease in the event any of the following occurs, which option may be exercised only by delivery to Tenant of a written notice of election to terminate within thirty days after the date of such damage or destruction:

A. The Building is damaged by any peril covered by valid and collectible insurance actually carried by Landlord and in force at the time of such damage or destruction (an “insured peril”) to such an extent that the estimated cost to restore the Building exceeds the lesser of (i) the insurance proceeds available from insurance actually carried by Landlord, or (ii) seventy-five percent of the then actual replacement cost thereof;

B. The Building is damaged by an uninsured peril, which peril Landlord was required to insure against pursuant to the provisions of Article 9 of this Lease, to such an extent that the estimated cost to restore the Building exceeds the lesser of (i) the insurance proceeds which would have been available had Landlord carried such required insurance, or (ii) seventy-five percent of the then actual replacement cost thereof;

C. The Building is damaged by an uninsured peril, which peril Landlord was not required to insure against pursuant to the provisions of Article 9 of this Lease, to any extent.

D. The Building is damaged by any peril and, because of the Laws then in force, the Building (i) can not be restored at reasonable cost or (ii) if restored, can not be used for the same use being made thereof before such damage.

10.4 TENANT’S RIGHT TO TERMINATE: If the Leased Premises, the Building or the Outside Areas are damaged by any peril and Landlord does not elect to terminate this Lease or is not entitled to terminate this Lease pursuant to this Article, then as soon as reasonably practicable, Landlord shall furnish Tenant with the written opinion of Landlord’s architect or construction consultant as to when the restoration work required of Landlord may be complete. Tenant shall have the option to terminate this Lease in the event any of the following occurs, which option may be exercised in the case of A or B below only by delivery to Landlord of a written notice of election to terminate within seven days after Tenant receives from Landlord the estimate of the time needed to complete such restoration:

A. The Leased Premises are damaged by any peril and, in the reasonable opinion of Landlord’s architect or construction consultant, the restoration of the Leased Premises cannot be substantially completed within nine months after the date of such notice from Landlord; or

B. The Leased Premises are damaged by any peril within nine months of the last day of the Lease Term and, in the reasonable opinion of Landlord’s architect or construction consultant, the restoration of the Leased Premises cannot be substantially completed within ninety days after the date such restoration is commenced.

10.5 TENANT’S WAIVER: Landlord and Tenant agree that the provisions of Article 10.4 above, captioned “Tenant’s Right to Terminate”, are intended to supersede and replace the provisions contained in California Civil Code, Section 1932, Subdivision 2, and California Civil Code, Section 1934, and accordingly, Tenant hereby waives the provisions of said Civil Code Sections and the provisions of any successor Code Sections or similar laws hereinafter enacted.

10.6 ABATEMENT OF RENT: In the event of damage to the Leased Premises which does not result in the termination of this Lease, the Base Monthly Rent (and any Additional Rent) shall be temporarily abated during the period of restoration in proportion to the degree to which Tenant’s use of the Leased Premises is impaired by such damage.

ARTICLE 11

CONDEMNATION

11.1 TENANT’S EIGHT TO TERMINATE: Except as otherwise provided in Article 11.4 below regarding temporary takings, Tenant shall have the option to terminate this Lease if, as a result of any taking, (i) all of the Leased Premises is taken, (ii) thirty-three and one-third percent or more of the Leased Premises is taken and the part of the Leased Premises that remains cannot, within a reasonable period of time, be made reasonably suitable for the continued operation of Tenant’s business, or (iii) there is a taking of a portion of the Outside Areas and, as a result of such taking, Landlord cannot provide parking spaces within the Property (or within a reasonable distance therefrom) equal in number to at least sixty-six and two-thirds percent of the number of parking spaces existing within the

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Outside Areas immediately prior to such taking, whether by rearrangement of the remaining parking areas in the Outside Areas (including, if Landlord elects, construction of multi-deck parking structures or restriping for compact cars where permitted by Law). Tenant must exercise such option within a reasonable period of time, to be effective on the later to occur of (i) the date that possession of that portion of the Leased Premises or the Outside Areas that is condemned is taken by the condemnor or (ii) the date Tenant vacated the Leased Premises.

11.2 LANDLORD’S RIGHT TO TERMINATE: Except as otherwise provided in Article 11.4 below regarding temporary takings, Landlord shall have the option to terminate this Lease if, as a result of any taking, (i) all or a substantial part of the Leased Premises is taken, (ii) more than thirty-three and one-third percent of the Outside Areas is taken, or (iii) because of the Laws then in force, the Leased Premises may not be used for the same use being made thereof before such taking, whether or not restored as required by Article 11.3 below. Any, such option to terminate by Landlord must be exercisable within a reasonable period of time, to be effective as of the date possession is taken by the condemnor.

11.3 RESTORATION: If any part of the Leased Premises, the Building or the Outside Areas is taken and this Lease is not terminated, then Landlord shall repair any damage occasioned thereby to the remainder thereof to a condition reasonably suitable for Tenant’s continued operations and otherwise, to the extent practicable, in the manner and to the extent provided in Article 10.1.

11.4 TEMPORARY TAKING: If any portion of the Leased Premises is temporarily taken for a period of one year or less and such period does not extend beyond the Lease Expiration Date, this Lease shall remain in effect. If any portion of the Leased Premises is temporarily taken for a period which either exceeds one year or which extends beyond the Lease Expiration Date, then Landlord and Tenant shall each independently have the option to terminate this Lease, effective on the date possession is taken by the condemnor.

11.5 DIVISION OF CONDEMNATION AWARD: Any award made for any taking of the Property, the Building, the Outside Areas or the Leased Premises, or any portion thereof, shall belong to and be paid to Landlord, and Tenant hereby assigns to Landlord all of its right, title and interest in any such award; provided, however, that Tenant shall be entitled to receive any portion of the award that is made specifically (i) for the taking of personal property, inventory or trade fixtures belong to Tenant, (ii) for the interruption of Tenant’s business or its moving costs, (iii) for loss of Tenant’s goodwill, or (iv) for any temporary taking where this Lease is not terminated as a result of such taking. The rights of Landlord and Tenant regarding any condemnation shall be determined as provided in this Article, and each party hereby waives the provisions of Section 1265.130 of the California Code of Civil Procedure, and the provisions of any similar law hereinafter enacted, allowing either party to petition the Superior Court to terminate this Lease and/or otherwise allocate condemnation awards between Landlord and Tenant in the event of a taking of the Leased Premises.

11.6 ABATEMENT OF RENT: In the event of a taking of the Leased Premises which does not result in a termination of this Lease (other than a temporary taking), then, as of the date possession is taken by the condemning authority, the Base Monthly Rent shall be reduced in the same proportion that the area of that part of the Leased Premises so taken (less any addition to the area of the Leased Premises by reason of any reconstruction) bears to the area of the Leased Premises immediately prior to such taking.

11.7 TAKING DEFINED: The term “taking” or “taken” as used in this Article 11 shall mean any transfer or conveyance of all or any portion of the Property to a public or quasi-public agency or other entity having the power of eminent domain pursuant to or as a result of the exercise of such power by such an agency, including any inverse condemnation and/or any sale or transfer by Landlord of all or any portion of the Property to such an agency under threat of condemnation or the exercise of such power.

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ARTICLE 12:

DEFAULT AND REMEDIES

12.1 EVENTS OF TENANT’S DEFAULT: Tenant shall be in default of its obligations under this Lease if any of the following events occur:

A. Tenant shall have failed to pay Base Monthly Rent or any Additional Rent when due; or

B. Tenant shall have done or permitted to have been done any act, use or thing in its us, occupancy or possession of the Leased Premises or the Building or the Outside Areas which is prohibited by the terms of this Lease; or

C. Tenant shall have failed to perform any term, covenant or condition of this Lease, except those requiring the payment of Base Monthly Rent or Additional Rent, within ten days after written notice from Landlord to Tenant specifying the nature of such failure and requesting Tenant to perform same provided that if such default cannot be cured in 10 days, Tenant shall not foe in default hereunder if it commences such cure and diligently pursues it.

D. Tenant shall have sublet the Leased Premises or assigned or encumbered its interest in this Lease in violation of the provisions contained in Article 7, whether voluntarily or by operation of Law; or

E. or

F. Tenant or any Guarantor of this Lease shall have permitted or suffered the sequestration or attachment of, or execution on, or the appointment of a custodian or receiver with respect to, all or any substantial part of the property or assets of Tenant (or such Guarantor) or any property or asset essential to the conduct of Tenant’s (or such Guarantors) business, and Tenant (or such Guarantor) shall have failed to obtain a return or release of the same within thirty days thereafter, or prior to sale pursuant to such sequestration, attachment or levy, whichever is earlier; or

G. Tenant or any Guarantor of this Lease shall have made a general assignment of all or a substantial part of its assets for the benefit of its creditors; or

H. Tenant or any Guarantor of this Lease shall have allowed (or sought) to have entered against it a decree or order which; (i) grants or constitutes an order for relief, appointment of a trustee, or confirmation or a reorganization plan under the bankruptcy laws of the United States; (ii) approves as properly filed a petition seeking liquidation or reorganization under said bankruptcy laws or any other debtor’s relief law or similar statute of the United States or any state thereof; or (iii) otherwise directs the winding up or liquidation of Tenant; provided, however, if any decree or order was entered without Tenant’s consent or over Tenant’s objection, Landlord may not terminate this Lease pursuant to this Subarticle if such decree or order is rescinded or reversed within thirty days after its original entry.

I. Tenant or any Guarantor of this Lease shall have availed itself of the protection of any debtor’s relief law, moratorium law or other similar Law which does not require the prior entry of a decree or order.

12.2 LANDLORD’S REMEDIES: In the event of any default by Tenant, and without limiting Landlord’s right to indemnification as provided in Article 8.2, Landlord shall have the following remedies, in addition to all other rights and remedies provided by Law or otherwise provided in this Lease, to which Landlord may resort cumulatively, or in the alternative:

A. Landlord may, at Landlord’s election, keep this Lease in effect and enforce, by an action at law or in equity, all of its rights and remedies under this Lease including, without limitation, (i) the right to recover the rent and other sums as they become due by appropriate legal action, (ii) the right to make payments required by Tenant, or perform Tenant’s obligations and be reimbursed by Tenant for the cost thereof with interest at the then maximum rate of interest not prohibited by Law from the date the sum is paid by Landlord until Landlord is reimbursed by Tenant, and (iii) the remedies of injunctive relief and specific performance to prevent Tenant from violating the terms of this Lease and/or to compel Tenant to perform its obligations under this Lease, as the case may be.

B. Landlord may, at Landlord’s election, terminate this Lease by giving Tenant written notice of termination, in which event this Lease shall terminate on the date set forth for termination in such notice. Any termination under this Subarticle shall not relieve Tenant from its obligation to pay to Landlord all Base Monthly Rent and

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Additional Rent then or thereafter due, or any other sums due or thereafter accruing to Landlord, or from any claim against Tenant for damages previously accrued or then or thereafter accruing. In no event shall any one or more of the following actions by Landlord, in the absence of a written election by Landlord to terminate the Lease, constitute a termination of the Lease:

(1) Appointment of a receiver or keeper in order to protect Landlord’s interest hereunder;

(2) Consent to any subletting of the Leased Premises or assignment of this Lease by Tenant, whether pursuant to the provisions hereof or otherwise; or

(3) Any other action by Landlord or Landlord’s agents intended to mitigate the adverse effects of any breach of this Lease by Tenant, including, without limitation, any action taken to maintain and preserve the Leased Premises or any action taken to relet the Leased Premises, or any portion thereof, for the account of Tenant and in the name of Tenant

C. In the event Tenant breaches this Lease and abandons the Leased Premises, Landlord may terminate this Lease, but this Lease shall not terminate unless Landlord gives Tenant written notice of termination. If Landlord does not terminate this Lease by giving written notice of termination, Landlord may enforce all its rights and remedies under this Lease, including the right to recover rent as it becomes due under this Lease as provided in California Civil Code Section 1951.4, as in effect on the Effective Date of this Lease.

D. In the event Landlord terminates this Lease, Landlord shall be entitled, at Landlord’s election; to damages in an amount as set forth in California Civil Code Section 1951.2, as in effect on the Effective Date of this Lease. For purposes of computing damages pursuant to Section 1951.2, an interest rate equal to the maximum rate of interest then not prohibited by Law shall be used where permitted. Such damages shall include, without limitation:

(1) The worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that Tenant proves could be reasonably avoided, computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco, at the time of award plus one percent; and

(2) Any other amount necessary to compensate Landlord for all detriment proximately caused by Tenant’s failure to perform Tenant’s obligations under this Lease, or which in the ordinary course of things would be likely to result therefrom, including without limitation, the following: (i) expenses for cleaning, repairing or restoring the Leased Premises; (ii) expenses for altering, remodeling or otherwise improving the Leased Premises for the purpose of reletting, including removal of existing leasehold improvements and/or installation of additional leasehold improvements (regardless of how the same is funded, including reduction of rent, a direct payment or allowance to a new tenant, or otherwise); (iii) broker’s fees, advertising costs and other expenses of reletting the Leased Premises; (iv) costs of carrying and maintaining the Leased Premises which costs would have been billed to Tenant as Additional Rent had Tenant not defaulted and which include but are not limited to taxes, insurance premiums, utility charges, landscape maintenance costs, costs of maintaining electrical, plumbing and HVAC equipment and costs for providing security; (v) expenses incurred in removing, disposing of and/or storing any of Tenant’s personal property, inventory or trade fixtures remaining therein; (vi) attorneys’ fees, expert witness fees, court costs and other reasonable expenses incurred by Landlord but not limited to taxable costs) in retaking possession of the Leased Premises, establishing damages hereunder, and re-leasing the Leased Premises; and (vii) any other expenses, costs or damages otherwise incurred or suffered as a result of Tenant’s default.

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12.3 LANDLORD’S DEFAULT AND TENANT’S REMEDIES: In the event Landlord fails to perform any of its obligations under this Lease, Landlord shall nevertheless not be in default under the terms of this Lease until such time as Tenant shall have first given Landlord written notice specifying the nature of such failure to perform its obligations, and then only after Landlord shall have had a reasonable period of time following its receipt of such notice within which to perform such obligations. In the event of Landlord’s default as above set forth, then, and only then, Tenant shall have the following remedies only:

A. Tenant may then proceed in equity or at law to compel Landlord to perform its obligations and/or to recover damages proximately caused by such failure to perform (except as and to the extent Tenant has waived its right to damages as provided in this Lease).

B. Tenant, at its option, may then cure any default of Landlord at Landlord’s cost. If, pursuant to this Subarticle, Tenant reasonably pays any sum to any third party or does any act that requires the payment of any sum to any third part at any time by reason of Landlord’s default, the sum paid by, Tenant shall be immediately due from Landlord to Tenant at the time Tenant supplies Landlord with an invoice therefor (provided such invoice sets forth and is accompanied by a written statement of Tenant setting forth in reasonable detail the amount paid, the party to whom it was paid, the date it was paid, and the reasons giving rise to such payment), together with interest at twelve percent per annum from the date of such invoice until Tenant is reimbursed by Landlord. Tenant may not offset such sums against any installment of rent due Landlord under the terms of this Lease.

12.4 LIMITATION ON TENANT’S RECOURSE: If Landlord is a corporation, trust, partnership, joint venture, unincorporated association, or other form of business entity, Tenant agrees that (i) the obligations of Landlord under this Lease shall not constitute personal obligations of the officers, directors, trustees, partners, joint venturers, members, owners, stockholders, or other principals of such business entity and (ii) Tenant hall have recourse only to Landlord’s then equity interest, if any, in the Property for the satisfaction of such obligations and not against the assets of such officers, directors, trustees, partners, joint venturers, members, owners, stockholders or principals (other than to the extent of their interest in the Property). Tenant shall look exclusively to such equity interest of Landlord, if any, in the Property for payment and discharge of any obligations imposed upon Landlord hereunder, and Landlord is hereby released and relieved of any other obligations hereunder. Additionally, if Landlord is a partnership, then Tenant covenants and agrees:

A. No partner of Landlord shall be sued or named as a party in any suit or action brought by Tenant with respect to any alleged breach of this Lease (except to the extent necessary to secure jurisdiction over the partnership and then only for that sole purpose);

B. No service of process shall be made against any partner of Landlord except for the sole purpose of securing jurisdiction over the partnership; and

C. No writ of execution shall be levied against the assets of any partner of Landlord other than to the extent of his interest in Property,

Tenant further agrees that each of the foregoing covenants and agreements shall be enforceable by Landlord and by any partner of Landlord and shall be applicable to any actual or alleged misrepresentation or non-disclosure made respecting this Lease or the Leased Premises or any actual or alleged failure, default or breach of any covenant or agreement either expressly or implicitly contained in this Lease or imposed by statute or at common law.

12.5 TENANT’S WAIVER: Landlord and Tenant agree that the provisions of Article 12.3 above are in tended to supersede and replace the provisions of California Civil Code Sections 1932(1), 1941 and 1942, and accordingly, Tenant hereby waives the provisions of California Civil Code Sections 1932(1), 1941 and 1942 and/or any similar or successor Law regarding Tenant’s right to terminate this Lease or to make repairs and deduct the expenses of such repairs from the rent due under this Lease. Tenant hereby waives any right of redemption or relief from forfeiture under the Laws of the State of California, or under any other present or future Law, in the event Tenant is evicted or Landlord takes possession of the Leased Premises by reason of any default by Tenant.

ARTICLE 13

GENERAL PROVISIONS

13.1 TAXES ON TENANT’S PROPERTY: Tenant shall pay before delinquency any and all taxes, assessments, license fees, use fees, permit fees and public charges of whatever nature or description levied, assessed or imposed against Tenant or Landlord by a governmental agency arising out of, caused by reason of or based upon Tenant’s estate in this Lease, Tenant’s ownership of property, improvements made by Tenant to the Leased Premises or the Outside Areas, improvements made by Landlord for Tenant’s use within the Leased Premises or the Outside Areas, Tenant’s use (or estimated use) of public facilities or services or Tenant’s consumption (or estimated consumption) of public utilities, energy, water or other resources. Upon demand by Landlord, Tenant shall furnish Landlord with satisfactory evidence of these payments. If any such taxes, assessments, fees or public charges are levied against Landlord, Landlord’s property, the Building or the Property, or if the assessed value of the Building or

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the Property is increased by the inclusion therein of a value placed upon same, then Landlord, after giving written notice to Tenant, shall have the right, regardless of the validity thereof, to pay such taxes, assessment, fee or public charge and bill Tenant, as Additional Rent, the amount of such taxes, assessment, fee or public charge so paid on Tenant’s behalf. Tenant shall, within ten days from the date it receives an invoice from Landlord setting forth the amount of such taxes, assessment, fee or public charge so levied, pay to Landlord, as Additional Rent, the amount set forth in said invoice. Failure by Tenant to pay the amount so invoiced within said ten day period shall be conclusively deemed a default by Tenant under this Lease. Tenant shall have the right, and the Landlord’s full cooperation if Tenant is not then in default under the terms of this Lease, to bring suit in any court of competent jurisdiction to recover from the taxing authority the amount of any such taxes, assessment, fee or public charge so paid.

13.2 HOLDING OVER: This Lease shall terminate without further notice on the Lease Expiration Date (as set forth in Article 1). Any holding over by Tenant after expiration of the Lease Term shall neither constitute a renewal nor extension of this Lease nor give Tenant any rights in or to the Leased Premises except as expressly provided in this Article. Any such holding over shall be deemed an unlawful detainer of the Leased Premises unless Landlord has consented to same. Any such holding over to which Landlord has consented shall be construed to be a tenancy from month to month, on the same terms and conditions herein specified insofar as applicable, except that the Base Monthly Rent shall be increased to an amount equal to one hundred fifty percent of the Base Monthly Rent payable during the last full month immediately preceding such holding over.

13.3 SUBORDINATION TO MORTGAGES: This Lease is subject to and subordinate to all underlying ground leases, mortgages and deeds of trust which affect the Building or the Property and which are of public record as of the Effective Date of this Lease, and to all renewals, modifications, consolidations, replacements and extensions thereof. However, if the lessor under any such ground lease or any lender holding any such mortgage or deed of trust shall advise Landlord that it desires or requires this Lease to be made prior and superior thereto, then, upon written request of Landlord to Tenant, Tenant shall promptly execute, acknowledge and deliver any and all documents or instruments which Landlord and such lessor or lender deem necessary or desirable to make this Lease prior thereto. Tenant hereby consents to Landlord’s ground leasing the land underlying the Building or the Property and/or encumbering the Building or the Property as security for future loans on such terms as Landlord shall desire, all of which future ground leases, mortgages or deeds of trust shall be subject to and subordinate to this Lease. However, if any lessor under any such future ground lease or any lender holding such future mortgage or deed of trust shall desire or require that this Lease be made subject to and subordinate to such future ground lease, mortgage or deed of trust, then Tenant agrees, within ten days after Landlord’s written request therefor, to execute, acknowledge and deliver to Landlord any and all documents or instruments requested by Landlord or by such lessor or lender as may be necessary or proper to assure the subordination of this Lease to such future ground lease, mortgage or deed of trust, but only if such lessor or lender agrees to recognize Tenant’s rights under this Lease and agrees not to disturb Tenant’s quiet possession of the Leased Premises so long as Tenant is not in default under this Lease. Landlord will provide Tenant nondisturbance right and Tenant shall have quiet enjoyment.

13.4 TENANT’S ATTORNMENT UPON FORECLOSURE: Tenant shall, upon request, attorn (i) to any purchaser of the Building or the Property at any foreclosure sale or private sale conducted pursuant to any security instrument encumbering the Building or the Property, (ii) to any grantee or transferee designated in any deed given in lieu of foreclosure of any security interest encumbering the Building or the Property, or (iii) to the lessor under any underlying ground lease of the land underlying the Building or the Property, should such ground lease be terminated; provided that such purchaser, grantee or lessor recognizes Tenant’s rights under this Lease.

13.5 MORTGAGEE PROTECTION: In the event of any default on the part of Landlord, Tenant will give notice by registered mail to any Lender or lessor under any underlying ground lease who shall have requested, in writing, to Tenant that it be provided with such notice, and Tenant shall offer such Lender or lessor a reasonable opportunity to cure the default, including time to obtain possession of the Leased Premises by power of sale or judicial foreclosure or other appropriate legal proceedings if reasonably necessary to effect a cure.

13.6 ESTOPPEL CERTIFICATES: Tenant will, following any request by Landlord, promptly execute and deliver to Landlord an estoppel certificate (i) certifying that this Lease is unmodified and in full force and effect, or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect, (ii) stating the date to which the rent and other charges are paid in advance, if any, (iii) acknowledging

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that there are not, to Tenant’s knowledge, any uncured defaults on the part of Landlord hereunder, or specifying such defaults if any are claimed, and (iv) certifying such other information about this Lease as may be reasonably requested by Landlord, its Lender or prospective lenders, investor or purchaser of the Building or the Property. Tenant’s failure to execute and deliver such estoppel certificate within ten days after Landlord’s request therefor shall be a material default by Tenant under this Lease, and Landlord shall have all of the rights and remedies available to Landlord as Landlord would otherwise have in the case of any other material default by Tenant, including the right to terminate this Lease and sue for damages proximately caused thereby, it being agreed and understood by Tenant that Tenant’s failure to so deliver such estoppel certificate in a timely manner could result in Landlord being unable to perform committed obligations to other third parties which were made by Landlord in reliance upon this covenant of Tenant. Landlord and Tenant intend that any statement delivered pursuant to this Article may be relied upon by any Lender or purchaser or prospective Lender or purchaser of the Building, the Property, or any interest herein.

13.7 TENANT’S FINANCIAL INFORMATION: Tenant shall, within five business days after Landlord’s request therefor deliver to Landlord a copy of a current financial statement including an income statement for the most recent twelve month period and a balance sheet and any such other information reasonably requested by Landlord regarding Tenant’s financial condition. Tenant acknowledges that Landlord is relying upon the financial information provided to Landlord by Tenant prior to entering into this lease and the information to be provided to Landlord by Tenant during the term of this Lease. Landlord shall be entitled to disclose such financial statements or other information to its Lender, to any present or prospective principal of or investor in Landlord, or to any prospective Lender or purchaser of the Building, the Property or any portion thereof or interest therein. Any such financial statement or other information which is marked “confidential” or “company secrets” (or is otherwise similarly marked by Tenant) shall be confidential and shall not be disclosed by Landlord to any third party except as specifically provided in this Article, unless the same becomes a part of the public domain without the fault of Landlord.

13.8 TRANSFER BY LANDLORD: Landlord and its successors in interest shall have the right to transfer their interest in the Building, the Property, or any portion thereof at any time and to any person or entity. In the event of any such transfer, the Landlord originally named herein (and in the case of any subsequent transfer, the transferor), from the date of such transfer, (i) shall be automatically relieved, without any further act by any person or entity, of all liability for the performance of the obligations of the Landlord hereunder which may accrue after the date of such transfer and (ii) shall be relieved of all liability for the performance of the obligations of the Landlord hereunder which have accrued before the date of transfer if its transferee agrees to assume and perform all such prior obligations of the Landlord hereunder. Tenant shall attorn to any such transferee. After the date of any such transfer, the term “Landlord” as used herein shall mean the transferee of such interest in the Building or the Property.

13.9 FORCE MAJEURE: The obligations of each of the parties under this Lease (other than the obligations to pay money) shall be temporarily excused if such party is prevented or delayed in performing such obligation by reason of any strikes, lockouts or labor disputes; inability to obtain labor, materials, fuels or reasonable substitutes therefor; governmental restrictions, regulations, controls, action or inaction; civil commotion; inclement weather, fire or other acts of God; or other causes (except financial inability) beyond the reasonable control of the party obligated to perform (including acts or omissions of the other party) for a period equal to the period of any such prevention, delay or stoppage.

13.10 NOTICES: Any notice required or desired to be given by a party regarding this Lease shall be in writing and shall be personally served, or in lieu of personal service may be given by (i) delivery by Federal Express, United Parcel Service or similar commercial carrier, (ii) electronic fax transmission, or (iii) depositing such notice in the United States mail, postage prepaid, addressed to the other party as follows:

A. If addressed to Landlord, to Landlord at its Address for Notices (as set forth in Article 1).

B. If addressed to Tenant, to Tenant at its Address for Notices (as set forth in Article 1). Any notice given by registered mail shall be deemed to have been given on the third business day after its deposit in the United States mail.

Any notice given by registered mail shall be deemed given on the date receipt was acknowledged to the postal authorities. Any notice given by mail other than registered or certified mail shall be deemed given only if received by

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the other party, and then on the date of receipt. Any notice delivered by commercial carrier or by fax shall be deemed given on the date of confirmation of delivery by the carrier or by electronic confirmation. Each party may, by written notice to the other in the manner aforesaid, change the address to which notices addressed to it shall thereafter be mailed.

13.11 ATTORNEYS FEES: In the event any party shall bring any action, arbitration proceeding or legal proceeding alleging a breach of any provision of this Lease, to recover rent, to terminate this Lease, or to enforce, protect, determine or establish any term or covenant of this Lease or rights or duties hereunder of either party, the prevailing party shall be entitled to recover from the non-prevailing party as a part of such action or proceeding, or in a separate action for that purpose brought within one year from the determination of such proceeding, reasonable attorneys’ fees, expert witness fees, court costs and other reasonable expenses incurred by the prevailing party. In the event that Landlord shall be required to retain counsel to enforce any provision of this Lease, and if Tenant shall thereafter cure (or desire to cure) such default, Landlord shall be conclusively deemed the prevailing party and Tenant shall pay to Landlord all attorneys’ fees, expert witness fees, court costs and other reasonable expenses so incurred by Landlord promptly upon demand. Landlord may enforce this provision by either (i) requiring Tenant to pay such fees and costs as a condition to curing its default or (ii) bringing a separate action to enforce such payment, it being agreed by and between Landlord and Tenant that Tenant’s failure to pay such fees and costs upon demand shall constitute a breach of this Lease. Landlord and Tenant’s rights and obligations are mutual in regard to this section 13.11.

13.12 DEFINITIONS: Any term that is given a special meaning by any provision in this Lease shall, unless otherwise specifically stated, have such meaning whenever used in this Lease or in any Addenda or amendment hereto. In addition to the terms defined in Article 1, the following terms shall have the following meanings:

A. REAL PROPERTY TAXES: The term “Real Property Tax” or “Real Property Taxes” shall each mean (i) all taxes, assessments, levies and other charges of any kind or nature whatsoever, general and special, foreseen and unforeseen (including all installments of principal and interest required to pay any general or special assessments for public improvements and any increases resulting from reassessments caused by any change in ownership or new construction), now or hereafter imposed by any governmental or quasi-governmental authority or special district having the direct or indirect power or tax or levy assessments, which are levied or assessed for whatever reason against the Project or any portion thereof, or Landlord’s interest herein, or the fixtures, equipment and other property of Landlord that is an integral part of the Project and located thereon, or Landlord’s business of owning, leasing or managing the Project or the gross receipts, income or rentals from the Project; (ii) all charges, levies or fees imposed by any governmental authority against Landlord by reason of or based upon the use of or number of parking spaces within the Project, the amount of public services or public utilities used or consumed (e.g. water, gas, electricity, sewage or surface water disposal) at the Project, the number of persons employed by tenants of the Project, the size (whether measured in area_s volume, number of tenants or whatever) or the value of the Project, or the type of use or uses conducted within the Project; and (iii) all costs and fees (including attorneys’ fees) incurred by Landlord in contesting any Real Property Tax and in negotiating with public authorities as to any Real Property Tax. If, at any time during the Lease Term, the taxation or assessment of the Project prevailing as of the Effective Date of this Lease shall be altered so that in lieu of or in addition to any Real Property Tax described above there shall be levied, or imposed (whether by reason of a change in the method of taxation or assessment, creation of a new tax or charge, or any other cause) an alternate, substitute, or additional tax or charge (i) on the value, size, use or occupancy of the Project or Landlord’s interest therein or (ii) on or measured by the gross receipts, income or rentals from the Project, or on Landlord’s business of owning, leasing or managing the Project or (iii) computed in any manner with respect to the operation of the Project, then any such tax or charge, however designated, shall be included within the meaning of the terms “Real Property Tax” or “Real Property Taxes” for purposes of this Lease. If any Real Property Tax is partly based upon property or rents unrelated to the Project, then only that part of such Real Property Tax that is fairly allocable to the Project shall be included within the meaning of the terms “Real Property Tax” or “Real Property Taxes.” Notwithstanding the foregoing, the terms “Real Property Tax” or “Real Property Taxes” shall not include estate, inheritance, transfer, gift or franchise taxes of Landlord or the federal or state income tax imposed on Landlord’s income from all sources.

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B. LANDLORD’S INSURANCE COSTS: The term “Landlord’s Insurance Costs” shall mean the costs to Landlord to carry and maintain the policies of fire and property damage insurance including earth quake and flood for the Building and the Property and general liability insurance required, or permitted, to be carried by Landlord pursuant to Article 9, together with any deductible amounts paid by Landlord upon the occurrence of any insured casualty or loss.

C. PROPERTY MAINTENANCE COSTS: The term “Property Maintenance Costs” shall mean all costs and expenses (except Landlord’s Insurance Costs and Real Property Taxes) paid or incurred by Landlord in protecting, operating, maintaining, repairing and preserving the Property and all parts thereof, including without limitation, (i) professional management fees (equal to five percent of the annualized Base Monthly Rent), (ii) the amortizing portion of any costs incurred by Landlord in the making of any modifications, alterations or improvements as set forth in Article 6, which are so amortized during the Lease Term, (iii) costs of complying with governmental regulations governing Tenant’s use of Hazardous Materials, and Landlord’s costs of monitoring Tenant’s use of Hazardous Materials including fees charged by Landlord’s consultants to periodically inspect the Premises and the Property, and (iv) such other costs as may be paid or incurred with respect to operating, maintaining and preserving the Property, such as repairing, replacing, and resurfacing the exterior surfaces of the buildings (including roofs), repairing, replacing, and resurfacing paved areas, repairing structural parts of the buildings, cleaning, maintaining, restoring and/or replacing the interior of the Leased Premises both during the term of the Lease and upon its termination, and maintaining, repairing, installing or replacing, electrical, plumbing, sewer, drainage, heating, ventilating and air conditioning systems serving the buildings, providing utilities to the common areas, maintenance, repair, replacement or installation of lighting fixtures, directional or other signs and signals, irrigation or drainage systems, trees, shrubs, materials, maintenance of all landscaped areas, and depreciation and financing costs on maintenance and operating machinery and equipment (if owned) and rental paid for such machinery and equipment (if leased). Landlord may include as a Property Maintenance Cost a reserve for the cost to maintain, repair, and replace building and property components including but not limited to the roof, HVAC, electrical, and plumbing equipment, the parking lot, the exterior surfaces of the building, and interior components which are subject to wear. Any such reserve shall be reasonably established by Landlord to amortize the costs of maintenance, repairs, and replacements over the practical useful life of each component.

D. READY FOR OCCUPANCY: The term “Ready for Occupancy” shall mean the date upon which (i) the Leased Premises are available for Tenant’s occupancy in a broom clean condition and (ii) the improvements, if any, to be made to the Leased Premises by Landlord as a condition to Tenant’s obligation to accept possession of the Leased Premises have been substantially completed and the appropriate governmental building department (i.e. the City building department, if the Property is located within a City, or otherwise the County building department) shall have approved the construction of such improvements as substantially complete or is willing to so approve the construction of the improvements as substantially complete subject only to compliance with specified conditions which are the responsibility of Tenant to satisfy or is willing to allow Tenant to occupy subject to its receiving assurances that specified work will be completed.

E. PROPERTY OPERATING EXPENSES: The term “Property Operating Expenses” shall mean and include the all Real Property Taxes, plus all Landlord’s Insurance Costs, plus the all Property Maintenance Costs, plus an accounting fee equal to five percent of all such costs.

F. LAW: The term “Law” shall mean any judicial decision and any statute, constitution, ordinance, resolution, regulation, rule, administrative order, or other requirement of any municipal, county, state, federal, or other governmental agency or authority having jurisdiction over the parties to this Lease, the Leased Premises, the Building or the Property, or any of them in effect either at the Effective Date of this Lease or at any time during the Lease Term, including, without limitation, any regulation, order, or policy of any quasi-official entity or body (e.g. a board of fire examiners or a public utility or special district).

G. LENDER: The term “Lender” shall mean the holder of any Note or other evidence of indebtedness secured by the Property or any portion thereof.

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H. PRIVATE RESTRICTIONS: The term “Private Restrictions” shall mean all recorded covenants, conditions and restrictions, private agreements, easements, and any other recorded instruments affecting the use of the Property, as they may exist from time to time.

I. RENT: The term “rent” shall mean collectively Base Monthly Rent and all Additional Rent.

13.13 GENERAL WAIVERS: One parry’s consent to or approval of any act by the other party requiring the first party’s consent or approval shall not be deemed to waive or render unnecessary the first party’s consent to or approval of any subsequent similar act by the other party. No waiver of any provision hereof or any breach of any provision hereof shall be effective unless in writing and signed by the waiving party. The receipt by Landlord of any rent or payment with or without knowledge of the breach of any other provision hereof shall not be deemed a waiver of any such breach. No waiver of any provision of this Lease shall be deemed a continuing waiver unless such waiver specifically states so in writing and is signed by both Landlord and Tenant. No delay or omission in the exercise of any right or remedy accruing to either party upon any breach by the other party under this Lease shall impair such right or remedy or be construed as a waiver of any such breach theretofore or thereafter occurring. The waiver by either party of any breach of any provision of this Lease shall not be deemed to be a waiver of any subsequent breach of the same or any other provisions herein contained.

13.14 MISCELLANEOUS: Should any provision of this Lease prove to be invalid or illegal, such invalidity or illegality shall in no way affect, impair or invalidate any other provision hereof, and such remaining provisions shall remain in full force and effect. Time is of the essence with respect to the performance of every provision of this Lease in which time of performance is a factor. Any copy of this Lease which is executed by the parties shall be deemed an original for all purposes. This Lease shall, subject to the provisions regarding assignment, apply to and bind the respective heirs, successors, executors, administrators and assigns of Landlord and Tenant. The term “party” shall mean Landlord or Tenant as the context implies. If Tenant consists of more than one person or entity, then all members of Tenant shall be jointly and severally liable hereunder. This Lease shall be construed and enforced in accordance with the Laws of the State in which the Leased Premises are located. The language in all parts of this Lease shall in all cases be construed as a whole according to its fair meaning, and not strictly for or against either Landlord or Tenant. The captions used in this Lease are for convenience only and shall not be considered in the construction or interpretation of any provision hereof. When the context of this Lease requires, the neuter gender includes the masculine, the feminine, a partnership or corporation or joint venture, and the singular includes the plural. The terms “must”, shall”, will”, and “agree” are mandatory. The term “may” is permissive. When a party is required to do something by this Lease, it shall do so at its sole cost and expense without right of reimbursement from the other party unless specific provision is made therefor. Where Tenant is obligated not to perform any act or is not permitted to perform any act, Tenant is also obligated to restrain any others reasonably within its control, including agents, invitees, contractors, subcontractors and employees, from performing said act. Landlord shall not become or be deemed a partner or a join venture with Tenant by reason of any of the provisions of this Lease.

ARTICLE 14

CORPORATE AUTHORITY,

BROKERS AND ENTIRE AGREEMENT

14.1 CORPORATE AUTHORITY: If Tenant is a corporation, each individual executing this Lease on behalf of said corporation represents and warrants that Tenant is validly formed and duly authorized and existing, that Tenant is qualified to do business in the State in which the Leased Premises are located, that Tenant has the full right and legal authority to enter into this Lease, that he or she is duly authorized to execute and deliver this Lease on behalf of Tenant in accordance with the bylaws and/or a board of directors’ resolution of Tenant, and that this Lease is binding upon Tenant in accordance with its terms. Tenant shall, within thirty days after execution of this Lease, de liver to Landlord a certified copy of the resolution of its board of directors authorizing or ratifying the execution of this Lease, and if Tenant fails to do so, Landlord at its sole election may elect to (i) extend the Intended Commencement Date by such number of days that Tenant shall have delayed in so delivering such corporate resolution to Landlord or (ii) terminate this Lease.

14.2 BROKERAGE COMMISSIONS: Tenant warrants that it has not had any dealings with any real estate broker(s), leasing agent(s), finder(s) or salesmen, other than the Brokers (as named in Article I) with respect to

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the lease by it of the Leased Premises pursuant to this Lease, and that it will indemnify, defend with competent counsel, and hold Landlord harmless from any liability for the payment of any real estate brokerage commissions, leasing commissions or finder’s fees claimed by any other real estate broker(s), leasing agent(s), finder(s), or salesmen to be earned or due and payable by reason of Tenant’s agreement or promise implied or otherwise) to pay (or to have Landlord pay) such a commission or finder’s fee by reason of its leasing the Leased Premises pursuant to this Lease.

14.3 ENTIRE AGREEMENT: This Lease, the Exhibits (as described in Article 1) and the Addenda (as described in Article 1), which Exhibits and Addenda are by this reference incorporated herein, constitute the entire agreement between the parties, and there are no other agreements, understandings or representations between the parties relating to the lease by Landlord of the Leased Premises to Tenant, except as expressed herein. No subsequent changes, modifications or additions to this Lease shall be binding upon the parties unless in writing and signed by both Landlord and Tenant.

14.4 LANDLORD’S REPRESENTATIONS: Tenant acknowledges that neither Landlord nor any of its agents made any representation or warranties respecting the Project the Building or the Leased Premises, upon which Tenant relied in entering into this Lease, which are not expressly set forth in this Lease. Tenant further acknowledges that neither Landlord nor any of its agents made any representations as to (i) whether the Leased Premises may be used for Tenant’s intended use under existing Law, or (ii) the suitability of the Leased Premises for the conduct of Tenant’s business, or (iii) the exact square footage of the Leased Premises, and that Tenant relied solely upon its own investigations respecting said matters. Tenant expressly waives any and all claims for damage by reason of any state- management, representation, warranty, promise or other agreement of Landlord or Landlord’s agent(s), if any, not contained in this Lease or in any Addenda hereto.

IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the respective dates below set forth with the intent to be legally bound thereby as of the Effective Date of this Lease first above set forth.

AS LANDLORD: Neidig Family Trust U/D/T July 25, 1986		AS TENANT: Virage Logic A California Corporation
By:	/s/ William N. Neidig	By:	/s/ Christine Russell
Title:	William N. Neidig Trustee	Title:	CFO
By:		By:	/s/ Adam K. Kablanian
Title:		Title:	CEO
Dated:	10/25/06	Date:	October 16, 2006

If Tenant is a CORPORATION, the authorized officers must sign on behalf of the corporation and indicate the capacity in which they are signing. This Lease must be executed by the chairman of the board, president or vice-president, and the secretary, assistant secretary, the chief financial officer or assistant treasurer, unless the bylaws or a resolution of the board of directors shall otherwise provide, in which event a certified copy, of the bylaws or a certified copy of the resolution, as the case may be, must be attached to this Lease.

-30-

Landlord Initial                                 

Tenant Initial                                 

FIRST ADDENDUM TO LEASE

THIS FIRST ADDENDUM TO LEASE (“Addendum”) is made to that Industrial Space Lease dated as of October 12, 2006, (the “Lease”) by and between the Neidig Family Trust U/D/T July 25, 1986 (as “Landlord”), and Virago Logic, a California corporation (as “Tenant”), for the lease of space located at 47100 Bayside Parkway in Fremont California (the “Leased Premises”). The parties hereto agree that the Lease is amended, changed and modified by the following provisions, which are hereby added to the Lease:

Unless otherwise expressly provided herein, all terms which are given a special definition by the Lease that are used herein are intended to be used with the definition given to them by the Lease. The provisions of the Lease shall remain in full force and effect except as specifically amended hereby. In the event of any inconsistency between the Lease and this Addendum, the terms of this Addendum shall prevail.

2.1 Demise of the Leased Premises: The terms of this section are subject to Article 7.

2.3 Lease Commencement Date: See Lease section 2.4.

2.6 Surrender of Possession: Landlord and Tenant acknowledge that the initial condition of the Premises included freshly painted walls, and seven year old carpet. Any required repairs shall be performed by a contractor reasonably acceptable to Landlord and Tenant. Tenant shall not be required to remove improvements specifically approved to remain in the Premises by Landlord. Upon receipt of Tenant’s written request Landlord shall inspect the space with Tenant and advise Tenant of any required work. Landlord’s inspection shall be limited to a review of items easily visible. Tenant shall not be required to repaint all interior walls provided that Tenant clean all walls to Landlord’s reasonable satisfaction and patch and paint all holes.

2.7 Early Occupancy: This section is deleted from the Lease.

3.2 Additional Rent: Additional Rent shall be billed no less frequently than annually. Tenant shall have the right to audit Landlord’s expense billings provided that any such audit shall be completed within nine (9) months following the end of any year. Any overpayment by Tenant shall be repaid within ten (10) days following reconciliation by Landlord or audit by Tenant. All billings by Landlord shall be in writing and shall include reasonable detail.

October 12, 2006

First Addendum To Lease

Page 2

4.9 Landlord’s Right to Enter: Landlord’s entry shall not materially interfere with Tenant’s business.

4.11 Rules and Regulations: Rules and Regulations, if any, shall be reasonable and shall be provided to Tenant in writing. Landlord shall provide Tenant with written notice of any violations observed by Landlord and a reasonable period of time to comply with any rules and regulations.

5.1A Tenant’s Repair Obligations: Tenant shall have the right of reasonable approval of Landlord’s HVAC contractor.

6.1 Alterations By Tenant: Tenant may perform minor alterations with a cost not to exceed five thousand ($5,000) per year without Landlord’s prior approval provided that all such work shall be removed prior to the expiration of the Lease, and Tenant shall provide written notice to Landlord and provide Landlord with drawings identifying any such work. Tenant may install telephone and data wiring and install and remove office cubicles at any time without notice to Landlord.

6.3 Alterations: The “cost of money factor” shall be the Wells Fargo Bank prime lending rate plus three (3%) percent.

7.3 Conditions To Landlord’s Consent: Landlord shall retain fifty (50%) percent of any sublease or assignment consideration in excess of rentals to be paid by Tenant hereunder. Tenant shall retain fifty (50%) percent. There shall be no deduction for any costs of subleasing.

7.9 Prohibited Financial Transactions: This section is deleted.

8.1 Limitation On Landlord’s Liability and Release: The phrase “Landlord’s active negligence” is replaced with the phrase “Landlord’s gross negligence”.

9.1 Tenant’s Insurance: Tenant shall not be required to carry earthquake or flood insurance for item 9.1A(2), or boiler and machinery insurance so long as Tenant conducts its business in the manner conducted prior to the date of this Lease, and Tenant shall not be required to carry product liability insurance 9.1A(5)

11.4 Temporary Taking: In the event Landlord receives payment for any temporary taking, Landlord shall provide the payment to Tenant after first deducting Landlord’s costs associated therein including any lost rent or reduction in rent.

13.11 Attorneys Fees: Landlord shall provide written notice to Tenant before charging Tenant for legal fees.

15 Landlord’s Allowance: Section Deleted

October 12, 2006

First Addendum To Lease

Page 3

16. Lease Termination: Section Deleted

17. Area To Be Occupied by Tenant: Section Deleted

18. Lease for Lakeview Boulevard Space: Section Deleted

IN WITNESS WHEREOF, Landlord and Tenant have executed this First Addendum To Lease with the intent to be legally bound thereby, to be effective as of the date the second party signs this First Addendum To Lease.

AS LANDLORD: Neidig Family Trust U/D/T/ 7/25/1986		AS TENANT: Virage Logic A California corporation
By:	/s/ William N. Neidig	By:	/s/ Christine Russell
Title:	William N. Neidig, Trustee	Title:	CFO
By:		By:	/s/ Adam K. Kablanian
Title:		Title:	CEO
Dated:	10/25/06	Dated:	October 16, 2006

October 12, 2006

FIRST AMENDMENT TO LEASE

THIS FIRST AMENDMENT TO LEASE (“Amendment”) is made to that Industrial Space Lease dated as of October 12, 2006, (the “Lease”) by and between the Neidig Family Trust U/D/T July 25, 1986 (as “Landlord”), and Virage Logic, a California corporation (as “Tenant”), for the lease of space located at 47100 Bayside Parkway in Fremont California (the “Leased Premises”). The parties hereto agree that the Lease is amended, changed and modified by the following provisions, which are hereby added to the Lease:

Unless otherwise expressly provided herein, all terms which are given a special definition by the Lease that are used herein are intended to be used with the definition given to them by the Lease. The provisions of the Lease shall remain in full force and effect except as specifically amended hereby. In the event of any inconsistency between the Lease and this Amendment, the terms of this Amendment shall prevail.

1.1 G Lease Expiration Date: The term of the Lease is extended until June 30, 2008.

IN WITNESS WHEREOF, Landlord and Tenant have executed this First Amendment To Lease with the intent to be legally bound thereby, to be effective as of the date the second party signs this First Amendment To Lease.

AS LANDLORD: Neidig Family Trust U/D/T/7/25/1986		AS TENANT: Virage Logic A California corporation
By:	/s/ William N. Neidig	By:	/s/ Christine Russell
Title:	William N. Neidig, Trustee	Title:	CFO
Dated:	4/6/07	Dated:	October 25, 2007

October 25, 2007

EX-10.19

Exhibit 10.19

Virage Logic Corporation

FY2008 Profit Sharing Bonus Plan

1. Purpose

The Virage Logic Corporation FY 2008 Profit Sharing Bonus Plan (the “Plan”) is intended to: (i) enhance shareholder value by promoting strong linkages between employee contributions and company performance; (ii) support achievement of the business objectives of Virage Logic Corporation and its subsidiaries (the “Company”); and (iii) promote retention of employees.

2. Effective Date

This Plan is only effective for the Company’s 2008 fiscal year beginning October 1, 2007, through September 30, 2008 (the “Fiscal Year”). This Plan is limited in time and will expire automatically on September 30, 2008 (“Expiration Date”). This Plan also supersedes all prior bonus or commission incentive plans, whether with the Company or any subsidiary or affiliate thereof, or any written or verbal representations regarding the subject matter of this Plan.

3. Administration

(a) The Plan shall be administered by the Compensation Committee of the Board of Directors of the Company (the “Administrator”). The Administrator shall have all powers and discretion necessary or appropriate to administer the Plan and to control its operation, including, but not limited to, the power to (a) determine which employees are eligible to participate in the plan, (b) prescribe the terms and conditions of Payouts (as further defined in Section 5 below, the “Payouts”), (c) interpret the Plan and the Payouts, (d) adopt rules for the administration, interpretation and application of the Plan as are consistent therewith, and (e) interpret, amend or revoke any such rules. The Chief Financial Officer, Director of Human Resources and the Worldwide Corporate Controller will be responsible for implementing the Plan.

(b) All determinations and decisions made by the Administrator, the Board, and any delegate of the Administrator pursuant to the provisions of the Plan shall be final, conclusive, and binding on all persons, and shall be given the maximum deference permitted by law.

(c) The Administrator, in its sole discretion and on such terms and conditions as it may provide, may delegate all or part of its authority and powers under the Plan to one or more directors and/or officers of the Company.

(d) The Company shall provide a summary description of the Plan to each Participant (as defined in Section 4) The Company will provide Participants in the plan quarterly updates through an employee communications meeting on progress toward achievement of the Company’s operating profits targets.

4. Eligibility

Any full-time regular employee of the Company in the U.S. may be eligible to participate in this Plan, provided he or she is designated by the Administrator as a participant and as to whom the Administrator has not, in its sole discretion, withdrawn such designation (a “Participant”) and he or she meets all the following conditions:

a. is employed by the Company as a full-time regular employee on the last day of each fiscal year;

b. is not concurrently participating in a sales incentive or commission plan, or in any other MBO bonus plan provided by the Company with the exception of special extraordinary project bonus programs ;

c. employees who begin employment or otherwise become eligible for participation will do so on a pro-rated basis based on complete weeks.

d. has not transferred to a position with the Company that is not eligible for participation in the Plan (as determined in the Administrator’s sole discretion) is not subject to a performance improvement plan or other disciplinary actions.

e. If at any time during the fiscal year a participant does not provide services to the Company due to a medical leave of absence, family leave or disability, this time away will not be subtracted from their bonus calculation. However, time away due to personal leave of absence will be subtracted from their bonus calculation.

5. Plan Metrics

The Payout under this Plan for each Participant will be calculated based upon the following formula:

Base Salary X Incentive Target Percentage ÷ Total Bonus Target Amount X Bonus Pool = Total Payout

The Base Salary is the base salary actually paid to the employee in the fiscal year for which a Payout is calculated. Not including any payments for overtime or expenses.

Bonus Pool is a maximum of 7% of cumulative Pre-Bonus Operating Income.

Incentive Target Percentage is a percentage determined by the Administrator according to employee grade level

Pre-Bonus Operating Income is US Non-GAAP Operating Income excluding charges associated with bonuses determined under this Plan, if any.

Total Bonus Target Amount is determined by aggregating each Participant’s total potential bonus amount (each Participant’s Base Salary multiplied by such Participant’s Incentive Target Percentage).

6. Timing and Form of Payment of Payouts

Subject to the terms and conditions of this Plan, Payouts shall be made on a quarterly basis within 30 days after the public announcement of the Company’s quarterly financial results.

7. Plan Changes; No Entitlement

The Compensation Committee of the Board may at any time amend, suspend, or terminate this Plan, including it may amend the Plan so as to ensure that no amount paid or to be paid hereunder shall be subject to the provision of Internal Revenue Code Section 409A(a)(1)(B). Nothing in this Plan is intended to create an entitlement to any employee for any incentive payment hereunder.

8. General Provisions

(a) Tax Withholding. The Company shall withhold all applicable taxes from any Payout, including any federal, state and local taxes.

(b) No Effect on Employment or Service. Nothing in the Plan shall interfere with or limit in any way the right of the Company to terminate any Participant's employment or service at any time, with or without cause. Employment with the Company is on an at-will basis only. The Company expressly reserves the right, which may be exercised at any time, to terminate any individual's employment with or without cause without regard to the effect it might have upon him or her as a Participant under this Plan.

(c) Nontransferability of Awards. No award granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. All rights with respect to an award granted to a Participant shall be available during his or her lifetime only to the Participant.

(d) Severability. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included.

(e) Governing Law. The Plan and all awards shall be construed in accordance with and governed by the laws of the State of California, but without regard to its conflict of law provisions.

(f) Entire Agreement. This Plan, and any resolutions of the Compensation Committee of the Board amending the Plan, is the entire understanding between the Company and the employee regarding the subject matter of this Plan and supersedes all prior bonus or commission incentive plans, or employment contracts whether with any subsidiary, or affiliate thereof (including Virage Logic Corporation) or any written or verbal representations regarding the subject matter of this Plan. Participation in this Plan during the Fiscal Year will not convey any entitlement to participate in this or future plans or to the same or similar bonus benefits. Payments under this Plan are an extraordinary item of compensation that is outside the normal or expected compensation for the purpose of calculating any extra benefits, termination, severance, redundancy, end-of-service premiums, bonuses, long-service awards, overtime premiums, pension or retirement benefits or other similar payment.

EX-10.20

Exhibit 10.20

Virage Logic Corporation

FY2008 Executive MBO Plan

1. Purpose

The Virage Logic Corporation FY 2008 Executive MBO Plan (the “Plan”) is intended to: (i) enhance shareholder value by promoting direct linkages between key executive contributions and company performance; (ii) support achievement of the business objectives of Virage Logic Corporation and its subsidiaries (the “Company”); and (iii) promote retention of key executives.

2. Effective Date

This Plan is effective for the Company’s 2008 fiscal year beginning October 1, 2007, through September 30, 2008 (the “Fiscal Year”). This Plan is limited in time and will expire automatically on September 30, 2008 (“Expiration Date”). This Plan also supersedes all prior bonus or incentive plans, whether with the Company or any subsidiary or affiliate thereof, or any written or verbal representations regarding the subject matter of this Plan.

3. Administration

(e) The Plan shall be administered by the Compensation Committee of the Board of Directors of the Company (the “Administrator”). The Administrator shall have all powers and discretion necessary or appropriate to administer the Plan and to control its operation, including, but not limited to, the power to (a) determine which executives are eligible to participate in the plan, (b) prescribe the terms and conditions of Payouts (as further defined in Section 5 below, the “Payouts”), (c) interpret the Plan and the Payouts, (d) adopt rules for the administration, interpretation and application of the Plan as are consistent therewith, and (e) interpret, amend or revoke any such rules. The Chief Financial Officer, Director of Human Resources and the Worldwide Corporate Controller will be responsible for implementing the Plan.

(f) All determinations and decisions made by the Administrator, the Board, and any delegate of the Administrator pursuant to the provisions of the Plan shall be final, conclusive, and binding on all persons, and shall be given the maximum deference permitted by law.

(g) The Administrator, in its sole discretion and on such terms and conditions as it may provide, may delegate all or part of its authority and powers under the Plan to the CEO, except as to matters concerning the CEO.

(h) The Company shall provide a summary description of the Plan to each Participant (as defined in Section 4) The Participants, or the CEO, shall provide the Administrator quarterly updates of progress toward the MBOs at the regularly scheduled Compensation Committee meetings.

4. Eligibility

All executives directly reporting to the CEO and certain other executives may be eligible to participate in this Plan, provided he or she is designated by the Administrator as a participant and as to whom the Administrator has not, in its sole discretion, withdrawn such designation (a “Participant”) and he or she meets all the following conditions:

f. is employed by the Company as a full-time regular employee at the time of payout

g. is not concurrently participating in a sales incentive or commission plan, or in any other profit sharing or bonus plan provided by the Company without the express approval of the Administrator;

h. executives who begin employment or otherwise become eligible for participation will do so on a pro-rated basis based on complete weeks.

i. has not transferred to a position with the Company that is not eligible for participation in the Plan (as determined in the Administrator’s sole discretion) is not subject to a performance improvement plan or other disciplinary actions

5. Plan Metrics

The Payout under this Plan for each Participant will be calculated based upon the following formula:

(S (goal weighting * goal achievement)) * On Target Bonus

The Goal Weighting is the percentage weight assigned to each individual goal with the sum of the goal weightings equal to 100%.

Goal Achievement is a percentage of goal achievement as graded by the CEO for all participants except the CEO, whose grading will be done by the Administrator.

Goals may not exceed 100% achievement for linear goals. Some goals are binary, meaning that their achievement is either 100% or 0%. These binary goals may not exceed 100%.

On Target Bonus is the number of restricted stock units (“RSUs”) assigned to each executive calculated as the monetary value of the RSUs as a percentage of the executive’s base salary.

There are two financial hurdles which must be met before any MBO bonuses may be paid. Revenue must be at least 90% of Annual Operating Plan and earnings per share must be at least 80% of Annual Operating Plan. If these two conditions are not met there will be no MBO bonus payout. There is a target bonus for each participant for the year; each quarter’s target bonus is 25% of the individual’s target bonus for the year.

There will be a 50% holdback on the payment of the first two quarterly payments to cover the possibility of achieving the first two sets of objectives, but missing the last two by such an amount that the total year does not meet threshold targets.

6. Timing and Form of Payment of Payouts

Subject to the terms and conditions of this Plan, Payouts shall be made on a quarterly basis within 30 days after the public announcement of the Company’s quarterly financial results.

The bonus shall be paid in the form of RSUs with immediate vesting.

7. Plan Changes; No Entitlement

The Compensation Committee of the Board may at any time amend, suspend, or terminate this Plan, including it may amend the Plan so as to ensure that no amount paid or to be paid hereunder shall be subject to the provision of Internal Revenue Code Section 409A(a)(1)(B). Nothing in this Plan is intended to create an entitlement to any employee for any incentive payment hereunder.

8. General Provisions

(g) Tax Withholding. The Company shall withhold all applicable taxes from any Payout, including any federal, state and local taxes. RSUs shall be net settled, meaning that the Company shall pay any federal, state and local taxes incurred by the vesting of the RSUs and withhold RSU shares from the executive in settlement of the taxes.

(h) No Effect on Employment or Service. Nothing in the Plan shall interfere with or limit in any way the right of the Company to terminate any Participant's employment or service at any time, with or without cause. Employment with the Company is on an at-will basis only. The Company expressly reserves the right, which may be exercised at any time, to terminate any individual's employment with or without cause without regard to the effect it might have upon him or her as a Participant under this Plan.

(i) Nontransferability of Awards. No award granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. All rights with respect to an award granted to a Participant shall be available during his or her lifetime only to the Participant.

(j) Severability. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included.

(k) Governing Law. The Plan and all awards shall be construed in accordance with and governed by the laws of the State of California, but without regard to its conflict of law provisions.

(l) Entire Agreement. This Plan, and any resolutions of the Compensation Committee of the Board amending the Plan, is the entire understanding between the Company and the executive regarding the subject matter of this Plan and supersedes all prior bonus or commission incentive plans, or employment contracts whether with any subsidiary, or affiliate thereof (including Virage Logic Corporation) or any written or verbal representations regarding the subject matter of this Plan. Participation in this Plan during the Fiscal Year will not convey any entitlement to participate in this or future plans or to the same or similar bonus benefits. Payments under this Plan are an extraordinary item of compensation that is outside the normal or expected compensation for the purpose of calculating any extra benefits, termination, severance, redundancy, end-of-service premiums, bonuses, long-service awards, overtime premiums, pension or retirement benefits or other similar payment.

EX-21.1

Exhibit 21.1

SUBSIDIARIES OF VIRAGE LOGIC CORPORATION

Ingot Systems Inc. (parent company of Ingot Systems Pvt. Ltd.)

Virage Logic International, a California corporation

Virage Logic International owns the following subsidiaries:

Virage Logic International GmbH, a German corporation

Virage Logic International KK, a Japanese corporation

Virage Logic International Ltd., an Israeli corporation

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-46422, 333-60268, 333-75496, 333-82702, 333-90770, 333-103151, 333-105542, 333-105545, 333-112709, 333-116907, 333-127207 and 333-122715) of Virage Logic Corporation of our reports dated December 14, 2007 relating to the consolidated financial statements and financial statement schedule of Virage Logic Corporation as of September 30, 2007 and 2006 and for each of the two years in the period ended September 30, 2007, and the effectiveness of internal control over financial reporting as of September 30, 2007, which appear in this Annual Report on Form 10-K.

/s/ Burr, Pilger & Mayer LLP

San Jose, California

December 14, 2007

EX-23.2

Exhibit 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-46422, 333-60268, 333-75496, 333-82702, 333-90770, 333-103151, 333-105542, 333-105545, 333-112709, 333-116907, 333-127207 and 333-122715) of Virage Logic Corporation of our report dated December 28, 2005 relating to the financial statements and financial statement schedule, which appears in this Form 10-K.

/s/ PricewaterhouseCoopers LLP

San Jose, California

December 14, 2007

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO RULE 13(a)-14(a)

OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, J. Daniel McCranie, certify that:

1. I have reviewed this annual report of Virage Logic Corporation on Form 10-K for the year ended September 30, 2007;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Securities Exchange Act of 1934, as amended, Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Securities Exchange Act of 1934, as amended, Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: December 14, 2007

/s/    J. DANIEL MCCRANIE        

J. Daniel McCranie

President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO RULE 13(a)-14(a)

OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Christine Russell, certify that:

1. I have reviewed this annual report of Virage Logic Corporation on Form 10-K for the year ended September 30, 2007;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Securities Exchange Act of 1934, as amended, Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Securities Exchange Act of 1934, as amended, Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: December 14, 2007

/s/    CHRISTINE RUSSELL        

Christine Russell

Vice President of Finance and Chief Financial Officer

(Principal Accounting Officer and Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Virage Logic Corporation (the “Company”) on Form 10-K for the fiscal year ended September 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, J. Daniel McCranie, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to such officer’s knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in this Report.

/s/    J. DANIEL MCCRANIE        

J. Daniel McCranie

Executive Chairman

(Co-Principal Executive Officer)

December 14, 2007

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Virage Logic Corporation (the “Company”) on Form 10-K for the fiscal year ended September 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Christine Russell, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to such officer’s knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the period expressed in this Report.

/s/    CHRISTINE RUSSELL        

Christine Russell

Vice President of Finance and Chief Financial Officer

(Principal Accounting Officer and Principal Financial Officer)

December 14, 2007