STOCKHOLDERS’ EQUITY

Stock-based compensation is estimated at the grant date based on the award’s fair value and is recognized on a straight-line basis over the vesting periods, generally

four

years

Stock-based compensation expense before taxes related to the Company’s stock plans and employee stock purchase plan was allocated as follows (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
Cost of Design-to-silicon yield-solutions	$	968	$	1,069	$	1,981	$	2,261
Research and development		845		848		1,724		1,682
Selling, general and administrative		889		987		1,852		1,845
Stock-based compensation expenses	$	2,702	$	2,904	$	5,557	$	5,788

June 30, 2018,

the Company had the following stock-based compensation plans:

Stock Plans —

At the annual meeting of stockholders on

November 16, 2011,

the Company’s stockholders approved the

2011

Stock Incentive Plan, which was most recently amended and restated at the

2017

annual meeting of stockholders on

May 31, 2017,

when the Company’s stockholders approved the Fourth Amended and Restated

2011

Stock Incentive Plan (as amended, the

“2011

Plan”). Under the

2011

Plan, the Company

may

award stock options, stock appreciation rights, stock grants or stock units covering shares of the Company's common stock to employees, directors, non-employee directors and contractors. The aggregate number of shares reserved for awards under this plan is

7,800,000

shares, plus up to

3,500,000

shares previously issued under the

2001

Plan that are forfeited or repurchased by the Company or shares subject to awards previously issued under the

2001

Stock Plan (the

"2001

Plan") that expire or that terminate without having been exercised or settled in full on or after

November 16, 2011.

In case of awards other than options or stock appreciation rights, the aggregate number of shares reserved under the plan will be decreased at a rate of

1.33

shares issued pursuant to such awards. The exercise price for stock options must generally be at prices

less than the fair market value at the date of grant. Stock options generally expire

ten

years from the date of grant and become vested and exercisable over a

four

-year period.

2001,

the Company adopted a

2001

Plan. In

2003,

in connection with its acquisition of IDS Systems Inc., the Company assumed IDS’

2001

Stock Option / Stock Issuance Plan (the “IDS Plan”). Both of the

2001

and the IDS Plans expired in

2011.

Stock options granted under the

2001

and IDS Plans generally expire

ten

years from the date of grant and become vested and exercisable over a

four

-year period. Although

new awards

may

be granted under the

2001

or IDS Plans, awards made under the

2001

and IDS Plans that are currently outstanding remain subject to the terms of each such plan.

As of

June 30, 2018,

9.6

million shares of common stock were reserved to cover stock-based awards under the

2011

Plan, of which

4.1

million shares were available for future grant. The number of shares reserved and available under the

2011

Plan includes

0.5

million shares that were subject to awards previously made under the

2001

Plan which were forfeited, expired or repurchased by the Company after adoption of the

2011

Plan through

June 30, 2018.

As of

June 30, 2018,

there were

outstanding awards that had been granted outside of the

2011,

2001

or the IDS Plans (collectively, the "Stock Plans").

The Company estimated the fair value of share-based awards granted under the

2011

Stock Plan during the period using the Black-Scholes-Merton option-pricing model with the following weighted average assumptions, resulting in the following weighted average fair values:

	Three Months Ended June 30,					Six Months Ended June 30,
	2018		2017			2018			2017
Expected life (in years)		-		4.41			4.43			4.41
Volatility		-		41.63	%		42.22	%		41.53	%
Risk-free interest rate		-		1.67	%		2.52	%		1.69	%
Expected dividend		-		-			-			-
Weighted average fair value per share of options granted during the period	$	-	$	5.98		$	4.28		$	6.16

stock options were granted during the

three

months ended

June 30, 2018.

Stock option activity under the Company’s Stock Plans during the

six

months ended

June 30, 2018,

was as follows:

	Number of Options (in thousands)			Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value (in thousands)
Outstanding, January 1, 2018		1,045		$	9.65
Granted (weighted average fair value of $4.28 per share)		10		$	11.26
Exercised		(59	)	$	7.069
Canceled		(6	)	$	14.02
Expired		(4	)	$	16.22
Outstanding, June 30, 2018		986		$	9.80		4.51	$	3,404
Vested and expected to vest, June 30, 2018		977		$	9.71		4.44	$	3,403
Exercisable, June 30, 2018		808		$	8.50		3.56	$	3,380

The aggregate intrinsic value in the table above represents the total intrinsic value based on the Company’s closing stock price of

$11.98

per share as of

June 30, 2018.

The total intrinsic value of options exercised during the

six

months ended

June 30, 2018,

was

$0.3

million.

As of

June 30, 2018,

there was

$0.9

million of total unrecognized compensation cost related to unvested stock options. That cost is expected to be recognized over a weighted average period of

3.0

years. The total fair value of shares vested during the

six

months ended

June 30, 2018,

was

$0.2

million.

Restricted stock unit activity during the

six

months ended

June 30, 2018,

was as follows:

	Shares (in thousands)			Weighted Average Grant Date Fair Value Per Share
Outstanding, January 1, 2018		1,617		$	15.66
Granted		10		$	11.26
Vested		(332	)	$	16.19
Forfeited		(84	)	$	15.53
Outstanding, June 30, 2018		1,211		$	15.49

As of

June 30, 2018,

there was

$15.3

million of total unrecognized compensation cost related to outstanding restricted stock units. That cost is expected to be recognized over a weighted average period of

2.3

years. Restricted stock units do

not

have rights to dividends prior to vesting.

Employee Stock Purchase Plan

— In

July 2001,

the Company adopted a

ten

-year Employee Stock Purchase Plan (as amended, the “Purchase Plan”) under which eligible employees can contribute up to

10%

of their compensation, as defined in the Purchase Plan, towards the purchase of shares of PDF common stock at a price of

85%

of the lower of the fair market value at the beginning of the offering period or the end of the purchase period. The Purchase Plan consists of

twenty-four

-month offering periods with

four six

-month purchase periods in each offering period. Under the Purchase Plan, on

January 1

of each year, starting with

2002,

the number of shares reserved for issuance will automatically increase by the lesser of (

)

675,000

shares, (

)

of the Company’s outstanding common stock on the last day of the immediately preceding year, or (

) the number of shares determined by the board of directors. At the annual meeting of stockholders on

May 18, 2010,

the Company’s stockholders approved an amendment to the Purchase Plan to extend it through

May 17, 2020.

The Company estimated the fair value of purchase rights granted under the Purchase Plan during the period using the Black-Scholes-Merton option-pricing model with the following weighted average assumptions, resulting in the following weighted average fair values:

	Six Months Ended June 30,
	2018			2017
Expected life (in years)		1.25			1.25
Volatility		37.23	%		33.32	%
Risk-free interest rate		1.93	%		0.93	%
Expected dividend		—			—
Weighted average fair value per share of options granted during the period	$	4.32		$	6.78

During the

three

months ended

June 30, 2018

and

2017,

shares were issued under the Purchase Plan. During the

six

months ended

June 30, 2018

and

2017,

a total of

108,000

and

100,000

shares, respectively, were issued at a weighted-average purchase price of

$9.29

and

$9.13

per share, respectively. As of

June 30, 2018,

there was

$1.3

million of unrecognized compensation cost related to the Purchase Plan. That cost is expected to be recognized over a weighted average period of

1.58

years. As of

June 30, 2018,

4.2

million shares were available for future issuance under the Purchase Plan.

Stock Repurchase Program

- On

May 29, 2018,

the Board of Directors terminated the previous

2016

program, and adopted a new

2018

program to repurchase up to

$25.0

million of the Company’s common stock both on the open market and in privately negotiated transactions, from time to time, over the next

two

years. During the

three

and

six

months ended

June 30, 2018,

the Company repurchased

98,800

and

437,007

shares, respectively, under the

2016

program. As of

June 30, 2018,

1,279,189

shares had been repurchased at an average price of

$14.59

per share under the

2016

program, for a total purchase of

$18.7

million. Under the

2018

program, as of

June

30,.2018,

$25.0

million of the Company’s common stock remained available for future repurchases.