Employee Stock Benefit Plans

9 Months Ended

Sep. 29, 2012

Employee Stock Benefit Plans

4. Employee Stock Benefit Plans

Employee Stock Purchase Plan

The Cohu, Inc. 1997 Employee Stock Purchase Plan (“the ESPP”) provides for the issuance of shares of our common stock. Under the ESPP, eligible employees may purchase shares of Cohu common stock through payroll deductions at a price equal to 85 percent of the lower of the fair market value of Cohu common stock at the beginning or end of each 6-month purchase period, subject to certain limits. At September 29, 2012, there were 568,915 shares available for future issuance.

Stock Options

Under our equity incentive plans, stock options may be granted to employees, consultants and directors to purchase a fixed number of shares of our common stock. The exercise prices of options granted are at least equal to the fair market value of our common stock on the dates of grant. Options generally vest and become exercisable after one year or in four annual increments beginning one year after the grant date and expire ten years from the grant date. At September 29, 2012, there were 1,902,616 shares available future equity grants under the 2005 Equity Plan. We have historically issued new shares of our common stock upon share option exercise.

Subsequent to December 31, 2011, we awarded stock options covering 400,646 shares of our common stock to employees and at September 29, 2012, we had 3,176,121 stock options outstanding. These options had a weighted average exercise price of $12.61 per share, an aggregate intrinsic value of approximately $1.9 million and the weighted average remaining contractual term was approximately 5.3 years.

At September 29, 2012, we had 2,210,946 stock options outstanding that were exercisable. These options had a weighted average exercise price of $13.42 per share, an aggregate intrinsic value of $1.3 million and the weighted average remaining contractual term was approximately 4.0 years.

Restricted Stock Units

We issue restricted stock units to certain employees, consultants and directors. Restricted stock units vest over either a one-year or a four-year period from the date of grant. Prior to vesting, restricted stock units do not have dividend equivalent rights, do not have voting rights and the shares underlying the restricted stock units are not considered issued and outstanding. Shares of our common stock will be issued on the date the restricted stock units vest.

Subsequent to December 31, 2011, we awarded restricted stock units covering 442,314 shares of our common stock to employees and at September 29, 2012, we had 673,881 restricted stock units outstanding with an aggregate intrinsic value of approximately $6.3 million and the weighted average remaining vesting period was approximately 2.8 years.

Equity-Based Performance Stock Units

In March 2012, we granted equity-based performance units covering 128,916 shares of our common stock to certain employees. The number of shares of stock ultimately issued to participants will depend upon the extent to which the financial performance goals set by our Board of Directors are met. The award measurement period is based on a one-year period which ends on December 29, 2012. Based upon the level of achievement of performance goals the number of shares we will issue can range from 0% up to 150% of the number of shares under each grant which will vest over 3 years from the date of initial grant. We record a provision for equity-based performance units outstanding based on our current assessment of achievement of the performance goals. Shares of our common stock will be issued on the date the equity-based performance units vest.