4.	Employee Stock Benefit Plans

Our

2005

Equity Incentive Plan (the

“2005

Plan”) is a broad-based, long-term retention program intended to attract, motivate, and retain talented employees as well as align stockholder and employee interests. Awards that

may

be granted under the program include, but are

not

limited to, non-qualified and incentive stock options, restricted stock units, and performance stock units. We settle employee stock option exercises, employee stock purchase plan purchases, and the vesting of restricted stock units, and performance stock units with newly issued common shares. At

June 30, 2018,

there were

1,203,313

shares available for future equity grants under the

2005

Equity Incentive Plan.

Stock Options

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 and options vest and become exercisable in annual increments that range from

one

four

years from the date of grant. Stock options granted under the

2015

Plan have a maximum contractual term of

ten

years. In the

first

six

months of fiscal

2018

we did

not

grant any stock options and we issued

49,800

shares of our common stock on the exercise of options that were granted previously.

June 30, 2018,

we had

422,426

stock options exercisable and outstanding. These options had a weighted-average exercise price of

$10.19

per share, an aggregate intrinsic value of approximately

$6.0

million and the weighted average remaining contractual term was approximately

4.0

years.

Restricted Stock Units

We grant restricted stock units (“RSUs”) to certain employees, consultants and directors. RSUs vest in annual increments that range from

one

four

years from the date of grant. Prior to vesting, RSUs do

not

have dividend equivalent rights, do

not

have voting rights and the shares underlying the RSUs are

not

considered issued and outstanding. New shares of our common stock will be issued on the date the RSUs vest net of the minimum statutory tax withholding requirements to be paid by us on behalf of our employees. As a result, the actual number of shares issued will be fewer than the actual number of RSUs outstanding at

June 30, 2018.

In the

first

six

months of fiscal

2018

we awarded

284,808

RSUs and we issued

427,227

shares of our common stock on vesting of previously granted awards. At

June 30, 2018,

we had

808,093

RSUs outstanding with an aggregate intrinsic value of approximately

$19.8

million and the weighted average remaining vesting period was approximately

1.5

years.

Performance Stock Units

We also grant performance stock units (“PSUs”) to senior executives as a part of our long-term equity compensation program. The number of shares of common stock that will ultimately be issued to settle PSUs granted in

2018,

2017

and

2016

ranges from

25%

200%

of the number granted and is determined based on certain performance criteria over a

three

-year measurement period. For PSUs granted in

2015,

the number of shares of common stock issued to settle PSUs granted is determined based on a

two

-year measurement period. The performance criteria for the PSUs are based on a combination of our annualized Total Shareholder Return (“TSR”) for the performance period and the relative performance of our TSR compared with the annualized TSR of certain peer companies for the performance period. PSUs granted in

2018,

2017

and

2016

vest

100%

on the

third

anniversary of their grant and PSUs granted in

2015

vest

50%

on the

second

and

third

anniversary of their grant, respectively.

We estimated the fair value of the PSUs using a Monte Carlo simulation model on the date of grant. Compensation expense is recognized ratably over the derived service period. New shares of our common stock will be issued on the date the PSUs vest net of the minimum statutory tax withholding requirements to be paid by us on behalf of our employees. As a result, the actual number of shares issued will be fewer than the actual number outstanding at

June 30, 2018.

In the

first

six

months of fiscal

2018,

we awarded

88,418

PSUs and we issued

40,640

shares of our common stock on vesting of previously granted awards. At

June 30, 2018,

we had

339,771

PSUs outstanding with an aggregate intrinsic value of approximately

$8.3

million and the weighted average remaining vesting period was approximately

1.6

years.

Employee Stock Purchase Plan

The Cohu, Inc.

1997

Employee Stock Purchase Plan (“the Plan”) provides for the issuance of shares of our common stock. Under the Plan, eligible employees

may

purchase shares of Cohu common stock through payroll deductions at a price equal to

percent of the lower of the fair market value of Cohu common stock at the beginning or end of each

-month purchase period, subject to certain limits. During the

first

six

months of fiscal

2018,

41,694

shares of our common stock were sold to our employees under the Plan leaving

559,646

shares available for future issuance.