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 March 31,
	2017		2016
Cost of Design-to-silicon-yield solutions	$	1,192	$	1,085
Research and development		834		706
Selling, general and administrative		858		875
Stock-based compensation expenses	$	2,884	$	2,666

March

31,

2017,

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 amended and restated at the

2013

annual meeting of stockholders on

May

28,

2013,

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

2011

Stock Incentive Plan, and then subsequently amended at the

2014

annual meeting of stockholders on

May

27,

2014,

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

2011,

Incentive Plan and then subsequently amended at the

2016

annual meeting of stockholders on

May

31,

2016,

when the Company’s stockholders approved the

third

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

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 no 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.

April

11,

2017,

the Company’s Board of Directors amended the

2011

Plan, subject to stockholder approval to increase the number of shares reserved for awards under it to a total of

9,050,000

shares, which is an increase of an additional

1,250,000

shares.

2001,

the Company adopted a

2001

Stock Plan (the

“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

2001Plan

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 no 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, respectively.

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 March 31,
	2017			2016
Expected life (in years)		4.41			4.42
Volatility		40.57	%		44.74	%
Risk-free interest rate		1.87	%		1.21	%
Expected dividend		—			—
Weighted average fair value per share of options granted during the period	$	7.85		$	4.08

As of

March

31,

2017,

8.3

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

2011

Plan, of which

3.5

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

2011

Plan through

March

31,

2017.

As of

March

31,

2017,

there were no outstanding awards that had been granted outside of the

2011

Plan,

2001

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

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

three

months ended

March

31,

2017,

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, 2017		1,364		$	8.00
Granted (weighted average fair value of $7.84 per share)		9		$	21.94
Exercised		(89	)	$	8.09
Canceled		(3	)	$	17.73
Expired		-		$	-
Outstanding, March 31, 2017		1,281		$	8.06		4.28	$	18,659
Vested and expected to vest, March 31, 2017		1,272		$	8.01		4.25	$	18,592
Exercisable, March 31, 2017		1,145		$	7.21		3.73	$	17,639

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

$22.62

per share as of

March

31,

2017.

The total intrinsic value of options exercised during the

three

months ended

March

31,

2017,

was

$1.2

million.

As of

March

31,

2017,

there was

$0.6

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

2.9

years. The total fair value of shares vested during the

three

months ended

March

31,

2017,

was

$0.1

million.

Nonvested restricted stock units activity during the

three

months ended

March

31,

2017,

was as follows:

	Shares (in thousands)			Weighted Average Grant Date Fair Value Per Share
Nonvested, January 1, 2017		1,542		$	15.50
Granted		9		$	21.94
Vested		(109	)	$	14.04
Forfeited		(7	)	$	15.84
Nonvested, March 31, 2017		1,435		$	15.64

As of

March

31,

2017,

there was

$17.8

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

2.6

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

of each year, starting with

2002,

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

(1)

675,000

shares,

(2)

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

(3)

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:

	Three Months Ended March 31,
	2017			2016
Expected life (in years)		1.25			1.25
Volatility		33.32	%		44.15	%
Risk-free interest rate		0.93	%		0.50	%
Expected dividend		—			—
Weighted average fair value per share of options granted during the period	$	6.78		$	3.56

During the

three

months ended

March

31,

2017

and

2016,

a total of

100,000

and

84,000

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

$9.13

and

$9.21

per share, respectively. As of

March

31,

2017,

there was

$0.8

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

1.1

years. As of

March

31,

2017,

4.4

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

Stock Repurchase Program

—On

October

25,

2016,

the Board of Directors adopted a program, effective immediately, to repurchase up to

$25.0

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

two

years. As of

March

31,

2017,

there has been no common stock repurchased under this new program and

$25.0

million remained available for future repurchases.