EMPLOYEE BENEFIT PLANS

March 31, 2020,

the Company had the following stock-based compensation plans:

Employee Stock Purchase Plan

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.

April 26, 2020,

the Company’s Board of Directors approved an amendment to the Purchase Plan to extend it through

June 22, 2030,

subject to the approval of the Company’s stockholders.

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,
	2020			2019
Expected life (in years)		1.25			1.25
Volatility		34.25	%		45.19	%
Risk-free interest rate		1.43	%		2.52	%
Expected dividend		—			—
Weighted average fair value of purchase rights granted during the period	$	4.83		$	3.67

During the

three

months ended

March 31, 2020

and

2019,

a total of approximately

89,000

and

88,000

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

$9.02

and

$8.93

per share, respectively. As of

March 31, 2020,

there was

$0.7

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

1.01

years. As of

March 31, 2020,

5.8

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

Stock Incentive Plans

November 16, 2011,

the Company’s stockholders initially approved the

2011

Stock Incentive Plan, which has been amended and restated and approved by the Company’s stockholders a number of times since then (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

10,300,000

shares, plus up to

3,500,000

shares previously issued under the

2001

Stock Plan adopted by the Company in

2001,

which expired in

2011

(the

“2001

Plan”) that are (i) forfeited or (ii) 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 (“SARs”), the aggregate number of shares reserved under the

2011

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.

April 26, 2020

the Company’s Board of Directors amended the

2011

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

11,550,000

shares, which is an increase of an additional

1,250,000

shares and extend the term of the

2011

Plan through

June 22, 2030.

2003,

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

2001

Stock Option / Stock Issuance Plan (the “IDS Plan”). The IDS Plan expired in

2011.

Stock options granted under the

2001

Plan and IDS Plan 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

Plan or IDS Plan, awards made under the

2001

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

As of

March 31, 2020,

10.8

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

2011

Plan, of which

3.4

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 the adoption of the

2011

Plan through

March 31, 2020.

As of

March 31, 2020,

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 March 31,
	2020			2019
Expected life (in years)		4.45			4.46
Volatility		38.77	%		45.26	%
Risk-free interest rate		0.88	%		2.55	%
Expected dividend		—			—
Weighted average fair value per share of options granted during the period	$	5.21		$	4.51

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,
	2020		2019
Costs of revenues	$	909	$	860
Research and development		1,455		1,718
Selling, general and administrative		1,004		898
Stock-based compensation expenses	$	3,368	$	3,476

The stock-based compensation expense in the table above includes immaterial expense or credit adjustments related to cash-settled SARs granted to certain employees. The Company accounted for these awards as liability awards and the amount was included in accrued compensation and related benefits. Stock-based compensation capitalized in the capitalized software development costs, which were included in the Property and Equipment, net, was approximately

$0.1

million at

March 31, 2020.

Additional information with respect to options under the Stock Plans during the

three

months ended

March 31, 2020,

was as follows:

						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
	Number of			Exercise		Contractual		Intrinsic
	Options			Price per		Term		Value
	(in thousands)			Share		(years)		(in thousands)
Outstanding, January 1, 2020		745		$	10.64
Granted (weighted average fair value of $5.21 per share)		13		$	15.76
Exercised		(21	)	$	7.68
Canceled		(2	)	$	10.66
Expired		(9	)	$	8.86
Outstanding, March 31, 2020		726		$	10.84		4.44	$	1,566
Vested and expected to vest, March 31, 2020		713		$	10.79		4.35	$	1,560
Exercisable, March 31, 2020		562		$	10.10		3.18	$	1,484

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

$11.72

per share as of

March 31, 2020.

The total intrinsic value of options exercised during the

three

months ended

March 31, 2020,

was

$0.1

million.

As of

March 31, 2020,

there was

$0.7

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

2.7

years. The total fair value of shares vested during the

three

months ended

March 31, 2020,

was

$0.1

million.

Nonvested restricted stock units activity during the

three

months ended

March 31, 2020,

was as follows:

				Weighted
				Average Grant
	Shares			Date Fair Value
	(in thousands)			Per Share
Nonvested, January 1, 2020		1,887		$	12.30
Granted		248		$	15.35
Vested		(275	)	$	13.52
Forfeited		(26	)	$	11.78
Nonvested, March 31, 2020		1,834		$	12.54

As of

March 31, 2020,

there was

$18.2

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.