PDF Solutions, Inc.333 West San Carlos Street, Suite 700San Jose, California 95110USA

2.

First-Year Bonus.  During the first year of your employment, the Company will pay to you a fixed bonus of One Hundred Thousand U.S. Dollars ($100,000), paid to you semi-monthly at a rate of Four Thousand One Hundred Sixty Six U.S. Dollars and Sixty Seven U.S. Cents ($4,166.67) per payroll period (the “First-Year Bonus”).  This bonus shall be paid in accordance with the Company's standard payroll policies (subject to applicable withholding taxes required by law), subject to your continued employment through each payment date.  For the avoidance of doubt, no payments with respect to First-Year Bonus will be made to you after your Separation Date.

3.

Performance Bonus.  For achieving performance objectives (as determined by the Compensation Committee of the Board of Directors Company) in 2012 and each year of your employment thereafter, you shall be eligible for an annual target incentive bonus equal to seventy percent (70%) of your then-current annual base salary (“Annual Target Bonus”); provided, however, that any Annual Target Bonus paid to you by the Company in 2013 (i.e. for the 2012 performance period), shall be reduced by the total amount of your First-Year Bonus paid to you during the performance period that is being rewarded (i.e. the 2012 performance period).  Your Annual Target Bonus will be paid to you each year of your employment as applicable in accordance with the Company's regular executive incentive bonus program payout practices provided that you are an employee at the time of such payment.  Bonus payments made under this Section 3 will be subject to applicable withholding taxes required by law.

8.

Change of Control.  In the event that the Company undergoes a Change in Control (as defined below) during the first twelve (12) months of your employment and, at any time over the next twelve (12) months after consummation of such Change of Control your employment is terminated without Cause or you resign with Good Reason (as such terms are defined below), then following your Separation and upon meeting the Separation Conditions (defined below) you will be entitled to all of the following:

(i)

vesting acceleration with respect to fifty percent (50%) of your then outstanding and unvested stock options and restricted stock;

(ii)

twelve (12) months of your then-current annual base salary, paid in accordance with the Company's standard payroll procedures over a twelve-month period, with the first payment commencing on the Company's first regular payroll date following the Release Deadline Date (as defined below) (subject to applicable withholding taxes required by law), subject to any payment delay pursuant to Section 11; provided that the first payment shall include all payments that would have been made had payments commenced on the first regular payroll date following your Separation Date;

(iii)

payout of your Annual Target Bonus in an amount equal to one hundred percent (100%) of your Annual Target Bonus paid for the immediately preceding performance period, which will be paid on the Company's first regular payroll date following the Release Deadline Date (subject to applicable withholding taxes required by law), subject to any payment delay pursuant to Section 11; and,

(iv)

the Company's payment of the premiums for your COBRA coverage from the last date on which you receive health care coverage as a Company employee until the earlier of: (1) the date that is twelve (12) months following your Separation Date; or (2) the date you become covered under another employer's health coverage plan, with the first of such premium payments made when due immediately following the date on which you have made your COBRA election, which you will elect within sixty (60) days following your Separation Date; provided that the Company shall treat any payment of COBRA premiums as taxable to the extent required to avoid adverse consequences to you or the Company under either Code Section 105(h) or the Patient Protection and Affordable Care Act of 2010.

9.

Termination without Cause or Disability.  In the event of the Company terminates your employment at any time without Cause or Disability (as such terms are defined below) and a Separation occurs, then subject to the Separation Conditions, you will be entitled to all of the following:

(i)

vesting acceleration of your then outstanding and unvested stock options and restricted stock as if you provided continuous service to the Company for an additional six (6) months after your Separation Date;

(ii)

six (6) months of your then-current annual base salary, paid in accordance with the Company's standard payroll procedures over a six-month period, with the first payment commencing on the Company's first regular payroll date following the Release Deadline Date (subject to applicable withholding taxes required by law), subject to any payment delay pursuant to Section 11; provided that the first payment shall include all payments that would have been made had payments commenced on the first regular payroll date following your Separation Date;

(iii)

payout of your Annual Target Bonus in an amount equal to fifty percent (50%) of your Annual Target Bonus paid for the immediately preceding performance period, which will be paid on the Company’s first regular payroll date following the Release Deadline Date (subject to applicable withholding taxes required by law), subject to any payment delay pursuant to Section 11; and,

(iv)

the Company's payment of the premiums for your COBRA coverage from the last date on which you receive health care coverage as a Company employee until the earlier of: (1) the date that is six (6) months following your Separation Date; or (2) the date you become covered under another employer's health coverage plan, with the first of such premium payments made when due immediately following the date on which you have made your COBRA election, which you will elect within sixty (60) days following your Separation Date; provided that the Company shall treat any payment of COBRA premiums as taxable to the extent required to avoid adverse consequences to you or the Company under either Code Section 105(h) or the Patient Protection and Affordable Care Act of 2010.

10.

Definitions. As used in this letter:

(a)

“Cause” means (i) your unauthorized use or disclosure of the Company’s confidential information or trade secrets; (b) your material breach of any agreement between you and the Company, which remains uncured by you more than five (5) days from the date of your receipt of written notice of such material breach from the Company; (c) your repeated or material failure to comply with the Company’s written policies or rules, including without limitation the Company’s Code of Ethics, and including actions or omissions for which the Company undergoes more than one formal investigation for potential violations; (d) your conviction of, or your plea of “guilty” or “no contest” to, a felony under the laws of the United States or any State; (e) your gross negligence or willful misconduct; (f) your continuing failure to perform or initiating performance of assigned duties for which there is no reasonable basis for you disputing and/or failing to so perform for ten (10) days after receiving written notification of the failure from the Board of Directors; or, (g) your failure to cooperate in good faith with a governmental or internal investigation of the Company or its directors, officers or employees, if the Company has requested your cooperation.

(b)

“Change of Control” means a change in ownership or control of the Company effected through a merger, consolidation or acquisition by any person or related group of persons (other than an acquisition by the Company or by a Company-sponsored employee benefit plan or by a person or persons that directly or indirectly controls, is controlled by, or is under common control with, the Company) of beneficial ownership (within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934) of securities possessing more than fifty percent (50%) of the total combined voting power of the outstanding securities of the Company.

(c)

“Disability” means your inability to perform the essential functions of your position, with reasonable accommodation, for a period of one hundred and twenty (120) consecutive days because of your physical or mental impairment.

(d)

“Good Reason” means that within twelve (12)  months after consummation of a Change of Control, your total compensation is reduced to an amount that is materially less than the aggregate level of salary and cash bonus set forth in this letter, if you give the Company (or its successor) written notice of the condition within thirty (30) days after the condition first comes into existence and the Company (or its successor) fails to remedy the short-fall within thirty (30) days after receiving your written notice.

(e)

“Release” means the Company's standard general mutual release of all claims that you may have against the Company or persons affiliated with the Company, subject to good-faith negotiation between you and the Company.

(f)

“Separation” means a “separation from service,” as defined in the regulations under Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”).

(g)

“Separation Conditions” means you have (i) returned all Company property in your possession promptly after your Separation Date; and, (ii) executed the Release, and not revoked it through any deadline applicable to such revocation, such that the Release is effective within sixty (60) days after your Separation Date (the “Release Deadline Date”).  The foregoing condition in subsection (ii) is contingent on the Company delivering the form of release to you within two (2) days after your Separation Date.

(h)

“Separation Date” means the date that the termination or resignation of your employment becomes an effective Separation.

11.

Tax Considerations. For purposes of Code Section 409A, the regulations and other guidance there under and any state law of similar effect (collectively “Section 409A”), each salary continuation payment in this letter is hereby designated as a separate payment.  The parties intend that all payments made or to be made under this Agreement comply with, or are exempt from, the requirements of Section 409A so that none of the payments or benefits will be subject to the adverse tax penalties imposed under Section 409A, and any ambiguities herein will be interpreted to so comply or be so exempt.  Specifically, notwithstanding anything herein to the contrary, the severance pay provided in connection with any Separation is intended to be exempt from Code Section 409A pursuant to Treasury Regulation Section 1.409A-1(b )(9)(iii); provided that, to the extent that such severance and any other payments paid to you in connection with your involuntary Separation from service does not qualify or otherwise exceeds the limit set forth in Treasury Regulation Section 1.409A-1(b)(9)(iii)(A) or any similar limit promulgated by Treasury or the IRS, the portion of the severance that does not qualify or otherwise exceeds such limit, as determined by the Company in its sole discretion, shall be paid by no later than the fifteenth (15th) day of the third (3rd) month following the end of your first tax year in which your Separation Date occurs, or, if later, the fifteenth (15th) day of the third (3rd) month following the end of the Company's first tax year in which your Separation Date occurs, as provided in Treasury Regulation Section 1.409A-1(b)(4). In the event that the severance payments and benefits provided in this letter do not qualify for one of the exemptions under Section 409A, as described herein, and as reasonably determined by the Company, and the Company determines that you are a "specified employee" under Section 409A(a)(2)(B)(i) of the Code at the time of the Separation, then (i) the salary continuation payments under the first paragraph of this Section 9, to the extent that they are subject to Section 409A of the Code, will commence on the earliest practicable date that occurs more than six (6) months after the effective date of the Separation and (ii) the installments that otherwise would have been paid during the first six (6) months after the effective date of the Separation will be paid in a lump sum on the first (1st) day of the seventh (7th) month after the Separation.