11. Share Plans

On November 10, 2006, the Company adopted the 2006 Management Equity Incentive Plan (2006 Equity Incentive Plan). The 2006 Equity Incentive Plan provided for awards with respect to a maximum of 9,350.0098 shares of Common stock (formerly Class A Common stock) and 5,000 Class B Common shares, subject to certain adjustments. On November 10, 2006, and from time to time thereafter, certain members of management purchased restricted shares of Class A Common stock under the 2006 Equity Incentive Plan for $341 per share and pursuant to restricted stock agreements. One half of the restricted shares vested over time (Time Vesting Shares), with 25% vesting on November 10, 2007 and on the next three anniversaries thereafter, so long as the participant was still employed by the Company or one of its subsidiaries on the applicable vesting date. Upon the occurrence of a change of control of the Company, any unvested Time Vesting Shares immediately vested in full, so long as the participant was still employed by the Company or one of its subsidiaries. The remaining restricted shares immediately vested (performance-based vesting) in full, provided the participant was still then employed by the Company or one of its subsidiaries, upon the occurrence of either: (i) a change of control of the Company that provides CCMP with a certain rate of return with respect to net proceeds received by CCMP from their investment in the Company; or (ii) from and after the date of an IPO, the achievement with respect to shares of the Common stock (formerly Class A Common stock) of an average closing trading price exceeding, in any 60 consecutive trading day period starting prior to the later of (a) the fifth year anniversary of the date of grant of the restricted shares, and (b) one year after the IPO, a certain threshold with respect to net proceeds received by CCMP from their investment in the Company. As a condition to the purchase of restricted shares, members of management executed confidentiality, non-competition and intellectual property agreements.

The fair value of the Class A common stock on the date of issuance was estimated to be $390 per share. The Company recorded $6,000 and $38,000 of stock-based compensation expense related to the Time Vesting Shares in 2010 and 2009, respectively, related to amortization of the excess of fair value over purchase price of these restricted shares. This excess was being amortized over the vesting provisions of the restricted shares. As a result of the IPO, the remaining unvested performance-based Restricted Shares became fully vested. As a result, the Company recorded $159,000 of stock-based compensation expense related to the accelerated vesting in 2010.

The Company adopted an equity incentive plan on February 10, 2010 in connection with the IPO. At the time of the IPO, 4,341,504 stock options and 456,249 shares of restricted stock and other stock awards were granted to employees and Board members of the Company pursuant to the equity incentive plan. The Company has subsequently granted an additional 204,877 stock options and 80,983 shares of restricted stock and other stock awards to employees and Board members of the Company. Total share-based compensation cost related to the equity incentive plan recognized in the consolidated statement of operations was $8,646,000 and $6,198,000 in 2011 and 2010, respectively, net of actual forfeitures, which is recorded in operating expenses in the consolidated statement of operations.

Stock Options - The stock options granted in 2011 have an exercise price of between $17.75 per share and $24.73 per share, and the stock options granted in 2010 have an exercise price equal to the IPO price of $13.00 per share. All stock options vest in equal installments over five years, subject to the grantee's continued employment or service and expire 10 years after the date of grant.

In 2011, the majority of stock option exercises were net-share settled such that the Company withheld shares with value equivalent to the exercise price of the awards plus the employees' minimum statutory obligation for the applicable income and other employment taxes. Total shares withheld were approximately 55,202, and were based on the value of the stock options on the exercise date as determined based upon an average of the Company's high and low stock sales price. Total payments for the employees' tax obligations to the taxing authorities were $371,000 and $0 in 2011 and 2010, respectively, and are reflected as a financing activity within the Consolidated Statement of Cash Flows. The net-share settlements had the effect of share repurchases by the Company as they reduced the number of shares that would have otherwise been issued as a result of the vesting and did not represent an expense to the Company.

The Company has agreed to pay these taxes on behalf of the employees in return for the employee returning an equivalent value of options to the Company. This transaction resulted in a decrease of approximately $371,000 in 2011 to equity on the consolidated balance sheet as the cash payment of the taxes effectively was a repurchase of the stock options previously granted.

The grant-date fair value of each option grant is estimated using the Black-Scholes-Merton option pricing model. The fair value is then amortized on a straight-line basis over the requisite service period of the awards, which is generally the vesting period. Use of a valuation model requires management to make certain assumptions with respect to selected model inputs. Since there is limited history for the Company's stock, expected volatility is calculated based on an analysis of historic and implied volatility measures for a set of peer companies. The average expected life is based on the contractual term of the option using the simplified method. The risk-free interest rate is based on U.S. Treasury zero-coupon issues with a remaining term equal to the expected life assumed at the date of grant. The compensation expense recognized is net of estimated forfeitures. Forfeitures are estimated based on voluntary termination behavior, as there is not sufficient history of actual share option forfeitures at this time. The weighted-average assumptions used in the Black-Scholes-Merton option pricing model for 2011 and 2010 are as follows:

	2011			2010
Weighted average grant date fair value	$	11.10		$	6.84

Assumptions:
Expected stock price volatility		50	%		50	%
Risk free interest rate		2.69	%		2.94	%
Expected annual dividend per share	$	0.00		$	0.00
Expected life of options (years)		6.5			6.5

During the year ended December 31, 2011, the Company updated the estimated forfeiture rates it uses in the determination of its stock-based compensation expense. This change was the result of an assessment that included an analysis of the actual number of equity awards that had been forfeited to date compared to prior estimates and an evaluation of future estimated forfeitures. The Company periodically evaluates its forfeiture rates and updates the rates it uses in the determination of its stock-based compensation expense. The impact of the change to the forfeiture rates on non-cash compensation expense was immaterial for the years ended December 31, 2011 and 2010. A summary of the Company's stock option activity and related information for the three years ended December 31, 2011, is as follows:

	Number of options			Weighted-average exercise price		Average remaining contractural Term (years)		Aggregate intrinsic value ($ in thousands)
Outstanding as of December 31, 2009		-		$	-
Granted		4,366,504			13.02
Exercised		-			-
Expired		-			-
Forfeited		(130,245	)		13.00
Outstanding as of December 31, 2010		4,236,259			13.02		9.1	$	13,349
Granted		179,877			21.26
Exercised		(107,591	)		13.00
Expired		-			-
Forfeited		-			-
Outstanding as of December 31, 2011		4,308,545			13.36		8.2		63,193
Exercisable as of December 31, 2011		739,656			13.02		8.1		11,101

Of the 107,591 stock options exercised during the fiscal year 2011, 55,202 shares underlying such exercised options were retained by the Company in a net-share settlement to cover the aggregate exercise price and the required amount of employee withholding taxes.

As of December 31, 2011, there was $20,028,000 of total unrecognized compensation cost, net of expected forfeitures, related to unvested options. The cost is expected to be recognized over the remaining service period, having a weighted-average period of 3.3 years. Total share-based compensation cost related to the stock options for 2011 and 2010 was $6,475,000 and $4,470,000, respectively, which is recorded in operating expenses in the consolidated statement of operations.

Restricted Stock - The restricted stock awards vest in full on the third anniversary of the date of grant, subject to the grantee's continued employment. The fair market value of the award at the time of the grant is amortized to expense over the period of vesting. The fair value of restricted share awards is determined based on the market value of the Company's shares on the grant date. The compensation expense recognized for restricted share awards is net of estimated forfeitures.

A summary of the Company's restricted share awards activity for the three years ended December 31, 2011 is as follows:

Non-vested Stock Awards	Shares	Weighted-Average Grant-Date Fair Value
Non-vested as of December 31, 2009	-	$	-
Granted	439,999		13.02
Vested	-		-
Forfeited	(9,844)		(13.00)
Non-vested as of December 31, 2010	430,155		13.02
Granted	59,147		20.59
Vested	-		-
Forfeited	-		-
Non-vested as of December 31, 2011	489,302	$	13.93

As of December 31, 2011, there was $2,900,000 of total unrecognized compensation cost, net of expected forfeitures, related to non-vested stock awards. That cost is expected to be recognized over the remaining service period, having a weighted-average period of 1.7 years. Total share-based compensation cost related to the restricted stock for 2011 and 2010 was $1,871,000 and 1,447,000, respectively, which is recorded in operating expenses in the consolidated statement of operations.

During 2011 and 2010, 16,680 and 21,406 shares, respectively, of fully vested stock were granted to certain members of the Company's board of directors as a component of their compensation for their service on the board. Total compensation cost for these share grants in 2011 and 2010 was $300,000 and $281,000, respectively, which is recorded in operating expenses in the consolidated statement of operations.