Stock-based Compensation

The Company sponsors an equity incentive plan (the "2012 Plan") which provides for the granting of stock options, stock appreciation rights ("SARs"), restricted stock and other stock-based awards to employees, non-employee directors and Company consultants. The Company has granted both time-based and performance-based stock options and time-based and performance-based SARs under the 2012 Plan. The time-based stock options vest in equal increments over four years in tranches for the awards granted to employees and five years in tranches for awards granted to non-employee directors and were valued using a closed form option-pricing model. The performance-based stock options only vest when specific liquidity events, as defined, occur and were valued using a Monte Carlo simulation. The performance-based stock options also contain a market condition in which the CCMP Stockholders, as defined, must receive a certain multiple of their initial investment in order for the awards to vest. The time-based stock options also contain provisions that accelerate vesting of the awards upon the occurrence of a liquidity event, as defined. The time-based SARs vest in equal increments over four years in tranches and the performance-based SARs only vest when specific liquidity events, as defined, occurs and if the CCMP Stockholders, as defined, receive a certain multiple on their initial investment.

In June 2015, the Company's Board of Directors adopted the 2015 Equity Incentive Plan (the "2015 Plan") which became effective upon the pricing of the Company's IPO. The 2015 Plan allows for the granting of stock options, SARs, restricted stock awards, restricted stock units and other awards convertible into or otherwise based on shares of the Company's common stock. On June 25, 2015, in connection with the IPO, the Company granted 1,260,567 stock options, 136,441 SARs, 266,313 restricted stock awards and 16,125 restricted stock units under the 2015 Plan. The stock options, valued using a closed form option-pricing model, and SARs granted vest in equal annual increments over four years. The restricted stock awards vest on the third anniversary of the date of grant and the restricted stock units vest two business days after the public disclosure in 2016 of the Company’s financial results for fiscal year 2015.

The models utilized to value the time-based and performance-based awards granted under the 2012 Plan and 2015 Plan require the input of certain subjective assumptions, including (a) the expected stock price volatility, (b) the calculation of expected term of the award, (c) the risk-free interest rate and (d) expected dividends. Due to the lack of a public market for the trading of the Company’s common stock prior to the IPO and a lack of company-specific historical and implied volatility data, the Company has based its estimate of expected volatility on the historical volatility of a group of similar companies that are publicly traded. The historical volatility is calculated based on a period of time commensurate with the expected term assumption. The computation of expected volatility is based on the historical volatility of a representative group of companies with similar characteristics to the Company. The Company believes the group selected has sufficient similar economic and industry characteristics, and includes companies that are most representative of the Company. The Company uses the simplified method as prescribed by the SEC Staff Accounting Bulletin No. 107, Share-Based Payment, to calculate the expected term for the stock options granted to employees as it does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term. The expected term of the performance-based options was based on the expected time to a liquidity event, as defined. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected life of the stock options. The expected dividend yield is assumed to be zero as the Company has no current plans to pay any dividends on its common stock.

The key assumptions utilized in determining the fair value of the stock options granted during the years ended December 31, 2015, 2014 and 2013 are as follows for the various tranches:



	Time-Based Options
	Year Ended December 31,
	2015	2014	2013
Assumptions:
Expected term (years)	2.07 - 7.50	2.07 - 7.50	2.81 - 7.50
Expected volatility	45.00% - 77.00%	47.00% - 77.00%	64.00% - 84.00%
Risk-free interest rate	0.46% - 2.31%	0.46% - 2.31%	0.34% - 1.35%
Expected dividend yield	—%	—%	—%



	Performance-Based Options
	Year Ended December 31,
	2015	2014	2013
Assumptions:
Expected term (years)	2.07 - 4.30	2.07 - 4.30	2.80 - 3.80
Expected volatility	44.00% - 74.00%	44.00% - 74.00%	64.00% - 83.00%
Risk-free interest rate	0.29% - 3.09%	0.29% - 3.09%	0.34% - 2.50%
Expected dividend yield	—%	—%	—%

For the stock option grants made in 2013, 2014 and January 2015, the estimated grant date fair value of the Company’s common stock, as determined by the Company’s Board of Directors, which in part relied upon a valuation from a third-party specialist, approximated $9.41, therefore, the strike prices for those grants are $9.41. In connection with the cash dividend of $144.6 million paid to the holders of the Company's common stock in May 2015, as disclosed in Note 7, the Company made an adjustment to the exercise price of all stock options outstanding as of that date in accordance with the stock option agreements’ original terms and conditions related to anti-dilution. The dividend, $2.77 on a per share basis, reduced the exercise price of all outstanding options from $9.41 to $6.64 effective May 15, 2015. For the stock option grants made in conjunction with the Company's IPO, the strike price was set at the opening price of $20.00. Additionally, all awards granted for the years presented expire ten years from the grant date.

The total fair value of the time-based stock options granted is being recognized into compensation expense over the requisite service period and totaled $4.8 million and $3.7 million for the years ended December 31, 2014 and 2013, respectively. In 2015, based on the trading price of the Company's common stock subsequent to the IPO, the market condition related to the time-based options issued under the 2012 Plan was satisfied which resulted in the vesting of these awards and the Company's recognition of all previously unrecognized stock-based compensation expense associated with these awards. For the year ended December 31, 2015, compensation expense related to time-based options granted under both the 2012 Plan and 2015 Plan was $10.6 million.

No compensation expense was recognized during 2013 or 2014 for performance-based awards. In 2015, the performance condition was satisfied in conjunction with the Company's IPO and the market condition was satisfied based on the trading price of the Company's common stock subsequent to the IPO which resulted in the Company's recognition of all unrecognized stock-based compensation associated with the performance-based awards. For the year ended December 31, 2015, compensation expense related to the performance-based options was $9.2 million.

At December 31, 2015, the time-based stock options had unrecognized compensation expense related to nonvested options of $9.5 million which is expected to be recognized over a weighted-average remaining period of 3.3 years. Approximately $3.2 million is expected to be recognized into compensation expense in 2016 related to the time-based awards.

The following tables present combined stock option information under the 2012 Plan and the 2015 Plan as of and for the year ended December 31, 2015:



	Outstanding				Exercisable
Exercise Price	Options	Weighted- Average Remaining Contractual Term (In years)	Weighted- Average Exercise Price		Options	Weighted- Average Exercise Price
$6.64	5,044,408	7.2	$	6.64	4,648,885	$	6.64
$20.00	1,252,381	9.5	20.00		—	—
Total	6,296,789	7.7	$	9.30	4,648,885	$	6.64



	Options		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (In years)	Aggregate Intrinsic Value (In millions)
Outstanding at December 31, 2014	5,262,914		$	6.64
Granted	1,297,772		19.62
Exercised	(47,835	)	6.64
Expired	(157,402	)	6.64
Forfeited	(58,660	)	8.50
Outstanding at December 31, 2015	6,296,789		$	9.30	7.7	$	29.6
Exercisable at December 31, 2015	4,648,885		$	6.64	7.3	$	27.3
Options expected to vest	6,034,302		$	8.86	7.6	$	29.5

The Company received cash proceeds from the exercise of stock options of $0.4 million for the year ended December 31, 2015. The total intrinsic value (the amount by which the stock price exceeds the exercise price of the option on the date of exercise) of the stock options exercised during the year ended December 31, 2015 was $0.4 million.

At December 31, 2015, there were 4,311,886 time-based stock options outstanding and the weighted-average grant-date fair value of time-based stock options granted during the years ended December 31, 2015, 2014 and 2013 was $8.88, $6.32 and $6.52, respectively. At December 31, 2015, there were 1,984,903 performance-based stock options outstanding and the weighted-average grant-date fair value of performance-based stock options granted during the years ended December 31, 2015, 2014 and 2013 was $4.46, $4.46 and $4.55.

Stock Appreciation Rights

Under the 2012 Plan, the Company granted a total of 161,941 time-based SARs and 161,952 performance-based SARs in 2013, 2014 and 2015 with a strike price of $6.64 per share that will expire ten years from the date of grant and will only be settled in cash. The time-based awards vest in equal increments over four years in tranches and the performance-based awards only vest when specific liquidity events, as defined, occurs and if the CCMP Stockholders, as defined, receive a certain multiple on their initial investment. At December 31, 2015, there were 153,969 time-based SARs and 153,979 performance-based SARs vested and outstanding related to the 2012 Plan with a liability balance of $1.8 million, which is reported in accrued salaries, wages and other compensation in the Company's Consolidated Balance Sheets.

In June 2015, in conjunction with the Company's IPO, the Company granted an additional 136,441 SARs under the 2015 Plan with a strike price of $20.00 per share. These awards will vest in equal increments over four years in tranches, will expire ten years from the date of grant and will only be settled in cash. At December 31, 2015, 136,441 SARs were outstanding, however, none had vested and there was no liability associated with these awards. For the year ended December 31, 2015, the Company recorded compensation expense of $1.6 million related to SARs granted under both the 2012 Plan and 2015 Plan.

Restricted Stock Awards

In 2015, in conjunction with the Company's IPO, 266,313 shares of restricted common stock were granted with an estimated fair value of $20.00 per share and vest at the end of three years. At December 31, 2015, there were 258,813 restricted stock awards outstanding, none of which were vested, and there is unrecognized compensation expense of $3.4 million associated with these awards which is expected to be recognized over a weighted-average period of 2.5 years. For the year ended December 31, 2015, the Company recorded compensation expense of $0.7 million and approximately $1.4 million is expected to be recognized into compensation expense in 2016.