NOTE 3 — EQUITY-BASED COMPENSATION PLANS

The Company has stock plans that provide for grants of equity-based awards to eligible participants, including stock options and restricted stock units (“RSUs”), of Lam Research common stock (“Common Stock”). An option is a right to purchase the Company’s stock at a set price. An RSU award is an agreement to issue shares of the Company’s stock at the time of vesting. The Company’s options and RSU awards typically vest over a period of three years or less, although awards assumed in connection with the Novellus acquisition have vesting terms up to four years. The Company also has an employee stock purchase plan that allows employees to purchase its Common Stock at a discount through payroll deductions.

The Company recognized the following equity-based compensation expense and related income tax benefit in the Condensed Consolidated Statements of Operations:


	Three Months Ended				Six Months Ended
	December 23,		December 25,		December 23,		December 25,
	2012		2011		2012		2011
	(in millions)
Equity-based compensation expense	$	24.0	$	18.2	$	48.4	$	36.0
Income tax benefit related to equity-based compensation expense	$	3.3	$	2.1	$	9.0	$	4.8

The estimated fair value of the Company’s stock-based awards, less expected forfeitures, is amortized over the awards’ vesting term on a straight-line basis. The increase in stock compensation expense during the three and six months ended December 23, 2012 as compared to the three and six months ended December 25, 2011 was primarily due to the increased number of RSUs and stock options outstanding as a result of awards assumed in connection with the Novellus acquisition.

Stock Options and RSUs

The 2007 Stock Incentive Plan provides for grants of equity-based awards to eligible participants. In June 2012, as part of the Novellus acquisition, Lam also assumed the Novellus Systems, Inc. 2011 Stock Incentive Plan (together with the 2007 Stock Incentive Plan, collectively the “Plans”), which provides for grants of equity-based awards to eligible participants. As of December 23, 2012, there were a total of 8,369,202 shares reserved to cover options and RSUs issued and outstanding under the Plans. As of December 23, 2012, there were an additional 14,351,909 shares reserved and available for future equity-based awards under the Plans.

A summary of stock option activity under the Plans as of December 23, 2012 and changes during the six months then ended is presented below:


Options	Shares (in thousands)			Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Term (years)		Aggregate Intrinsic Value as of December 23, 2012 (in thousands)
Outstanding at June 24, 2012		3,902		$	25.14		4.79
Exercised		(342	)	$	22.04
Forfeited or expired		(32	)	$	24.37

Outstanding at December 23, 2012		3,528		$	25.45		4.38	$	38,111

Exercisable at December 23, 2012		2,999		$	25.25		3.80	$	32,982

The total intrinsic value of options exercised during the three months ended December 23, 2012 and December 25, 2011 was $4.1 million and $0.9 million, respectively. The total intrinsic value of options exercised during the six months ended December 23, 2012 and December 25, 2011 was $4.7 million and $1.1 million, respectively. As of December 23, 2012, there was $7.2 million of total unrecognized compensation cost related to unvested stock options granted and outstanding; that cost is expected to be recognized over a weighted average remaining vesting period of 1.7 years.

A summary of the Company’s RSUs as of December 23, 2012 and changes during the six months then ended is presented below:


	Shares			Average Grant-
Unvested Restricted Stock Units	(in thousands)			Date Fair Value
Unvested at June 24, 2012		4,331		$	41.01
Granted		1,612		$	35.01
Vested		(987	)	$	40.46
Forfeited		(115	)	$	39.96

Unvested at December 23, 2012		4,841		$	39.13

The fair value of the Company’s RSUs was calculated based upon the fair market value of the Company’s stock at the date of grant. As of December 23, 2012, there was $131.8 million of total unrecognized compensation expense related to unvested RSUs granted; that expense is expected to be recognized over a weighted average remaining period of 2.1 years.

ESPP

The 1999 Employee Stock Purchase Plan (as amended and restated, the “1999 ESPP”) allows employees to designate a portion of their base compensation to be withheld through payroll deductions and used to purchase the Company’s Common Stock at a purchase price per share equal to the lower of 85% of the fair market value of the Company’s Common Stock on the first or last day of the applicable purchase period. Each offering period generally lasts up to 12 months and includes up to three interim purchase dates. As of December 23, 2012, there were a total of 10,304,484 shares available for issuance under the 1999 ESPP.

Purchase rights under the 1999 ESPP were valued using the Black-Scholes model assuming no expected dividends and the following weighted-average assumptions for the six months ended December 23, 2012:


	Six Months Ended
	December 23,
	2012
Expected term (years)		0.7
Expected stock price volatility		33.26	%
Risk-free interest rate		0.16	%

As of December 23, 2012, there was $5.8 million of unrecognized compensation expense related to the 1999 ESPP, which is expected to be recognized over a remaining period of approximately 8 months.