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 acquisition of Novellus Systems, Inc. (“Novellus”), 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 29, 2013		December 23, 2012		December 29, 2013		December 23, 2012
	(in millions)
Equity-based compensation expense	$	23.0	$	24.0	$	46.3	$	48.4
Income tax benefit related to equity-based compensation expense	$	3.7	$	3.3	$	7.6	$	9.0

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.

Stock Options and RSUs

The Lam Research Corporation 2007 Stock Incentive Plan and 2011 Stock Incentive Plan (collectively the “Stock Plans”) provide for the grant of non-qualified equity-based awards to eligible employees, consultants and advisors, and non-employee directors of the Company and its subsidiaries. As of December 29, 2013, there was a total of 5,545,356 shares reserved to cover options and RSUs issued and outstanding under the Plans. As of December 29, 2013, there were an additional 13,247,547 shares reserved and available for future equity-based awards under the Plans.

A summary of stock option activity under the Plans as of December 29, 2013 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 29, 2013 (in thousands)

Outstanding at June 30, 2013		2,571		$	26.87		4.48

Exercised		(842	)	$	24.98

Forfeited or expired		(1	)	$	29.71

Outstanding at December 29, 2013		1,728		$	27.79		4.88	$	45,607

Exercisable at December 29, 2013		1,270		$	24.17		4.30	$	38,118

The fair value of the Company’s stock options was estimated using a Black-Scholes option valuation model. The total intrinsic value of options exercised during the three months ended December 29, 2013 and December 23, 2012 was $8.1 million and $4.1 million, respectively. The total intrinsic value of options exercised during the six months ended December 29, 2013 and December 23, 2012 was $22.2 million and $4.7 million, respectively. As of December 29, 2013, there was $4.2 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 1.1 years.

A summary of the Company’s RSUs as of December 29, 2013 and changes during the six months then ended is presented below:


Unvested Restricted Stock Units	Shares (in thousands)			Average Grant- Date Fair Value
Unvested at June 30, 2013		4,842		$	39.32
Granted		127		$	51.97
Vested		(1,014	)	$	39.45
Forfeited		(138	)	$	39.49

Unvested at December 29, 2013		3,817		$	39.70

The fair value of the Company’s RSUs was calculated based upon the fair market value of the Common Stock at the date of grant. As of December 29, 2013, there was $90.4 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 1.5 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 29, 2013, there was a total of 9,073,882 shares available for issuance under the 1999 ESPP.

Purchase rights under the 1999 ESPP were valued using the Black-Scholes option valuation model assuming no expected dividends and the following weighted-average assumptions for the six months ended December 29, 2013:


	Six Months Ended December 29, 2013

Expected term (years)		0.66
Expected stock price volatility		31.43	%
Risk-free interest rate		0.11	%

As of December 29, 2013, there was $8.6 million of unrecognized compensation expense related to the 1999 ESPP, which is expected to be recognized over a remaining period of approximately 8 months.