STOCK-BASED COMPENSATION

Stock Based Compensation

In January 2012, our stockholders approved an amendment to the Microsemi Corporation 2008 Performance Incentive Plan (the “2008 Plan”). The amendment a) increased the share limit by an additional 14.5 million shares so that the amended aggregate share limit for the 2008 Plan is 28.5 million shares; b) extended the plan term to December 5, 2021; c) increased the number of shares counted against the share limit for every one share issued in connection with a full-value award to 2.41; d) terminated the evergreen provision in the original plan; and e) extended the Performance-Based Award feature through the first annual meeting of stockholders that occurs in calendar year 2017. Awards authorized by the 2008 Plan include options, stock appreciation rights, restricted stock, stock bonuses, stock units, performance share awards, and other cash- or share-based awards. The shares issued under the 2008 Plan may be newly issued or shares held by the Company as treasury stock. The maximum term of a stock option grant or a stock appreciation right granted under the 2008 Plan is 6 years.

At September 30, 2012, unamortized compensation expense related to unvested stock awards, net of estimated forfeitures, was $40.2 million. The weighted average period over which compensation expense related to these grants will be recognized is 1.3 years.

Remaining shares available for grant at September 30, 2012, October 2, 2011 and October 3, 2010 under the 2008 Plan were 16.0 million, 6.4 million and 6.9 million, respectively.

Stock Options and Stock Appreciation Rights

Compensation expense for stock options and stock appreciation rights was calculated based on the grant or assumption date using the Black-Scholes pricing model. All stock appreciation rights we have granted or assumed are stock-settled. Stock options and stock appreciation rights are granted at exercise prices equal to the closing price of our common stock on the date of grant. Assumed stock options and stock appreciation rights are granted at exercise prices determined in accordance with the acquisition agreement. Expected life was estimated based on historical exercise data that was stratified between members of the Board of Directors, executive employees and all other recipients. Expected volatility was estimated based on historical volatility using equally weighted daily price observations over a period approximately equal to the expected life of each option. The risk free interest rate is based on the implied yield currently available on U.S. Treasury securities with an equivalent remaining term. No dividends are expected to be paid.

Activity and price information related to stock options and stock appreciation rights are as follows (quantity and intrinsic value in thousands):



	Quantity		Weighted-Average Exercise Price		Intrinsic Value		Weighted Average Remaining Life (Years)
Outstanding at September 27, 2009	10,663		$	20.48	$	11,356	4.3
Assumed from acquisition	28		$	13.87
Exercised	(464	)	$	10.35	$	2,683
Forfeited	(1,001	)	$	23.43
Outstanding at October 3, 2010	9,226		$	20.65	13,156		3.4
Granted	12		$	23.69
Assumed from acquisition	3,120		$	13.56
Exercised	(2,155	)	$	13.90	$	18,558
Forfeited	(729	)	$	20.88
Outstanding at October 2, 2011	9,474		$	19.84	$	12,684	3.1
Exercised	(1,933	)	$	16.82	$	7,619
Forfeited	(567	)	$	24.99
Outstanding at September 30, 2012	6,974		$	20.26	$	21,557	2.5
Exercisable at September 30, 2012	6,754		$	20.50	19,968		2.4
Exercisable and expected to vest after September 30, 2012	6,973		$	20.26	$	21,558	2.5

In connection with the acquisitions of Actel and Asic Advantage in 2011 and White Electronic Designs Corporation in 2010, we assumed stock options and stock appreciation rights and converted them to Microsemi awards in accordance with the respective merger agreement.

Quantity and weighted-average exercise prices related to stock options and stock appreciation rights stratified by exercise price are as follows (quantity in thousands):



	Exercisable			Outstanding
Exercise Price	Quantity	Weighted-Average Exercise Price		Quantity	Weighted-Average Exercise Price
Less than $10.00	374	$	6.61	396	$	6.57
$10.00 to $20.00	2,446	$	13.97	2,638	$	13.92
Greater than $20.00	3,934	$	25.88	3,940	$	25.88
	6,754	$	20.50	6,974	$	20.26

Weighted-average fair value and weighted-average assumptions used in the calculation of compensation expense are as follows. There were no stock options or stock appreciation rights granted in 2012.



Fiscal Year Ended	Fair Value		Risk Free Rate		Expected Dividend Yield		Expected Life (Years)	Expected Volatility
October 3, 2010	$	5.25	0.2	%	—	%	0.5	34.3	%
October 2, 2011	$	7.42	0.2	%	—	%	1.1	41.6	%

Restricted Stock Awards

Compensation expense for restricted stock awards was calculated based on the closing price of our common stock on the date of grant. Restricted stock awards are subject to forfeiture if a participant does not meet length of service requirements. Restricted stock awards granted to employees typically vest over a three year period and awards granted to non-employee directors vest on grant date in accordance with our director compensation policy.

Activity and price information related to restricted stock awards are as follows (quantity in thousands):



	Quantity		Weighted-Average Grant Price
Outstanding at September 27, 2009	1,620		$	22.21
Granted	1,398		$	14.99
Vested	(1,060	)	$	22.09
Assumed from acquisition	2		$	16.95
Forfeited	(44	)	$	16.37
Outstanding at October 3, 2010	1,916		$	17.14
Granted	1,624		$	20.88
Assumed from acquisition	252		$	19.90
Vested	(1,265	)	$	17.98
Forfeited	(177	)	$	18.82
Outstanding at October 2, 2011	2,350		$	19.44
Granted	1,656		$	19.41
Vested	(1,281	)	$	19.27
Forfeited	(70	)	$	19.34
Outstanding at September 30, 2012	2,655		$	19.51

In connection with the acquisitions of Actel in 2011 and White Electronic Designs Corporation in 2010, we assumed restricted stock awards and converted them to Microsemi awards in accordance with the respective merger agreement.

Performance Units

Performance stock units are subject to performance-based vesting requirements and are reported at target levels. These performance-based awards will generally vest based on the Company's growth in net sales and earnings per share (subject to certain adjustments) for fiscal years 2012 and 2013 in comparison with the growth in net sales and adjusted earnings per share over the same period for a peer group selected by the Compensation Committee. Compensation expense is based upon our estimate of performance relative to the peer group. Half of each performance-based award opportunity will be subject to the growth in net sales metric for the performance period and half will be subject to the growth in earnings per share metric for the performance period. None of the units related to a particular metric will vest if the Company's performance ranking using that metric is lower than the 30^th percentile relative to the peer group for the performance period, and the maximum number of units related to a particular metric that will vest is capped at 200% of the “target” number of units subject to the award related to that metric (half the total target number of units subject to the total performance-based award). This maximum vesting level will be achieved only if the Company's performance ranking using that metric is equal to or greater than the 95th percentile relative to the peer group for the performance period. The “target” number of units subject to an award related to a particular metric (half the total target number of units subject to the total performance-based award) will vest only if the Company's performance ranking using that metric is at the 70th percentile of the peer group for the performance period. Thirty percent of the target number of units may vest based on performance for fiscal 2012, with the majority of each award subject to the long-term two year performance period (fiscal years 2012 and 2013). During fiscal year 2012, we granted 0.4 million performance units at a weighted-average grant price of $17.77. During 2012, we recognized $7.1 million in expense related to performance units. There were no performance units granted prior to 2012.