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 1) increased the share limit by an additional 14.5 million share-units so that the amended aggregate share-unit limit for the 2008 Plan is 28.5 million share-units; 2) extended the plan term to December 5, 2021; 3) increased the number of shares counted against the share-unit limit for every one share issued in connection with a full-value award to 2.41; 4) terminated the evergreen provision in the original plan; and 5) 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.

Stock-based compensation expense was $35.2 million in 2013, $36.7 million in 2012 and $28.5 million in 2011. At September 29, 2013, unamortized compensation expense related to unvested stock awards was $40.9 million. The weighted average period over which compensation expense related to these grants will be recognized is 1.3 years.

Remaining share-units available for grant, assuming issuance of performance units at target, at September 29, 2013, September 30, 2012 and October 2, 2011 under the 2008 Plan were 12.2 million, 16.0 million and 6.4 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 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
Exercised	(1,944	)	$	14.16	$	16,956
Forfeited	(348	)	$	24.33
Outstanding at September 29, 2013	4,682		$	22.49	$	14,702	1.7
Exercisable at September 29, 2013	4,626		$	22.60	14,143		1.6
Exercisable and expected to vest after September 29, 2013	4,682		$	22.49	$	14,702	1.7

In connection with the acquisitions of Actel and Asic Advantage in 2011, 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 outstanding as of September 29, 2013 and 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	24	$	7.50	30	$	7.55
$10.00 to $20.00	1,281	$	13.57	1,328	$	13.60
Greater than $20.00	3,321	$	26.19	3,324	$	26.18
	4,626	$	22.60	4,682	$	22.49

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 or 2013.



Fiscal Year Ended	Fair Value		Risk Free Rate		Expected Dividend Yield		Expected Life (Years)	Expected Volatility
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 October 3, 2010	1,916		$	17.14
Granted	1,624		$	20.88
Vested	(1,265	)	$	17.98
Assumed from acquisition	252		$	19.90
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
Granted	1,887		$	20.39
Vested	(1,363	)	$	19.10
Forfeited	(115	)	$	20.16
Outstanding at September 29, 2013	3,064		$	20.21

In connection with the acquisition of Actel in 2011, we assumed restricted stock awards and converted them to Microsemi awards in accordance with the merger agreement.

Performance Units

Performance stock units granted in 2012 will vest based on the Company's growth in net sales and earnings per share (subject to certain adjustments) for 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. For these performance stock units, 50% of each performance-based award opportunity will be subject to the net sales metric for the performance period and 50% will be subject to the earnings per share metric for the performance period.

Performance stock units granted in 2013 will vest based on the Company achieving net sales and earnings per share (subject to certain adjustments) levels for 2013, 2014 and 2015. For these performance stock units, 25% of each performance-based award opportunity will be subject to the net sales metric for the performance period and 75% will be subject to the earnings per share metric for the performance period.

Compensation expense is based upon either our estimate of performance relative to a peer group for the 2012 grant and our expected performance over the performance period for the 2013 grant. The maximum percentage for a particular metric is 200% of the “target” number of units subject to the award related to that metric. For performance stock units granted in 2013, the maximum percentage is further adjusted by the Company's total shareholder return relative to a peer group selected by the Compensation Committee, up to a maximum of 125%.

Activity and price information related to performance units are as follows (quantity report at target and in thousands):



	Quantity		Weighted-Average Grant Price
Outstanding at October 2, 2011	—		$	—
Granted	350		$	17.77
Outstanding at September 30, 2012	350		$	17.77
Granted	350		$	21.62
Vested	(105	)	$	17.77
Outstanding at September 29, 2013	595		$	20.03