STOCK-BASED COMPENSATION

Stock Based Compensation

In February 2014, 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 4.8 million shares so that the amended aggregate share limit for the 2008 Plan is 33.3 million shares; b) extended the Company's authority to grant awards under the 2008 Plan intended to qualify as "performance-based awards" within the meaning of Section 162(m) of the U.S. Internal Revenue Code through the first annual meeting of stockholders that occurs in 2019. The 2008 Plan's termination date of December 5, 2021 remained unchanged, as did the number of shares counted against the share limit for every one share issued in connection with a full-value award, which remained 2.41.

Except as described in this paragraph, shares that are subject to or underlie awards which expire or for any reason, are canceled or terminated, are forfeited, fail to vest, or for any other reason are not paid or delivered under the 2008 Plan will again be available for subsequent awards under the 2008 Plan. Shares that are exchanged by a participant or withheld by the Company as full or partial payment in connection with any award granted under the 2008 Plan that is a full-value award, as well as any shares exchanged by a participant or withheld by the Company or one of its subsidiaries to satisfy the tax withholding obligations related to any full-value award granted under the 2008 Plan will be available for subsequent awards under the 2008 Plan. Shares that are exchanged by a participant or withheld by the Company to pay the exercise price of a stock option or stock appreciation right granted under the 2008 Plan, as well as any shares exchanged or withheld to satisfy the tax withholding obligations related to any such award, will not be available for subsequent awards under the 2008 Plan.

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 Microsemi 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 $43.9 million in 2014, $35.2 million in 2013 and $36.7 million in 2012. At September 28, 2014, unamortized compensation expense related to unvested stock awards was $46.6 million. The weighted average period over which compensation expense related to these grants will be recognized is 1.4 years.

Remaining share-units available for grant, assuming the issuance of performance units at target, at September 28, 2014, September 29, 2013 and September 30, 2012 under the 2008 Plan were 14.1 million, 12.2 million and 16.0 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 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
Assumed from acquisition	578		$	20.08
Exercised	(1,228	)	$	16.39	$	16,956
Forfeited	(1,364	)	$	26.55
Outstanding at September 28, 2014	2,668		$	22.70	$	7,413	2.0
Exercisable at September 28, 2014	2,404		$	22.91	6,280		1.6
Exercisable and expected to vest after September 28, 2014	2,666		$	22.7	$	7,405	2.0

In connection with the acquisition Symmetricom, Inc. in 2014, we assumed stock options and converted them to Microsemi awards in accordance with the merger agreement.

Quantity and weighted-average exercise prices related to stock options and stock appreciation rights outstanding as of September 28, 2014 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 or equal to $20.00	521	$	14.33	607	$	14.34
Greater than $20.00	1,870	$	25.30	2,061	$	25.16
	2,391	$	22.91	2,668	$	22.70

Weighted-average fair value and weighted-average assumptions used in the calculation of compensation expense for assumed grants in 2014 are as follows. There were no stock options or stock appreciation rights granted or assumed in 2012 or 2013.



Fair Value		Risk Free Rate		Expected Dividend Yield		Expected Life (Years)	Expected Volatility
$	20.08	0.5	%	—	%	2.7	31.0	%

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 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
Granted	1,589		$	24.67
Vested	(1,393	)	$	20.41
Forfeited	(186	)	$	22.11
Outstanding at September 28, 2014	3,074		$	22.31

Performance Units

Compensation expense for performance stock units was calculated based upon expected achievement of the performance metrics specified in the grant and the closing price of our common stock on the date of grant, or when a grant contains a market condition, the grant date fair value using a Monte Carlo simulation. Vesting of performance units issued in 2013 and 2014 contain a market condition and the Monte Carlo simulation incorporates estimates of the potential outcomes of the market condition on the date fair value of each award.

Performance units granted in 2012 vested based on our 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. In November 2013, the Compensation Committee determined that 86% of the target number of units vested at the time of the committee's determination (which represents a vesting percentage of 116% based on the committee’s determination, minus the 30% of the target number of units that vested based on 2012 performance).

Performance units granted in 2013 are eligible to vest based on our achievement of 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. In addition, the vesting of the award will also be determined in part by our total shareholder return over the performance period covered by the award relative to the peer group. A portion of the award may be earned based on performance in each year of the performance period. In November 2013, the Compensation Committee determined that our performance did not exceed minimum thresholds. Accordingly, no performance units granted in 2013 vested.

Performance units granted in 2014 vested based on our growth in net sales and earnings per share (subject to certain adjustments) for 2014, 2015, and 2016 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, 40% of each performance-based award opportunity will be subject to the net sales metric for the performance period and 60% will be subject to the earnings per share metric for the performance period. In addition, the vesting of the award will also be determined in part by our total shareholder return over the performance period covered by the award relative to the peer group. A portion of the award may be earned based on performance in each year of the performance period.

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 September 30, 2012	350		$	17.77
Granted	350		$	21.62
Vested	(105	)	$	17.77
Outstanding at September 29, 2013	595		$	20.03
Granted	332		$	26.27
Vesting in excess of target	56		$	17.77
Vested	(301	)	$	17.77
Outstanding at September 28, 2014	682		$	23.88