We have an equity incentive plan - the Fifth Amended and Restated ANSYS, Inc. 1996 Stock Option and Grant Plan (Stock Plan). The Stock Plan, as amended, authorizes the grant of approximately 39.8 million shares of our common stock in the form of: (i) incentive stock options (ISOs), (ii) nonqualified stock options, (iii) common stock with or without vesting or other restrictions, (iv) common stock upon the attainment of specified performance goals, (v) restricted stock awards, (vi) the right to receive cash dividends with the holders of the common stock as if the recipient held a specified number of shares of the common stock, (vii) deferred stock awards, (viii) restricted stock unit awards, (ix) stock appreciation rights and (x) cash-based awards.

The Stock Plan provides that: (i) the exercise price of any stock option must be no less than the fair value of the stock at the date of grant and (ii) the exercise price of an ISO held by an optionee who possesses more than 10% of the total combined voting power of all classes of stock must be no less than 110% of the fair market value of the stock at the time of grant. The Compensation Committee of the Board of Directors has the authority to set expiration dates that are no later than ten years from the date of grant (or five years for an optionee who meets the 10% criterion), payment terms, and other provisions for each grant. Shares associated with unexercised options or reacquired shares of common stock (except those shares withheld as a result of tax withholding, shares used to pay an option exercise price or pursuant to a net issuance) become available again for option grants and common stock-related awards under the Stock Plan.

The Compensation Committee of the Board of Directors may, at its sole discretion, accelerate the date or dates on which an award granted under the Stock Plan may vest or extend, in the case of a stock option, the exercise period up to the expiration date of the option, subject to the terms and conditions of the Stock Plan. Upon termination of service of a participant due to the participant’s death or disability, the vesting of restricted stock units held by the participant accelerates (in case of performance-based vesting, subject to the attainment of the performance requirement).

In the event of a "sale event," defined in the Stock Plan as a "Transaction," all outstanding awards will be assumed or continued by the successor entity, with appropriate adjustment in the awards to reflect the transaction. In such event, except as the Compensation Committee may otherwise specify with respect to particular awards in the award agreements, if the service relationship of the holder of an award is terminated without cause on or within 18 months after the sale event, then all awards held by such holder will become fully vested and exercisable at that time. If there is a sale event in which the successor entity refuses to assume or continue outstanding awards, then subject to the consummation of the sale event, all awards with time-based vesting conditions will become fully vested and exercisable at the effective time of the sale event and all awards with performance-based vesting conditions may become vested at the discretion of the Compensation Committee and then all such awards will terminate at the time of the sale event. In the event of the termination of stock options or stock appreciation rights in connection with a sale event, the Compensation Committee may either make or provide for a cash payment to the holders of such awards equal to the difference between the per share transaction consideration and the exercise price of such awards or permit each holder to have at least a 15-day period to exercise such awards prior to their termination.



	Year Ended December 31,
(in thousands, except per share amounts)	2019			2018			2017
Cost of sales:
Software licenses	$	—		$	—		$	969
Maintenance and service	8,494			5,224			2,533
Operating expenses:
Selling, general and administrative	60,639			47,099			30,817
Research and development	47,057			31,023			18,835
Stock-based compensation expense before taxes	116,190			83,346			53,154
Related income tax benefits	(47,454		)	(34,518		)	(20,503		)
Stock-based compensation expense, net of taxes	$	68,736		$	48,828		$	32,651
Net impact on earnings per share:
Basic earnings per share	$	(0.82	)	$	(0.58	)	$	(0.38	)
Diluted earnings per share	$	(0.80	)	$	(0.57	)	$	(0.38	)

Prior to 2017, we granted stock option awards. The value of each stock option award was estimated on the date of grant, or date of acquisition for options issued in a business combination, using the Black-Scholes option pricing model (Black-Scholes model). The determination of the fair value of stock-based payment awards using an option pricing model was affected by our stock price as well as assumptions regarding a number of complex and subjective variables. These variables included our stock volatility during the preceding six years, actual and projected employee stock option exercise behaviors, interest rate assumptions using the five-year U.S. Treasury Note yield on date of grant or acquisition date, and expected dividends. The stock-based compensation expense for options is recorded ratably over the requisite service period.



	Year Ended December 31,
	2019				2018				2017
(options in thousands)	Options		Weighted- Average Exercise Price		Options		Weighted- Average Exercise Price		Options		Weighted- Average Exercise Price
Outstanding, beginning of year	1,484		$	62.80	2,170		$	59.17	3,136		$	56.37
Granted	—		$	—	—		$	—	—		$	—
Exercised	(495	)	$	53.53	(679	)	$	50.92	(956	)	$	49.78
Forfeited	(5	)	$	64.21	(7	)	$	86.28	(10	)	$	80.92
Outstanding, end of year	984		$	67.49	1,484		$	62.80	2,170		$	59.17
Vested and Exercisable, end of year	924		$	65.71	1,347		$	59.69	1,930		$	55.11
Nonvested	60		$	94.77	137		$	93.44	240		$	91.71



	2019		2018		2017
Weighted Average Remaining Contractual Term (in years)
Outstanding	3.18		3.55		4.10
Vested and Exercisable	2.95		3.14		3.57
Nonvested	6.71		7.60		8.30
Aggregate Intrinsic Value (in thousands)
Exercised	$	72,098	$	78,648	$	58,472
Outstanding	$	186,926	$	118,908	$	191,895
Vested and Exercisable	$	177,111	$	112,133	$	178,456
Nonvested	$	9,815	$	6,775	$	13,439
Compensation Expense - Stock Options (in thousands)	$	1,709	$	2,006	$	2,948



(options in thousands)	Options Outstanding				Options Exercisable				Options Unvested
Range of Exercise Prices	Options	Weighted- Average Remaining Contractual Life (years)	Weighted- Average Exercise Price		Options	Weighted- Average Remaining Contractual Life (years)	Weighted- Average Exercise Price		Options	Weighted- Average Remaining Contractual Life (years)	Weighted- Average Exercise Price
$11.99 - $48.97	181	1.01	$	43.29	181	1.01	$	43.29	—	0.00	$	—
$58.67	267	1.87	$	58.67	267	1.87	$	58.67	—	0.00	$	—
$67.44	280	2.87	$	67.44	280	2.87	$	67.44	—	0.00	$	—
$76.31 - $95.09	256	6.44	$	93.89	196	6.36	$	93.62	60	6.71	$	94.77



Award	Vesting Period	Vesting Condition
Restricted stock units with a market and service condition	Three years	Our performance measured by total stockholder return relative to the Nasdaq Composite Index for the measurement period and subject to continued employment through the vesting period.
Restricted stock units with an operating performance and service condition	Three years	Operating performance metrics as defined at the beginning of the performance cycle.
Restricted stock units with a service condition only	Three or four years	Continued employment through the yearly vesting period.

The fair values of restricted stock units (RSUs) with a market condition were estimated using a Monte Carlo simulation model and are recognized over the vesting period. The determination of the fair values of the awards was affected by the grant date and several variables, each of which has been identified in the chart below:



	Year Ended December 31,
Assumptions used in Monte Carlo lattice pricing model	2019	2018	2017
Risk-free interest rate	2.5%	2.4%	1.5%
Expected dividend yield	—%	—%	—%
Expected volatility—Ansys stock price	23%	21%	19%
Expected volatility—Nasdaq Composite Index	16%	15%	15%
Expected term	2.8 years	2.8 years	2.8 years
Correlation factor	0.71	0.65	0.70
Weighted average fair value per share	$238.99	$191.76	$120.94

The fair value of RSUs with operating performance metrics is based on the fair market value of our stock on the date of the grant and is recognized from the grant date through the conclusion of the measurement period associated with each operating performance metric based on management's estimates concerning the probability of vesting.



	Year Ended December 31,
	2019				2018				2017
(RSUs in thousands)	RSUs		Weighted- Average Grant Date Fair Value		RSUs		Weighted- Average Grant Date Fair Value		RSUs		Weighted- Average Grant Date Fair Value
Nonvested, beginning of year	1,522		$	129.96	1,361		$	100.66	906		$	86.45
Granted⁽¹⁾	843		$	192.37	681		$	163.67	866		$	109.67
Performance adjustment⁽²⁾	74		$	167.87	76		$	151.52	35		$	98.29
Vested	(704	)	$	125.84	(524	)	$	101.38	(341	)	$	88.58
Forfeited	(117	)	$	140.43	(72	)	$	125.29	(105	)	$	90.80
Nonvested, end of year	1,618		$	165.26	1,522		$	129.96	1,361		$	100.66

⁽²⁾RSUs with a market or performance condition are granted at target and vest based on achievement of the market or operating performance and service conditions. The actual number of RSUs issued may be more or less than the target RSUs depending on the achievement of the market or operating performance conditions.

During and prior to 2015, we granted deferred stock awards to non-employee Directors, which are rights to receive shares of common stock upon termination of service as a Director. Associated with these awards, we established a non-qualified 409(a) deferred compensation plan with assets held under a rabbi trust to provide Directors an opportunity to diversify their vested awards. During open trading windows and at their elective option, the Directors may convert their Ansys shares into a variety of non-Ansys-stock investment options in order to diversify a portion of their holdings, subject to meeting ownership guidelines.



	Year Ended December 31, 2019
	Diversified		Undiversified		Total
Deferred Awards Outstanding, beginning of year	12,250		120,449		132,699
Shares Diversified	13,348		(13,348	)	—
Shares Issued Upon Retirement	(20,000	)	(47,020	)	(67,020	)
Deferred Awards Outstanding, end of year	5,598		60,081		65,679

In 2019, 2018 and 2017, we granted 11,259, 13,632 and 18,018 RSUs to non-employee Directors, respectively, which will vest in full upon the earlier of one year from the date of grant or the date of the next regular meeting of stockholders. If a non-employee Director retires prior to the vest date, the non-employee Director receives a pro-rata portion of the RSUs. The weighted-average grant date fair values per RSU were $187.53, $165.71 and $123.38 for the years ended December 31, 2019, 2018 and 2017, respectively. Total compensation expense associated with the awards recorded for the years ended December 31, 2019, 2018 and 2017 was $2.5 million, $2.3 million and $2.6 million, respectively.

Our 1996 Employee Stock Purchase Plan (the “Purchase Plan”) was adopted by the Board of Directors on April 19, 1996 and was subsequently approved by our stockholders. The stockholders approved an amendment to the Purchase Plan in May 2016 to increase the number of shares available for offerings to 1.8 million shares. The Purchase Plan is administered by the Compensation Committee. Offerings under the Purchase Plan commence on each February 1 and August 1, and have a duration of six months. An employee who owns or is deemed to own shares of stock representing in excess of 5% of the combined voting power of all classes of our stock may not participate in the Purchase Plan.

During each offering, an eligible employee may purchase shares under the Purchase Plan by authorizing payroll deductions of up to 10% of his or her cash compensation during the offering period. The maximum number of shares that may be purchased by any participating employee during any offering period is limited to 3,840 shares (as adjusted by the Compensation Committee from time to time). Unless the employee has previously withdrawn from the offering, his or her accumulated payroll deductions will be used to purchase common stock on the last business day of the period at a price equal to 90% of the fair market value of the common stock on the first or last day of the offering period, whichever is lower. Under applicable tax rules, an employee may not accrue the right to purchase more than $25,000 of common stock, based on the grant-date fair value, in any calendar year in which the option is outstanding at any time. As of December 31, 2019, 1.6 million shares of common stock had been issued under the Purchase Plan. The total compensation expense recorded under the Purchase Plan during the years ended December 31, 2019, 2018 and 2017 was $2.0 million, $1.8 million and $1.2 million, respectively.