Equity Incentive Plan

Our 2000 Equity Incentive Plan (2000 Plan) provides for grants of nonqualified and incentive stock options, common stock, restricted stock, restricted stock units and stock appreciation rights to employees, directors, officers and consultants. We award restricted stock units as the principal equity incentive awards, including certain performance-based awards that are earned based on achieving performance criteria established by the Compensation Committee of our Board of Directors on or prior to the grant date. Each restricted stock unit represents the contingent right to receive one share of our common stock.

The fair value of restricted stock units granted in 2015, 2014 and 2013 was based on the fair market value of our stock on the date of grant. The weighted average fair value per share of restricted stock units granted in 2015, 2014 and 2013 was $38.19, $33.88 and $22.87, respectively. Pre-vesting forfeiture rates for purposes of determining stock-based compensation for all periods presented were estimated by us to be 0% for directors and executive officers, 2% to 4% for vice president-level employees and 7% for all other employees.

The following table shows total stock-based compensation expense recorded from our stock-based awards as reflected in our Consolidated Statements of Operations:



	Year ended September 30,
	2015		2014		2013
	(in thousands)
Cost of license and subscription revenue	$	521	$	314	$	21
Cost of support revenue	3,775		3,745		3,324
Cost of professional services revenue	5,871		6,351		6,134
Sales and marketing	12,223		10,982		11,326
Research and development	11,623		10,119		8,590
General and administrative	16,169		19,378		19,392
Total stock-based compensation expense	$	50,182	$	50,889	$	48,787

As of September 30, 2015, total unrecognized compensation cost related to unvested restricted stock units expected to vest was approximately $62.5 million and the weighted average remaining recognition period for unvested awards was 17 months.

As of September 30, 2015, 3.6 million shares of common stock were available for grant under the 2000 Plan and 3.7 million shares of common stock were reserved for issuance upon the exercise of stock options and vesting of restricted stock units granted and outstanding.



	Shares		Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value as of September 30, 2015
Restricted stock unit activity for the year ended September 30, 2015	(in thousands except grant date fair value data)
Balance of nonvested outstanding restricted stock units October 1, 2014	4,379		$	26.87
Granted	1,910		$	38.19
Vested	(2,206	)	$	24.67
Forfeited or not earned	(429	)	$	30.94
Balance of nonvested outstanding restricted stock units September 30, 2015	3,654		$	33.64	$	115,987


(1)	The performance-based RSUs were granted to employees, including our executive officers, pursuant to the terms described below.

(2) The service-based RSUs were issued to employees, including our executive officers, and our directors. Of these RSUs, approximately 212,000 will vest one year from the date of grant. Substantially all other service-based RSUs will vest in three substantially equal annual installments on or about the anniversary of the date of grant.

In 2015, we granted the target performance-based restricted stock units ("target RSUs") shown in the table above to senior level employees, including our executive officers. These RSUs are eligible to vest based upon our total shareholder return relative to a peer group (the “TSR units”), measured annually over a three-year period. The number of TSR units to vest over the three years period will be determined based on the performance of PTC stock relative to the stock performance of an index of PTC peer companies established as of the grant date, as determined at the end of three measurement periods ending on September 30, 2015, 2016 and 2017, respectively. The shares earned for each period will vest on November 15 following each measurement period, up to a maximum of two times or one and one half times, as applicable, the number of target RSUs (up to a maximum of 590,000 shares). No vesting will occur in a period unless an annual threshold requirement is achieved. The employee must remain employed by PTC through the applicable vest date for any RSUs to vest. If the return to PTC shareholders is negative but still meets or exceeds the peer group indexed return, a maximum of 100% of the target RSUs shall vest for the measurement period. TSR units not earned in the first two year measurement periods are eligible to be earned in the third measurement period.

The weighted average fair value of the TSR units was $41.32 per target RSU on the grant date. The fair value of the TSR units was determined using a Monte Carlo simulation model, a generally accepted statistical technique used to simulate a range of possible future stock prices for PTC and the peer group. The method uses a risk-neutral framework to model future stock price movements based upon the risk-free rate of return, the volatility of each entity, and the pairwise correlations of each entity being modeled. The fair value for each simulation is the product of the payout percentage determined by PTC’s TSR rank against the peer group, the projected price of PTC stock, and a discount factor based on the risk-free rate.

The significant assumptions used in the Monte Carlo simulation model were as follows:



Average volatility of peer group	29.8	%
Risk free interest rate	0.85	%
Dividend yield	—	%

Until July 2005, we generally granted stock options. For those options, the option exercise price was typically the fair market value at the date of grant, and they generally vested over four years and expired ten years from the date of grant. There were 3,000 options outstanding and exercisable at September 30, 2015.



	Year ended September 30,
	2015		2014		2013
Value of stock option and stock-based award activity	(in thousands)
Total intrinsic value of stock options exercised	$	182	$	2,040	$	6,525
Total fair value of restricted stock unit awards vested	$	84,189	$	79,660	$	48,083

In 2015, shares issued upon vesting of restricted stock units were net of 0.8 million shares retained by us to cover employee tax withholdings of $29.2 million. In 2014, shares issued upon vesting of restricted stock units were net of 0.8 million shares retained by us to cover employee tax withholdings of $26.9 million. In 2013, shares issued upon vesting of restricted stock and restricted stock units were net of 0.7 million shares retained by us to cover employee tax withholdings of $15.0 million.

Restricted Stock Units

Restricted stock unit grants

Performance-based (1)

Time-based (2)

(Number of Units in thousands)

Year ended September 30, 2015