15. Stock-Based Compensation

The Company has an Omnibus Incentive and Equity Plan (the "Plan") under which officers, employees, directors and consultants may be granted equity-based awards, including RSUs, stock options and unrestricted shares of common stock. At December 31, 2011, 1,800,000 shares of common stock were authorized for issuance under the Plan, of which 633,352 remain available for grant. Each RSU entitles the holder to one share of Virtus common stock when the restriction expires. RSUs generally have a term of one to three years and may be either time-vested or performance-contingent. Stock options generally vest over three years and have a contractual life of ten years. Stock options are granted with an exercise price equal to the fair market value of the shares at the date of grant. The fair value of each RSU is estimated using the intrinsic value method which is based on the fair market value price on the date of grant. Shares that are issued upon exercise of employee stock options and vesting of RSUs are newly issued shares and not issued from treasury stock. Prior to the spin-off, there were no Virtus RSUs or stock options outstanding. Upon the spin-off, all outstanding PNX stock options and RSUs held by Virtus employees were converted to Virtus stock options and RSUs in a manner intended to preserve the relative value of such awards. In total, 114,153 RSUs and 180,923 stock options were issued upon conversion.

The Company estimated the grant-date fair value of stock options granted using the Black-Scholes option valuation model with the following assumptions:


	2011	2010
Expected dividend yield	0.0%		0.0%
Expected volatility	47.2%		54.0%
Risk-free interest rate	2.4% -2.9%		1.9% -3.0%
Expected life	6.5 years		6.5 years

Expected dividend yield—The Company has never declared or paid dividends on its common stock. We currently do not have any plans to pay cash dividends on our common stock.

Expected volatility—Volatility is a measure of the amount by which a financial variable such as a share price has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period. The Company based its estimated volatility on the historical volatility of a peer group of publically traded companies, which includes companies that are in the same industry or are competitors, because of the Company's limited history as an independent public company.

Risk-free interest rate—This is the average U.S. Treasury rate at the time of grant having a term that most closely approximates the expected term of the option.

Expected life—This is the period of time that the option grants are expected to remain outstanding. The Company calculates the expected life of the options using the "simplified method" as prescribed under the provisions of ASC 718. The simplified method was used because sufficient historical exercise data necessary for the Company to provide a reasonable basis to estimate the expected life does not exist. The Company generally uses the midpoint between the end of the vesting period and the contractual life of the grant to estimate option exercise timing. The simplified method was applied for all options granted during 2010 and 2011.

Stock-based compensation expense is summarized as follows:


	Years Ended December 31,
	2011		2010		2009
*($ in thousands)*
Stock-based compensation expense	$	5,625	$	3,894	$	3,521

During the year ended December 31, 2011, the Company granted 88,030 performance contingent RSUs. During the year ended December 31, 2011, total stock-based compensation expense includes $1.3 million for these performance contingent RSUs as part of annual and long-term incentive compensation plans. As of December 31, 2011, unamortized stock-based compensation expense for performance contingent RSUs was $3.0 million. No performance contingent awards were granted for the years ended December 31, 2010 and 2009.

As of December 31, 2011, unamortized stock-based compensation expense for outstanding RSUs and stock options was $7.1 million and $0.5 million, respectively, with weighted average remaining amortization periods of 0.9 years and 0.5 years, respectively. The Company did not capitalize any stock-based compensation expenses during the years ended December 31, 2011, 2010 and 2009.

Stock option activity for the year ended December 31, 2011 is summarized as follows:


	Number of shares			Weighted Average Exercise Price
Outstanding at December 31, 2010		386,190		$	20.83
Granted		10,454		$	55.30
Exercised		(33,357	)	$	40.35
Forfeited		(10,345	)	$	13.85

Outstanding at December 31, 2011		352,942		$	20.21

Vested and exercisable at December 31, 2011		119,741		$	35.54
Options expected to vest at December 31, 2011		222,018		$	12.44

The weighted-average grant-date fair value of options granted during the years ended December 31, 2011, 2010 and 2009 was $27.56, $12.14 and $5.71, respectively. The weighted-average remaining contractual term for options outstanding at December 31, 2011 and December 31, 2010 was 6.4 and 7.0 years, respectively. The weighted-average remaining contractual term for options vested and exercisable at December 31, 2011 was 4.3 years. The weighted-average remaining contractual term for options expected to vest at December 31, 2011 was 7.5 years. At December 31, 2011, the aggregate intrinsic value of options outstanding, options vested and exercisable, and options expected to vest was $19.7 million, $4.8 million, and $14.1 million, respectively. The total grant-date fair value of options vested during the years ended December 31, 2011, 2010 and 2009 was less than $0.1 million, $0.5 million and $0.5 million, respectively. The total intrinsic value of options exercised for the years ended December 31, 2011 and 2010 was $0.9 million and $0.1 million, respectively. No stock options were exercised for the year ended December 31, 2009. Cash received from stock option exercises were $1.3 million and $0.1 million for 2011 and 2010, respectively. No cash was received from stock option exercises in 2009.

RSU activity for the year ended December 31, 2011 is summarized as follows:


	Number of shares			Weighted Average Grant Date Fair Value
Outstanding at December 31, 2010		460,633		$	13.39
Granted		178,661		$	52.28
Forfeited		(13,609	)	$	34.52
Settled		(48,981	)	$	21.83

Outstanding at December 31, 2011		576,704		$	24.16

The grant-date intrinsic value of RSUs granted during the year ended December 31, 2011 was $7.8 million. At December 31, 2011, outstanding RSUs have a weighted average remaining contractual life of 0.9 years. The weighted-average grant-date fair value of RSUs granted during the years ended December 31, 2011, 2010 and 2009 was $52.28, $20.21 and $9.54 per share, respectively. The total fair value of RSUs vested during the years ended December 31, 2011, 2010 and 2009 was $2.9 million, $1.5 million and $0.1 million, respectively. Cash used for employee withholding tax payments related to net share settlement upon vesting of RSUs were $0.7 million and $0.4 million for the years ended December 31, 2011 and 2010.

Employee Stock Purchase Plan

The Company offers an employee stock purchase plan that allows employees to purchase shares of common stock on the open market at market price through after-tax payroll deductions. The initial transaction fees are paid for by the Company and shares of common stock are purchased on a quarterly basis. The Company does not reserve shares for this plan or discount the purchase price of the shares.