17. 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, 2013, 1,800,000 shares of common stock were authorized for issuance under the Plan, of which 495,658 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 stock options and vesting of RSUs are newly issued shares and not issued from treasury stock.

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


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

Expected dividend yield—The Company has never declared or paid dividends on its 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 stock option grants are expected to remain outstanding. The Company calculates the expected life of the stock 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 stock option exercise timing. The simplified method was applied for all stock options granted during 2011.

Stock-based compensation expense is summarized as follows:


	Years Ended December 31,
	2013		2012		2011
*($ in thousands)*
Stock-based compensation expense	$	7,960	$	6,927	$	5,625

During the years ended December 31, 2013 and December 31, 2012, the Company granted 15,237 and 47,996 performance contingent RSUs, respectively. During the years ended December 31, 2013, December 31, 2012 and December 31 2011, total stock-based compensation expense included $1.1 million, $1.7 million and $1.3 million, respectively, for these performance contingent RSUs. As of December 31, 2013 and 2012, unamortized stock-based compensation expense for performance contingent RSUs was $2.1 million and $3.2 million, respectively.

As of December 31, 2013, unamortized stock-based compensation expense for outstanding RSUs and stock options was $8.9 million and $0.1 million, respectively, with weighted average remaining amortization periods of 1.0 years and 0.2 years, respectively. As of December 31, 2012, unamortized stock-based compensation expense for outstanding RSUs and stock options was $7.1 million and $0.2 million, respectively, with weighted average remaining amortization periods of 1.4 years and 0.7 years, respectively. The Company did not capitalize any stock-based compensation expenses during the years ended December 31, 2013, 2012 and 2011.

Stock option activity for the year ended December 31, 2013 is summarized as follows:


	Number of shares			Weighted Average Exercise Price
Outstanding at December 31, 2012		220,349		$	20.03
Granted		—		$	—
Exercised		(29,826	)	$	19.10
Forfeited		(363	)	$	55.18

Outstanding at December 31, 2013		190,160		$	20.11

Vested and exercisable at December 31, 2013		182,077		$	18.54
Stock options expected to vest at December 31, 2013		8,083		$	55.33

The weighted-average grant-date fair value of stock options granted during the year ended December 31, 2011 was $27.56. The weighted-average remaining contractual term for stock options outstanding at December 31, 2013 and December 31, 2012 was 4.8 and 5.8 years, respectively. The weighted-average remaining contractual term for stock options vested and exercisable at December 31, 2013 was 4.7 years. The weighted-average remaining contractual term for stock options expected to vest at December 31, 2013 was 7.2 years. At December 31, 2013, the aggregate intrinsic value of stock options outstanding, stock options vested and exercisable, and stock options expected to vest was $34.2 million, $33.0 million, and $1.2 million, respectively. The total grant-date fair value of stock options vested during the years ended December 31, 2013, 2012 and 2011 was $0.2 million, $1.2 million and less than $0.1 million, respectively. The total intrinsic value of stock options exercised for the years ended December 31, 2013, 2012 and 2011 was $5.1 million, $9.2, $0.9 million, respectively. Cash received from stock option exercises was $0.6 million, $2.6 million and $1.3 million for 2013, 2012 and 2011, respectively.

RSU activity for the year ended December 31, 2013 is summarized as follows:


	Number of shares			Weighted Average Grant Date Fair Value
Outstanding at December 31, 2012		292,057		$	57.89
Granted		46,000		$	188.36
Forfeited		(12,750	)	$	94.22
Settled		(91,544	)	$	41.45

Outstanding at December 31, 2013		233,763		$	87.97

The grant-date intrinsic value of RSUs granted during the year ended December 31, 2013 was $8.7 million. At December 31, 2013, outstanding RSUs have a weighted average remaining contractual life of 1.0 years. The weighted-average grant-date fair value of RSUs granted during the years ended December 31, 2013, 2012 and 2011 was $188.36, $81.47 and $52.28 per share, respectively. The total fair value of RSUs vested during the years ended December 31, 2013, 2012 and 2011 was $17.9 million, $30.7 million and $2.9 million, respectively. For the years ended December 31, 2013, 2012 and 2011, a total of 38,222, 143,102 and 12,484 RSUs, respectively, were withheld through net share settlement by the Company to settle employee tax withholding obligations. The Company paid $7.5 million, $11.5 million and $0.7 million for the years ended December 31, 2013, 2012 and 2011, respectively, in employee tax withholding obligations related to RSUs withheld. These net share settlements had the effect of share repurchases by the Company as they reduced the number of shares that would have been otherwise issued as a result of the vesting.

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.