Table of Contents
Vitae Pharmaceuticals, Inc.
Notes to the Financial Statements (Continued)
For the Years Ended December 31, 2013 and 2012
9. Employee Compensation Plans (Continued)
development
progress, which were established by the Board of Directors and (ii) the passage of time subsequent to the achievement of such performance conditions. The Board of Directors
determines if the performance conditions have been met. Stockbased compensation expense for these options is recorded when management estimates that the vesting of these options is probable based on
the status of the Company's research and development programs and other relevant factors. Any change in these estimates will result in a cumulative adjustment in the period in which the estimate is
changed, so that as of the end of a period, the cumulative compensation expense recognized for an award or grant
equals the amount that would be recognized on a straightline basis as if the current estimates had been utilized since the beginning of the service period.
The
Company uses the BlackScholes valuation model to estimate the fair value of stock options at the grant date. The BlackScholes valuation model requires the Company to make certain
estimates and assumptions, including assumptions related to the expected price volatility of the Company's stock, the period during which the options will be outstanding, the rate of return on
riskfree investments, and the expected dividend yield for the Company's stock.
The
fair values of stock options granted were calculated using the following weightedaverage assumptions:










Year Ended
December 31, 



2013 

2012 

Weightedaverage riskfree interest rate 


1.42% 


0.90% 

Expected term of options (in years) 


6.25 


6.25 

Expected stock price volatility 


85.00% 


86.16% 

Expected dividend yield 


0% 


0% 

The
weightedaverage valuation assumptions were determined as follows:
 •
 Weightedaverage riskfree interest rate: The Company bases the riskfree interest rate on the interest rate payable on
U.S. Treasury securities in effect at the time of grant for a period that is commensurate with the assumed expected option term.
 •
 Expected term of options: The expected term of options
represents the period of time options are expected to be
outstanding. The expected term of the options granted is derived from the "simplified" method as described in Staff Accounting Bulletin ("SAB") 107 relating to ASC 718.
 •
 Expected stock
price volatility: The expected volatility is based on historical volatilities of similar entities within
the Company's industry which were commensurate with the Company's expected term assumption as described in SAB 107.
 •
 Expected dividends yield: The estimate for annual dividends is
$0.00, because the Company has not historically paid, and
does not expect for the foreseeable future to pay, a dividend.
 •
 Estimated forfeiture rate: The Company's estimated annual forfeiture rate on stock option grants is based on the
historical forfeiture experience of various employee groups.
The
total cash received from employees as a result of employee stock option exercises during the years ended December 31, 2013 and 2012 was $70,762 and $13,357, respectively.
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