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VITAE PHARMACEUTICALS, INC filed this Form S-1/A on 08/28/2014
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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. Stock-based 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 straight-line basis as if the current estimates had been utilized since the beginning of the service period.

        The Company uses the Black-Scholes valuation model to estimate the fair value of stock options at the grant date. The Black-Scholes 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 risk-free investments, and the expected dividend yield for the Company's stock.

        The fair values of stock options granted were calculated using the following weighted-average assumptions:

  Year Ended
December 31,
  2013   2012  

Weighted-average risk-free 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 weighted-average valuation assumptions were determined as follows:

    Weighted-average risk-free interest rate: The Company bases the risk-free 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.