Until the IPO was completed in 2018, equity-based awards were issued to executives, directors and key employees of the Company under the Victory Capital Holdings, Inc. Equity Incentive Plan (the “2013 Plan”) and the Outside Director Equity Incentive Plan (the “Director Plan”).

In connection with the IPO, the Company’s board of directors adopted, and the Company’s stockholders approved, the Victory Capital Holdings, Inc. 2018 Stock Incentive Plan (the “2018 Plan”), and the Victory Capital Holdings, Inc. 2018 Employee Stock Purchase Plan (the “2018 ESPP Plan”), each of which became effective upon the completion of the IPO.

The 2018 Plan authorizes the grant of non-qualified stock options, incentive stock options, restricted stock awards, restricted stock units, stock appreciation rights, performance awards and other awards that may be settled in or based upon shares of our Class A common stock or Class B common stock (collectively, the “Shares”), though the Company currently intends to grant these awards based upon shares of Class B common stock. As the 2018 Plan took effect upon completion of the IPO, no further grants will be made under the 2013 Plan.

A total of 1,928,987 shares outstanding out of 3,372,484 of either Class A or Class B common stock, or any combination thereof, as determined by the Compensation Committee are reserved for and available for issuance under the 2018 Plan. Shares underlying awards that are settled in cash, expire or are canceled, forfeited or otherwise terminated without delivery to a participant will again be available for issuance under the 2018 Plan. Shares withheld or surrendered in connection with the payment of an exercise price of an award or to satisfy tax withholding will again become available for issuance under the 2018 Plan.

In June 2018, the Compensation Committee of the Company’s board of directors approved the terms and conditions for the first offering under the 2018 ESPP Plan. A total of 350,388 shares of Class A common stock was available to issue under the 2018 ESPP Plan. The first offering ran for eighteen months, from July 1, 2018 to December 31, 2019, and included three, six month offering periods.

In October 2019, the Compensation Committee of the Company’s board of directors approved the terms and conditions for a second offering under the 2018 ESPP Plan. The second offering will run for twenty-four months from January 1, 2020 to December 31, 2021 and will include four, six month offering periods.

For both the first and second offerings under the 2018 ESPP Plan, shares of Class A common stock are available for purchase at three month calendar intervals at a 5 percent discount from the market price on the purchase date, which is the last day of each calendar quarter during the offering. Amounts purchased by an individual cannot exceed $25,000 worth of stock in any given calendar year. The 2018 ESPP Plan is a non-compensatory plan and includes no option features other than employees may change their contributions or withdraw from the plan once during each six month offering period during a specified time approved by the Company. All U.S.-based employees are eligible to participate in the 2018 ESPP.

As of December 31, 2019, 1,442,768 restricted share grants and 33,540 stock option awards had been issued under the 2018 Plan, and 6,716 shares of Class A common stock had been issued under the 2018 ESPP Plan.

All stock option awards are considered non‑qualified. Shares of common stock subject to stock option awards granted in 2019 vest based on service over a three year period. Sixty percent of the shares of common stock subject to stock option awards granted prior to 2019 generally vest based on service; the remaining forty percent of the shares of common stock subject to each option vest upon satisfaction of various performance conditions. For certain stock option awards granted on July 29, 2016, fifty percent of the shares of common stock subject to each option vest based on service and the remaining fifty percent of the shares of common stock subject to each option vest upon satisfaction of various performance conditions.

As of December 31, 2019, stock option awards to purchase an aggregate of 7,880,167 shares of common stock had been granted and were outstanding, and restricted share awards for 3,215,619 shares of common stock had been granted and were unvested. As of December 31, 2018, stock option awards to purchase an aggregate of 9,070,052 shares of common stock and restricted share awards for 2,997,856 shares of common stock had been granted and were outstanding. As of December 31, 2017, stock option awards to purchase an aggregate of 9,078,728 shares of common stock and restricted share awards for 1,293,107 shares of common stock had been granted and were outstanding.

In 2019, the Company issued grants for 1,196,820 restricted shares of common stock and stock option awards for 31,178 shares of common stock under the 2018 Plan.

The 2019 grants of restricted shares included grants for 18,943 restricted shares of common stock that were fully vested on the grant date, grants for 1,144,589 restricted shares of common stock that vest over three years and 33,288 restricted shares of common stock that vest over five years. Shares of common stock subject to the option awards granted in 2019 vest based on service over a three year period.

The following tables presents activity during the years ended December 31, 2019, 2018 and 2017 related to stock option awards and restricted stock awards.

	Shares Subject to Stock Option Awards
	Year to Date Ended December 31,
	2019							2018							2017
	Avg wtd		Avg wtd					Avg wtd		Avg wtd					Avg wtd		Avg wtd
	grant-date		exercise					grant-date		exercise					grant-date		exercise
	fair value		price		Units			fair value		price		Units			fair value		price		Units
Outstanding at beginning of period	$	3.79	$	6.12		9,070,052		$	3.66	$	5.71		9,078,728		$	3.40	$	4.90		8,669,475
Granted		7.25		17.64		31,178			6.51		14.25		359,618			6.14		13.52		774,357
Forfeited		5.01		9.68		(274,774	)		6.39		14.00		(16,791	)		3.02		3.81		(132,972	)
Exercised		3.19		4.24		(946,289	)		3.01		3.56		(351,503	)		2.54		2.45		(73,406	)
Modified to liability to be cash settled		—		—		—			—		—		—			2.61		2.62		(158,726	)
Outstanding at end of the period	$	3.83	$	6.27		7,880,167		$	3.79	$	6.12		9,070,052		$	3.66	$	5.71		9,078,728
Vested	$	3.61	$	5.59		6,724,030		$	3.35	$	4.76		6,653,228		$	3.17	$	4.19		5,731,647
Unvested		5.10		10.25		1,156,137			5.00		9.88		2,416,824			4.49		8.31		3,347,081

Total intrinsic value of stock options exercised in 2019, 2018 and 2017 was $12.8 million, $2.3 million and $0.8 million, respectively.

	Restricted Stock Awards
	For Year Ended December 31,
	2019					2018					2017
	Avg wtd					Avg wtd					Avg wtd
	fair value		Units			fair value		Units			fair value		Units
Unvested at beginning of period	$	13.17		2,997,856		$	11.82		1,293,107		$	9.48		1,018,228
Granted		16.27		1,196,820			13.77		1,924,691			13.52		623,165
Vested		12.83		(521,701	)		10.42		(217,630	)		7.99		(339,701	)
Forfeited		13.42		(457,356	)		14.27		(2,312	)		8.81		(8,585	)
Unvested at end of period	$	14.29		3,215,619		$	13.17		2,997,856		$	11.82		1,293,107

	Director Plan Restricted Stock Awards
	For Year Ended December 31,
	2019				2018				2017
	Avg wtd				Avg wtd				Avg wtd
	fair value		Units		fair value		Units		fair value		Units
Unvested at beginning of period	$	—		—	$	—		—	$	5.71		49,230
Granted		—		—		—		—		—		—
Vested		—		—		—		—		5.71		(49,230	)
Forfeited		—		—		—		—		—		—
Unvested at end of period	$	—		—	$	—		—	$	5.71		—

Share‑based compensation expense for equity awards is measured at the grant date, based on the estimated fair value of the award, and recognized over the requisite employee service period. Stock option awards have a ten year contractual life.

In 2018, prior to the IPO, the Company issued grants for 1,678,743 restricted shares of common stock and stock option awards for 357,256 shares of common stock under the 2013 Plan. Grants for 1,609,857 restricted shares of common stock consisted of time-vested restricted shares (50%) and restricted shares that vest in three equal installments based on market conditions (achievement of certain share price targets) (50%). The time-vested portion of the restricted share awards vest over a three to five year period. For the remaining grants of 68,886 restricted shares of common stock, the shares vest based on service over a four year period. For the grants of restricted shares with market conditions, the shares vest over the derived service period of three to five years. For the stock option awards granted on January 1, 2018, sixty percent of the shares of common stock subject to each option vest based on service over a four year period; the remaining forty percent of the shares of common stock subject to each option vest upon satisfaction of various performance conditions.

In 2018, after the IPO, the Company issued grants for 30,834 restricted shares of common stock that were fully vested on the grant date, grants for 202,883 restricted shares of common stock that vest over three years and 12,231 restricted shares of common stock that vest over four years. In addition, we issued stock option awards for 2,362 shares of common stock. Fifty percent of the shares of common stock subject to this option award vest based on service over a three year period; the remaining fifty percent of the shares of common stock subject to this option award vest upon achievement of certain performance and market conditions.

For awards granted after the IPO, the Company used the Class A common stock closing price on the grant date as the grant date fair value of the stock. The fair value of stock option awards was determined using a number of inputs including expected volatility, which was based on a consideration of the average volatility of companies in the same or similar lines of business adjusted for differing levels of leverage and our volatility for the post-IPO period.

For restricted share awards granted on March 31, 2017 and July 1, 2017, fifty percent of the shares vest on the third anniversary of the grant date and the remaining fifty percent vest upon achievement of certain share prices for the Company's stock. For restricted share awards granted on July 29, 2016 and certain stock option awards granted on July 31, 2017 and July 29, 2016, the restricted shares and the service portion of the stock option awards vest ratably at 20% per year over a five‑year period. The remaining restricted stock awards issued prior to 2019, including restricted stock awards granted on March 10, 2017, and service portion of all other stock option awards vest ratably at 25% over a four‑year period from date of grant. The performance portion of certain stock option awards granted on July 31, 2017 and July 29, 2016 vest based on achievement of revenue and AUM levels related to specific investment franchises. For all other stock option awards awarded prior to 2018, the performance portion of the awards vests upon the Company's achievement of certain revenue, assets under management, and earnings before interest, taxes, depreciation and amortization levels.

The grant date fair value of stock option awards with service and performance conditions is computed using Black‑Scholes option pricing framework. The following table presents the grant date fair value of stock option awards granted during the years ended December 31, 2019, 2018 and 2017 computed using the following assumptions:

The fair value of stock option awards granted in 2019 was determined using a number of inputs including expected volatility, which was based on a consideration of the average volatility of companies in the same or similar lines of business adjusted for differing levels of leverage and the Company’s volatility for the post-IPO period. The expected term was determined using the simplified method detailed in SEC Staff Accounting Bulletin No. 10.

For awards granted post-IPO in 2018, the Company used the Class A common stock closing price on the grant date as the grant date fair value of the stock. Prior to the IPO, the Company used both a market approach and income approach to estimate the current stock price used in the valuation of restricted share and stock option awards. The market approach considered the then current EBITDA multiples and price/earnings multiples of comparable public companies. The income approach considered management's forecast of operating results, a long-term growth rate and a discount rate. The results of the market and income approach were weighted in developing the estimate of fair value.

The expected life of the options granted in 2017 was based on the average holding period for a private equity investment. The risk free interest rate was based on the yield for the U.S. Treasury coupon strip with a maturity date equal to the expected life of the award. As the Company's common shares were not publicly traded in 2017, we calculated expected volatility based on an average volatility of companies in the same or similar lines of business adjusted for differing levels of leverage.

In 2018 and 2017, the Company's board of directors approved modifications to a limited number of stock option awards to revise performance conditions to be achieved for vesting. These modifications resulted in an adjustment to share-based compensation expense of an immaterial amount.

Also in 2018 and 2017, we revised the estimate of time it expected to take to achieve the performance conditions on certain performance-vested restricted share awards. Cumulative catch up adjustments were recorded in each case so that the cumulative recognized share-based compensation cost on the performance options was equal to what would have been recognized had the new estimate been used since the grant date.

In February 2017, the Company declared and paid a special dividend (the “2017 Special Dividend”) of $2.19 per share. Holders of restricted shares that were unvested at the time the 2017 Special Dividend was declared are paid the 2017 Special Dividend when the restricted shares vest. The strike price per share for all stock option awards granted prior to February 2017 was reduced by $2.19 under the anti-dilution provisions of the stock option grant agreements.

In December 2017, we declared a dividend of $0.23 per share (December 2017 Dividend). Holders of restricted stock awards that were unvested at the time the December 2017 Dividend was declared are paid the December 2017 Dividend when the restricted stock vests. Holders of stock options that were unvested at the time the December 2017 Dividend was declared receive a cash bonus equivalent of $0.23 per share when the stock options vest.

In August 2019, the Company announced the initiation of quarterly cash dividends and paid the first quarterly dividends in September and December 2019. Holders of restricted stock awards that are unvested at the time the quarterly dividends are declared are entitled to be paid these dividends as and when the restricted stock vests.

As of December 31, 2019, 2018 and 2017, the amount of cash bonuses and distributions related to dividends previously declared on restricted shares and options expected to vest in the future totaled $1.3 million, $1.8 million and $2.0 million, respectively, which is not recorded as a liability as of the balance sheet date. A liability will be recorded for these cash bonuses and dividends when the restricted shares and options vest.

In 2019, the Company recorded $16.3 million of share-based compensation expense related to the 2018 Plan. In 2018, the Company recorded $15.2 million of share-based compensation expense related to the 2013 Plan and 2018 Plan and in 2017, $11.8 million of share-based compensation expense related to the 2013 Plan. Share-based compensation expense is recorded in personnel compensation and benefits in the Consolidated Statements of Operations. The related tax benefits were $4.0 million, $3.8 million and $4.6 million for the fiscal years 2019, 2018, and 2017, respectively.

In 2019 and 2018, we did not recognize any share-based compensation expense related to the Director Plan. In 2017, we recognized Director Plan share-based compensation expense of $0.2 million, which is recorded in general and administrative expense.

As of December 31, 2019, the Company expects to recognize total share-based compensation expense of $32.6 million over a weighted average period of 1.7 years. The total fair value of restricted share awards vested during the years ended December 31, 2019, 2018 and 2017 was $9.7 million, $2.0 million and $4.6 million respectively; the fair value of restricted share awards vested under the Director Plan was $0.7 million in 2017. The aggregate intrinsic value of stock options currently exercisable at December 31, 2019, 2018 and 2017 was $103.4 million, $36.3 million and $57.8 million respectively.