NOTE 11: STOCK COMPENSATION

During fiscal 2015, we granted awards to employees based upon underlying shares that were not issued, and therefore we accounted for these as phantom share-based awards under FASB ASC 718-30. These awards were classified as a current liability and recorded at their fair value of $3.9 million under “Accounts payable, accrued expenses and other current liabilities” in our consolidated balance sheets as of September 30, 2015. During the six-months ended March 31, 2016, we issued sufficient shares to allow treatment of these phantom share-based awards as equity awards under FASB ASC 718-20 and reclassified these awards to "Additional paid-in capital" in our consolidated balance sheets. We continue recognizing compensation costs for these awards based on the original grant date fair value as the fair value of these awards have declined since the issuance and thus there were no incremental compensation costs. See Note 7 for additional information regarding the phantom share-based awards.

On May 1, 2010 our Board of Directors approved the adoption of the EZCORP, Inc. 2010 Long-Term Incentive Plan (the “2010 Plan”). The 2010 Plan permits grants of options, restricted stock awards and stock appreciation rights covering up to 1,575,750 shares of our Class A Common Stock plus any shares that become available for issuance under either the 2010 Plan or prior plans as a result of forfeitures or cancellations of awards without delivery of shares or as a result of withholding shares to satisfy tax withholding obligations. In February 2015, March 2015 and March 2016, the Board of Directors and the voting stockholder approved the addition of 643,673 shares, 1,081,200 shares and 185,026, respectively, shares to the 2010 Plan.

In March 2016, we granted 961,718 restricted stock unit awards (exclusive of canceled and replaced awards discussed below) to employees which were allocated based on the October 1, 2015 price of $6.17 per share and 130,000 restricted stock awards to non-employee directors with a grant date fair value of $2.96 per share. The awards granted to employees vest on September 30, 2018 subject to the achievement of certain performance targets. As of September 30, 2016, we considered the achievement of these performance targets probable. The awards granted to non-employee directors vest over two years, 50% on September 30, 2016 and 50% on September 30, 2017.

In connection with the March 2016 grant discussed above, we canceled 720,000 previously issued restricted stock awards that were subject to vesting based on certain stock price levels and had a grant date fair value of $3.4 million and replaced them with 421,394 performance-based restricted stock awards described above. The cancellation and replacement of these awards was treated as a modification with unrecognized compensation cost from the original awards of $1.5 million plus incremental compensation costs resulting from the modification of $0.8 million recognized over the new requisite service period through September 30, 2018.

In the first quarter of fiscal 2015, we determined the performance targets required for performance based awards issued prior to fiscal 2015 to vest (which were based on EBITDA growth) were improbable of being achieved, and therefore we reversed all expense previously recognized in prior periods in the quarter ended December 31, 2014. In the first quarter of fiscal 2016, the Compensation Committee of the Board of Directors approved certain adjustments to the calculation of EBITDA for purposes of measuring year-over-year EBITDA growth. With these adjustments, the fiscal 2015 performance target was probable of being achieved. This triggered a type III modification, as defined under FASB ASC 718, creating a change from an improbable to probable vesting condition. This required that we calculate a new fair value as of the date of the modification (considered to be September 30, 2015) and catch up expense for all probable performance based awards as of September 30, 2015 at the new fair-value. The expense recorded to true-up these awards was $1.5 million.

In connection with the retirement of our Executive Chairman effective June 30, 2014, we agreed to accelerate the vesting of 270,000 shares of restricted stock and recorded $2.2 million of the related gross compensation costs in the three-months ended March 31, 2014. Out of the 270,000 shares, 135,000 shares would have otherwise vested on October 2, 2014 and 135,000 shares would have otherwise vested on October 2, 2016.

As of September 30, 2016, the unamortized fair value, exclusive of forfeitures, of restricted stock awards to be amortized over their remaining vesting periods was approximately $5.6 million and the fair value of all options had been fully amortized to expense. The weighted-average period over which these costs will be amortized is approximately two years.

Our non-employee directors are eligible for grants of restricted stock awards and non-qualified stock options. All options and restricted stock relate to our Class A Common Stock. No options have been granted to non-employee directors since fiscal 2007. The restricted stock awards that have been granted to non-employee directors in fiscal 2016, 2015 and 2014 vest over two years from the date of grant (50% on or about the first anniversary of the date of grant and 50% on or about the second anniversary).

Restricted stock awards, non-qualified options and incentive stock options have been granted to our officers and employees under our 1998, 2003, 2006 and 2010 incentive plans. A portion of the restricted stock awards granted in fiscal 2016, 2015 and 2014 contain both performance and time-based vesting provisions and generally vest over three years. Additionally, there are fiscal 2015 awards that are market-conditioned in which a certain number of shares vest in specified amounts if the per-share trading price of our Class A Common Stock achieves specified levels ranging from $15 to $80 within six years. These market-conditioned shares are also subject to a transfer restriction until the end of the vesting period. The derived service period on these shares as of the date of issuance was between 1.1 and 4 years and varies by tranche. The fair value of fiscal 2015 phantom share-based awards that were estimated using the Monte Carlo simulation model incorporated the closing share price of our Class A Common Stock on the date of grant (considered, for this purpose, to be October 1, 2014), as well as certain assumptions discussed in Note 7.

The following table presents the compensation costs related to our stock compensation arrangements:



	Fiscal Year Ended September 30,
	2016			2015			2014

	(in thousands)
Gross compensation costs:
Phantom stock	$	—		$	3,932		$	—
Restricted stock	5,346			(1,558		)	6,845
Total gross compensation costs	5,346			2,374			6,845

Income tax benefits:
Restricted stock	(963		)	—			(3,576		)
Total income tax benefits	(963		)	—			(3,576		)
Net compensation expense	$	4,383		$	2,374		$	3,269

The following table presents a summary of restricted stock award activity as of, and for the fiscal year ended September 30, 2016:



	Shares		Weighted Average Grant Date Fair Value

Outstanding as of September 30, 2015	583,161		$	18.94
Granted	1,612,062		3.53
Other (a)	1,701,750		5.53
Released (b)	(459,653	)	6.76
Modified (c)	(720,000	)	4.74
Forfeited	(305,820	)	16.07
Outstanding as of September 30, 2016	2,411,500		$	5.77


(a)	Includes remaining outstanding non-forfeited awards from 1,863,550 shares accounted for as phantom share-based awards for which $3.9 million was accrued as of September 30, 2015 as discussed above.


(b)	36,598 shares were withheld to satisfy related federal income tax withholding.

The following table presents a summary of the fair values of shares granted:



	Fiscal Year Ended September 30,
	2016		2015			2014

	(in millions except per share amounts)
Weighted average grant-date fair value per share granted (a)	$	3.53	$	10.34	(b)	$	14.58
Total grant date fair value of shares vested	$	2.3	$	1.8		$	7.6


(a)	Awards with market-conditioned vesting provisions are valued using a Monte Carlo simulation model. See Note 7 for discussion of Monte Carlo simulation model fair value inputs. Awards with performance and time-based vesting provisions are generally valued based upon the underlying share price as of the issuance date.


(b)	Fiscal 2015 shares granted exclude phantom share-based awards. Including these shares, weighted average grant-date fair value was $5.69 per share.

On March 25, 2014, following the shareholders' approval, we filed with the Secretary of State of the State of Delaware a Certificate of Amendment to our Amended and Restated Certificate of Incorporation to increase the number of authorized Class A Common Stock from 55,550,000 to 100,000,000.