12. Stock-based compensation

Stock option and restricted stock activity

Options

The following table summarizes stock option activity for the nine months ended March 31, 2014 and 2013:


				Weighted			Weighted
			Weighted	Average			Average
			average	Remaining	Aggregate		Grant
			exercise	Contractual	Intrinsic		Date Fair
	Number of		price	Term	Value		Value
	shares		($)	(in years)	($' 000)		($)

Outstanding – June 30, 2013	2,648,583		15.15	5.98		313
Granted under Plan: August
2013	224,896		7.35	10.00		568	2.53
Exercised	(10,000	)	8.75			12
Forfeited	(136,420	)	23.51
Outstanding – March 31,
2014	2,727,059		14.12	5.63		2,290

Outstanding – June 30, 2012	2,247,583		16.28	6.43		602
Granted under Plan: August
2012	431,000		8.75	10.00		1,249	2.90
Exercised	(30,000	)	7.98			24
Outstanding – March 31,
2013	2,648,583		15.15	6.74		978

The fair value of each option is estimated on the date of grant using the Cox Ross Rubinstein binomial model that uses the assumptions noted in the following table. The estimated expected volatility is calculated based on the Company's 250 day volatility. The estimated expected life of the option was determined based historical behavior of employees who were granted options with similar terms. The Company has estimated no forfeitures for options awarded in August 2013 and 2014, respectively. The table below presents the range of assumptions used to value options granted during the three and nine months ended March 31, 2014 and 2013:


	Three and nine months ended
			March 31,
	2014		2013
Expected volatility	50	%	49	%
Expected dividends	0	%	0	%
Expected life (in years)	3		3
Risk-free rate	0.9	%	0.3	%

During the three and nine months ended March 31, 2014, terminated employees forfeited 136,420 stock options. There were no forfeitures during the three and nine months ended March 31, 2013.

The following table presents stock options vesting and expecting to vest as of March 31, 2014:


			Weighted
		Weighted	Average
		average	Remaining	Aggregate
		exercise	Contractual	Intrinsic
	Number of	price	Term	Value
	shares	($)	(in years)	($' 000)
Vested and expecting to vest
– March 31, 2014	2,727,059	14.12	5.63		2,290

These options have an exercise price range of $6.59 to $24.46.


			Weighted
			Average
		Weighted	Remaining	Aggregate
		average	Contractual	Intrinsic
	Number of	exercise	Term	Value
	shares	price ($)	(in years)	($'000)
Exercisable	1,998,497	$16.08	4.80	1,057

During each of the three months ended March 31, 2014 and 2013, respectively, no stock options became exercisable. During the nine months ended March 31, 2014 and 2013, respectively, 358,333 and 244,666 stock options became exercisable. Included in the 244,666 stock options are 30,000 stock options with respect to which the Remuneration Committee of the Board agreed to accelerate vesting, in August 2012, prior to the resignation of a non-employee director. During the three and nine months ended March 31, 2014, the Company received approximately $0.1 million from 10,000 stock options exercised. During the nine months ended March 31, 2013, the Company received approximately $0.2 million from 30,000 stock options exercised by the non-employee director that resigned. No stock options were exercised during the three months ended March 31, 2013. The Company issues new shares to satisfy stock option exercises.

Restricted stock

The following table summarizes restricted stock activity for the three and nine months ended March 31, 2014 and 2013:


			Weighted
	Number of		Average
	Shares of		Grant Date
	Restricted		Fair Value
	Stock		($' 000)
Non-vested – June 30, 2013	405,226			4,393
Granted – August 2013	187,963			1,382
Vested – August 2013	(16,907	)		161
Vested – February 2014	(183,333	)		1,742
Forfeitures – October 2013	(7,171	)		84
Non-vested – March 31, 2014	385,778			3,534

Non-vested – June 30, 2012	646,617			7,061
Granted – August 2012	21,569			189
Granted – February 2013	(183,333	)		1,016
Vested – August 2012	(23,436	)		216
Non-vested – March 31, 2013	461,417			4,988

The fair value of restricted stock vesting during the three months ended March 31, 2014 and 2013, respectively, was $1.7 million and $1.0 million. The fair value of restricted stock vesting during the nine months ended March 31, 2014 and 2013, respectively, was $1.9 million and $1.2 million. A non-employee director resigned during the nine months ended March 31, 2014, and forfeited 7,171 shares of restricted stock. Included in the 23,436 shares of restricted stock that vested in August 2012 are 8,547 shares with respect to which the Remuneration Committee of the Board agreed to accelerate vesting prior to the resignation of a non-employee director.

The fair value of restricted stock is based on the closing price of the Company's stock quoted on The Nasdaq Global Select Market on the date of grant.

Stock-based compensation charge and unrecognized compensation cost

The Company has recorded a stock compensation charge of $0.9 million and $1.1 million for the three months ended March 31, 2014 and 2013, respectively, which

comprised:


				Allocated to cost
				of goods sold, IT		Allocated to
				processing,		selling, general
		Total		servicing and		and
		charge		support		administration
Three months ended March 31, 2014
Stock-based compensation charge	$	922		-	$	922
Total – three months ended March 31, 2014	$	922	$	-	$	922

Three months ended March 31, 2013
Stock-based compensation charge	$	1,092	$	-	$	1,092
Total – three months ended March 31, 2013	$	1,092	$	-	$	1,092

The Company has recorded a stock compensation charge of $2.8 million and $3.3 million for the nine months ended March 31, 2014 and 2013, respectively, which comprised:


					Allocated to cost
					of goods sold, IT		Allocated to
					processing,		selling, general
		Total			servicing and		and
		charge			support		administration
Nine months ended March 31, 2014
Stock-based compensation charge	$	2,826		$	$-	$	2,826
Reversal of stock compensation charge related to
restricted stock forfeited		(6	)		-		(6	)
Total – nine months ended March 31, 2014	$	2,820		$	$-	$	2,820

Nine months ended March 31, 2013
Stock-based compensation charge	$	3,325		$	-	$	3,325
Total – nine months ended March 31, 2013	$	3,325		$	$-	$	3,325

The stock-based compensation charges have been allocated to selling, general and administration based on the allocation of the cash compensation paid to the employees.

As of March 31, 2014, the total unrecognized compensation cost related to stock options was approximately $1.1 million, which the Company expects to recognize over approximately three years. As of March 31, 2014, the total unrecognized compensation cost related to restricted stock awards was approximately $3.0 million, which the Company expects to recognize over approximately two years.

As of each of March 31, 2014 and June 30, 2013, respectively, the Company has recorded a deferred tax asset of approximately $1.5 million related to the stock-based compensation charge recognized related to employees and directors of Net1 as it is able to deduct the grant date fair value for taxation purposes in the United States.