18. STOCK-BASED COMPENSATION

Amended and Restated Stock Incentive Plan

The Company's Amended and Restated Stock Incentive Plan (the "Plan") has been approved by its shareholders. No evergreen provisions are included in the Plan. This means that the maximum number of shares issuable under the Plan is fixed and cannot be increased without shareholder approval, the plan expires by its terms upon a specified date, and no new stock options are awarded automatically upon exercise of an outstanding stock option. Shareholder approval is required for the repricing of awards or the implementation of any award exchange program.

The Plan permits Net1 to grant to its employees, directors and consultants incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, performance-based awards and other awards based on its common stock. The Remuneration Committee of the Company's Board of Directors ("Remuneration Committee") administers the Plan.

The total number of shares of common stock issuable under the Plan is 8,552,580. The maximum number of shares for which awards, other than performance-based awards, may be granted in any combination during a calendar year to any participant is 569,120. The maximum limits on performance-based awards that any participant may be granted during a calendar year are 569,120 shares subject to stock option awards and $20 million with respect to awards other than stock options. Shares that are subject to awards which terminate or lapse without the payment of consideration may be granted again under the Plan. Shares delivered to the Company as part or full payment for the exercise of an option or to satisfy withholding obligations upon the exercise of an option may be granted again under the Plan in the Remuneration Committee's discretion. No awards may be granted under the Plan after June 7, 2019, but awards granted on or before such date may extend to later dates.

Options

General Terms of Awards

Option awards are generally granted with an exercise price equal to the market price of the Company's stock at the date of grant, with vesting conditioned upon the recipient's continuous service through the applicable vesting date and expire 10 years after the date of grant. The options generally become exercisable in accordance with a vesting schedule ratably over a period of three years from the date of grant. The Company issues new shares to satisfy stock option award exercises but may also use treasury shares.

Valuation Assumptions

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 2015, 2014 and 2013. The table below presents the range of assumptions used to value options granted during the years ended June 30, 2015, 2014 and 2013:


	2015		2014		2013
Expected volatility	60	%	50	%	49	%
Expected dividends	0	%	0	%	0	%
Expected life (in years)	3		3		3
Risk-free rate	1.0	%	0.9	%	0.3	%

Restricted Stock

General Terms of Awards

Shares of restricted stock are considered to be participating non-vested equity shares (specifically contingently returnable shares) for the purposes of calculating earnings per share (refer Note 21) because, as discussed in more detail below, the recipient is obligated to transfer any unvested restricted stock back to the Company for no consideration and these shares of restricted stock are eligible to receive non-forfeitable dividend equivalents at the same rate as common stock. Restricted stock generally vests ratably over a three year period, with vesting conditioned upon the recipient's continuous service through the applicable vesting date and under certain circumstances, the achievement of certain performance targets, as described below.

Restricted stock awarded to non-employee directors and employees of the Company vests ratably over a three-year period. Recipients are entitled to all rights of a stockholder of the Company except as otherwise provided in the restricted stock agreements. These rights include the right to vote and receive dividends and/or other distributions. However, the restricted stock agreements generally prohibit transfer of any nonvested and forfeitable restricted stock. If a recipient ceases to be a member of the Board of Directors or an employee for any reason, all shares of his restricted stock that are not then vested and nonforfeitable will be immediately forfeited and transferred to the Company for no consideration.

The Company issues new shares to satisfy restricted stock awards.

Valuation Assumptions

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.

Performance Conditions - Restricted Stock Granted in November 2010

In November 2010, the Remuneration Committee approved an award of 83,000 shares of restricted stock to two of the Company's executive officers. The award provided for vesting of one-third of the award shares on each of November 10, 2011, 2012 and 2013, conditioned upon each recipient's continuous service through the applicable vesting date and the Company achieving the financial performance target for that vesting date. Specifically, the financial performance targets were Fundamental EPS, as defined below, of $1.44, $1.60 and $1.90 for the years ended June 30, 2011, 2012 and 2013, respectively. For the purpose of this award, Fundamental EPS was calculated as Company's diluted earnings per share as reflected in the Company's consolidated financial statements, measured in U.S. dollars and determined in accordance with GAAP, adjusted to exclude the effects related to the amortization of intangible assets and acquisition-related costs, stock-based compensation charges, foreign exchange gains and losses arising from foreign currency hedging transactions, and other items that the Committee determined in its discretion to be appropriate (for example, accounting changes and one-time or unusual items), and assumes a constant tax rate equal to the Company's effective tax rate for the year ended June 30, 2010. If Fundamental EPS for the specified fiscal year was not equal to or exceeded the Fundamental EPS target for such year, no award shares would vest or become nonforfeitable on the corresponding vesting date but would have been available to become vested and nonforfeitable as of a subsequent vesting date if the Fundamental EPS target for a subsequent fiscal year was met; provided that the recipient's service continued through such subsequent vesting date.

Any outstanding award shares that were not vested and nonforfeitable as of November 10, 2013, were forfeited by the recipient on November 10, 2013, and transferred to the Company for no consideration. One-third of the award shares vested on November 10, 2011. The remaining two-thirds of the restricted stock award did not vest because the financial performance target of $1.90 was not met for June 30, 2013. Refer also "—Stock option and restricted stock activity—restricted stock" below.

In August and November 2014, respectively, the Remuneration Committee approved an award of 127,626 and 71,530 shares of restricted stock to employees. These shares of restricted stock will vest in full only on the date, if any, the following conditions are satisfied: (1) the closing price of the Company's common stock equals or exceeds $19.41 (subject to appropriate adjustment for any stock split or stock dividend) for a period of 30 consecutive trading days during a measurement period commencing on the date that the Company files its Annual Report on Form 10-K for the fiscal year ended 2017 and ending on December 31, 2017 and (2) the recipient is employed by the Company on a full-time basis when the condition in (1) is met. If either of these conditions is not satisfied, then none of the shares of restricted stock will vest and they will be forfeited. The $19.41 price target represents a 20% increase, compounded annually, in the price of the Company's common stock on Nasdaq over the $11.23 closing price on August 27, 2014.

The 127,626 and 71,530 shares of restricted stock are effectively forward starting knock-in barrier options with a strike price of zero. The fair value of these shares of restricted stock was calculated utilizing an adjusted Monte Carlo simulation discounted cash flow model which was developed for the purpose of the valuation of these shares. For each simulated share price path, the market share price condition was evaluated to determine whether or not the shares would vest under that simulation. The "adjustment" to the Monte Carlo simulation model incorporates a "jump diffusion" process to the standard Geometric Brownian Motion simulation, in order to capture the discontinuous share price jumps observed in the Company's share price movements on stock exchanges on which it is listed. Therefore, the simulated share price paths capture the idiosyncrasies of the observed Company share price movements.

In scenarios where the shares do not vest, the final vested value at maturity is zero. In scenarios where vesting occurs, the final vested value on maturity is the share price on vesting date. The value of the grant is the average of the discounted vested values. The Company used an expected volatility of 76.01%, an expected life of approximately three years, a risk-free rate of 1.27% and no future dividends in its calculation of the fair value of the 127,626 shares of restricted stock. The Company used an expected volatility of 63.73%, an expected life of approximately three years, a risk-free rate of 1.21% and no future dividends in its calculation of the fair value of the 71,530 shares of restricted stock. Estimated expected volatility was calculated based on the Company's 30 day VWAP share price using the exponentially weighted moving average of returns.

Amended and Restated Stock Incentive Plan (continued)

Stock Appreciation Rights

The Remuneration Committee also may grant stock appreciation rights, either singly or in tandem with underlying stock options. Stock appreciation rights entitle the holder upon exercise to receive an amount in any combination of cash or shares of common stock (as determined by the Remuneration Committee) equal in value to the excess of the fair market value of the shares covered by the right over the grant price. No stock appreciation rights have been granted.

Stock option and restricted stock activity

Options

The following table summarizes stock option activity for the years ended June 30, 2015, 2014 and 2013:


				Weighted
				Average				Weighted
			Weighted	Remaining		Aggregate		Average
			average	Contractual		Intrinsic		Grant
	Number of		exercise	Term		Value		Date Fair
	shares		price ($)	(in years)	($'	000	)	Value ($)
Outstanding – July 1, 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 – 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	(26,667	)	7.00			91
Forfeited	(136,420	)	23.51			-
Outstanding – June 30, 2014	2,710,392		14.16	5.38		3,909
Granted under Plan: August 2014	464,410		11.23	10.00		2,113		4.55
Exercised	(773,633	)	8.35			3,845
Outstanding – June 30, 2015	2,401,169		15.34	4.74		11,516

The following table presents stock options vesting and expecting to vest as of June 30, 2015:


			Weighted
		Weighted	Average
		average	Remaining		Aggregate
		exercise	Contractual		Intrinsic
	Number of	price	Term		Value
	shares	($)	(in years)	($'	000	)
Vested and expecting to vest
– June 30, 2015	2,401,169	15.34	4.74		11,516

These options have an exercise price range of $7.35 to $24.46.

The following table presents stock options that are exercisable as of June 30, 2015:


			Weighted
			Average
		Weighted	Remaining		Aggregate
		average	Contractual		Intrinsic
	Number of	exercise	Term		Value
	shares	price ($)	(in years)	($'	000	)
Exercisable – June 30, 2015	1,643,163	17.82	2.96		5,234

During the years ended June 30, 2015, 2014 and 2013, approximately 330,967, 462,333, and 442,666 stock options became exercisable, respectively. Included in the 442,666 stock options are 30,000 stock options with respect to which the Remuneration Committee of the Board agreed to accelerate vesting prior to the resignation of a non-employee director. The stock option vesting was accelerated in recognition of this director's long service and valued contributions.

During the year ended June 30, 2015, the Company received approximately $2.0 million from 201,395 stock options exercised. The remaining 572,238 stock options were exercised through recipients delivering 336,584 shares of the Company's common stock to the Company on September 9, 2014, to settle the exercise price due. During the year ended June 30, 2014, the Company received $0.2 million from 26,667 stock options exercised by employees. During the year ended June 30, 2013, the Company received approximately $0.2 million from 30,000 stock options exercised by the non-employee director that resigned. During the years ended June 30, 2014, employees forfeited 136,420 stock options. There were no forfeitures during the years ended June 30, 2015 and 2013, respectively. The Company issues new shares to satisfy stock option exercises.

Restricted stock

The following table summarizes restricted stock activity for the years ended June 30, 2015, 2014 and 2013:

	Number of			Weighted
	Shares of			Average Grant
	Restricted			Date Fair Value
	Stock		($'	000	)
Non-vested – July 1, 2012	646,617			7,061
Granted – August 2012	21,569			189
Vested – August 2012	(23,436	)		216
Vested – February 2013	(183,333	)		1,016
Vested – May 2013	(858	)		7
Total vested	(207,627	)
Forfeitures	(55,333	)		407
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
Total vested	(200,240	)
Forfeitures	(7,171	)		84
Non-vested – June 30, 2014	385,778			3,534
Granted – August 2014	141,707			581
Granted – November 2014	71,530			229
Total granted	213,237
Vested – August 2014	(74,152	)		828
Vested – February 2015	(183,334	)		2,400
Total vested	(257,486	)
Non-vested – June 30, 2015	341,529			1,759

The fair value of restricted stock vested during the years ended June 30, 2015, 2014 and 2013, was $3.2 million, $1.9 million and $1.2 million, respectively. A non-employee director resigning during the year ended June 30, 2014, forfeited 7,171 shares of restricted stock that had not vested. 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 second and third tranche totaling 55,333 shares of restricted stock granted in November 2010 to two executive officers did not vest because the agreed performance target was not achieved. Forfeited shares of restricted stock are returned to the Company and, in accordance with the Plan, are available for future issuances by the Remuneration Committee.

Stock-based compensation charge and unrecognized compensation cost

The Company has recorded a net stock compensation charge of $3.2 million, $3.7 million and $3.9 million for the years ended June 30, 2015, 2014 and 2013, respectively, which comprised:

				Allocated to
				cost of goods
				sold, IT		Allocated to
		Total		processing,		selling,
		charge		servicing		general and
		(reversal)		and support		administration
Year ended June 30, 2015
Stock-based compensation charge	$	3,195		$-	$	3,195
Total – year ended June 30, 2015	$	3,195		$-	$	3,195
Year ended June 30, 2014
Stock-based compensation charge	$	3,724		$-	$	3,724
Reversal of stock compensation charge related to restricted stock
forfeited		(6	)	-		(6	)
Total – year ended June 30, 2014	$	3,718		$-	$	3,718
Year ended June 30, 2013
Stock-based compensation charge	$	4,387		$-	$	4,387
Reversal of stock compensation charge related to restricted stock
forfeited		(480	)	-		(480	)
Total – year ended June 30, 2013	$	3,907		$-	$	3,907

The stock compensation charge and reversals have been allocated to cost of goods sold, IT processing, servicing and support and selling, general and administration based on the allocation of the cash compensation paid to the employees.

As of June 30, 2015, the total unrecognized compensation cost related to stock options was approximately $1.6 million, which the Company expects to recognize over approximately two years. As of June 30, 2015, the total unrecognized compensation cost related to restricted stock awards was approximately $1.2 million, which the Company expects to recognize over approximately two years.

Tax consequences

The Company has recorded a deferred tax asset of approximately $1.4 million and $1.6 million, respectively, for the years ended June 30, 2015 and 2014, related to the stock-based compensation charge recognized related to employees of Net1 as it is able to deduct the difference between the market value on date of exercise by the option recipient and the exercise price from income subject to taxation in the United States.