12. Stock-based compensation

Stock option and restricted stock activity

Options

The following table summarizes stock option activity for the three and six months ended December 31, 2013 and 2012:


				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
Outstanding – December
31, 2013	2,873,479		14.54	5.79	1,037

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 – December
31, 2012	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 2012, respectively. The table below presents the range of assumptions used to value options granted during the three and six months ended December 31, 2013 and 2012:


	Three and six months ended
	December 31,
	2013		2012
Expected volatility	50	%	49	%
Expected dividends	0	%	0	%
Expected life (in years)	3		3
Risk-free rate	0.9	%	0.3	%

The following table presents stock options vesting and expecting to vest as of December 31, 2013:


			Weighted
		Weighted	Average	Aggregat
		average	Remaining	e
		exercise	Contractual	Intrinsic
	Number of	price	Term	Value
	shares	($)	(in years)	($'000)
Vested and expecting to vest
– December 31, 2013	2,873,479	14.54	5.79	1,037

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	2,144,917	$	16.51	4.97	$	566

During each of the three months ended December 31, 2013 and 2012, respectively, 159,666 stock options became exercisable. During the six months ended December 31, 2013 and 2012, 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 six months ended December 31, 2012, 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 and six months ended December 31, 2013 or during the three months ended December 31, 2012. The Company issues new shares to satisfy stock option exercises.

Restricted stock

The following table summarizes restricted stock activity for the three and six months ended December 31, 2013 and 2012:


				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
Forfeitures – October 2013	(7,171	)		161
Non-vested – December 31, 2013	569,111			5,572

Non-vested – June 30, 2012	646,617			7,061
Granted – August 2012	21,569			189
Vested – August 2012	(23,436	)		216
Non-vested – December 31, 2012	644,750		$	7,021

No restricted stock vested during the three months ended December 31, 2013 and 2012, respectively. The fair value of restricted stock vesting during the six months ended December 31, 2013 and 2012, respectively, was $0.2 million and $0.2 million. A non-employee director resigned during the three months ended December 31, 2013, 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 $1.0 million and $1.1 million for the three months ended December 31, 2013 and 2012, 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 December 31, 2013
Stock-based compensation charge	$	974			-	$	974
Reversal of stock compensation charge related to
restricted stock forfeited		(6	)		-		(6	)
Total – three months ended December 31, 2013 .	$	968		$	-	$	968

Three months ended December 31, 2012
Stock-based compensation charge	$	1,117		$	-	$	1,117
Total – three months ended December 31, 2012	$	1,117		$	-	$	1,117

The Company has recorded a stock compensation charge of $1.9 million and $2.2 million for the six months ended December 31, 2013 and 2012, respectively, which comprised:


					Allocated to cost
					of goods sold, IT		Allocated to
					processing,		selling, general
		Total			servicing and		and
		charge			support		administration
Six months ended December 31, 2013
Stock-based compensation charge	$	1,904		$	-	$	1,904
Reversal of stock compensation charge related to
restricted stock forfeited		(6	)		-		(6	)
Total – six months ended December 31, 2013	$	1,898		$	-	$	1,898

Six months ended December 31, 2012
Stock-based compensation charge	$	2,233		$	-	$	2,233
Total – six months ended December 31, 2012	$	2,233		$	-	$	2,233

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 December 31, 2013, the total unrecognized compensation cost related to stock options was approximately $1.3 million, which the Company expects to recognize over approximately three years. As of December 31, 2013, the total unrecognized compensation cost related to restricted stock awards was approximately $3.6 million, which the Company expects to recognize over approximately two years.

As of each of December 31, 2013 and June 30, 2013, respectively, the Company has recorded a deferred tax asset of approximately $1.4 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.