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 five 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 2014, 2013 and 2012. The table below presents the range of assumptions used to value options granted during the years ended June 30, 2014, 2013 and 2012:


	2014	2013	2012
Expected volatility	50%	49%	37% - 39%
Expected dividends	0%	0%	0%
Expected life (in years)	3	3	3
Risk-free rate	0.9%	0.3%	1.9% - 0.9%

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 October and November 2010

In October 2010, the Remuneration Committee approved an award of 60,000 shares of restricted stock to an executive officer of the Company. Under the terms of the award, the shares would vest on June 30, 2014, conditioned upon the employee's continuous service through June 30, 2014, and on the employee receiving an incremental incentive bonus, as defined in the employee's employment agreement for each of the periods ended June 30, 2011, 2012, 2013 and 2014.

Any outstanding award shares that had not become vested and nonforfeitable as of June 30, 2014, would be forfeited by the recipient on June 30, 2014, and transferred to the Company for no consideration. The October 2010 restricted stock award did not vest because the financial performance target was not met for June 30, 2011. Refer also "—Stock option and restricted stock activity—restricted stock" below.

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 have not become vested and nonforfeitable as of November 10, 2013, will be 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.

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, 2014, 2013 and 2012:


				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, 2011	2,120,656		18.44	6.82	243
Granted under Plan: August 2011	165,000		6.59	10.00	297	1.80
Granted under Plan: October 2011	202,000		7.98	10.00	442	2.19
Forfeitures	(240,073	)	21.68		-
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 – 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

The following table presents stock options vesting and expecting to vest as of June 30, 2014:


			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, 2014	2,710,392	14.16	5.38	3,909

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

The following table presents stock options that are exercisable as of June 30, 2014:


			Weighted
			Average
		Weighted	Remaining	Aggregate
		average	Contractual	Intrinsic
	Number of	exercise	Term	Value
	shares	price ($)	(in years)	($'000)
Exercisable – June 30, 2014	2,085,830	16.01	4.54	1,789

During the years ended June 30, 2014, 2013 and 2012, approximately 462,333, 442,666, and 300,000 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, 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. No stock options were exercised during the year ended June 30, 2012. During the years ended June 30, 2014 and 2012, respectively, employees forfeited 136,420 and 240,073 stock options. There were no forfeitures during the years ended June 30, 2013. 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,

2014, 2013 and 2012:


			Weighted
	Number of		Average
	Shares of		Grant Date
	Restricted		Fair Value
	Stock		($'000)
Non-vested – July 1, 2011	103,672
Granted – August 2011	30,155		199
Granted – February 2012	550,000		6,111
Granted – May 2012	2,574		23
Vested - August 2011	(6,141	)	40
Vested - November 2011	(27,667	)	209
Total vested	(33,808	)
Forfeitures	(5,976	)	50
Non-vested – June 30, 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

The fair value of restricted stock vested during the years ended June 30, 2014, 2013 and 2012, was $1.9 million, $1.2 million and $0.2 million, respectively. Non-employee directors resigning during the years ended June 30, 2014 and 2012, respectively forfeited 7,171 and 5,976 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 $3.7 million, $3.9 million and $2.8 million for the years ended June 30, 2014, 2013 and 2012, 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, 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
Year ended June 30, 2012
Stock-based compensation charge	$	2,909		$	-	$	2,909
Reversal of stock compensation charge related to options
forfeited		(134	)		-		(134	)
Total – year ended June 30, 2012	$	2,775		$	-	$	2,775

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, 2014, the total unrecognized compensation cost related to stock options was approximately $0.9 million, which the Company expects to recognize over approximately two years. As of June 30, 2014, the total unrecognized compensation cost related to restricted stock awards was approximately $2.3 million, which the Company expects to recognize over approximately two years.

Tax consequences

There are no tax consequences related to options and restricted stock granted to employees of Company subsidiaries incorporated in South Africa. The Company has recorded a deferred tax asset of approximately $1.6 million and $1.4 million, respectively, for the years ended June 30, 2014 and 2013, 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.