Stock-based Compensation

As of December 31, 2016, the 2014 Amendment and Restatement of the KEMET Corporation 2011 Omnibus Equity Incentive Plan (the “2011 Incentive Plan”), approved by the Company’s stockholders in 2014, is the only plan the Company has to issue equity based awards to executives and key employees. Upon adoption of the 2011 Incentive Plan, no further awards were permitted to be granted under the Company’s prior plans, including the 1992 Key Employee Stock Option Plan, the 1995 Executive Stock Option Plan, and the 2004 Long-Term Equity Incentive Plan (collectively, the “Prior Plans”).

The 2011 Incentive Plan authorized the grant of up to 7.4 million shares of the Company’s Common Stock, comprised of 6.6 million shares under the 2011 Incentive Plan and 0.8 million shares remaining from the Prior Plans and authorizes the Company to provide equity-based compensation in the form of:


•	stock options, including incentive stock options, entitling the optionee to favorable tax treatment under Section 422 of the Code;


•	stock appreciation rights;


•	restricted stock and restricted stock units (“RSUs”);


•	other share-based awards; and,


•	performance awards.

Except as described below, options, restricted stock and RSUs issued under these plans vest within two to three years and expire ten years from the grant date. RSUs issued under these plans vest over three to four years, except for RSUs granted to members of the Board of Directors, which vest within one year, and performance-based RSUs, which vest over a one-year period following achievement of two-year performance targets. The Company grants RSUs to members of the Board of Directors, the Chief Executive Officer and key management. Once vested and settled, RSUs are converted into restricted stock. For members of the Board of Directors and senior personnel, such restricted stock cannot be sold until 90 days after termination of service with the Company, or until the individual achieves the targeted ownership under the Company’s stock ownership guidelines, and only to the extent that such ownership level exceeds the target. Compensation expense is recognized over the respective vesting periods.

Historically, the Board of Directors of the Company has approved annual Long Term Incentive Plans (“LTIP”) which cover two year periods and are primarily based upon the achievement of an Adjusted EBITDA range for the two-year period. At the time of the award, the individual plans entitle the participants to receive cash or RSUs, or a combination of both as determined by the Company’s Board of Directors. The 2013/2014 LTIP, 2014/2015 LTIP, 2015/2016 LTIP, 2016/2017 LTIP, and 2017/2018 LTIP also awarded RSUs which vest over the course of three years from the anniversary of the establishment of the plan and are not subject to a performance metric. The Company assesses the likelihood of meeting the Adjusted EBITDA financial metric on a quarterly basis and adjusts compensation expense to match expectations. Any related liability is reflected in the line item “Accrued expenses” on the Condensed Consolidated Balance Sheets and any restricted stock unit commitment is reflected in the line item “Additional paid-in capital” on the Condensed Consolidated Balance Sheets.

On May 18, 2016, the Company granted RSUs under the 2017/2018 LTIP with a grant date fair value of $2.46 that vests as follows (amounts in thousands):



	Shares
May 18, 2017	202
May 18, 2018	202
May 18, 2019	209
Total shares granted	613

The following is the vesting schedule of RSUs under each respective LTIP, which vested during the nine-month period ended December 31, 2016 (shares in thousands):



	2016/2017	2015/2016	2014/2015
Time-based award vested	187	111	130
Performance-based award vested	—	103	73

Restricted stock activity, excluding the LTIP activity discussed above, for the nine-month period ended December 31, 2016 is as follows (amounts in thousands except fair value):



	Shares		Weighted- average Fair Value on Grant Date
Non-vested restricted stock at March 31, 2016	1,430		$	3.51
Granted	381		4.82
Vested	(328	)	3.06
Forfeited	(20	)	3.19
Non-vested restricted stock at December 31, 2016	1,463		$	5.21

The compensation expense associated with stock-based compensation for the quarters ended December 31, 2016 and 2015 is recorded on the Condensed Consolidated Statements of Operations as follows (amounts in thousands):



	Quarter Ended December 31, 2016						Quarter Ended December 31, 2015
	Stock Options		Restricted Stock		LTIPs		Stock Options		Restricted Stock		LTIPs
Cost of sales	$	3	$	127	$	178	$	11	$	130	$	127
Selling, general and administrative expenses	4		379		402		11		340		474
Research and development	—		5		41		1		6		54
Total	$	7	$	511	$	621	$	23	$	476	$	655

The compensation expense associated with stock-based compensation for the nine-month periods ended December 31, 2016 and 2015 is recorded on the Condensed Consolidated Statements of Operations as follows (amounts in thousands):



	Nine-Month Period Ended December 31, 2016						Nine-Month Period Ended December 31, 2015
	Stock Options		Restricted Stock		LTIPs		Stock Options		Restricted Stock		LTIPs
Cost of sales	$	21	$	415	$	557	$	72	$	444	$	624
Selling, general and administrative expenses	20		1,072		1,232		79		1,033		1,365
Research and development	1		15		138		4		17		123
Total	$	42	$	1,502	$	1,927	$	155	$	1,494	$	2,112

In the “Operating activities” section of the Condensed Consolidated Statements of Cash Flows, stock-based compensation expense was treated as an adjustment to Net income (loss) for the quarters and nine-month periods ended December 31, 2016, and 2015. Sixteen thousand stock options were exercised in the nine-month periods ended December 31, 2016 and no stock options were exercised in the nine-month periods ended December 31, 2015.