Stock-Based Compensation

The Company’s stock-based compensation plans are broad-based, long-term retention programs intended to attract and retain talented employees and align stockholder and employee interests.

The major components of stock-based compensation expense are as follows (amounts in thousands):



	Fiscal year ended March 31, 2017						Fiscal year ended March 31, 2016						Fiscal year ended March 31, 2015
	Stock Options		Restricted Stock		LTIPs		Stock Options		Restricted Stock		LTIPs		Stock Options		Restricted Stock		LTIPs
Cost of sales	$	21	$	634	$	729	$	81	$	617	$	720	$	233	$	269	$	1,075
Selling, general and administrative expenses	20		1,490		1,620		78		1,352		1,732		306		787		1,547
Research and development	1		26		179		4		23		167		13		3		279
	$	42	$	2,150	$	2,528	$	163	$	1,992	$	2,619	$	552	$	1,059	$	2,901

Employee Stock Options

As of March 31, 2017, 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;


•	other share-based awards; and,


•	performance awards.

Options issued under these plans vest within one to three years and expire ten years from the grant date. For the stock options granted to the Company’s Chief Executive Officer on January 27, 2010, 50% vested on June 30, 2014 and 50% vested on June 30, 2015.

If available, the Company issues shares of Common Stock from treasury stock upon exercise of stock options and vesting of restricted stock units. The Company has no plans to purchase additional shares in conjunction with its employee stock option plans in the near future.

Employee stock option activity for fiscal year 2017 is as follows:



	Options (in thousands)		Weighted- Average Exercise Price
Outstanding at March 31, 2016	1,254		$	7.63
Granted	—		—
Exercised	(204	)	5.55
Forfeited	—		—
Expired	(86	)	16.72
Outstanding at March 31, 2017	964		7.27
Exercisable at March 31, 2017	964		$	7.27
Remaining weighted average contractual life of options exercisable (years)			4.1
Remaining weighted average contractual life of options outstanding (years)			4.1

Amounts included in the following table are in thousands, except weighted average fair value and weighted average exercise price:



	Fiscal Years Ended March 31,
	2017		2016		2015
Weighted average grant-date fair value of non-vested shares	$	—	$	2.72	$	2.73
Weighted average grant-date fair value of shares
Granted	—		—		—
Vested	2.72		2.73		3.50
Forfeited	2.72		2.81		3.25
Total estimated fair value of shares vested	223		548		1,000
Intrinsic value
Stock options exercised	890		—		—
Options outstanding	5,272
Options currently exercisable	5,272
Total unrecognized compensation cost, net of estimated forfeitures, non-vested options	—
Weighted-average period of recognition for unrecognized compensation cost (in years)	N/A
Weighted average exercise price of stock options expected to vest	N/A

All option plans provide that options to purchase shares be supported by the Company’s authorized but unissued common stock or treasury stock. All restricted stock and performance awards are also supported by the Company’s authorized but unissued common stock or treasury stock. The prices of the options granted pursuant to these plans are not less than 100% of the value of the shares on the date of the grant.

Performance Vesting Stock Options

During fiscal year 2006, the Company issued 166,667 performance awards with a weighted-average exercise price of $24.15 to the Chief Executive Officer which entitle him to receive shares of common stock if and when the stock price achieves and maintains certain thresholds. These awards are open ended until they vest and have a ten-year life after vesting or expire on the third year following retirement, whichever comes first. Effective March 4, 2010, 83,333 of these awards were voluntarily relinquished and no concurrent grant, replacement award or other valuable consideration was provided.

Restricted Stock Units (“RSU’s”)

Restricted stock unit activity for fiscal year 2017 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	386		4.91
Vested	(409	)	3.18
Forfeited	(25	)	3.39
Non-vested restricted stock at March 31, 2017	1,382		$	4.00

The Company grants RSU’s to members of the Board of Directors, the Chief Executive Officer and a limited group of executives. In fiscal year 2017, RSU’s granted to the Board of Directors vest in one year and RSU’s granted to certain officers and under the key manager stock program vest over 3 years. Once vested, RSU’s are converted into restricted shares of common stock, except for RSU’s granted to members of the Board of Directors, who can elect to defer settlement of the RSU’s to a later date. Restricted shares cannot be sold until 90 days after the Chief Executive Officer, executive, key manager, or member of the Board of Directors, as applicable, resigns from his or her position, or until the KEMET employee achieves the targeted ownership under the Company’s stock ownership guidelines, and only to the extent that such ownership exceeds the target. As of March 31, 2017 and 2016, unrecognized compensation costs related to the unvested restricted stock share based compensation arrangements granted were $2.7 million and $3.0 million, respectively. The expense is being recognized over the respective vesting periods.

Long-term Incentive Plans (“LTIP”)

Historically the Board of Directors of the Company has approved annual Long Term Incentive Plans which cover a two year performance period. A portion of the LTIPs awarded restricted stock units which vest over the course of three years from the anniversary of the establishment of the plan and a portion of the award is 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 restricted stock units, or a combination of both. 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 (for the cash portion of the LTIP) is reflected in the line item “Accrued expenses” on the Consolidated Balance Sheets and any restricted stock commitment is reflected in the line item “Additional paid-in capital” on the Consolidated Balance Sheets.

The following is the performance-based vesting schedule of RSU under each respective LTIP, subject to the respective participant’s continued employment with KEMET (shares in thousands):



	2017/2018 (1)	2016/2017	2015/2016	2014/2015
Performance-based award vested fiscal year 2017	—	—	103	73
Potential performance-based award vesting fiscal year 2018 (2)	—	171	102	—
Potential performance-based award vesting fiscal year 2019 (2)	—	171	—	—


(1)	The performance portion of the 2017/2018 LTIP is payable in cash.


(2)	Potential performance-based award assuming the higher range is achieved.

The following is the time-based vesting schedule of RSU under each respective LTIP, subject to the respective participant’s continued employment with KEMET (shares in thousands):



	2017/2018	2016/2017	2015/2016	2014/2015
Time-based award vested fiscal year 2017	—	187	111	130
Time-based award vesting fiscal year 2018	198	186	113	—
Time-based award vesting fiscal year 2019	198	191	—	—
Time-based award vesting fiscal year 2020	204	—	—	—

In the Operating activities section of the Consolidated Statements of Cash Flows, stock-based compensation expense was treated as an adjustment to net income (loss) for fiscal years 2017, 2016 and 2015.