Stock-Based Compensation

As of December 31, 2018, the KEMET Corporation Omnibus Incentive Plan (the “Incentive Plan”), which amended and restated the KEMET Corporation 2014 Amendment and Restatement of the KEMET Corporation 2011 Omnibus Equity Incentive Plan, approved by the Company’s stockholders on August 2, 2017, is the only plan utilized by the Company to issue equity based awards to executives and key employees. Upon adoption of the 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 Incentive Plan has authorized, in the aggregate, the grant of up to 12.2 million shares of the Company’s Common Stock, comprised of 11.4 million shares under the 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 Internal Revenue Code;


•	stock appreciation rights;


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


•	other share-based awards; and


•	performance awards.

Except as described below, options issued under these plans vest within one to three years and expire ten years from the grant date. Restricted stock and RSUs issued under these plans vest over one to four years, except for RSUs granted to members of the Board of Directors (the “Board”), which vest immediately beginning in fiscal year 2019. The Company grants RSUs to members of the Board, the Chief Executive Officer and key members of management. Once vested and settled, RSUs are converted into restricted stock. For members of the Board and key members of management, 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 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. The 2016/2017, 2017/2018, 2018/2019 and 2019/2020 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 RSU commitment is reflected in the line item “Additional paid-in capital” on the Condensed Consolidated Balance Sheets.

During the nine months ended December 31, 2018, 85,956 in non-vested RSUs under the 2017/2018, 2018/2019, and 2019/2020 LTIPs were forfeited by Per-Olof Loof, the Company's prior Chief Executive Officer upon his resignation in December 2018.

On May 18, 2018, the Company granted RSUs under the 2019/2020 LTIP with a grant date fair value of $17.86 that vest as follows (amounts in thousands):



	Shares
May 18, 2019	56
May 18, 2020	120
May 18, 2021	122
Total shares granted ^{(1) (2)}	298

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⁽¹⁾ RSUs granted include a performance component. Therefore the granted shares shown above are an estimate based upon current performance expectations. The final number of shares granted depends on the achievement of performance metrics.

⁽²⁾ 36,059 in non-vested RSUs under the 2019/2020 LTIP were forfeited by the Company's prior Chief Executive Officer upon his resignation.

The following is the vesting schedule of RSUs under each respective LTIP, which vested during the nine months ended December 31, 2018 (shares in thousands):



	2018/2019	2017/2018	2016/2017
Time-based award vested	63	198	191
Performance-based award vested	—	—	173

Restricted stock activity, excluding the LTIP activity discussed above, for the nine months ended December 31, 2018 is as follows (amounts in thousands except fair value):



	Shares		Weighted- average Fair Value on Grant Date
Non-vested restricted stock at March 31, 2018	1,405		$	9.82
Granted	292		21.81
Vested	(1,066	)	9.49
Forfeited	(21	)	7.78
Non-vested restricted stock at December 31, 2018	610		$	16.21

Vested shares include the acceleration of 275,000 shares related to the April 18, 2018 Amended and Restated Employment Agreement for the former Chief Executive Officer, which amended and restated Mr. Loof's prior employment agreement with the Company dated June 29, 2015. Upon the signing of the Amended and Restated Employment Agreement, certain RSUs previously granted to Mr. Loof on June 29, 2015, totaling 175,000 shares, and on September 6, 2017, totaling 100,000 shares, both of which were scheduled to vest over time, became fully vested. Incremental compensation cost resulting from the modification totaled $1.7 million.

The compensation expense associated with stock-based compensation for the three months ended December 31, 2018 and 2017 is recorded on the Condensed Consolidated Statements of Operations as follows (amounts in thousands):



	Three Months Ended December 31, 2018						Three Months Ended December 31, 2017
	Stock Options		Restricted Stock		LTIPs		Stock Options		Restricted Stock		LTIPs
Cost of sales	$	—	$	321	$	345	$	—	$	210	$	192
Selling, general and administrative expenses	—		547		220		—		1,262		490
Research and development	—		22		79		—		12		40
Total	$	—	$	890	$	644	$	—	$	1,484	$	722

The compensation expense associated with stock-based compensation for the nine months ended December 31, 2018 and 2017 is recorded on the Condensed Consolidated Statements of Operations as follows (amounts in thousands):



	Nine Months Ended December 31, 2018						Nine Months Ended December 31, 2017
	Stock Options		Restricted Stock		LTIPs		Stock Options		Restricted Stock		LTIPs
Cost of sales	$	—	$	1,022	$	919	$	—	$	549	$	505
Selling, general and administrative expenses	—		6,236		1,580		—		2,345		1,294
Research and development	—		54		200		—		31		113
Total	$	—	$	7,312	$	2,699	$	—	$	2,925	$	1,912

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 nine months ended December 31, 2018, and 2017. There were 72,800 stock options exercised in the nine months ended December 31, 2018 and 705,000 stock options were exercised in the nine months ended December 31, 2017.