Note 7 — Accounting for Stock Based Compensation

On May 16, 2013, the Compensation Committee of the Company’s Board of Directors approved the Gentherm Incorporated 2013 Equity Incentive Plan (the “2013 Plan”), covering 3,500,000 shares of our common stock. The 2013 Plan permits the granting of various awards including stock options (including both nonqualified options and incentive options), stock appreciation rights (“SARs”), restricted stock and restricted stock units, performance shares and certain other awards to key employees, outside directors and consultants and advisors of the Company. All shares of our common stock that remained available for issuance under the Amended and Restated 2006 Stock Incentive Plan (the “2006 Plan”) and the Gentherm Incorporated 2011 Equity Incentive Plan (the “2011 Plan”), totaling 2,315,578 shares in the aggregate, were reduced to zero; however certain options under the 2011 and 2006 Plans, as well as certain options under the 1997 Stock Incentive Plan, which expired in 2007, are still outstanding. As of December 31, 2013 the Company had an aggregate of 2,720,332 shares of common stock available to issue under the 2013 Plan.

Note 7 — Accounting for Stock Based Compensation (Continued)

All plans are administered by the Board of Directors. The selection of participants, allotment of shares, determination of price and other conditions are determined by the Board of Directors at its sole discretion, in order to attract and retain personnel instrumental to the success of the Company. Stock options, for example, granted under such plans have lives for a period of up to ten years from the date of grant at an exercise price which is not less than the fair market value of the Common Stock on the date of the grant.

Options, restricted shares and SARs are generally granted with requisite service periods typically ranging between three to five years for employees and one year for directors. Stock based compensation award vesting may be accelerated at the discretion of the Board of Directors.

Total unrecognized compensation cost related to nonvested options, restricted stock and SARs outstanding under all of the Company’s equity plans was $10,613 and $3,902 as of December 31, 2013 and 2012, respectively. That cost is expected to be recognized over a weighted average period of two years. Compensation expense for the year ended December 31, 2013, 2012 and 2011 was $3,103, $823 and $1,403, respectively.

Stock Options

The following table summarizes stock option activity during the three year period ended December 31, 2013:

Options	Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at December 31, 2010		2,132,506		$	6.34
Granted		609,642			12.31
Exercised		(571,964	)		5.88
Forfeited		(6,359	)		5.66
Outstanding at December 31, 2011		2,163,825		$	8.12		6.74	$	15,408
Granted		160,000			12.88
Exercised		(176,896	)		4.46
Forfeited		(17,000	)		4.05
Outstanding at December 31, 2012		2,129,929		$	8.82		6.99	$	5,640
Granted		510,000			19.64
Exercised		(672,753	)		7.21
Forfeited		(24,000	)		11.27
Outstanding at December 31, 2013		1,943,176		$	12.19		5.31	$	28,379
Exercisable at December 31, 2011		1,222,959		$	7.23		6.07	$	9,831
Exercisable at December 31, 2012		1,520,720		$	7.57		6.20	$	5,966
Exercisable at December 31, 2013		1,055,176		$	12.21		4.58	$	19,314

The fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model. This model incorporates certain assumptions for inputs including a risk-free interest rate, expected dividend yield of the underlying common stock, expected option life and expected volatility in the market value of the underlying common stock. The following assumptions were used for options issued in the following periods:

	2013	2012	2011
Expected volatility	34%	47%	49-55%
Weighted average expected volatility	34%	47%	55%
Expected lives	3 yrs.	3 yrs.	3 - 5 yrs.
Risk-free interest rate	0.57-0.65%	0.43%	0.37-0.94%
Expected dividend yield	none	none	none

Note 7 — Accounting for Stock Based Compensation (Continued)

Expected volatilities are based on the historical volatility of the Company’s common stock and that of an index of companies in our industry group. The Company uses historical exercise data and several other factors in developing an assumption for the expected lives of stock options, including the average holding period of outstanding options, their remaining terms and the cycle of our long range business plan. The risk-free interest rate is based upon quoted market yields for United States Treasury debt securities. The expected dividend yield is based upon the Company’s history of having never issued a dividend, the prohibition to issue dividend under terms of the US Bank of America credit facility and management’s current expectation of future action surrounding dividends. Based on our historical experience, we do not expect any of the options granted to be forfeited.

The weighted-average grant-date fair value of options granted during the year ended December 31, 2013, 2012 and 2011 was $4.71, $4.13 and $4.78, respectively. The total intrinsic value of options exercised during the year ended December 31, 2013, 2012 and 2011 was $8,301, $1,663 and $4,876, respectively.

Restricted Stock

The following table summarizes restricted stock activity during the three year period ended December 31, 2013:

Unvested Restricted Shares	Shares			Weighted- Average Grant-Date Fair Value
Nonvested at December 31, 2010		1,350		$	13.64
Granted		36,000			16.80
Vested		(12,450	)		16.69
Forfeited		—			—
Outstanding at December 31, 2011		24,900		$	16.69
Granted		155,280			12.94
Vested		(17,922	)		15.54
Forfeited		—			—
Outstanding at December 31, 2012		162,258		$	13.23
Granted		179,967			18.90
Vested		(102,258	)		13.59
Forfeited		—			—
Outstanding at December 31, 2013		239,967		$	17.32

Stock Appreciation Rights

The following table summarizes SARs activity during the period ended December 31, 2013:

Stock Appreciation Rights	Units		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at December 31, 2012		—	$	—
Granted		495,000		19.19
Exercised		—		—
Forfeited		—		—
Outstanding at December 31, 2013		495,000	$	19.19		6.5		3,770
Exercisable at December 31, 2013		—	$	—		—		—