Note 7 — Accounting for Stock Based Compensation

On May 16, 2013, the Compensation Committee of the Company’s Board of Directors (the “Board”) 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 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 are still outstanding. As of December 31, 2016 the Company had an aggregate of 835,700 shares of Common Stock available to issue under the 2013 Plan.

All plans are administered by the Compensation Committee of the Board. The selection of participants, allotment of shares, determination of price and other conditions are determined by the Compensation Committee 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.

During the three year period ended December 31, 2016, the Company has issued stock options, stock appreciation rights (“SARs”) and restricted stock awards to employees, directors and consultants. These awards become available to the recipient upon the satisfaction of a vesting condition, either based on a period of service or based on the performance of a specific achievement. For equity based awards with a service condition, the requisite service period typically ranges between three to five years for employees and consultants and one year for directors. As of December 31, 2016, 66,400 performance based, unvested SARs were outstanding. All other outstanding, unvested equity based awards were service based. Equity based award vesting may be accelerated at the discretion of the Board.

Total unrecognized compensation cost related to nonvested options, restricted stock and SARs outstanding under all of the Company’s equity plans was $17,258 and $20,117 as of December 31, 2016 and 2015, respectively. That cost is expected to be recognized over a weighted average period of three years. Compensation expense for the years ended December 31, 2016, 2015 and 2014 was $8,147, $12,316 and $8,601, respectively. No share-based payment arrangements expired during the three-year period ended December 31, 2016. If Gentherm were to realize expired shared-based payment arrangements, they would be reported as a forfeit in the activity roll forward tables below.

Stock Options

The following table summarizes stock option activity during the three year period ended December 31, 2016:

Note 7 — Accounting for Stock Based Compensation (Continued)

Options	Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at December 31, 2013		1,943,176		$	12.19			$
Granted		605,000			30.15
Exercised		(731,142	)		9.84
Forfeited		(142,500	)		18.94
Outstanding at December 31, 2014		1,674,534		$	19.14		5.10	$	29,886
Granted		524,534			41.97
Exercised		(571,723	)		16.21
Forfeited		(96,500	)		28.47
Outstanding at December 31, 2015		1,530,845		$	27.46		4.97	$	30,573
Granted		862,000			40.87
Exercised		(112,875	)		13.24
Forfeited		(176,500	)		39.32
Outstanding at December 31, 2016		2,103,470		$	32.72		4.86	$	12,265
Exercisable at December 31, 2014		632,034		$	10.13		3.97	$	16,744
Exercisable at December 31, 2015		439,561		$	12.18		3.51	$	15,480
Exercisable at December 31, 2016		675,152		$	$21.40		3.45	$	9,646

The fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model in order to measure the compensation cost associated with the award. 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:

	2016	2015	2014
Expected volatility	37%	35%	37%
Weighted average expected volatility	37%	35%	37%
Expected lives	3 yrs.	3 yrs.	3 yrs.
Risk-free interest rate	0.90-1.07%	1.00%	0.60-1.00%
Expected dividend yield	none	none	none

Expected volatilities are based on the historical volatility of the Company’s Common Stock. 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 and their remaining terms. 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 limitations to issue a dividend under terms of the Credit Agreement and management’s current expectation regarding future dividends. We do not expect any of the options granted to be forfeited for purposes of computing fair value.

The weighted-average grant-date fair value of options granted during the year ended December 31, 2016, 2015 and 2014 was $10.74, $10.60 and $7.88, respectively. The total intrinsic value of options exercised during the year ended December 31, 2016, 2015 and 2014 was $2,456, $18,745 and $21,249, respectively.

Note 7 — Accounting for Stock Based Compensation (Continued)

Restricted Stock

The following table summarizes restricted stock activity during the three year period ended December 31, 2016:

Unvested Restricted Shares	Shares			Weighted- Average Grant-Date Fair Value
Nonvested at December 31, 2013		243,967		$	17.43
Granted		104,584			27.79
Vested		(129,092	)		16.45
Forfeited		(42,375	)		19.77
Outstanding at December 31, 2014		177,084		$	23.70
Granted		108,026			44.01
Vested		(82,084	)		23.86
Forfeited		(24,000	)		30.87
Outstanding at December 31, 2015		179,026		$	34.92
Granted		141,784			39.73
Vested		(100,330	)		32.47
Forfeited		(9,999	)		40.99
Outstanding at December 31, 2016		210,481		$	39.02

The compensation cost associated with restricted shares is estimated on the date of grant using quoted market prices (Level 1 input). The total fair value of restricted shares vested in 2016, 2015 and 2014 was $3,865, $4,088 and $5,329, respectively.

Note 7 — Accounting for Stock Based Compensation (Continued)

Stock Appreciation Rights

The following table summarizes SARs activity during the three year period ended December 31, 2016:

Stock Appreciation Rights	Units			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at December 31, 2013		495,000		$	19.19
Granted		754,000			34.70
Exercised		(68,750	)		19.10
Forfeited		(120,000	)		21.46
Outstanding at December 31, 2014		1,060,250		$	29.97		6.11	$	9,991
Granted		259,600			43.97
Exercised		(167,500	)		23.90
Forfeited		(102,500	)		27.82
Outstanding at December 31, 2015		1,049,850		$	34.61		5.46	$	13,425
Granted		244,000			40.64
Exercised		(18,750	)		24.28
Forfeited		(30,500	)		28.23
Outstanding at December 31, 2016		1,244,600		$	36.11		4.80	$	3,511
Exercisable at December 31, 2014		35,000		$	19.43		5.53	$	602
Exercisable at December 31, 2015		153,575		$	38.12		5.59	$	1,425
Exercisable at December 31, 2016		424,992		$	34.49		4.39	$	2,315

The total intrinsic value of SARs converted during the year ended December 31, 2016, 2015 and 2014 was $261, $4,185 and $2,072, respectively