11. Stock-based Compensation

The Company measures the costs of share-based compensation arrangements based on the grant-date fair value and recognizes the costs in the financial statements over the employee requisite service period.

The following table summarizes the consolidated stock-based compensation expense, by type of awards for the three and nine months ended September 30, 2012 and 2011 (in thousands):


	For the Three Months Ended				For the Nine Months Ended
	September 30, 2012		September 30, 2011		September 30, 2012		September 30, 2011 As Recast (1)
Employee stock options	$	110	$	127	$	303	$	221
Stock grants		—		192		106		192

Total stock-based compensation expense	$	110	$	319	$	409	$	413

(1)	As recast to reflect the activity of SGT beginning January 1, 2011 combined with the balances of Solar Power, Inc. beginning March 31, 2011, as required under the accounting guidelines for a transfer of an entity under common control (refer to Note 4—Acquisition of Solar Green Technology).

The following table summarizes the consolidated stock-based compensation by line item for the three and nine months ended September 30, 2012 and 2011 (in thousands):


	For the Three Months Ended				For the Nine Months Ended
	September 30, 2012		September 30, 2011		September 30, 2012		September 30, 2011 As Recast (1)
General and administrative	$	84	$	296	$	350	$	378
Sales, marketing and customer service		26		20		56		30
Engineering, design and product management		—		3		3		5

Total stock-based compensation expense	$	110	$	319	$	409	$	413

(1)	As recast to reflect the activity of SGT beginning January 1, 2011 combined with the balances of Solar Power, Inc. beginning March 31, 2011, as required under the accounting guidelines for a transfer of an entity under common control (refer to Note 4—Acquisition of Solar Green Technology).

Stock-based compensation expense recognized in the Condensed Consolidated Statements of Operations is based on awards ultimately expected to vest. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company estimated its average pre-vesting forfeiture rate at 20.7% and 26.3% for the three months ended September 30, 2012 and 2011, respectively.

Valuation Assumptions

Valuation and Amortization Method—The Company estimates the fair value of service-based and performance-based stock options, if any, granted using the Black-Scholes-Merton option-pricing formula. The fair value is then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. Time-based and performance-based options, if any, typically have a five-year life from date of grant and vesting periods of three to four years. There were no performance-based options outstanding at September 30, 2012 or December 31, 2011.

Expected Term—The expected term represents the period that the Company’s stock-based awards are expected to be outstanding. For awards granted subject only to service vesting requirements, the Company utilizes the simplified method for estimating the expected term of the stock-based award, instead of historical exercise data.

Expected Volatility—The Company uses the historical volatility of the price of its common shares.

Expected Dividend—The Company has never paid dividends on its common shares and currently does not intend to do so and, accordingly, the dividend yield percentage is zero for all periods.

Risk-Free Interest Rate—The Company bases the risk-free interest rate used in the Black-Scholes-Merton valuation method upon the implied yield curve currently available on U.S. Treasury zero-coupon issues with a remaining term equal to the expected term used as the assumption in the model.

Assumptions used in the determination of the fair value of share-based payment awards using the Black-Scholes-Merton model for stock option grants during the three and nine months ended September 30, 2012 and 2011 were as follows:


	For the Three Months Ended				For the Nine Months Ended
	September 30, 2012	September 30, 2011 As Recast (1)			September 30, 2012	September 30, 2011 As Recast (1)
Expected term	3.75		3.00		3.75	3.00 - 3.75
Risk-free interest rate	.60% - .67%		1.53	%	.60% - .89%	0.94% - 1.53%
Volatility	220% - 221%		132	%	213% - 221%	132% - 201%
Dividend yield	0%		0	%	0%	0%

(1)	As recast to reflect the activity of SGT beginning January 1, 2011 combined with the balances of Solar Power, Inc. beginning March 31, 2011, as required under the accounting guidelines for a transfer of an entity under common control (refer to Note 4—Acquisition of Solar Green Technology).

Equity Incentive Plan

On November 15, 2006, subject to approval of the stockholders, Solar Power, Inc. adopted the 2006 Equity Incentive Plan (the “Plan”) which permits the Company to grant stock options to directors, officers or employees of the Company or others to purchase shares of common stock of the Company through awards of incentive and nonqualified stock options, stock and stock appreciation rights. The Plan was approved by the stockholders on February 7, 2007.

The Company currently has time-based options and restricted stock grants outstanding. The time-based options vest 25% annually and expire five years from the date of grant. The restricted shares are fully vested as of September 30, 2012. Total number of shares reserved and available for grant and issuance pursuant to this Plan is equal to nine percent (9%) of the number of outstanding shares of the Company. Not more than 2,000,000 shares of stock shall be granted in the form of incentive stock options. Shares issued under the Plan will be drawn from authorized and unissued shares or shares now held or subsequently acquired by the Company. Outstanding shares of the Company shall, for purposes of such calculation, include the number of shares of stock into which other securities or instruments issued by the Company are currently convertible (e.g. convertible preferred stock, convertible debentures, or warrants for common stock), but not outstanding options to acquire stock.

At September 30, 2012 there were 11,081,198 total shares available to be issued under the plan.

The following table summarizes the Company’s stock option activities for the nine month periods ended September 30, 2012 and 2011:


	2012					2011 As Recast (1)
	Shares			Weighted- Average Exercise Price Per Share		Shares			Weighted- Average Exercise Price Per Share
Outstanding - December 31		5,171,500		$	0.56		—		$	—
Granted		675,000			0.46		—			—
Exercised		—			—		—			—
Forfeited		(23,000	)		1.10		—			—

Outstanding - March 31		5,823,500			0.55		2,480,175			0.91
Granted		750,000			0.28		3,700,000			0.49
Exercised		—			—		—			—
Forfeited		(830,000	)		0.64		(650,000	)		0.39

Outstanding - June 30		5,743,500			0.50		5,530,175			0.68
Granted		1,195,000			0.28		190,000			0.48
Exercised		—			—		—			—
Forfeited		(176,625	)		0.72		(420,000	)		0.42

Outstanding - September 30		6,761,875		$	0.45		5,300,175		$	0.71

(1)	As recast to reflect the activity of SGT beginning January 1, 2011 combined with the balances of Solar Power, Inc. beginning March 31, 2011, as required under the accounting guidelines for a transfer of an entity under common control (refer to Note 4—Acquisition of Solar Green Technology).

The following table summarizes the Company’s restricted stock activities for the nine month periods ended September 30, 2012 and 2011:


	Shares
	2012		2011 As Recast (1)
Outstanding - December 31		925,868		—
Granted/vested		—		—
Forfeited		—		—

Outstanding - March 31		925,868		525,868
Granted/vested		400,000		—
Forfeited		—		—

Outstanding - June 30		1,325,868		525,868

Granted/vested		—		400,000
Forfeited		—		—

Outstanding - September 30		1,325,868		925,868

Vested as of September 30		1,325,868		925,868

(1)	As recast to reflect the activity of SGT beginning January 1, 2011 combined with the balances of Solar Power, Inc. beginning March 31, 2011, as required under the accounting guidelines for a transfer of an entity under common control (refer to Note 4—Acquisition of Solar Green Technology).