13.	Stock-Based Compensation

The following table summarizes the activity for all stock options under all of the Company’s equity incentive plans for the nine months ended September 30, 2015 (shares in thousands):

				Weighted		Weighted
				Average		Average
	Options			Exercise Price		Remaining
	Outstanding			Outstanding		Contractual Life
Outstanding at December 31, 2014		11,408		$	4.42	$	8.2
Granted		3,627			9.64
Exercised		(1,116	)		2.88
Cancelled / forfeited		(897	)		5.79
Outstanding at September 30, 2015		13,022		$	5.91	$	8.1

Options vested and exercisable at September 30, 2015		5,841			3.80	$	7.0

Options vested and expected to vest at September 30, 2015		10,930			5.63	$	7.9

There were 775,098 and 469,000 unvested exercisable shares as of September 30, 2015 and December 31, 2014, respectively, which are subject to a repurchase option held by the Company at the original exercise price. These exercisable but unvested shares have a weighted average remaining vesting period of 2.6 years. There was no exercise of unvested options in the nine months ended September 30, 2015 and 2014.

The weighted-average grant-date fair value of stock options granted during the nine months ended September 30, 2015 and 2014 were $4.68 and $3.72 per share, respectively. The total intrinsic value of the options exercised during the nine months ended September 30, 2015 and 2014 was $7.6 million and $4.2 million, respectively. The intrinsic value is the difference of the current fair value of the stock and the exercise price of the stock option. The total fair value of options vested during the nine months ended September 30, 2015 and 2014 was $7.4 million and $2.9 million, respectively.

The Company estimates the fair value of stock-based awards on their grant date using the Black-Scholes option-pricing model. The Company estimates the fair value using a single-option approach and amortizes the fair value on a straight-line basis for options expected to vest. All options are amortized over the requisite service periods of the awards, which are generally the vesting periods.

The Company estimated the fair value of stock options with the following assumptions:

	Three Months Ended September 30,		Nine Months Ended September 30,
	2015	2014	2015	2014
Risk-free interest rate	1.59%-1.71%	1.57%-2.01%	1.55%-1.95%	1.57%-2.01%
Volatility	36.30%-36.53%	37.51%-45.80%	36.30%-39.63%	37.51%-46.68%
Expected term (in years)	5.50-6.07	5.00-6.08	5.50-6.23	5.00-6.08
Expected dividend yield	0.00%	0.00%	0.00%	0.00%

The expected term assumptions were determined based on the average vesting terms and contractual lives of the options. The risk-free interest rate is based on the rate for a U.S. Treasury zero-coupon issue with a term that approximates the expected life of the option grant. For stock options granted in the nine months ended September 30, 2015 and 2014, the Company considered the volatility data of a group of publicly traded peer companies in its industry. Forfeiture rates are estimated using the Company’s expectations of forfeiture rates for the Company’s employees and are adjusted when estimates change. The estimation of stock awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from the Company’s current estimates, such amounts will be recorded as a cumulative adjustment in the period the estimates are revised. The Company considers many factors when estimating expected forfeitures, including historical forfeiture pattern, the types of awards and employee class. Actual results, and future changes in estimates, may differ substantially from management’s current estimates.

In 2014, the Company granted a total of 947,342 RSUs that are subject to certain performance targets to a third party partner. The RSUs will vest upon the third party originating certain thresholds of expected megawatts in new systems for the period starting August 2014 and ending August 2017. In addition, these RSUs are subject to a clawback provision that requires the holder of the RSUs to either forfeit all the RSUs or pay the Company the grant date fair value for all RSUs that are not forfeited if the third party breaches the exclusivity provision of the parties’ commercial agreement. Additionally, 372,342 of these RSUs are also subject to an additional performance-based clawback provision that is based on the third party originating certain additional thresholds of expected megawatts in new systems from April 2016 through September 2017. Both the exclusivity and performance-based clawback provisions expire in 2017.

The performance-based provision is considered substantive. As a result, the Company will start recognizing expense when the performance targets are met. The Company recognized $0.3 million compensation expense in the three months and nine months ended September 30, 2015 as certain performance targets were met.

The following table summarizes the activity for all RSUs under all the Company’s equity incentive plans for the nine months ended September 30, 2015 (shares in thousands):

			Weighted
			Average Grant
			Date Fair
	Shares		Value
Unvested balance at December 31, 2014		947	$	9.40
Granted		757		11.43
Vested		62		9.40
Cancelled / forfeited		(19)		11.40
Unvested balance at September 30, 2015		1,747	$	10.50

In the three and nine months ended September 30, 2015, the Company recognized $0.1 million and $1.6 million in compensation expense, respectively, resulting from sales of 125,100 and 1,131,028 shares, respectively, by employees and former employees to existing investors for amounts in excess of the deemed fair value.

The Company recognized stock-based compensation expense, including the compensation expense resulting from the sales of common stock by employees and former employees to existing investors, in the consolidated statements of operations as follows (in thousands):

	For the Three Months				For the Nine Months
	Ended September 30,				Ended September 30,
	2015		2014		2015		2014
Cost of operating leases and incentives	$	545	$	61	$	842	$	173
Cost of solar energy systems and product sales		61		74		173		141
Sales and marketing		1,656		297		3,292		793
Research and development		1		75		127		214
General and administration		1,743		1,220		5,993		4,716
Total	$	4,006	$	1,727	$	10,427	$	6,037

As of September 30, 2015 and December 31, 2014, total unrecognized compensation cost related to outstanding stock options was $24.0 million and $12.1 million respectively, which is expected to be recognized over a weighted-average period of 2.9 years and 2.8 years, respectively.

Employee Stock Purchase Plan

In August 2015, the Company adopted the Employee Stock Purchase Plan (“ESPP”), under which 1,000,000 shares of the Company’s common stock have been reserved for issuance to eligible employees. The number of shares of common stock available for sale under the Company’s ESPP will also include an annual increase on the first day of each fiscal year beginning on January 1, 2016, equal to the least of (i) 5,000,000 shares (ii) 2% of the common stock as of the last day of the immediately preceding fiscal year or (iii) such other amount as the Company’s board of directors may determine. Employees are offered shares bi-annually through two six month offering periods, which begin on the first trading day on or after May 15 and November 15 of each year. The first offering period begins in November 2015. Employees may purchase a limited number of shares of the Company’s common stock via regular payroll deductions at a discount of 15% of the lower of the fair market value of the Company’s common stock on the first trading date of each offering period or on the exercise date. Employees may deduct up to 15% of payroll up to $25,000 per calendar year, with a cap of 2,000 shares per employee per offering period.