17.Related Party Transactions

The Company’s operations included the following expenses from related party transactions (in thousands):

	Year Ended December 31,
	2016		2015		2014
Cost of revenue—operating leases and incentives	$	3,311	$	6,054	$	7,834
Sales and marketing		2,610		2,133		2,312
General and administrative		749		5,241		5,909
Interest expense⁽¹⁾		—		—		4,481

⁽¹⁾	Includes revolving lines of credit—related party. See Note 11—Debt Obligations.

Vivint Services

In 2014, and as subsequently amended as noted below, the Company negotiated and entered into a number of agreements with Vivint related to services and other support that Vivint provides to the Company.

These agreements with Vivint included the following:

•

Master Intercompany Framework Agreement. This agreement establishes a framework for the relationship between the Company and Vivint, including master terms regarding the protection of each other’s confidential information, and master procedural terms, such as notice procedures, restrictions on assignment, interpretive provisions, governing law and dispute resolution.

•

Non-Competition Agreement. This agreement defines each company’s current areas of business and competitors, and the Company and Vivint agree not to directly or indirectly engage in the other’s business through September 30, 2017.

•

Transition Services Agreement. Pursuant to this agreement Vivint provides the Company various enterprise services. Under this agreement, Vivint agreed to provide the services at the same degree of care and diligence that it takes in performing services for its own operations. These services include information technology and infrastructure, employee benefits and certain other services. In exchange, the Company pays Vivint for the services, which represents Vivint’s good faith estimate of their full cost of providing the services to the Company, without markup or surcharge.

•

Marketing and Customer Relations Agreement. This agreement governs various cross-marketing initiatives between the companies. In November 2016, Vivint and the Company amended this agreement to update the terms governing sales lead generation and provides for a formal cross-selling pilot program between the companies. The terms of the schedules defined in the amendment range from three months to three years.

•

Bill of Sale. Under this agreement, Vivint transferred certain assets such as office equipment from Vivint to the Company.

•

Trademark License Agreement. Pursuant to this agreement, the licensor, a subsidiary majority-owned by Vivint and minority-owned by the Company, granted to the Company a royalty-free exclusive license to the trademark “VIVINT SOLAR” in the field of selling renewable energy or energy storage products and services. The agreement is perpetual but may be terminated voluntarily by the Company or by the licensor upon certain specified termination events. Vivint retains ownership of the Vivint trademark and the Company has no right to use “Vivint” except as part of “VIVINT SOLAR”.

The Company incurred fees under these agreements and its ongoing relationship with Vivint of $4.3 million and $8.0 million for the years ended December 31, 2016 and 2015 and $2.2 million in 2014 following the Company’s initial public offering. These amounts reflect the level of services provided by Vivint on behalf of the Company.

In June 2013, the Company entered into a full-service sublease agreement (the “Sublease Agreement”) whereby Vivint provided various administrative services, such as management, human resources, information technology, facilities and use of corporate office space to the Company. The Company paid Vivint a monthly services fee and rent based on headcount and square footage used. In connection with the Company’s initial public offering, the Sublease Agreement was amended to focus exclusively on real estate issues. The Company incurred fees under the Sublease agreement of $7.2 million for the year ended December 31, 2014, which reflects the amount of services provided by Vivint on behalf of the Company. No fees were incurred under these agreements in the years ended December 31, 2016 and 2015.

Payables to Vivint recorded in accounts payable—related party were $0.2 million and $1.9 million as of December 31, 2016 and 2015. These payables include amounts due to Vivint related to the services agreements and other miscellaneous intercompany payables.

Additionally, during the year ended December 31, 2016, the Company agreed to install a solar energy system for a corporate entity in exchange for $1.5 million of value-in-kind consideration. The Amendment agrees that Vivint will utilize approximately $0.6 million of that consideration over three years, which will be applied as a reduction of amounts owed to Vivint by the Company over that period.

313 Incentive Units Plan

Incentive units from 313 were granted to certain board members of the Company. Such board members are also employees of Vivint. As a result, the related compensation expense has been allocated between the two companies based on the net equity of the respective companies at the Acquisition. The Company recorded expense of $0.2 million and corresponding noncash capital contributions from 313 during the year ended December 31, 2014. No expense related to these board members was incurred in the years ended December 31, 2016 and 2015.

Advisory Agreements

In May 2014, the Company entered into an advisory agreement with Blackstone Advisory Partners L.P. (“BAP”), an affiliate of the Sponsor, under which BAP would provide financial advisory and placement services related to the Company’s financing of residential solar energy systems. In August 2015, this agreement was terminated. Under the agreement, the Company was required under certain circumstances to pay a placement fee to BAP ranging from 0.75% to 1.5% of the transaction capital, depending on the identity of the investor and whether the financing related to residential or commercial projects. This agreement replaced the 2013 advisory agreement, under which BAP was paid a placement fee ranging from 0% to 2% of the transaction capital, depending on the identity of the investor and how contact with the investor was established.

The Company incurred fees under these agreements of $4.4 million and $4.5 million for the years ended December 31, 2015 and 2014. The amounts were recorded in general and administrative expense. No fees were incurred under these agreements during the year ended December 31, 2016.

Advances Receivable—Related Party

Net amounts due from direct-sales personnel were $3.7 million and $2.9 million as of December 31, 2016 and 2015. The Company provided a reserve of $1.3 million and $0.7 million as of December 31, 2016 and 2015 related to advances to direct-sales personnel who have terminated their employment agreement with the Company.

Investment Funds

Fund investors for three of the funds are indirectly managed by the Sponsor and accordingly are considered related parties. The Company accrued equity distributions to these entities of $1.6 million and $1.7 million as of December 31, 2016 and 2015, included in distributions payable to non-controlling and redeemable non-controlling interests. See Note 13—Investment Funds. The Company also had a Backup Maintenance Servicing Agreement with Vivint in which Vivint would provide maintenance servicing of a fund in the event that the Company was removed as the service provider for the fund, which was terminated at the end of 2016. No services were performed by Vivint under that agreement. An unrelated provider has agreed to perform backup maintenance services for all funds.