COMMON STOCK AND STOCKHOLDER’S EQUITY

Common Stock

Immediately prior to the completion of MINDBODY’s initial public offering (“IPO”), all outstanding shares of common stock were reclassified into 11,305,355 shares of Class B common stock and the Company’s certificate of incorporation was amended and restated to authorize the Company to issue 1,000,000,000 shares of Class A common stock and 100,000,000 shares of Class B common stock, each with a par value of $0.000004 per share. The amended and restated certificate of incorporation also:


•	established that, on any matter that is submitted to a vote of the stockholders, the holder of each share of Class A common stock is entitled to 1 vote per share, while the holder of each share of Class B common stock is entitled to 10 votes per share;


•	established that shares of Class B common stock are convertible into shares of Class A common stock at the option of the holder and automatically convert into shares of Class A common stock upon transfer, subject to limited exceptions; and


•	established that, except with respect to voting and conversion rights, as discussed above, the rights of the holders of Class A and Class B common stock are identical.

Following the IPO, the number of shares of the Company’s Class A common stock has increased, with an associated decrease in the number of shares of the Company’s Class B common stock, primarily as a result of the conversion of shares of the Company’s Class B common stock held by pre-IPO investors and stockholders into shares of the Company’s Class A common stock.

2015 Equity Incentive Plan

The Company’s 2015 Equity Incentive Plan (the “2015 Plan”) became effective on June 17, 2015 and serves as the successor to the Company’s 2009 Stock Option Plan (the “2009 Plan”). As of June 30, 2017, there were 5,889,213 shares of Class A common stock available for issuance under the 2015 Plan. The number of shares available for issuance under the 2015 Plan includes an annual increase on the first day of each fiscal year beginning in 2016, equal to the lesser of 3,915,682 shares, 5% of the outstanding shares of common stock as of the last day of the immediately preceding fiscal year, or such other amount as the Company’s board of directors or compensation committee may determine. Accordingly, effective as of January 1, 2017, the number of shares available for issuance under the 2015 Plan was increased by 2,029,912 shares of Class A common stock. All stock options under the 2015 Plan have a term of no greater than ten years from the date of grant. As of June 30, 2017, options to purchase 1,154,210 shares of Class A common stock and 1,220,479 restricted stock units (“RSUs”) of Class A common stock remained outstanding under the 2015 Plan.

The 2015 Plan provides for the grant of non-statutory stock options, restricted stock awards (“RSAs”), RSUs, stock appreciation rights, performance units and performance shares to the Company’s employees, directors and consultants and its parent and subsidiary corporations’ employees and consultants. Neither RSAs nor RSUs require payment from the employee or service provider. Each RSA and RSU represents the right to receive one share of the Company’s Class A common stock upon vesting or settlement, as applicable. The RSUs generally vest over a period of approximately four years. These awards are contingent upon the related employees’ continuous employment with the Company. As such, compensation expense is being recorded over the requisite service period of approximately four years.

The acquisition of Fitness Mobile Apps on February 2, 2015 included an obligation to issue up to 207,234 shares of the Company’s Class A common stock to certain former employees of Fitness Mobile Apps, contingent upon performance obligations and continuous employment with the Company. During the year ended December 31, 2016, this contingency was satisfied and 207,234 shares were issued pursuant to the 2015 Plan and were fully vested on February 22, 2016. The related stock-based compensation expense was recorded ratably over the respective service period that ended during the year ended December 31, 2016.

2015 Employee Stock Purchase Plan

The Company’s 2015 Employee Stock Purchase Plan (the “2015 ESPP”) became effective on June 2, 2015. As of June 30, 2017, there were 1,171,960 shares of Class A common stock available for issuance under the 2015 ESPP. The number of shares available for issuance under the 2015 ESPP includes an annual increase on the first day of each fiscal year beginning in 2016, equal to the lesser of 783,136 shares, 1% of the outstanding shares of common stock as of the last day of the immediately preceding fiscal year, or such other amount as the Company’s board of directors or compensation committee may determine. Accordingly, effective as of January 1, 2017, the number of shares available for issuance under the 2015 ESPP was increased by 405,982 shares of Class A common stock.

Under the 2015 ESPP, eligible employees are granted options to purchase shares of Class A common stock through payroll deductions. The 2015 ESPP provides for 24-month offering periods. Each offering period includes four purchase periods, which are approximately six-month periods commencing with one exercise date and ending with the next exercise date. At the end of each purchase period, employees are able to purchase shares at 85% of the lower of the fair market value of the Class A common stock on the first trading day of each offering period or the end of each six-month purchase period. New offering periods commence every six months on or about February 21 and August 21 of each year. The Company commenced its first offering period under the 2015 ESPP on June 18, 2015. Employees purchased 132,216 shares of Class A common stock for an aggregate cost of $1,510,000 under the 2015 ESPP during the six months ended June 30, 2017.

2009 Stock Option Plan

The 2009 Plan, which provides for the grant of incentive stock options, non-statutory stock options, and restricted stock to employees, directors, and consultants terminated on June 18, 2015. Accordingly, no shares were available for issuance under the 2009 Plan after that time. The 2009 Plan continues to govern outstanding awards granted thereunder. As of June 30, 2017, options to purchase 2,715,500 shares of Class B common stock remained outstanding under the 2009 Plan.

RSU and RSA Activity

A summary of the activity for the Company’s RSUs and RSAs is presented below (in thousands, except share numbers, per share amounts, and contractual term):



	Number of Shares		Weighted- Average Grant Date Fair Value (per share)		Weighted- Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Unvested balance – December 31, 2016	743,693		$	14.49	3.8	$	15,841
Granted	720,346		26.89
Vested	(187,783	)	13.70
Forfeited	(55,777	)	16.51
Unvested balance – June 30, 2017	1,220,479		$	21.83	3.4	$	33,197

As of June 30, 2017, there was a total of $25,033,000 in unrecognized compensation cost related to unvested RSUs, which is expected to be recognized over a weighted average period of approximately 3.4 years.

Stock Option Activity

A summary of the activity for the Company’s stock option plans during the reporting periods and a summary of information related to options vested and expected to vest and options exercisable are presented below (in thousands, except shares, per share amounts, contractual life):



	Options Outstanding
	Number of Shares Underlying Outstanding Options		Weighted- Average Exercise Price		Weighted-Average Grant Date Fair Value		Weighted- Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value
Outstanding – December 31, 2016	3,843,276		$	10.93			7.5	$	39,902
Granted	549,759		25.68		$	11.12
Exercised	(411,076	)	11.03					6,648
Forfeited or cancelled	(112,249	)	15.25
Outstanding – June 30, 2017	3,869,710		$	12.89			7.3	$	55,445
Exercisable – June 30, 2017	2,091,253		$	8.78			6.2	$	38,511
Vested and expected to vest – June 30, 2017	3,818,858		$	12.80			7.3	$	55,038

The total fair value of options vested during the three and six months ended June 30, 2017 was $1,108,000 and $2,693,000, respectively, and during the three and six months ended June 30, 2016 was $1,800,000 and $3,087,000, respectively.

As of June 30, 2017, the total unrecognized stock-based compensation expense for unvested stock options, net of expected forfeitures, was $13,182,000, which is expected to be recognized over a weighted-average period of 2.6 years.

Other Stock-Based Compensation

During the three months ended June 30, 2017 and 2016, the Company recorded stock-based compensation expense of $262,000 and zero, respectively, attributed to post-acquisition services that are payable in shares of the Company’s common stock. During the six months ended June 30, 2017 and 2016, the Company recorded stock-based compensation expense of $277,000 and $271,000, respectively, attributed to post-acquisition services that are payable in shares of the Company’s common stock.

Stock-Based Compensation

We record stock-based compensation based on the fair value of stock options on grant date using the Black-Scholes option-pricing model. We determine the fair value of shares of common stock to be issued under the ESPP using the Black-Scholes option-pricing model.

The following table summarizes the assumptions used in the Black-Scholes option-pricing model to determine the fair value of stock options granted:



	Six Months Ended June 30,
	2017	2016
Expected term (in years)	5.8	5.8
Expected volatility	42% - 44%	45%
Risk-free interest rate	1.9% - 2.0%	1.3% - 1.5%
Dividend yield	0%	0%

The following table summarizes the assumptions used in the Black-Scholes option-pricing model to determine fair value of our common shares to be issued under the ESPP:



	Six Months Ended June 30,
	2017	2016
Expected term (in years)	0.5 - 2.0	0.5 - 2.0
Expected volatility	35% - 50%	39% - 42%
Risk-free interest rate	0.45% - 1.22%	0.46% - 0.78%
Dividend yield	0.0%	0.0%

Total Stock-Based Compensation Expense

Total stock-based compensation expense related to stock options, ESPP, RSUs and RSAs is included in the consolidated statements of operations as follows (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
Cost of revenue	$	366	$	220	$	627	$	435
Sales and marketing	671		440		1,177		1,023
Research and development	980		470		1,507		965
General and administrative	1,496		1,253		2,699		1,873
Total stock-based compensation expense	$	3,513	$	2,383	$	6,010	$	4,296