The following table sets forth certain information with respect to the beneficial ownership of our capital stock as of March 31, 2018,2020, for:
We have determined beneficial ownership in accordance with the rules of the SEC. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to those securities. In addition, the rules include shares of common stock issuable pursuant to the exercise of stock options or warrants that are either immediately exercisable or exercisable on or before May 30, 2018,2020, which is 60 days after March 31, 2018.2020. These shares are deemed to be outstanding and beneficially owned by the person holding those options or warrants for the purpose of computing the percentage ownership of that person, but they are not treated as outstanding for the purpose of computing the percentage ownership of any other person. The information contained in the following table is not necessarily indicative of beneficial ownership for any other purpose, and the inclusion of any shares in the table does not constitute an admission of beneficial ownership of those shares. The number of shares in the table below beneficially owned by each person or entity reflects all shares of Class A and Class B common stock held by such person or entity as of March 31, 2020. Unless otherwise indicated, the persons or entities identified in this table have sole voting and investment power with respect to all shares shown as beneficially owned by them, subject to applicable community property laws.
Except as otherwise noted below, the address for persons listed in the table is c/o Appian Corporation, 11955 Democracy7950 Jones Branch Drive, Suite 1700, Reston,Tysons, Virginia 20190.22102.
* Represents beneficial ownership of less than 1%.
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(1) | Includes 6,423,308 shares of Class B common stock held by Novak Biddle Venture Partners V, L.P. and 1,324,906 shares of Class B common stock held by Novak Biddle Company V, LLC. Novak Biddle Company V, LLC is the general partner of Novak Biddle Venture Partners V, L.P. AGW Biddle III, one of our directors, and E. Rogers Novak, Jr. are the managing members of Novak Biddle Company V, LLC and share voting and investment power over the shares held by Novak Biddle Venture Partners V, L.P. The principal business address of Novak Biddle Venture Partners V, L.P. is 7501 Wisconsin Avenue, East Tower, Suite 1380, Bethesda, MD 20814. |
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(2) | Consists of 5,216,187 shares of Class A common stock held by Abdiel Qualified Master Fund, LP, or AQMF, and 193,277 shares of Class A common stock held by Abdiel Capital, LP, or ACLP. This information has been obtained from a Schedule 13D/A filed on March 27, 2018 by Abdiel Capital Management, LLC, AQMF, ACLP, Abdiel Capital Advisors, LP and Colin T. Moran. Abdiel Capital Management, LLC is the general partner of AQMF and ACLP, and Abdiel Capital Advisors, LP serves as the investment manager of AQMF and ACLP. Colin T. Moran is the managing member of Abdiel Capital Management, LLC and Abdiel Capital Partners, LLC, which is the general partner of Abdiel Capital Advisors, LP. By virtue of the foregoing relationships, each of the reporting persons may be deemed to beneficially own the securities held by AQMF and ACLP. The principal business address of these persons and entities is 401 Park Avenue, Suite 930, New York, New York 10022. |
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(3) | Consists of (i) 7,174,902 shares of Class B common stock held by Wallingford, LLC, for which Mr. Calkins serves as the managing member, (ii) 21,274,710 shares of Class B common stock held by Calkins Family LLC, for which Mr. Calkins serves as the managing member, and (iii) 20 shares of Class B common stock issuable upon the exercise of options. Wallingford, LLC has pledged 2,204,586 shares of Class B common stock as security for a loan. |
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(4) | Consists of 56,020 shares of Class B common stock issuable upon the exercise of options. |
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(5) | Consists of 112,359 shares of Class A common stock held directly by Mr. Hughes and 213,047 shares of Class B common stock issuable upon the exercise of options. |
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(6) | Includes 3,220 shares of Class A common stock held directly by Mr. Biddle, 2,792 shares of Class A common stock and 54,801 shares of Class B common stock held by Jack Biddle, Inc., for which Mr. Biddle is the president, and 7,247 shares of Class B common stock held by each of Southgate Partner I, Southgate Partner II and Southgate Partners III, for which entities Mr. Biddle serves as the trustee. |
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(7) | Consists of 25,658 shares of Class A common stock held directly by Mr. Boccassam. |
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(8) | Consists of 3,681 shares of Class A common stock held directly by Mr. Devine and 54,000 shares of Class B common stock issuable upon the exercise of options. |
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(9) | Consists of 4,000 shares of Class A common stock held by Mr. Kramer directly, 2,537,598 shares of Class B common stock held by The Robert C. Kramer Revocable Trust, for which Mr. Kramer serves as sole trustee and beneficiary, and 106,520 shares of Class B common stock issuable upon the exercise of options. |
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(10) | Consists of 3,681 shares of Class A common stock held directly by Mr. Mulligan, 1,396 shares of Class A common stock held by Sea Level Investments, of which Mr. Mulligan is the president, and 120,602 shares of Class B common stock issuable upon the exercise of options. |
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(11) | Includes 655,129 shares of Class B common stock issuable upon the exercise of options. |
DELINQUENT SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCEREPORTS
Section 16(a) of the Exchange Act requires our directors and executive officers, and persons who own more than ten percent of a registered class of our equity securities,Class A common stock, to file with the SEC initial reports of ownership and reports of changes in ownership of our Class A common stock and other equity securities.stock. Officers, directors, and greater than ten percent stockholders are required by SEC regulationregulations to furnish us with copies of all Section 16(a) forms they file.
To our knowledge, based solely on a review of the copies of such reports furnished to us and written representations that no other reports were required, during the fiscal year ended December 31, 2017,2019, all Section 16(a) filing requirements applicable to itsour officers, directors, and greater than ten percent beneficial owners were complied with.
with, except for one Form 4 filing for an option exercise by Mr. Kramer that was filed one day late on December 30, 2019, due to an administrative error.
EXECUTIVE AND DIRECTOR COMPENSATION
EXECUTIVE COMPENSATION
We became a public company in May 2017, and we are currently anhave filed our proxy statements since that time under the limited executive compensation disclosure requirements generally available to emerging growth company.companies. As of December 31, 2019, we no longer qualified to be an emerging growth company we are subject toand, therefore, this year’s Proxy Statement includes additional detail regarding executive compensation that was previously not required, including (1) the scaled reporting rules applicable to emerging growth companies. The following section describes, under the scaled reporting rules applicable to emerging growth companies,Compensation Discussion and Analysis, (2) additional compensation tables that provide disclosure on “Grants of Plan-Based Awards,” “Option Exercises and Stock Vested” and “Potential Payments upon Termination or Change in Control,” (3) an advisory vote on the compensation we paid toof our named executive officers, for 2017.which is included as Proposal 3 in this Proxy Statement, and (4) an advisory vote on the preferred frequency of future advisory stockholder votes on the compensation of our named executive officers, which is included as Proposal 4 in this Proxy Statement. We are not required to include the pay-ratio disclosure of CEO pay to median employee pay until next year’s proxy statement.
EXECUTIVE COMPENSATION DISCUSSION AND ANALYSIS
2017 Summary Compensation TableNamed Executive Officers
The following table sets forth information regardingCompensation Discussion and Analysis is a discussion of certain aspects of our compensation earned with respectprograms and practices as they relate to the years ended December 31, 2016 and 2017 by our principal executive officer, principal financial officer, and the next twothree other most highly compensated executive officers in 2017,as of December 31, 2019, whom we refer to below collectively as our “named executive officers” or “NEOs”. Set forth below is also a description of the philosophy and objectives underlying our executive compensation policies, the most important executive compensation decisions during 2019, and an analysis of these policies and decisions.
Our named executive officers for 2017.2019 are:
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Name and Principal Position | Year | Salary ($) | Stock Awards ($) (1) | Option Awards ($) (2) | Non-Equity Incentive Plan Compensation ($) | All Other Compensation ($) (3) | Total ($) |
Matthew Calkins, Chief Executive Officer (6) | 2017
| 400,000 | – | 505 | 210,842 (5) | – | 611,347 |
2016
| 400,000 | – | 8,317,764 | 143,750 (4) | – | 8,861,514 |
Edward Hughes, Senior Vice President, Worldwide Sales | 2017
| 453,868 (7) | 1,113,500 | 505 | – | – | 1,567,873 |
2016
| 436,588 (8) | – | – | – | – | 436,588 |
Chris Winters, General Counsel and Secretary (9) | 2017 | 285,000 | 1,113,500 | 505 | 42,168 (5) | 9,000 | 1,450,173 |
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(1)Name | This column reflects the full grant date fair value of restricted stock units, or RSUs, granted during the year measured pursuant to Financial Accounting Standards Board Accounting Standards Codification Topic 718 (“ASC 718), the basis for computing stock-based compensation in our consolidated financial statements. For the RSU awards, the grant date fair value is calculated using the closing price of our Class A common stock on the date of grant. See Note 7 to our Annual Report on Form 10-K for information regarding the value determination | Title |
Matthew Calkins | | Chief Executive Officer, President, Founder and Chairman of the RSU awards. There is no assurance that the grant date fair values will ever be realized by any named executive officer. See the "Outstanding Equity Awards at Fiscal Year End" table below for information on RSU awards granted to our named executive officers that remained outstanding as of December 31, 2017.Board |
Mark Lynch | | Chief Financial Officer |
Robert C. Kramer | | General Manager, Founder and Director |
David Mitchell | | Senior Vice President, Worldwide Sales |
Christopher Winters | | General Counsel & Secretary |
Executive Summary
Our Company
We provide a low code automation platform that accelerates the creation of high-impact business applications, enabling our customers to automate important aspects of their business. Global organizations use our applications to improve customer experience, achieve operational excellence, and simplify global risk management and compliance.
We sell our software almost exclusively through subscriptions. As of December 31, 2019, we had 533 customers in a wide variety of industries, of which 427 customers were commercial and 106 customers were government or non-commercial entities.
Business Highlights
For our fiscal year ended December 31, 2019, we experienced strong revenue growth and significantly improved business results that provide context for our stockholders reviewing our executive compensation program. Our fiscal 2019 highlights, under ASC Topic 605, Revenue Recognition, include the following:
•Total revenue was $266.3 million.
•Subscription revenue was $155.1 million, an increase of 34% over 2018.
•Subscription revenue retention rate was 116% as of December 31, 2019.
•GAAP operating loss was $49.1 million in 2019 compared to a loss of $46.7 million in 2018.
•Non-GAAP operating loss* was $32.7 million in 2019 compared to a loss of $30.7 million in 2018.
•Total number of subscription customers at December 31, 2019 was 487, an increase of 29% year-over-year.
*Non-GAAP operating loss is a non-GAAP financial measure, which represents GAAP operating loss, excluding stock-based compensation expense. A reconciliation from GAAP operating loss to non-GAAP operating loss is set forth on Appendix A to this Proxy Statement.
Executive Compensation Philosophy and Practices
Philosophy and Objectives
Our compensation philosophy is driven by our objective to attract and retain outstanding individuals across the Company. We seek to reward those who take on additional responsibility, are innovative, and are making an exceptional impact on the Company’s business, employees, customers, partners, or culture. These principles and people are the pillars of our organization. Our objective is to signal to these individuals they have a future with the Company and are valued.
Our executive compensation program fits within this philosophy and aims to achieve these objectives. In addition, we also believe as a public company, certain elements of our executive compensation programs should align employee interests with those of the stockholders.
Practices and Policies
The Compensation Committee uses its judgment to establish a total compensation program for each named executive officer that is a mix of current, short-term, and long-term incentive compensation as well as cash and non-cash compensation that it believes are appropriate to achieve the goals of our executive compensation program and our corporate objectives. We do not have formal policies for allocating compensation among base salary, annual performance bonuses, and equity awards or among cash and non-cash compensation. Furthermore, we do not have formal practices regarding grants of equity awards to our NEOs. Except with respect to his own compensation, our Chairman and CEO Matt Calkins advises the Compensation Committee with respect to the compensation of our NEOs.
The following is a summary of our guiding principles and practices with respect to executive compensation:
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(2)What We Do | This column reflects the full grant date fair value | What We Don't Do |
PConduct annual executive compensation review | | ONo "single trigger" change in control payments |
PPlace a significant amount of options granted during the year measured pursuant to ASC 718. In accordance with ASU 2016-9, we accounttargeted compensation at risk (e.g., 96% for forfeitures as they occur, rather than estimate expected forfeitures. For stock options, we calculate the grant date fair value using the Black-Scholes model, using the assumptions described in Note 7 to our Annual Report on Form 10-K. There is no assurance that the grant date fair values will ever be realized by any named executive officer. See the "Outstanding Equity Awards at Fiscal Year End" table below for information onCEO) | | ONo stock option repricing |
PMulti-year vesting requirements for equity awards granted | | ONo automatic acceleration of vesting under equity plans |
PTie performance bonus opportunities to corporate objectives | | ONo executive retirement plans |
PDesign our named executive officers that remained outstanding as of December 31, 2017.compensation programs to discourage excessive risk-taking | | ONo special welfare or health benefits |
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(3) | The amounts reported in this column represent matching contributions to our 401(k) savings planONo guaranteed salary increases or Roth IRA, which we provide to all eligible employees.bonuses |
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(4) | This amount represents compensation earned with respect to the year ended December 31, 2016 and paid in 2017. This compensation was awarded pursuant to our 2016 Senior Executive Cash Incentive Bonus Plan (the “2016 Bonus Plan”). Bonuses paid under the 2016 Bonus Plan were measured as of December 31, 2016 and were paid in February 2017. The 2016 Bonus Plan was designed to motivate and reward executives for the attainment of company-wide financial and individual performance goals. Mr. Calkins was eligible to receive more than 100% of his target bonus if our performance exceeded the targets set forth in the 2016 Bonus Plan.ONo significant perquisites |
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(5) | This amount represents compensation earned with respect to the year ended December 31, 2017 and paid in 2018. See “ – Employment Arrangements – Bonus and Sales Commission Plans – 2017 Bonus Plan” below for a description of the material terms pursuant to which this compensation was awarded.ONo Section 280G tax gross-ups |
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(6) | Mr. Calkins is also a member of our Board of Directors but did not receive any additional compensation in his capacity as a director. |
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(7) | Includes commissions of $138,868. |
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(8) | Includes commissions of $121,588. |
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(9) | Because Mr. Winters was not a named executive officer in 2016, SEC rules do not require his compensation for that year to be reported. |
Elements of Executive Compensation
Our compensation program generally consists of, and is intended to strike a balance among, three principal elements for each NEO: base salary, short-term cash incentive payments, and stock-based compensation for Mr. Calkins, Mr. Kramer, Mr. Lynch and Mr. Winters, and base salary, sales commissions, and stock-based compensation for Mr. Mitchell. Set forth below is a description of these elements, their principal features, and why we pay them.
Base Salary
Base salary is one component of each NEO’s cash compensation. We establish base salary after considering a number of factors, including the scope of each NEO’s responsibilities, the performance of the NEO, and current economic and competitive market conditions. Base salaries are used to attract, motivate, and retain outstanding employees with a set amount and consistent payments. Base salaries for our NEOs are reviewed annually by the Compensation Committee and at the time of a promotion or other changes in responsibility of a NEO and may be adjusted after considering the above factors.
Short-Term Cash Incentive Payments
Each NEO, other than Mr. Mitchell, who participates in our Sales Commission Program, is entitled to participate in the Senior Executive Cash Incentive Bonus Plan (the “Bonus Plan”), a performance-based target incentive payment program. Under the Bonus Plan, the NEO is eligible to receive a cash incentive payment based on the attainment of one or more corporate performance goals approved by the Board. The target amount for each NEO is determined by the Compensation Committee each year, generally at the beginning of such year. The Bonus Plan is intended to provide an incentive for superior work and to motivate eligible executives toward even higher achievement and business results, to tie their goals and interests to those of the Company and its stockholders, and to attract and retain highly qualified executives.
Sales Commission Plan
We establish sales commission plans to encourage and reward contributions to our long-term revenue growth for our sales employees. As the Senior Vice President, Worldwide Sales, Mr. Mitchell is eligible to receive compensation under our sales commission plan. Sales commission plans are set for each calendar year, and Mr. Mitchell is eligible to earn commissions based on the results of the worldwide sales team. The revenue targets are determined by our Board of Directors in consultation with our CEO and CFO.
Stock-Based Compensation.
Outstanding Equity AwardsAnother component of an NEO’s total compensation is stock-based compensation, in order to closely tie total compensation to long-term shareholder value. Accordingly, NEOs receive stock-based awards at Fiscal Year Endthe time of hire and are also eligible for stock-based awards on a periodic basis. Because our compensation program is designed to reward long-term performance and operate over a period of years, NEOs may not necessarily receive stock-based awards every year. Annual total compensation as reported in the Summary Compensation Table below includes the entire fair value as of the grant date of a stock award granted in that year, without regard to the fact the grant vests over a number of years, and as such, a named executive officer’s total compensation as reported will be higher in years in which he received a grant compared to years in which he did not receive a grant.
How We Determine Executive Compensation
Role of our Compensation Committee
The Compensation Committee reviews each NEO’s compensation at least once a year and makes a final determination regarding any adjustments to the current compensation structure and levels after considering a number of factors. The Compensation Committee generally considers the scope of an officer’s responsibilities and performance, as well as the Company’s performance and current market conditions. The Compensation Committee also considers recommendations made by our CEO with regard to equity grants to the other NEOs based on the performance of each NEO over the past year. We do not use a peer group or consider competitive market pay data at this time and have no present intention to consider peer group compensation in the near term. We may change this practice in the future.
Role of Compensation Committee Consultants
Under its charter, the Compensation Committee has the authority to select, retain, and terminate compensation consultants. The Compensation Committee did not retain any compensation consultants in 2019 and has not retained one for 2020 at this time.
Role of Chief Executive Officer
Our CEO makes recommendations to the Compensation Committee regarding the setting of performance objectives for the Company. The CEO may also set specific goals for particular departments of the Company such as our Professional Services organization. Each NEO is required to operate his function with the purposes of meeting the overall performance objectives of the Company and to maximize the productivity of his own functional area of responsibility. While our Compensation Committee solicits the recommendations of our Chief Executive Officer, the Compensation Committee uses these recommendations as only one factor in making compensation decisions. No NEO participates in portions of any meetings during which decisions are made regarding his own compensation. The final salary adjustments and incentive awards to NEOs are approved solely by the Compensation Committee.
Say-on-Pay
We have not been required to hold an advisory “say-on-pay” vote on executive compensation until this year for reasons noted above. We take the views of our stockholders seriously and will carefully consider the results of this year’s say-on-pay vote as well as the results of the vote as to the frequency of the “say-on-pay” vote.
2019 Executive Compensation Program
Base Salary
In February 2019, the Compensation Committee reviewed the base salaries of the NEOs (other than Mr. Mitchell, who became an executive officer in January 2019), which had not been changed since the Company’s IPO in 2017, and determined it would
be appropriate to increase their base salary levels effective March 1, 2019, to the following: $500,000 for Mr. Calkins, $300,000 for Mr. Kramer, $400,000 for Mr. Lynch, and $350,000 for Mr. Winters. The Compensation Committee considered the performance of the Company and the contributions of each officer to the success of the Company since the IPO and determined these increases were appropriate and warranted. Mr. Mitchell’s base salary was set at $350,000 for 2019.
The following table sets forthis a summary of each NEO's base salary for fiscal years 2019 and 2018:
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Name | | 2019 Base Salary | | 2018 Base Salary |
Matthew Calkins | | $500,000 | | $400,000 |
Robert Kramer | | $300,000 | | $250,000 |
Mark Lynch | | $400,000 | | $265,000 |
David Mitchell | | $350,000 | | $350,000 |
Christopher Winters | | $350,000 | | $285,000 |
Senior Executive Cash Incentive Bonus Plan
For 2019, the Compensation Committee set corporate performance goals under the Bonus Plan that were based on the following objective criteria: a minimum level of subscription revenue (“Subscription Revenue”) and net new subscription customers (“Net New Subscription Customers”) for the year. The minimum levels were set with a goal of having Appian achieve superior revenue and customer growth rates in 2019 as well as to create the basis for growth in future periods through the acquisition of new customers. Generally, the minimum levels are set such that the relative difficulty of achieving the minimum levels is consistent from year to year.
The amount each NEO was eligible for under the Bonus Plan for 2019 was based on the following:
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NEO | | Subscription Revenue ("SR") | | Net New Subscription Customers ("NNSC") |
Matthew Calkins | | 0.46875% of 2019 SR above revenue minimum | | $4,411.76 for each NNSC in excess of the NNSC minimum |
Robert Kramer | | 0.078125% of 2019 SR above revenue minimum | | $735.29 for each NNSC in excess of the NNSC minimum |
Mark Lynch | | 0.078125% of 2019 SR above revenue minimum | | $735.29 for each NNSC in excess of the NNSC minimum |
Christopher Winters | | 0.078125% of 2019 SR above revenue minimum | | $735.29 for each for each NNSC in excess of the NNSC minimum |
The corporate performance goals for 2019 were calculated following the end of the year in accordance with the Company’s financial statements and disclosures. Each NEO earned the following amounts under the Bonus Plan for 2019: $127,500 for Mr. Calkins and $21,250 for each of Messrs. Kramer, Lynch, and Winters.
Sales Commission Plan
Under our sales commission plan for 2019, Mr. Mitchell received commissions of $169,202.
Long-Term Equity Incentive Compensation
Equity awards are granted under our 2017 Equity Incentive Plan (the “2017 Plan”), which was adopted by our Board and approved by our stockholders in 2017. The Compensation Committee evaluated and approved equity awards under the 2017 Plan for Messrs. Calkins, Lynch, and Winters in 2019 after evaluating the total annual compensation of each NEO, past equity grants, and each NEO’s current responsibilities and performance. For Mr. Lynch and Mr. Winters, the Compensation Committee also took into account the recommendations of our CEO and the other factors described previously.
For Mr. Calkins, the Compensation Committee considered its goal of increasing value for our stockholders as well as Mr. Calkins’ successful achievement of the Company valuation conditions related to a 2016 option grant, in designing an option that would only vest if the price per share of the Company’s Class A common stock closes at or above 2.5 times the trailing 45-day average closing price of the Company’s Class A common stock prior to the date of grant (the “Vesting Price Threshold”) during every business day of a 90-calendar day period or if the Company engages in a Corporate Transaction (as defined in the 2017 Plan) in which the Company’s Class A common stock is valued at or above the Vesting Price Threshold. In connection with the option grant, Mr. Calkins sent a letter to the Company’s Board of Directors stating he intends to donate 100% of the income from any sales of shares acquired upon exercise of the option to a charitable organization or charitable foundation. See “Grants of Plan-Based Awards in 2019” for additional details of these awards.
Other Features of Our Executive Compensation Program
Employment Agreements
Other than Mr. Lynch and Mr. Winters, our NEOs enter into the same standard employment agreement that all of our employees agree to when commencing employment with Appian. The terms of the standard employment agreement state the employee is an “at-will” employee and includes provisions regarding non-competition, confidential information, and intellectual property. There are no provisions for additional payments upon termination or change-of-control of the Company.
We previously entered into employment agreements with Mr. Lynch and Mr. Winters that include additional provisions to our standard employment agreement described above. The agreements for Mr. Lynch and Mr. Winters provide for a severance payment of base salary for a period of six months, the vesting of unvested equity, and the payment of continued employment benefits for six months as discussed in additional detail below.
We did not amend any of the employment agreements in 2019.
Section 401(k) Plan, Health and Other Benefits
We offer certain retirement, health, and other benefits to all employees. Our NEOs are eligible to participate in these benefit plans on the same basis as all other employees.
We provide a 401(k) Retirement Savings Plan (the “401(k) Plan”) to eligible U.S. employees that is intended to qualify under Section 401(k) of the Code as a defined contribution retirement plan. The 401(k) Plan allows participants to make elective deferrals of a portion of their income as a contribution to a Section 401(k) profit sharing plan. Under the 401(k) Plan, the Company may, but is not required to, make matching contributions. For 2019, the Company made semi-monthly matching contributions of $1.00 per $1.00 of the employee’s contribution for such pay period, up to a maximum of 4% of the employee’s gross compensation for such pay period.
Our health and benefit plans include medical, dental, vision, disability, life, long and short-term disability insurance, and flexible spending accounts. All employees also receive flexible leave with no set maximum number of vacation days and a medical leave program that allows employees to take sick leave when they need it, up to 10 consecutive business days.
Perquisites and Other Personal Benefits
We do not believe it is appropriate at this time to provide special perquisites and benefits and thus our NEOs do not receive any personal benefits or perquisites that are not available on a non-discriminatory basis to all employees.
Tax and Accounting Considerations
Deductibility of Executive Compensation
Section 162(m) of the Code places a limit of $1 million on the amount of compensation deductible by a company in any one year with respect to compensation paid to certain of its officers, called covered employees. Compensation that qualifies as “performance-based compensation” under Section 162(m) of the Code has generally been exempt from this limitation. However, in connection with the U.S. Tax Cuts and Jobs Act enacted in December 2017, the exemption from the deduction limit under Section 162(m) of the Code for “performance-based compensation” has been repealed such that compensation paid to our covered employees in excess of $1 million will not be deductible unless it qualifies for transition relief applicable to certain arrangements in place as of November 2, 2017.
As a newly public company, we may benefit from a transition rule under Section 162(m) such that the deduction limit generally does not apply to compensation paid pursuant to plans and arrangements that were in effect at the time of our IPO, subject to certain exceptions. Because of uncertainties as to the application and interpretation of Section 162(m) and the proposed regulations recently issued thereunder, no assurance can be given that any compensation paid by us will be deductible. We will continue to monitor the applicability of Section 162(m) to our ongoing compensation arrangements. While we are mindful of the benefit of tax deductibility of compensation, we also value the flexibility of compensating our executive officers in a manner that can best promote our corporate objectives. Therefore, we may approve compensation that may not be fully deductible.
Accounting
Under the Financial Accounting Standards Board’s Accounting Standards Codification Topic 718 (“ASC 718”), the company is required to estimate and record an expense for each award of equity compensation over the vesting period of the award. We record share-based compensation expense on an ongoing basis according to ASC 718.
Other Compensation Policies and Practices
As a public company, if we are required to restate our financial results due to our material noncompliance with any financial reporting requirements under the federal securities laws as a result of misconduct, our CEO and CFO may be legally required to reimburse us for any bonus or other incentive-based or equity-based compensation they receive in accordance with the provisions of Section 304 of the Sarbanes-Oxley Act of 2002.
We maintain an insider trading policy that prohibits employees, directors, and consultants from engaging in short sales, transactions in put or call options, hedging transactions, margin accounts, or other inherently speculative transactions with respect to our stock. We do not have any stock ownership requirements in place for our NEOs or prohibitions on pledging our stock.
We generally grant RSUs to newly hired employees shortly after the employee’s start date and subject to prior approval of the Compensation Committee. All employees are eligible for merit-based equity grants periodically throughout the year, subject to the approval of the Compensation Committee. We do not time the granting of equity awards to coordinate with the release of material non-public information.
Compensation Risk Assessment
As part of its review of the compensation paid to our employees, including our NEOs, the Compensation Committee considers any risks arising from the design and elements of our compensation policies and practices. We have determined the mix and design of the elements of executive compensation do not encourage management to assume excessive risks and any potential risks are not reasonably likely to have a material adverse effect on our Company as a whole.
SUMMARY COMPENSATION TABLE
The following table shows for the fiscal years ended 2019, 2018, and 2017 compensation awarded to, paid to, or earned by the Company’s Chief Executive Officer, Chief Financial Officer, and its three other most highly compensated executive officers (the “Named Executive Officers”) as of December 31, 2019, in accordance with SEC rules.
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Name and Principal Position | | Year | | Salary ($) | | | Stock Awards(1) ($) | | Option Awards(2) ($) | | Non-Equity Incentive Plan Compensation(3) ($) | | All Other Compensation(4) ($) | | Total ($) |
Matthew Calkins,(5) Chief Executive Officer | | 2019 | | 483,333 | | | — | | | 9,497,647 | | 127,500 | | 11,592 | | 10,120,072 |
| | 2018 | | 400,000 | | | — | | | — | | | 122,250 | | 8,000 | | 530,250 |
| | 2017 | | 400,000 | | | — | | | 505 | | 210,842 | | — | | | 611,347 |
Mark Lynch,(6) Chief Financial Officer | | 2019 | | 377,500 | | | 1,002,527 | | — | | | 21,250 | | 9,135(7) | | 1,410,412 |
Robert Kramer,(5) General Manager | | 2019 | | 291,667 | | | — | | | — | | | 21,250 | | 11,007(7) | | 323,894 |
| | 2018 | | 250,000 | | | 2,564,419 | | — | | | 24,450 | | 10,509 | | 2,849,378 |
David Mitchell,(6) Senior Vice President, Worldwide Sales | | 2019 | | 519,202(8) | | | — | | | — | | | — | | | 35 | | 519,237 | |
Christopher Winters, General Counsel | | 2019 | | 339,167 | | | 501,264 | | — | | | 21,250 | | 11,393(7) | | 873,074 |
| | 2018 | | 285,000 | | | — | | | — | | | 24,450 | | 11,275 | | 320,725 |
| | 2017 | | 285,000 | | | 1,113,500 | | 505 | | 42,168 | | 9,000 | | 1,450,173 |
(1)This column reflects the full grant date fair value of RSUs granted during the year measured pursuant to ASC 718, the basis for computing stock-based compensation in our consolidated financial statements. For the RSU awards, the grant date fair value is calculated using the closing price of our Class A common stock on the date of grant. See Note 7 to our Annual Report on Form 10-K for the year ended December 31, 2019 for information about outstanding equityregarding the value determination of the RSU awards. There is no assurance the grant date fair values will ever be realized by any Named Executive Officer. See the “Outstanding Equity Awards at December 31, 2019” table below for information on RSU awards granted to our named executive officersNamed Executive Officers that remained outstanding as of December 31, 2017.2019.
(2)This column reflects the full grant date fair value of options granted during the year measured pursuant to ASC 718. In accordance with Accounting Standards Update 2016-09, we account for forfeitures as they occur rather than estimate expected forfeitures. For stock options, we calculate the grant date fair value using the Black-Scholes model using the assumptions described in Note 7 to our Annual Report on Form 10-K for the year ended December 31, 2019. There is no assurance the grant date fair values will ever be realized by any Named Executive Officer. See the “Outstanding Equity Awards at December 31, 2019” table below for information on stock option awards granted to our Named Executive Officers that remained outstanding as of December 31, 2019.
(3)Totals for 2019 represent amounts earned by our NEOs during 2019 pursuant to our Senior Executive Cash Incentive Bonus Plan (the “Bonus Plan”) but paid in 2020. Totals for 2018 represent amounts earned by our NEOs during 2018 pursuant to the Bonus Plan but paid in 2019. Totals for 2017 represent amounts earned by our NEOs during 2017 pursuant to the Bonus Plan but paid in 2018.
(4)The amounts reported in this column include matching contributions to our 401(k) savings plan or Roth IRA and life insurance premiums, which we provide to all eligible employees. See “Compensation Discussion and Analysis – Other Features of Our Executive Compensation Program.”
(5)Mr. Calkins and Mr. Kramer are members of our Board of Directors but do not receive any additional compensation in their capacity as directors.
(6)Because Mr. Lynch and Mr. Mitchell were not Named Executive Officers in 2018 or 2017, and Mr. Kramer was not a Named Executive Officer in 2017, SEC rules do not require their compensation for those years to be reported.
(7)Includes $500 for gross-up payments in respect of taxes for health savings account contributions, which is available to all employees.
(8)Includes commissions of $169,202 earned for 2019.
31
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| | | | | | | |
| | Option Awards (1) | Stock Awards (2) |
Name | Grant Date | Number of Securities Underlying Unexercised Options (#) Exercisable (3) | Number of Securities Underlying Unexercised Options (#) Unexercisable (4) | Option Exercise Price ($) (5) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) (6) | Market Value of Shares or Units of Stock That Have Not Vested ($) (7) |
Matthew Calkins | 7/20/2016 | – | 1,828,080 (8) | 9.46 | 7/20/2026 | – | – |
| 4/25/2017 | – | 100 (9) | 12.00 | 4/25/2027 | – | – |
Edward Hughes | 9/8/2009 | 314,066 | – | 0.89 | 9/8/2019 | – | – |
| 1/27/2012 | 10,000 | – | 1.16 | 1/27/2022 | – | – |
| 5/1/2012 | 1,000 | – | 1.16 | 5/1/2022 | – | – |
| 9/5/2013 | 320 | 80 (10) | 1.59 | 9/5/2023 | – | – |
| 4/25/2017 | – | 100 (9) | 12.00 | 4/25/2027 | – | – |
| 10/25/2017 | – | – | – | – | 50,000 (11) | 1,574,000 |
Christopher Winters | 11/17/2015 | 56,000 | 84,000 (12) | 7.03 | 11/17/2025 | – | – |
| 4/25/2017 | – | 100 (9) | 12.00 | 4/25/2027 | – | – |
| 10/25/2017 | – | – | – | – | 50,000 (11) | 1,574,000 |
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(1) | All of the option awards listed in the table were granted under our 2007 Stock Option Plan (the "2007 Plan"). |
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(2) | All of the stock awards listed in the table are RSUs that were granted under our 2017 Equity Incentive Plan (the "2017 Plan"). |
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(3) | The shares of Class B common stock reflected in this column are vested and exercisable. |
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(4) | The shares of Class B common stock reflected in this column had not satisfied the option’s vesting requirement as of December 31, 2017. |
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(5) | All of the option awards listed in the table were granted with a per share exercise price equal to or above the fair market value of our common stock on the date of the grant, as determined in good faith by our Board of Directors. |
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(6) | The shares of Class B common stock reflected in this column had not satisfied the RSU’s vesting requirement as of December 31, 2017. |
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(7) | Represents the market value of the shares of Class A common stock underlying the RSUs as of December 31, 2017, based on the official closing price of our Class A common stock, as reported on the Nasdaq Global Select Market, of $31.48 per share on December 31, 2017. |
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(8) | The shares of Class B common stock listed vest and become exercisable upon the occurrence of (a) a change of control in which the value per share of the Class A common stock is equal or greater than $28.38 and/or (b) the Class A common stock trades at or above $28.38 for a period equal to or greater than ninety (90) calendar days following the closing of our initial public offering. |
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(9) | One-fifth of the shares of Class B common stock listed will vest on April 25, 2018 and the remaining shares of Class B common stock will vest in four equal installments, on April 25, 2019 and each of the next three anniversaries thereof, subject to the recipient’s continued service through each vesting date. |
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(10) | The shares of Class B common stock listed will vest on September 5, 2018, subject to the recipient’s continued service through the vesting date. |
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(11) | One-fifth of the shares of Class A common stock listed will vest on November 5, 2018, and the remaining shares of Class A common stock will vest in four equal annual installments beginning on November 5, 2019, subject to the recipient’s continued service through each vesting date. |
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(12) | One-third of the shares of Class B common stock listed will vest on November 17, 2018 and the remaining shares of Class B common stock will vest in two equal installments, on November 17, 2019 and November 17, 2020, subject to the recipient’s continued service through each vesting date. |
Employment Arrangements
The terms and conditions of employment for each of our named executive officers are set forth in their respective employment agreements. Each of our named executive officers is an at-will employee.GRANTS OF PLAN-BASED AWARDS IN 2019
The following table sets forthshows certain information regarding grants of plan-based awards to the base salariesNamed Executive Officers for 2017 and the fiscal year ended December 31, 2019. There are no threshold, target, or maximum amounts set under the Bonus Plan for fiscal 2019. The dollar value of the actual payments for these awards are included in the "Non-Equity Incentive Plan Compensation" column of the "Summary Compensation Table" above. For more information about our Bonus Plan, see "Compensation Discussion and Analysis - 2019 Executive Compensation Program - Senior Executive Cash Incentive Bonus Plan."
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Name | | Grant Date | | All Other Stock Awards: Number of RSUs(1) (#) | | All Other Option Awards: Number of Securities Underlying Options (#) | | Exercise or Base Price of Option Awards ($/Share) | | Grant Date Fair Value of Stock and Option Awards(4) ($) |
Matthew Calkins | | 5/23/2019 | | — | | | 700,000(2) | | $33.98(3) | | 9,497,647 |
Mark Lynch | | 10/29/2019 | | 22,610 | | — | | | — | | | 1,002,527 |
Robert Kramer | | — | | | — | | | — | | | — | | | — | |
David Mitchell | | — | | | — | | | — | | | — | | | — | |
Christopher Winters | | 10/29/2019 | | 11,305 | | — | | | — | | | 501,264 |
(1)The RSU awards were granted pursuant to our 2017 bonus targetPlan. Each RSU represents a contingent right to receive one share of our named executive officers:Class A Common Stock (or its cash equivalent, at our discretion). The RSUs vest in five (5) equal installments commencing on the one-year anniversary of November 5, 2019, provided the NEO has provided continuous service to us through the vesting date.
(2)The option will vest and become exercisable upon the occurrence of (a) the price per share of our Class A common stock closing at or above 2.5 times the trailing 45-day average closing price of our Class A common stock prior to the date of grant (the “Vesting Price Threshold”) during every business day of a 90-calendar day period or (b) a change of control in which our Class A common stock is valued at or above the Vesting Price Threshold. The option expires on May 23, 2024.
(3)Equal to the closing price per share of our Class A common stock as reported on The Nasdaq Global Market on the date of grant.
(4)See Footnotes 1 and 2 to the “Summary Compensation Table,” above, as applicable.
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| | | | |
Named Executive Officer | | Base Salary ($) | | Fiscal Year 2017 Bonus Target ($) |
Matthew Calkins | | 400,000 | | 250,000 |
Edward Hughes | | 315,000 | | – (1) |
Christopher Winters | | 285,000 | | 50,000 |
OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2019The following table shows for the fiscal year ended December 31, 2019, certain information regarding outstanding equity awards at fiscal year-end for the Named Executive Officers. The market value of the Stock Awards represents the market value of the shares of Class A common stock underlying the RSUs as of December 31, 2019, based on the closing price per share of our Class A common stock as reported on The Nasdaq Global Select Market of $38.21 on such date.
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(1) | Mr. Hughes participates in our Sales Commission Plan and did not participate in our | Option Awards(1) | | | | | | | | | | Stock Awards (RSUs)(1) | | |
Name | | Option Grant Date | | Number of Securities Underlying Unexercised Options (#) Exercisable(2) | | Number of Securities Underlying Unexercised Options (#) Unexercisable(3) | | Option Exercise Price(4) ($) | | Option Expiration Date | | Number of Shares or Units of Stock That Have Not Vested(5) (#) | | Market Value of Shares or Units of Stock That Have Not Vested ($) |
Matthew Calkins | | 7/20/2016 4/25/2017 Bonus Plan. 5/23/2019 | | 1,444,183 40 – | | – 60(6) 700,000(7) | | $9.46 $12.00 $33.98 | | 7/20/2026 4/25/2027 5/23/2024 | | – – – | | – – – |
Mark Lynch | | 1/7/2015 7/20/2016 4/25/2017 | | – 50,000 40 | | 4,000(8) 60,000(9) 60(6) | | $4.11 $9.46 $12.00 | | 1/7/2025 7/20/2026 4/25/2027 | | 22,610(10) 30,000(11) 304(12) | | 863,928 1,146,300 11,616 |
Robert Kramer | | 1/27/2012 4/8/2016 4/25/2017 | | 63,609 7,000 40 | | – 14,000(13) 60(6) | | $1.16 $7.50 $12.00 | | 1/27/2022 4/8/2026 4/25/2027 | | 30,000(11) – – | | 1,146,300 – – |
David Mitchell | | – – | | – – | | – – | | – – | | – – | | 24,917(14) 40,000(15) | | 952,155 1,528,400 |
Christopher Winters | | 11/17/2015 4/25/2017 | | 60,000 40 | | 28,000(16) 60(6) | | $7.03 $12.00 | | 11/17/2025 4/25/2027 | | 30,000(11) 11,305(10) | | 1,146,300 431,964 |
(1)All of the option awards and RSU awards listed in this table and granted before our 2017 Plan became effective on May 24, 2017 were granted under the 2007 Plan; all other option awards and RSU awards listed in this table were granted under the 2017 Plan.
(2)The shares of Class B common stock reflected in this column are vested and exercisable.
(3)The shares of Class B common stock reflected in this column had not satisfied the option vesting requirements as of December 31, 2019.
(4)All of the option awards listed in the table were granted with a per share exercise price equal to or above the fair market value of our common stock on the date of the grant as determined in good faith by our Board of Directors.
(5)The shares of Class B common stock reflected in this column had not satisfied the RSU vesting requirements as of December 31, 2019.
(6)One-third of the options vested on April 25, 2020, and one-third of the options vest on each of April 25, 2021 and April 25, 2022, subject to the recipient’s continued service through each vesting date.
(7)See Footnote 3 to the “Grants of Plan-Based Awards in 2019” above for the vesting schedule.
(8)These options vested on January 7, 2020.
(9)One-half of the options vest on each of July 20, 2020 and July 20, 2021, subject to the recipient’s continued service through each vesting date.
(10)The RSUs were granted on October 29, 2019, and vest in five equal annual installments on each of November 5, 2020, November 5, 2021, November 5, 2022, November 5, 2023 and November 5, 2024, subject to the recipient’s continued service through each vesting date.
(11)The RSUs were granted on October 25, 2017, and vest in three equal annual installments on each of November 5, 2020, November 5, 2021, and November 5, 2022, subject to the recipient’s continued service through each vesting date.
(12)The RSUs were granted on October 19, 2018, and vest in four equal annual installments on each of November 5, 2020, November 5, 2021, November 5, 2022, and November 5, 2023, subject to the recipient’s continued service through each vesting date.
(13)One-half of the options vested on April 8, 2020, and the remaining one-half vest on April 8, 2021, subject to the recipient’s continued service through each vesting date.
(14)The RSUs were granted on July 30, 2018, and vest in four equal annual installments on each of August 5, 2020, August 5, 2021, August 5, 2022, and August 5, 2023, subject to the recipient’s continued service through each vesting date.
(15)The RSUs were granted on February 5, 2018. One-fourth of the RSUs vested on March 5, 2020, and one-fourth of the RSUs vest on each of March 5, 2021, March 5, 2022, and March 5, 2023, subject to the recipient’s continued service through each vesting date.
(16)All of the options vest on November 17, 2020, subject to the recipient’s continued service through each vesting date.
OPTION EXERCISES AND STOCK VESTED IN 2019
The following table sets forthpresents, for each of the current base salaries for 2018Named Executive Officers, the number of shares of our common stock acquired upon the exercise of stock options and the vesting and settlement of RSUs during the fiscal year 2018 bonus targetended December 31, 2019 and the aggregate value realized on the exercise of stock options and the vesting and settlement of RSUs.
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| | Option Awards | | | | Stock Awards (RSUs) | | |
Name | | Number of Shares Acquired on Exercise (#) | | Value Realized on Exercise(1), (2) ($) | | Number of Shares Acquired on Vesting (#) | | Value Realized on Vesting(1),(3) ($) |
Matthew Calkins | | – | | – | | – | | – |
Mark Lynch | | 76,000 | | 1,249,149 | | 10,000 | | 422,700 |
Robert Kramer | | 32,391 – | | 1,200,087 – | | 85,310 10,000 | | 3,066,041 422,700 |
David Mitchell | | – – | | – – | | 10,000 6,229 | | 359,000 248,039 |
Christopher Winters | | 12,000 40,000 | | 427,920 680,877 | | 10,000 – | | 422,700 – |
(1)These values assume the fair market value of the Class B common stock underlying certain of the RSUs and options, which is not listed or approved for trading on or with any securities exchange or association, is equal to the fair market value of our named executive officers:Class A common stock. Each share of Class B common stock is convertible into one share of Class A common stock at any time at the option of the holder or upon certain transfers of such shares.
(2)The aggregate value realized upon the exercise of an option represents the difference between the aggregate market price of the shares of our Class B common stock, assumed to be equal to our Class A common stock as described in footnote (1) above, on the date of exercise and the aggregate exercise price of the option.
(3)The aggregate value realized upon the vesting and settlement of an RSU represents the aggregate market price of the shares of our Class A common stock or Class B common stock (which is assumed to be equal to our Class A common stock as described in footnote (1) above) on the date of settlement.
EMPLOYMENT AGREEMENTS
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Named Executive Officer | | Base Salary ($) | | Fiscal Year 2018 Bonus Target ($) |
Matthew Calkins | | 400,000 | | 250,000 |
Edward Hughes | | 315,000 | | – (1) |
Christopher Winters | | 285,000 | | 50,000 |
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(1) | Mr. Hughes participates in our Sales Commission Plan and does not participate in our 2018 Bonus Plan. |
Potential Payments Upon TerminationEach of our NEOs, other than Mr. Lynch and Mr. Winters, is employed under our standard employment agreement available to all employees. Our standard employment agreement does not provide for any payments at, following, or Change in Control
connection with the resignation, severance, retirement, or other termination (including constructive termination) of the employee, a change in his responsibilities, or a change in control of the Company. Each of our NEOs is an at-will employee. Regardless of the manner in which a named executive officer’san NEO’s service terminates, the named executive officerNEO is entitled to receive amounts earned during his term of service, including salary. Except as described below, our named executive officers are not entitled to any additional severance benefits upon a termination of employment.
Edward Hughes. Mark Lynch.Pursuant to his employment agreement and as defined below, if Mr. Hughes’sLynch’s employment with us is terminated by us without cause heor if Mr. Lynch resigns his employment with us for Good Reason, in each case within 30 days prior to or one year following a Change in Control of our company, Mr. Lynch is entitled to 12 months’ severance.receive: (i) six months of salary, (ii) full acceleration of vesting with respect to all then-unvested equity awards granted to Mr. Lynch pursuant to our equity incentive plans, and (iii) payment of premiums for continued health benefits under COBRA for up to six months. Mr. Lynch’s severance payments and benefits are conditioned on his complying with the post-termination obligations set forth in his employment agreement and signing a general release of claims in our favor.
Christopher WintersWinters.. Pursuant to his employment agreement and as defined below, if Mr. Winters’ employment with us is terminated by us without cause or if Mr. Winters resigns his employment with us for good reason,Good Reason, in each case within 30 days prior to or one year following a change of controlChange in Control of our company, Mr. Winters is entitled to receive (i) six months’ severance,months of salary, (ii) full acceleration of vesting with respect to all then-unvested equity awards granted to Mr. Winters pursuant to our equity incentive plans, and (iii) payment of premiums for continued health benefits under COBRA for up to six months.
Bonus Mr. Winters’ severance payments and Sales Commission Plans
2017 Bonus Plan
In 2017, Messrs. Calkins and Winters were eligible to participate in our 2017 Senior Executive Cash Incentive Bonus Plan, or 2017 Bonus Plan. Bonuses were measured as of December 31, 2017 and were paid in March 2018. The 2017 Bonus Plan was designed to motivate and reward executives for the attainment of company-wide financial and individual performance goals. Messrs. Calkins and Winters were eligible to receive more than 100% of their target bonuses if our performance exceeded the targetsbenefits are conditioned on his complying with his post-termination obligations set forth in his employment agreement and signing a general release of claims in our favor.
“Change in Control” means the 2017 Bonus Plan. Messrs. Calkins and Winters received bonusesoccurrence of $210,842 and $42,168, respectively, pursuant(i) a change of ownership constituting more than 50% of the total voting power of Company stock (other than Mr. Calkins); (ii) a change in the effective control of the Company by replacement of a majority of the Board members during any twelve month period, which replacement is not endorsed by a majority of members of the Board or by vote of Mr. Calkins; or (iii) a change in ownership of a substantial portion of the Company’s assets, subject to certain limitations as set forth in each employment agreement.
“Good Reason” means (i) a material diminution in base compensation or target bonus; (ii) a material diminution in authority, duties, or responsibilities; (iii) a requirement to report to a corporate officer or Company employee other than the CEO; (iv) a material diminution in the employee’s budget; (v) a material change in the geographic location at which the employee must perform services; or (vi) any action or inaction that constitutes a material breach of the agreement by the Company, subject to certain limitations as set forth in each employment agreement.
EQUITY PLAN TERMS
Each of our NEOs holds equity awards under the terms of the 2017 Bonus Plan.
Equity Incentive Plan and, for those awards granted prior to our IPO, the 2007 Stock Option Plan (the “2007 Plan”). The 2017 Equity Incentive Plan and 2007 Plan do not include provisions for automatic acceleration of vesting upon a change of control of us or other significant corporate transactions. Under the 2017 Equity Incentive Plan, the portion of the RSU award that has not vested will be forfeited upon termination of the participant’s employment with us. Under the 2007 Plan, if a participant is terminated for cause, any unexercised and exercisable options may not be exercised after termination. If the participant is terminated because of the death of the participant, the participant’s legal representative may exercise any unexercised and exercisable options for a period of one year after the participant’s death, and if the participant is terminated for any other reason, the participant has 30 days to exercise any unexercised and exercisable options. For a complete description of the terms of the plans, refer to the plan documents filed as exhibits to our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 20, 2020.
2018 Bonus PlanSUMMARY OF ESTIMATED AMOUNTS PAYABLE UPON A TERMINATION OR CHANGE IN CONTROL
Messrs. CalkinsThe following table summarizes the estimated payments to be made to Mr. Lynch and Mr. Winters are eligible to participate in our 2018 Senior Executive Cash Incentive Bonus Plan, or 2018 Bonus Plan. The 2018 Bonus Plan is designed to motivate and reward executives forunder the attainment of company-wide and individual performance goals. Messrs. Calkins and Winters are eligible to receive more than 100%terms of their target bonuses if our performance exceeds the targets set forthemployment agreements in the 2018 Bonus Plan.
Sales Commission Plan
We establish sales commission plans to encourage and reward contributions to our long-term revenue growth. Mr. Hughes was, and continuesevent of a termination of employment without cause or for good reason in connection with a change in control, upon resignation, or death. In accordance with SEC regulations, the following table does not include any amount to be eligibleprovided to receive compensationa Named Executive Officer under any arrangement that does not discriminate in scope, terms, or operation in favor of the Named Executive Officer and that are available generally to all salaried employees. Also, the following table does not duplicate information already provided in the outstanding equity awards at fiscal year-end table, except to the extent the amount payable to the Named Executive Officer would be enhanced by the termination event. The amounts in the following table are hypothetical and based on SEC regulations. Actual payments will depend on the circumstances and timing of any termination.
In accordance with SEC regulations, for purposes of the quantitative disclosure in the following table, we have assumed the termination took place on December 31, 2019 under the terms of the current employment agreements, and the price per share of our sales commission plans. Undercommon stock is the closing price of our sales commission plan for 2017, Mr. Hughes’ target commission was $175,000. Mr. Hughes received commissions of $138,868 pursuant to our sales commission plan for 2017. Under our sales commission plan for 2018, Mr. Hughes’ target commission is $200,000.Class A common stock as reported on The Nasdaq Global Market on December 31, 2019, or $38.21.
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NEO Benefits and Payments upon Termination | | Termination by Company Without Cause or by Employee for Good Reason, each in connection with a Change in Control ($) | | Voluntary Termination ($) | | Death ($) |
Mark Lynch | | | | | | |
Severance Payment | | 200,000 | | | — | | | — | |
Acceleration of Equity Awards | | 3,748,417 | | | — | | | — | |
Insurance Benefits | | 9,381 | | | — | | | — | |
TOTAL: | | 3,957,798 | | | — | | | — | |
Christopher Winters | | | | | | |
Severance Payment | | 175,000 | | | — | | | — | |
Acceleration of Equity Awards | | 2,452,877 | | | — | | | — | |
Insurance Benefits | | 9,101 | | | — | | | — | |
TOTAL: | | 2,636,978 | | | — | | | — | |
DIRECTOR COMPENSATION
Non-Employee Director Compensation Arrangements
Our Board of Directors has adopted a director compensation policy for non-employee directors, which provides for the compensation of non-employee directors with cash and equity compensation. Under the policy, each non-employee director receives an annual board service retainer of $130,000. The chairperson of each of our Audit Committee and our Compensation Committee receives additional annual committee chair service retainers of $20,000 and $10,000, respectively. Members of our Audit Committee and our Compensation Committee receive additional annual cash retainers of $10,000 for each such committee of which they are a member, in addition to any amounts that such members may receive for service as chairperson. The annual retainers set forth above are paid one-half in the form of cash and one-half in the form of fully-vested shares of our Class A common stock to be issued pursuant to our 2017 Plan. The number of shares of Class A common stock is determined by dividing the dollar amount of retainers to be paid in shares by the fair market value per share of our common stock on the date the retainer is payable, rounded down to the nearest whole share. All equity awards under this policy are also subject to the limitations on compensation payable to non-employee directors set forth in our 2017 Plan. The annual retainers are paid or granted, as applicable, in equal quarterly installments in advance on the first day of each fiscal quarter in which the
service occurs. Non-employee directors who join our Board of Directors at a time other than the first day of a fiscal quarter are paid and granted a pro-ratedprorated portion of the annual retainer. We also reimburse all reasonable out-of-pocket expenses incurred by non-employee directors in attending meetings of our Board of Directors or any committee thereof.
20172019 Director Compensation Table
The following table shows for the fiscal year ended December 31, 20172019 certain information with respect to the compensation of all non-employee directors of the Company. Matthew Calkins, our Chief Executive Officer, isand Robert Kramer, our General Manager, are also a membermembers of our Board of Directors,, but didthey do not receive any additional compensation for their service as a director.directors. Mr. Calkins’s and Mr. Kramer’s compensation as a named executive officer isNamed Executive Officers are set forth above under “—2017“2019 Summary Compensation Table.” Mr. Kramer
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Name | | Fees Earned or Paid in Cash ($) | | Stock Awards(1) ($) | | Total ($) |
A.G.W. “Jack” Biddle, III | | 70,041 | | | 69,959 | | | 140,000 | |
Prashanth “PV” Boccassam | | 70,041 | | | 69,959 | | | 140,000 | |
Michael G. Devine | | 80,071 | | | 79,929 | | | 160,000 | |
Barbara “Bobbie” Kilberg | | 70,041 | | | 69,959 | | | 140,000 | |
Michael J. Mulligan | | 80,071 | | | 79,929 | | | 160,000 | |
(1)The value disclosed is an executive officerthe aggregate grant date fair value of 2,016 shares of Class A common stock granted to each of Messrs. Biddle and Boccassam and Ms. Kilberg and 2,303 shares of Class A common stock granted to each of Messrs. Devine and Mulligan, computed in accordance with FASB ASC Topic 718. The number of shares of Class A common stock granted to each director was set using the closing price of our common stock as of the Company but does not receive any additional compensationgrant date.
The table below shows the aggregate number of option awards outstanding as of December 31, 2019, for service as a director andeach of our directors who is not a named executive officer for 2017.Named Executive Officer:
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Name
| | Fees Earned or Paid in Cash ($)
| | Stock Awards ($) (1)
| | Option Awards ($) (2)
| | Total ($)
|
A.G.W. “Jack” Biddle, III | | 42,144 | | 42,086 | | – | | 84,230 |
Prashanth “PV” Boccassam | | 42,144 | | 42,086 | | – | | 84,230 |
Michael G. Devine
| | 56,124 | | 48,107 | | – | | 104,231 |
Barbara “Bobbie” Kilberg | | 50,726 | | 42,086 | | – | | 92,812 |
Michael J. Mulligan
| | 56,124 | | 48,107 | | – | | 104,231 |
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(1) | The value disclosed is the aggregate grant date fair value of 2,665 shares of Class A common stock granted to each of Messrs. Biddle and Boccassam and Ms. Kilberg and 3,046 shares of Class A common stock granted to each of Messrs. Devine and Mulligan, computed in accordance with FASB ASC Topic 718. The number of shares of Class A common stock granted to each director is set by Appian using the closing price of Appian’s common stock as of the grant date. |
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(2) | The table below shows the aggregate number of option awards outstanding as of December 31, 2017 for each of our directors who is not a named executive officer: |
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Name | | Option Awards awards(1), (2) (#) (a) (b) |
Michael G. Devine | | 90,000 (c)45,000(3) |
Barbara “Bobbie”"Bobbie" Kilberg | | 90,000 (d) |
Michael J. Mulligan | | 120,602 (e)72,000(4) |
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(a) | All of the option awards listed in the table were granted under the 2007 Plan. |
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(b) | The option awards listed in the table were awarded subject to a condition that prohibited exercise until we conducted a registered public offering of our shares. Such condition was satisfied for all of the option awards listed in the table, both vested and unvested, following our initial public offering. |
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(c) | Two-fifths of the shares of Class B common stock reflected in this column were fully vested as of December 31, 2017. An additional one-fifth of the shares of Class B common stock vested on March 26, 2018 and one-fifth of the shares of Class B common stock will vest on each of March 26, 2019 and 2020, subject to the recipient’s continued service through each vesting date. |
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(d) | None of the shares of Class B common stock reflected in this column were fully vested as of December 31, 2017. One fifth of the shares of Class B common stock listed vested on January 31, 2018. The remaining shares of Class B common stock will vest in four equal installments, on January 31, 2019 and each of the next three anniversaries thereof, subject to the recipient’s continued service through each vesting date. Ms. Kilberg exercised 4,104 vested options on February 28, 2018 and 13,896 vested options on March 1, 2018.(1)All of the option awards listed in the table were granted under the 2007 Plan. (2)The option awards listed in the table were awarded subject to a condition that prohibited exercise until we conducted a registered public offering of our shares. Such condition was satisfied for all of the option awards listed in the table, both vested and unvested, following our initial public offering. (3)27,000 of the shares of Class B common stock reflected in this column were fully vested as of December 31, 2019. The final 18,000 shares will vest on March 26, 2020, subject to the recipient’s continued service through each vesting date. (4)One-fourth of the shares of Class B common stock reflected in this column vested on each of January 31, 2019 and January 31, 2020, and one-fourth will vest on each of January 31, 2021 and January 31, 2022, subject to the recipient’s continued service through each vesting date.
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(e) | The shares of Class B common stock reflected here are fully vested. |
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table shows information regarding our equity compensation plans as of December 31, 2017.2019:
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Plan Category | | (a) Number of securities to be issued upon exercise of outstanding options, warrants, and rights | | (b) Weighted-average exercise price of outstanding options, warrants and rights(1) | | (c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) |
Equity compensation plans approved by security holders | | 5,481,446(2) | | $ | 7.51 | | | 4,668,941 |
Equity compensation plans not approved by security holders | | — | | | — | | | — | |
Total | | 5,481,446 | | $ | 7.51 | | | 4,668,941 |
(1)The weighted average exercise price does not reflect the shares that will be issued in connection with the settlement of RSUs, which have no exercise price. |
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Plan Category | | (a) Number of securities to be issued upon exercise of outstanding options, warrants and rights | | (b) Weighted-average exercise price of outstanding options, warrants and rights (1) | | (c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) |
Equity compensation plans approved by security holders | | 7,742,862 | | $ | 6.36 |
| | 5,775,770 |
Equity compensation plans not approved by security holders | | — | | — | | — |
Total | | 7,742,862 | | $ | 6.36 |
| | 5,775,770 |
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(1) | The weighted average exercise price does not reflect the shares that will be issued in connection with the settlement of RSUs, which have no exercise price. |
(2)Of these shares, 4,458,611 were underlying then outstanding stock options and 1,022,835 were underlying then outstanding RSUs.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS
Our amended and restated certificate of incorporation contains provisions limiting the liability of directors, and our amended and restated bylaws provide that we will indemnify each of our directors to the fullest extent permitted under Delaware law. Our amended and restated certificate of incorporation and amended and restated bylaws also provide our Board of Directors with discretion to indemnify our officers and employees when determined appropriate by the Board of Directors. In addition, we have entered into indemnification agreements with each of our directors and executive officers. These agreements provide for the indemnification of such persons for all reasonable expenses and liabilities incurred in connection with any action or proceeding brought against them by reason of the fact that they are or were serving in such capacity. We have also obtained director and officer liability insurance to cover liabilities our directors and officers may incur in connection with their services to us.
TRANSACTIONS WITH RELATED PERSONS
RELATED PERSON TRANSACTIONS POLICY AND PROCEDURESRelated Person Transactions Policy and Procedures
In 2017, weWe have adopted a written related person transaction policy that sets forth our procedures for the identification, review, consideration, and approval or ratification of related person transactions. For purposes of our policy only, a related person transaction is a transaction, arrangement or relationship, or any series of similar transactions, arrangements or relationships, in which we and any related person are, were, or will be participants and in which the amount involved exceeds $120,000. Transactions involving compensation for services provided to us as an employee or director are not covered by this policy. A related person is any executive officer, director, or beneficial owner of more than 5% of any class of our voting securities, including any of their immediate family members and any entity owned or controlled by such persons.
Under the policy, if a transaction has been identified as a related person transaction, including any transaction that was not a related person transaction when originally consummated or any transaction that was not initially identified as a related person transaction prior to consummation, our management must present information regarding the related person transaction to our Audit Committee, or, if Audit Committee approval would be inappropriate, to another independent body of our Board of Directors, for review, consideration, and approval or ratification. The presentation must include a description of, among other things, the material facts, the interests, direct and indirect, of the related persons, the benefits to us of the transaction, and whether the transaction is on terms that are comparable to the terms available to or from, as the case may be, an unrelated third party or to or from employees generally. Under the policy, we will collect information that we deem reasonably necessary from each director, executive officer and, to the extent feasible, significant stockholder to enable us to identify any existing or potential related person transactions and to effectuate the terms of the policy.
In addition, under our Code of Conduct, our employees and directors have an affirmative responsibility to disclose any transaction or relationship that reasonably could be expected to give rise to a conflict of interest.
In considering related person transactions, our Audit Committee, or other independent body of our Board of Directors, will take into account the relevant available facts and circumstances including, but not limited to:
the•The risks, costs, and benefits to us;
the•The impact on a director’s independence in the event that the related person is a director, immediate family member of a director, or an entity with which a director is affiliated;
the•The availability of other sources for comparable services or products; and
the•The terms available to or from, as the case may be, unrelated third parties or to or from employees generally.
The policy requires that, in determining whether to approve, ratify, or reject a related person transaction, our Audit Committee, or other independent body of our Board of Directors, must consider, in light of known circumstances, whether the transaction is in, or is not inconsistent with, our best interests and those of our stockholders, as our Audit Committee, or other independent body of our Board of Directors, determines in the good faith exercise of its discretion.
All of theThe transactions described below were entered into prior to the adoption of the written policy, but all were approved by our Board of Directors considering similar factors to those described above.
CERTAIN RELATED PERSON TRANSACTIONSCertain Related Person Transactions
SinceWe did not have any related person transactions since January 1, 2017, aside from (i)2019 other than (1) the employment agreements we have entered into with certain of our executive officers as described in “Executive and Director Compensation – Executive Compensation – Employment Arrangements” above, (ii)(2) the executive officer and director compensation arrangements, including equity awards, discussed in "Executive“Executive and Director Compensation"Compensation” above, and (iii)(3) indemnification agreements we have entered into with each of our directors and executive officers as described above under “Executive and Director Compensation – Limitations on Liability and Indemnification Matters”, we did not have any transactions to which we have been a participant, in which the amount involved in the transaction exceeds or will exceed $120,000 and in which any of our executive officers, directors or beneficial owners of more than 5% of any class of our voting securities, including any of their immediate family members and any entity owned or controlled by such persons, had or will have a direct or indirect material interest.Matters.”
HOUSEHOLDING OF PROXY MATERIALS
The SEC has adopted rules that permit companies and intermediaries (e.g., brokers) to satisfy the delivery requirements for Notices of Internet Availability of Proxy Materials or other Annual Meeting materials with respect to two or more stockholders sharing the same address by delivering a single Notice of Internet Availability of Proxy Materials or other Annual Meeting materials addressed to those stockholders. This process, which is commonly referred to as “householding,” potentially means extra convenience for stockholders and cost savings for companies.
This year, a number of brokers with account holders who are Appian stockholders will be “householding” the Company’s proxy materials. A single Notice of Internet Availability of Proxy Materials will be delivered to multiple stockholders sharing an address unless contrary instructions have been received from the affected stockholders. Once you have received notice from your broker that they will be “householding” communications to your address, “householding” will continue until you are notified otherwise or until you revoke your consent. If, at any time, you no longer wish to participate in “householding” and would prefer to receive a separate Notice of Internet Availability of Proxy Materials, please notify your broker. Holders who currently receive multiple copies of the Notices of Internet Availability of Proxy Materials at their addresses and would like to request “householding” of their communications should contact their brokers.
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OTHER MATTERS
The Board of Directors knows of no other matters that will be presented for consideration at the Annual Meeting. If any other matters are properly brought before the meeting, it is the intention of the persons named in the accompanying proxy to vote on such matters in accordance with their best judgment.
By Order of the Board of Directors
Christopher Winters
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By Order of the Board of Directors |
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Christopher Winters |
General Counsel and Secretary |
April 28, 2020 |
April 27, 2018
A copy of the Company’s Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year ended December 31, 20172019, is available without charge upon written request to: Appian Corporation, 11955 Democracy7950 Jones Branch Drive, Suite 1700, Reston,Tysons, Virginia 20190,22102, Attn: Secretary.
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APPENDIX A - NON-GAAP RECONCILIATION
NON-GAAP FINANCIAL MEASURES
In addition to reporting our financial information in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, we believe certain non-GAAP measures provide investors with meaningful insights into the Company's ongoing business performance. We believe the presentation of these non-GAAP financial measures helps to identify underlying trends in our business from period to period that could otherwise be distorted by the effect of certain expenses, gains, and other items included in our operating results. Investors should also consider our performance and financial condition as reported under GAAP and all other relevant information when assessing our performance or financial condition. Non-GAAP measures have limitations as analytical tools and investors should not consider them in isolation or as a substitute for analysis of our financial results or financial condition as reported under GAAP.
The following table reconciles GAAP operating loss to non-GAAP operating loss for the years ended December 31, 2019 and 2018 (in thousands):
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| Year Ended December 31, | | |
| 2019 | | 2018 |
GAAP operating loss | $ | (50,468) | | | $ | (46,719) | |
Add back: | | | |
Stock-based compensation expense | 16,443 | | | 16,054 | |
Non-GAAP operating loss | $ | (34,025) | | | $ | (30,665) | |