EXECUTIVE OFFICERS
The following sets forth information regardingare our executive officers as of the Record Date.
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Name | | Age | | Position |
Helmy Eltoukhy, Ph.D. | | 42 | | Chief Executive Officer |
AmirAli Talasaz, Ph.D. | | 41 | | President and Chief Operating Officer |
Michael Bell | | 52 | | Chief Financial Officer |
John Saia | | 48 | | Senior Vice President, General Counsel and Corporate Secretary |
Effective as of December 4, 2020, Derek Bertocci ceased service as our Chief Financial Officer, and was replaced by Michael Bell effective January 5, 2021. On May 6, 2020, Michael Wiley transitioned from being our Chief Legal Officer in order to assume a new non-executive officer role as Head of Corporate Affairs, and John Saia was hired as Senior Vice President, General Counsel and Corporate Secretary.
The following sets for the biographical information of our Executive Officers. Biographical information pertaining to Helmy Eltoukhy, who is a member of our Board and our CEO, and AmirAli Talasaz, who is the ChairmanChairperson of our Board and our President and COO, may be found in the section above entitled “Proposal 1: Election of Directors—Directors – Information about Other Directors Not Standing for Election at this Meeting.Class III Director Nominees.”
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Name | Age | Position |
Derek Bertocci | 65 | Chief Financial Officer |
Richard Lanman, M.D. | 64 | Chief Medical Officer |
Michael Wiley | 43 | Chief Legal Officer |
Leena Das-Young, Pharm.D. | 57 | Chief LUNAR Officer and General Manager |
Derek Bertocci.Michael Bell. Mr. BertocciBell has served as our Chief Financial Officer since July 2016. Prior to joining us, Mr. Bertocci served as Senior Vice President and Chief Financial Officer of Achaogen Inc. from February 2014 to December 2015. Prior to that, Mr. Bertocci was Senior Vice President and Chief Financial Officer of Accuray Incorporated, a publicly traded radiation oncology company, from January 2009 to September 2013. From October 2006 through December 2008, Mr. Bertocci2021. He most recently served as the Chief Financial Officer of BioForm Medical,CareDx, Inc., a publicly traded medical aesthetics company.precision medicine company focused on transplantation, from April 2017 to December 2020. From June 2005January 2016 to July 2006, he wasMarch 2017, Mr. Bell served as the Chief Financial Officer of Laserscope,Metabiota, Inc., a publicly traded providercompany that develops and sells risk analytics products focused on infectious disease. From May 2012 to January 2016, he served as the Chief Financial Officer of lasers and fiber optic devices for urology and aesthetic surgery.Singulex, Inc., a clinical diagnostics company. Prior to that, Mr. Bertocci spentBell held leadership and executive positions within Novartis, including with Novartis Diagnostics, a number of years in various roles at VISX Incorporated, a publicly tradedglobal provider of systems for laser vision correction surgery, includingblood screening solutions, where he served as Chief Financial Officer from March 20042011 to May 20052012, and Vice PresidentSenior Director, Global Head of Finance from 2008 to 2011. Mr. Bell also previously worked for several years in public accounting with both Ernst & Young and Controller from 1998 to March 2004. Mr. BertocciDeloitte, UK. He holds a B.A.Bachelor of Science degree from Stanford University and an M.B.A. degreein Mathematics with Computing from the University of Southern California. Mr. BertocciLeicester in the United Kingdom, and is also a Certified Public Accountant (inactive).Fellow of the Institute of Chartered Accountants in England & Wales.
Richard Lanman, M.D.
Dr. LanmanJohn Saia. Mr. Saia has served as our Chief Medical OfficerSenior Vice President, General Counsel and Corporate Secretary since September 2014. Prior to joining us, Dr. LanmanMay 2020. Mr. Saia most recently served as Chief Medical OfficerSenior Vice President, General Counsel and Corporate Secretary of Veracyte,WageWorks, Inc. from July 2008January 2019 until its acquisition by HealthEquity, Inc. in August 2019, and as General Counsel and Corporate Secretary for AcelRx Pharmaceuticals, Inc. from April 2018 to September 2014, where he managed collaborations with academicJanuary 2019. Mr. Saia led legal and community-based physician thought leaderscompliance activities worldwide for both WageWorks and led studies and publications resulting in broad managed care coverage for the Afirma thyroid cancer test.AcelRx. Prior to that, he servedspent more than a decade serving in numerous legal and compliance leadership roles at McKesson Corporation, ending his tenure in April 2018 as Chief Medical Officer of diaDexus, Inc. from April 2005its Corporate Secretary and Associate General Counsel. In addition to July 2008holding positions at several highly respected law firms, Mr. Saia also held
roles at the U.S. Securities and of Atherotech, Inc. from November 2000 to March 2005. Prior to Atherotech, Inc., Dr. Lanman was the Medical Director and Senior Vice President of San Jose Medical Group from October 1993 to April 1995Exchange Commission and the ChiefU.S. Department of Quality at Kaiser PermanenteJustice. Mr. Saia graduated cum laude from July 1985 to September 1993. Dr. Lanman received his M.D. degree from NorthwesternSanta Clara University and holds a B.S. degree in chemistryJuris Doctorate from Stanford University.The George Washington School of Law.
Michael Wiley.Mr. Wiley has served as our Chief Legal Officer since July 2016. He previously served as our President from July 2012 to January 2013 and as our Chief Financial Officer from January 2013 to July 2016. Prior to joining our company, Mr. Wiley served as Vice President of Finance and Legal of Voyage Medical Inc., a medical
device company, from August 2008 to April 2009 and then as Chief Financial Officer from April 2009 to July 2012. Prior to that, he was Vice President of Finance at Microchip Biotechnologies, Inc. from May 2006 to August 2008. Earlier in his career, he was a corporate attorney at Venture Law Group and acted as in-house associate counsel for Novell, Inc., where he focused on intellectual property and employment issues. He also worked for KPMG LLP as a tax accountant. Mr. Wiley received a J.D. degree from the J. Reuben Clark Law School at Brigham Young University and a B.S. degree in accounting from Brigham Young University.
Leena Das-Young, Pharm.D. Ms. Das-Young has served as our Chief LUNAR Officer and General Manager since June 2018. Prior to joining us, she served as Vice President and Head of Late Phase Development for various Pfizer Inc. oncology departments from November 2013 to June 2018, where she oversaw a portfolio of oncology drugs for solid tumors and hematologic malignancies. She also served as a senior commercial leader from November 2008 to June 2010, and as a U.S. commercial leader from June 2003 to October 2008, where she oversaw the commercial development, marketing and launch of oncology products. Before her work at Pfizer Inc., she served as the Vice President of Marketing at Eximias Pharmaceutical Corporation from November 2001 to May 2003. She received her B.S. degree in pharmacy and Pharm.D. degree from Purdue University.
EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
This sectionCompensation Discussion and Analysis (“CD&A”) discusses the principles and objectives underlying our policies and decisions with respect to the compensation of our named executive officers (“NEOs”) and other material factors relevant to an analysis of these policies and decisions regarding our 2020 executive compensation program. This CD&A is intended to be read in conjunction with the tables that immediately follow this section, which provide further compensation information for the following NEOs:
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Name | | Position |
Helmy Eltoukhy | | Chief Executive Officer (“CEO”) |
AmirAli Talasaz | | President and Chief Operating Officer (“President/COO”) |
John G. Saia (1) | | Senior Vice President, General Counsel and Corporate Secretary |
Michael Wiley | | Head of Corporate Affairs |
Derek Bertocci (2) | | Former Chief Financial Officer |
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(1)Mr. Saia joined the Company on April 7, 2020.
(2)Mr. Bertocci stepped down as an executive officer on December 4, 2020 but remained an employee into 2021.
Quick CD&A Reference Guide
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Business and Compensation Overview | Section I |
Compensation Philosophy and Objectives | Section II |
Compensation Determination Process | Section III |
Components of Our Compensation Program | Section IV |
Additional Compensation Policies and Practices | Section V |
I.BUSINESS AND COMPENSATION OVERVIEW
Company Overview
We are a leading precision oncology company focused on helping conquer cancer globally through the use of our proprietary blood-based tests, vast data sets and advanced analytics. We believe that the key to conquering cancer is unprecedented access to its molecular information throughout all stages of the disease, which we intend to enable by a routine blood draw, or liquid biopsy.
Our Guardant Health Oncology Platform is designed to leverage our capabilities in technology, clinical development, regulatory and reimbursement to drive commercial adoption, accelerate drug development, improve patient clinical outcomes and lower healthcare costs. In pursuit of our goal to manage cancer across all stages of the disease, we have launched our Guardant360, Guardant360 CDx and GuardantOMNI liquid biopsy-based tests for advanced stage cancer and in February 2021, launched our Guardant Reveal liquid biopsy-based test for residual and recurring cancer to first address the need in Stage II-III colorectal cancer.
We are developing tests from our Guardant360 tissue program which aims to address challenges with tissue genotyping products currently available in the market and are also developing tests from our LUNAR program which aims to address the needs of early-stage cancer patients with neoadjuvant and adjuvant treatment selection, cancer survivors with surveillance, and asymptomatic individuals eligible for cancer screening and individuals at a higher risk for developing cancer with early detection. We have also developed our GuardantINFORM platform to further accelerate precision oncology drug development by biopharmaceutical companies by offering them an in-silico research platform to unlock further insights into tumor evolution and treatment resistance across various biomarker-driven cancers.
Our GuardantOMNI test has been designated by the FDA as a breakthrough device for use as a companion diagnostic in connection with certain specified therapeutic products of our biopharmaceutical customers.
We believe our tests can expand the scope of precision oncology to earlier stages of the disease, improve patient outcomes and lower healthcare costs.
Stockholder Engagement and Say-on-Pay Vote
As we are no longer considered an “emerging growth company” as defined under the Jumpstart Our Business Startups Act of 2012, we will be holding our first non-binding stockholder advisory vote on the compensation of our named executive officers (a “Say-on-Pay” vote) at the Annual Meeting. Throughout the last quarter of 2020 and into the first quarter of 2021, we reached out to our top 20 stockholders, representing over 54% of the total shares outstanding, to discuss various matters, including our executive compensation program. We are committed to engaging with stockholders to ensure that we understand stockholder feedback about our executive compensation programs and other key matters of interest to them, and we pay careful attention to any feedback we receive from them. We intend to continue our stockholder outreach following the filing of this proxy statement with the SEC, to seek support for our annual meeting proposals and to solicit additional feedback regarding compensation and governance matters of importance to our stockholders.
The Committee and the Board of Directors will consider the outcome of future stockholder advisory votes, including the vote which will take place at the Annual Meeting, in addition to other relevant stockholder feedback that may be received throughout the year, when we make compensation decisions for the named executive officers. For additional information about the Say-on-Pay vote, please review the proposal set forth earlier in this Proxy Statement.
Compensation Objectives
The core elements of the Committee’s executive compensation philosophy are as follows:
•Attract, retain and motivate talented individuals who will drive the successful execution of Guardant Health’s strategic plan;
•Link pay to performance and achievement of Guardant Health’s business objectives;
•Align executive officers’ interests with those of Guardant Health and our stockholders, generally through the use of equity as a significant component;
•Provide market competitive compensation that is a majority of an “at risk” nature; and
•Design programs that we believe are simple and transparent.
2020 Select Business Highlights
We had another exceptionally strong year in 2020, notwithstanding the impact of COVID-19, with outstanding growth in our financial results and strong progress in our product development program. Key highlights include the following:
Financial Results
•Total revenue increased 34% to $286.7 million in 2020, driven by a 31% increase in precision oncology testing revenue, primarily as a result of higher clinical testing volume and increased revenue per test, and a 49% increase in development services and other revenue, primarily due to new collaboration agreements entered in 2020 as well as progression of existing collaboration projects from biopharmaceutical customers for companion diagnostic development and regulatory approval services completed during 2020.
•Gross profit increased 35% to $194.2 million in 2020, compared to $143.7 million in 2019.
•Gross margin was 68% in 2020, compared to 67% in 2019.
•GAAP operating loss was $255.0 million, compared to $82.4 million in 2019. Non-GAAP adjusted operating loss was $110.9 million, which is calculated as GAAP operating loss less stock-based compensation expense of $144.1 million, compared to $65.4 million in 2019, which is calculated as GAAP operating loss less stock-based compensation expense of $17 million.
•Net loss attributable to common stockholders was $253.8 million in 2020, compared to $75.7 million in 2019.
•Net loss per share attributable to common stockholders, basic and diluted, was $2.60 in 2020, compared to $0.84 in 2019.
•We successfully completed an underwritten public offering of common stock through which we received net proceeds of $354.6 million after deducting underwriting discounts and commissions and offering expenses payable by us, and an underwritten public offering of $1.15 billion in convertible senior notes, and ended the year with $2.0 billion in cash, cash equivalents and marketable securities.
Gross profit is calculated as total revenue less costs of precision oncology testing and costs of development and other services. Gross margin is calculated as gross profit divided by total revenue.
Products and Development Programs
We have launched our Guardant360, Guardant360 CDx, GuardantOMNI and Guardant Reveal tests, we have presented data from a new patient cohort that demonstrated that our LUNAR-2 liquid assay achieved 90% sensitivity and 94% specificity in detecting early-stage colorectal cancer, and we are developing additional tests under our Guardant360 tissue and LUNAR programs.
•Precision oncology reported 63,254 tests to clinical customers and 15,983 tests to biopharmaceutical customers, representing an increase of 27% and a decrease of 23%, respectively.
•We announced two strategic collaborations to develop the Guardant360 assay as a companion diagnostic for Janssen Biotech’s amivantamab in non-small-cell lung carcinoma, and expanding to a new indication, for Radius Health’s elacestrant in breast cancer.
•We obtained FDA approval for our Guardant360 CDx for tumor mutation profiling, also known as comprehensive genomic profiling, in patients with any solid malignant tumor.
General Impact of COVID-19
We continue to closely monitor and respond, where possible, to the ongoing COVID-19 pandemic. As the global situation continues to change rapidly, ensuring the well-being of our employees remains one of our top priorities. A number of our employees are temporarily working remotely and those on site must follow our social distance guidelines. We developed our own proprietary COVID-19 test and make that test available to all of our employees and contractors and their dependents at no cost, and we leverage that testing as a condition for access to our offices. In addition, we have developed special cash compensation and incentive programs to many of our essential employees, in recognition of their outstanding service during the COVID-19 pandemic, and we extended COVID-19 protection pay for employees who were quarantined, sick or needed to provide care for their families.
Due to the unprecedented economic disruption caused by COVID-19, we have experienced significant reduction in access to our customers, including restrictions on our ability to market and distribute our tests and to collect samples, as well as supply constraints. Our partners, vendors and customers have similarly had their operations altered or temporarily suspended. Additionally, we have experienced unpredictable reductions in the demand for our tests as healthcare customers divert medical resources and priorities toward the treatment of the virus. Consequently, the COVID-19 pandemic has resulted in increased costs or delays to production and development of our products, and our future revenue and results of operations may be adversely affected until testing, treatments and vaccines substantially eliminate the impact of the COVID-19 pandemic.
Key Aspects of the 2020 Executive Compensation Program
Base Salaries. The 2020 base salaries of the NEOs were unchanged, except with respect to Drs. Eltoukhy and Talasaz, who reduced their annual base salaries to $1 in May 2020 in connection with the Founders’ 2020 Performance Awards. For more information regarding the Founders’ 2020 Performance Awards, see “Components of Our Compensation Program—Long-Term Incentives—Founders’ 2020 Performance Grants” below.
Annual Bonuses. 2020 annual bonuses for the NEOs other than Drs. Elthoukhy and Talasaz (who were not eligible to receive a 2020 annual bonus) were determined based on the achievement of both financial performance metrics, representing 65% of the target bonus opportunity (the “Financial Performance Component”), and product development- and research-based milestone measures, representing 35% of the target bonus opportunity (the “Operational
Performance Component”). To establish these targets and goals, the Compensation Committee (the “Committee”), with the input of the senior leadership team, evaluated our corporate performance for the prior year as compared to the corporate goals, and taking into account other corporate achievements and developments, the Committee set the targets at levels that it considered rigorous and challenging and that took into account the relevant risks and opportunities.
The Financial Performance Component was comprised of:
(i) a revenue goal, which represented 50% of the target bonus opportunity, and
(ii) adjusted operating income (loss) and gross margin goals, which represented 10% and 5%, respectively, of the target bonus opportunity.
The Committee set a rigorous revenue target substantially above the prior-year level, reflecting 36% growth. In addition, there was rigor in the performance curve, as the 50% of target bonus attributed to revenue performance would be forfeited if we didn’t achieve at least 16% growth from the prior year. The targets for gross margin and adjusted operating income (loss) were also set at levels that the Committee viewed as challenging to achieve. In an effort to use a reflection of operating income unaffected by certain unique items beyond the control of management, the Committee utilized operating income (loss) excluding the non-operating, non-cash effect of stock-based compensation expense. The Committee incorporated these measures in order to focus executive officers on the critical strategic priorities of top line revenue growth and operating profitability.
The Operational Performance Component targets were also demanding, and included a regulatory objective, FDA approval of the Guardant360 In Vitro Diagnostics Premarket Approval Application, representing 15% of the target bonus opportunity, and research and development pipeline and commercialization objectives, including LUNAR trial enrollment, representing 20% of the target bonus opportunity.
As described above, total revenue increased 34% to $286.7 million based on strong growth in both precision oncology testing revenue and development services and other revenue, gross margin increased to 68%, and adjusted operating loss widened to $110.9 million. We announced two strategic collaborations and obtained FDA approval of Guardant360 CDx for tumor mutation profiling. Based on these financial results and product development and research-based achievements, the Committee determined that overall achievement relative to the goals was 124.8% of target.
2020 Long-Term Incentives. In addition to the Founders’ 2020 Performance Awards, which are described below, in 2020 the Committee approved the grant of RSUs to Messrs. Saia and Wiley. These RSUs vest ratably over four years. Mr. Bertocci did not receive a grant.
Founders’ 2020 Performance Awards. Our Committee, after a comprehensive and lengthy process, developed and granted performance-based long-term restricted stock unit awards, or PSUs, to our CEO and President/COO, Drs. Eltoukhy and Talasaz. In conjunction with the grant, they have each signed Waiver Letters in which they have agreed to forego any base salary, annual bonuses or time-based long-term incentives for seven years. Each PSU award covers 1,695,574 PSUs, and vests based on the achievement of stock price hurdles of $120, $150 and $200, representing increases of 55%, 94% and 158% growth from the base price used by the
Committee at the time the grant was awarded. See “Long-Term Incentives—Founders’ 2020 Performance Awards” below.
Introduction of PSUs in 2020. As the Company has evolved and grown, the Committee believes that the form of long-term incentives awarded to our employees should also evolve to include performance-based equity. This evolution began with the Founders’ 2020 Performance Awards and in 2020, the Company introduced PSUs with a financial performance metric related to revenue and an operational milestone metric related to a LUNAR-2 launch to certain non-NEO employees. The Committee believes these metrics incentivize top line growth to fuel further growth, and the pursuit of a key strategic goal of expanding the applicability of our technology and methodology to a broader market.
Adoption of Stock Ownership Policy. To support our commitment to stockholder alignment and ensure non-employee members of our Board and our executive officers, including our NEOs, remain invested in our performance and the performance of our common stock, we adopted a stock ownership policy on November 5, 2020 that became effective as of January 1, 2021. Under this policy, our executive officers and directors are required to maintain certain levels of stock ownership (for our CEO, equal to six times the 50th percentile base salary of CEOs of our peer group). Furthermore, we require for those who have not met their minimum required ownership to hold (and not dispose) certain shares of our common stock acquired through equity awards. For more information regarding our stock ownership policy, see “Additional Compensation Policies and Practices—Stock Ownership Policy” below.
II. COMPENSATION PHILOSOPHY AND OBJECTIVES
Compensation Philosophy
The Committee believes that a well-designed compensation program should align executive interests with the drivers of growth and stockholder returns, including by supporting the Company’s achievement of its primary business goals and the Company’s ability to attract and retain employees whose talents, expertise, leadership, and contributions are expected to build and sustain growth in long-term stockholder value. As a result, we maintain a strong pay-for-performance orientation in our compensation program.
To achieve these objectives, the Committee regularly reviews our compensation policies and program design overall to ensure that they are aligned with the interests of our stockholders and our business goals, and that the total compensation paid to our employees and directors is fair, reasonable and competitive for our size and stage of development. Specifically, the Committee targets base salaries, annual cash bonuses, and annual long-term equity incentive awards for our executive officers around the market median for our peer group, with variability in actual payments based on corporate and individual performance.
Compensation Objectives
Key objectives of our compensation programs include the following:
•Reward achievement of business objectives (pay for performance). We have clearly defined our Company’s overarching goal of being the leading provider of precision oncology products for cancer management across all stages of the disease. We have
also developed a robust strategy to accomplish this overarching goal, including certain business objectives that are steps along the way.
The Committee has designed our executive compensation program to motivate our executive officers to achieve these business objectives by closely linking the value of the compensation they receive to our performance relative to these business objectives and, in the case of Drs. Eltoukhy and Talasaz, the creation of substantial stockholder value.
•Align the interests of our executive officers and employees with those of our stockholders; Foster an ownership culture. Equity-based compensation constitutes a significant portion of our executive officers’ overall compensation. The Committee uses equity, when appropriate, as the form for long-term incentive opportunities in order to incentivize and reward executive officers to (i) achieve multiyear strategic goals and (ii) deliver sustained long-term value to stockholders.
The Committee believes using equity for the long-term incentives creates strong alignment between the interests of executive officers and the interests of our stockholders because it gives executive officers and stockholders a common interest in stock price performance. Granting equity also fosters an ownership culture among executive officers by making them stockholders with a personal stake in Guardant Health’s growth and success.
•Offer competitive compensation to attract and retain talent. The biopharmaceutical and technology industries are fiercely competitive, particularly in the California Bay Area and other areas where we operate, and we must compete for executive talent in these industries and areas. To manage our business and carry out our strategy, we seek high-caliber executive officers and managers who have diverse experience, expertise, capabilities and backgrounds.
In recruiting our executive officers and determining competitive pay levels, the Committee references the amounts and compensation structures of executive officers in the companies in our compensation peer group and in industry surveys.
•Design straightforward compensation programs and plans and administer them transparently. In order for incentive compensation to serve its purpose of motivating participants to achieve results, the participants must have a clear understanding of the goals and targets by which they will be measured, and the rewards that they will receive for various levels of achievement of those goals, including the value of those rewards.
The Committee strives to make the incentives in our executive compensation program straightforward and the programs transparent and understandable, so that our executive officers, as well as our stockholders, know what they are working toward, and what they will receive if they succeed. The Committee seeks to design programs that give participants a clear line of sight to the selected metrics and sufficient control over the performance toward the goals, to motivate them effectively for achieving our business objectives and to reward them appropriately, as a means of executing our strategy.
For a description of the objectives and rationale for the Founders’ 2020 Performance Awards granted to Drs. Eltoukhy and Talasaz, please see “Components of Our Compensation Program—Long-Term Incentives—Founders’ 2020 Performance Grants” below.
Compensation Program Governance
The Committee assesses the effectiveness of our executive compensation program from time to time and reviews risk mitigation and governance matters, which includes maintaining the following best practices:
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What We Do |
þ | | Pay for Performance | | The majority of total executive compensation is variable and at-risk. |
þ | | Balance Short- and Long-Term Compensation | | The allocation of incentives among the annual incentive plan and the long-term incentive plan does not over-emphasize short-term performance at the expense of achieving long-term goals. |
þ | | Combination of Balanced Performance Metrics | | We use a diverse set of financial and milestone performance metrics in our annual incentive plan to ensure that no single measure affects compensation disproportionately. |
þ | | Independent Compensation Consultant | | Our Committee has engaged an independent compensation consultant to provide information and advice for use in Committee decision-making. |
þ | | Peer Data | | We develop a peer group of companies based on industry, revenue, development stage and market capitalization to reference for compensation decisions. |
þ | | Cap Bonus Payouts; Fixed Equity Grants | | Our annual incentive plan has an upper limit on the amount of cash that may be earned. We grant a fixed number of options, RSUs and PSUs. |
þ | | Double Trigger Change-in-Control Provisions | | If there is a change in control, outstanding time-based equity awards will vest only if there is both a change-in-control and termination of employment (a “double trigger”). A change-in-control alone will not trigger vesting. |
þ | | Newly Adopted Robust Stock Ownership and Retention Guidelines | | Our executive officers and directors are required to maintain certain levels of stock ownership (for our CEO, equal to 6x the 50th percentile base salary of CEOs of our peer group). We require for those who have not met their minimum required ownership to hold (and not dispose) certain shares of our common stock acquired through equity awards. |
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What We Don’t Do |
ý | | No Employment Agreements | | Our executive officers are at-will employees with no employment contracts. |
ý | | No Hedging or Pledging of Company Securities | | We prohibit employees and non-employee directors from engaging in hedging, pledging or short sale transactions in Company securities. |
ý | | No Excessive Perks | | We do not provide large perquisites to executive officers. |
ý | | No Excise Tax Gross-Ups | | We do not provide excise tax gross-ups. |
ý | | No Stock Options Below Fair Market Value | | We do not grant stock options below fair market value. |
III. COMPENSATION DETERMINATION PROCESS
Role of the Compensation Committee
The Compensation Committee establishes our compensation philosophy and objectives, determines the structure, components and other elements of executive compensation, and
reviews and approves the compensation of the NEOs or recommends it for approval by the Board. The Committee structures the executive compensation program to accomplish its articulated compensation objectives in light of the compensation philosophy described above.
The Committee obtains input from executive officers regarding the annual operating plan, expected financial results, and related risks. Based on this information, the Committee establishes the performance-based metrics and targets for the annual incentive plan. For each metric, the Committee sets appropriate threshold and maximum levels of performance designed to motivate achievement without incentivizing excessive risk-taking.
Toward the end of each year, the Committee reviews the elements of our executive compensation program to verify the alignment of the program with our business strategy and with the items that we believe drive the creation of stockholder value, and to determine whether any changes would be appropriate.
At the beginning of the new year, after the end of applicable annual or long-term performance periods, the Committee evaluates achievement relative to performance targets, and examines whether it would be appropriate to apply negative discretion to the initial outcomes in order to take relevant factors into consideration, and determines corresponding payouts earned.
With the input of the CEO and the President/COO, the Committee also establishes the compensation for all the other executive officers. The Committee sets the compensation for each of our NEOs and makes recommendations to the full Board generally at its meetings in the first quarter of each year.
Role of the Independent Compensation Consultant
The Committee recognizes that there is value in procuring independent, objective expertise and counsel in connection with fulfilling its duties, and pursuant to its charter, the Committee has the authority to select and retain independent advisors and counsel to assist it with carrying out its duties and responsibilities. The Committee has exercised this authority to engage Radford as an independent compensation consultant, and the Company has provided appropriate funding to the Committee to do so. The Committee has worked with Radford to develop a peer group, provide a competitive market analysis of the base salary, annual cash incentive awards and long-term incentive compensation of our executive officers compared against the compensation peer group, report on share utilization, and review other market practices and trends.
The Committee engaged a separate independent compensation consultant, Semler Brossy, in connection with the Founders’ 2020 Performance Awards to the CEO and President/COO, as well as in reassessing our director compensation program. Semler Brossy reported directly to the Committee, and the Committee had the sole authority to retain, terminate and obtain the advice of Semler Brossy in connection with the Founders’ 2020 Performance Awards and the director compensation program at the Company’s expense.
While the Committee took into consideration the respective review and recommendations of Radford and Semler Brossy when making decisions about our executive compensation
program, ultimately, the Committee made its own independent decisions in determining our executives’ compensation.
Compensation Peer Groups and Peer Selection Process
Relevant market and benchmark data provide a solid reference point for making decisions and very helpful context, even though, relative to other companies, there are differences and unique aspects of the Company. The Committee takes into consideration the structure and components of, and the amounts paid under, the executive compensation programs of other, comparable peer companies, as derived from public filings and other sources when making decisions about the structure and component mix of our executive compensation program.
The Committee, with the assistance of Compensia, its prior independent compensation consultant, developed a peer group in 2019 using the following criteria: sector (diagnostics, other biotechnology), revenue, market capitalization, profitability, stage of development (pre-commercial, commercial) and employee head count. As of May 2020, the Company’s revenue was at the 28th percentile of the peer group revenue, and its market capitalization was at the 48th percentile of the peer group market capitalization.
Based on these criteria and considerations, our peer group selected for decisions relating to 2020 executive compensation, as approved by the Committee, consisted of the following 17 companies:
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Alnylam Pharmaceuticals, Inc. | EXACT Sciences Corp. | Neurocrine Biosciences, Inc. |
Amarin Corp. plc | Genomic Health, Inc. | Novocure Ltd. |
Array BioPharma, Inc. | Insulet Corp. | Penumbra, Inc. |
BeiGene Ltd. | Moderna, Inc. | SAGE Therapeutics, Inc. |
bluebird bio, inc. | Natera, Inc. | Sarepta Therapeutics, Inc. |
Blueprint Medicines Corp. | NeoGenomics, Inc. | |
In addition to the criteria above, the Committee also referenced general and specific industry surveys from other sources. The Committee determined that the appropriate market reference continues to be the 50th percentile. The market data are used as a reference point and to provide information on the range of competitive pay levels and current compensation practices in our industry.
We believe that the compensation practices of our peer group provided us with appropriate compensation reference points for evaluating the compensation of our named executive officers during 2020. Consistent with best practices for corporate governance, the Committee will review our peer group annually. In mid-2020, the Committee engaged Radford to develop a new peer group for decisions regarding executive compensation for 2021.
Role of the Chief Executive Officer and the President/Chief Operating Officer
The Committee works with our CEO and our President/COO to set the target compensation of each of our other NEOs. As part of this process, these two executive officers evaluate the performance of the other executive officers annually and make recommendations to the Committee in the first quarter of the year regarding the compensation of each other executive officer.
The input of these two executive officers is particularly important. The Committee gives significant weight to the recommendations of these two executive officers in light of their greater familiarity with the day-to-day performance of their direct reports and the importance of incentive compensation in driving the execution of managerial initiatives developed and led by the CEO and the President/COO. Nevertheless, the Committee or the Board of Directors makes the ultimate determination regarding the compensation for the executive officers.
IV. COMPENSATION PROGRAM COMPONENTS
2020 Components in General
In order to achieve its executive compensation program objectives, the Committee utilizes the compensation components set forth in the chart below. The Committee verifies through its regular reviews that each executive officer’s total compensation is consistent with its compensation philosophy and objectives and that the component is serving a purpose in supporting the execution of our strategy.
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Element | | Description | | Additional Detail |
Base Salary | | Fixed cash compensation
Determined based on each executive officer’s role, individual skills, experience, performance, positioning relative to competitive market and internal equity. | | Base salaries are intended to provide stable compensation to executive officers, allow us to attract and retain skilled executive talent and maintain a consistent, stable leadership team. |
Short-Term Incentives: Annual Cash Incentive Opportunities | | Variable cash compensation based on the level of achievement of certain annual performance objectives that are pre-determined.
Financial objectives and product development and research-based milestone objectives
Performance against the revenue goal must be at least 85% of target in order to earn any credit toward a payout with respect to that goal.
Cash incentives are capped at a maximum of 200% of base salary.
Target cash award as a percentage of base salary is capped at 50%. | | Annual cash incentive opportunities are designed to align our executive officers in pursuing our short-term goals; payout levels are generally determined based on actual financial results and the degree of achievement of performance milestones. |
Long-Term Incentives: Equity-Based Compensation | | Variable equity-based compensation. Stock Options: Right to purchase shares at a price equal to the stock price on the grant date.
Restricted Stock Units (RSUs): Restricted stock units that are time-based.
Performance Stock Units (PSUs): Restricted stock units that are performance-based (2021). | | Equity-based compensation is designed to motivate and reward executive officers to achieve multi-year strategic goals and to deliver sustained long-term value to stockholders, as well as to attract and retain executive officers for the long term. |
2020 Target Pay Mix
While the core concepts of the Committee’s executive compensation philosophy are to link pay to performance and to align incentive compensation with strategic objectives and executive officers’ interests with those of stockholders through the use of equity as a significant component, the 2020 pay mix was atypical.
As discussed below under “Long-Term Incentives—Founders’ 2020 Performance Awards,” the Committee granted the Founders’ 2020 Performance Awards to the CEO and the President/COO. In connection with these grants, the CEO and the President/COO waived their rights to base salary, annual incentive opportunity and time-based equity, beginning mid-way through the year. As such, the pay mix for these two is not reflective of the Committee’s general philosophy and approach to pay mix.
For our other NEOs, as described above, the Committee made grants of RSUs only to Messrs. Saia and Wiley. As such, while the intended typical target pay mix NEOs includes a meaningful majority of annual target total compensation being variable, at-risk pay, including equity, in 2020, this was not the case. The Committee considers compensation to be “at risk” if it is subject to operating performance or if its value depends on stock price appreciation.
Each compensation element is discussed in more detail below and set forth in more detail in the 2020 Summary Compensation Table and 2020 Grants of Plan-Based Awards table below.
Base Salary
Base salaries provide fixed compensation to executive officers and help us to attract and retain the executive talent needed to lead the business and maintain a stable leadership team. Base salaries are individually determined according to each executive officer’s areas of responsibility, role and experience, and they vary among executive officers based on a variety of considerations, including skills, experience, achievements and the competitive market for the position.
| | | | | | | | | | | | | | | | | |
NEO | | 2019 Base Salary ($)(1) | | 2020 Base Salary ($)(1) | |
Helmy Eltoukhy | | $ | 500,000 | | | $ | 1 | | (2) |
AmirAli Talasaz | | 500,000 | | | 1 | | (2) |
John G. Saia (3) | | NA | | 410,000 | | |
Michael Wiley | | 395,000 | | | 395,000 | | |
Derek Bertocci (4) | | 390,000 | | | 390,000 | | |
_______________
(1)Amounts shown are the annual base salary in effect at year end.
(2)In connection with the Founders’ 2020 Performance Awards granted to Drs. Eltoukhy and Talasaz in May 2020, each of Drs. Eltoukhy and Talasaz formally agreed to accept a base salary of $1 per year. For 2020, Drs. Eltoukhy and Talasaz received their base salaries at a rate of $500,000 per year through May 31, 2020.
(3)Mr. Saia joined the Company on April 7, 2020.
(4)Mr. Bertocci resigned as an executive officer of the Company on December 4, 2020 but remained an employee into 2021.
Adjustments to Base Salary.
From time to time, the Committee might consider and approve base salary adjustments for executive officers. The main considerations for a salary adjustment are similar to those used in initially determining base salaries, but may also include change in the competitive market, change of role or responsibilities, recognition for achievements or market trends.
For newly-hired executive officers, the Committee establishes initial base salaries through arm’s-length negotiations at the time the executive officer is hired, considering the position, and the executive’s experience, qualifications and prior compensation.
Annual Incentive Plan
The annual cash incentive plan for executive officers is a cash plan that rewards NEOs for the achievement of key short-term objectives. In particular, the plan offers incentives to the NEOs other than the CEO and the President/COO to accomplish certain short-term financial results and specified product development and research-based milestones that the Committee views as key steps in the execution of our overall business strategy, with the intent ultimately of increasing stockholder value.
In the Committee’s view, the most senior executive officers have the greatest responsibility for the performance of the Company, and consequently, the annual incentive plan for such executive officers utilizes only Company performance measures, with no individual component (other than with respect to the application of negative discretion).
Performance Measures
The amount of the payout, if any, under the annual incentive plan is based on our achievement against three financial metrics and two categories of product development and research-based milestone metrics.
The financial measures selected by the Committee—Revenue, Gross Margin and Adjusted Operating Income (Loss)—focus executive officers on the critical strategic priorities of top line revenue growth and operating profitability.
•Revenue (weighted 50%). Given the Company’s stage of development and market opportunity and window, the Committee emphasized revenue growth as the highest priority. We derive revenue from the provision of precision oncology testing services provided to our ordering physicians and biopharmaceutical customers, as well as from biopharmaceutical research and development services provided to our biopharmaceutical customers.
•Adjusted Operating Income (Loss) (weighted 10%). Operating income (loss) is revenue less costs and expenses. In an effort to use a reflection of operating income unaffected by certain unique items beyond the control of management, the Committee considered operating income (loss) excluding the non-operating, non-cash effect of stock-based compensation expense.
•Gross Margin (weighted 5%). Gross margin is defined as total revenue less cost of precision oncology testing and costs of development and other services, divided by total revenue.
The milestone metrics related to 1) key regulatory steps for one of our tests and 2) key process steps for one of our other focus areas:
•GUARDANT360 In Vitro Diagnostics Premarket Approval Application (weighted 15%). The Committee chose to prioritize seeking FDA approval for the use of this test as a companion diagnostic in late stage situations.
•LUNAR Progress (weighted 20%). In connection our LUNAR (early stage) programs, the Committee incorporated certain steps in the process as goals.
Target, Threshold and Maximum Performance Levels
The Committee set the performance metric targets at levels that it considered rigorous and challenging and that took into account the relevant risks and opportunities. More specifically, the Committee reviewed the relevant financial objectives set as a result of the detailed budgeting process, and assessed various factors related to the achievability of these budget targets, including the risks associated with various macroeconomic factors and the risks of achieving specific actions that underlie the targets and the implied performance relative to prior years.
Considering these factors, the Committee set the 2020 target for revenue at a 36% growth rate over the total revenue in 2019, the target for 2020 gross margin at a 110 basis point increase over the gross margin in 2019, and the target for adjusted operating loss at a 54% increase over the adjusted operating loss in 2019 (excluding the impact from stock-based compensation expense).
Having set the targets, the Committee also set the threshold and maximum performance levels. For 2020, the Committee set the threshold at a high-performance level of approximately 85% of the target for revenue. The thresholds for gross margin and adjusted operating loss were also set at high performance levels, although they do not lend themselves to a comparable relative analysis. The Committee set the maximum level for revenue at 118% of target, a level that presents a significant challenge requiring exceptionally strong performance. The Committee set maximum levels for the other two metrics as well that were also based on our 2020 operating plan, including the planned growth in revenue and expenses, and that required significant effort to achieve.
Payout Levels
The Committee defined payout levels representing the amount to be paid to NEOs based on the level of actual performance relative to the targets. If achievement is below the threshold level of performance, the Committee set the payout at 0% in order to motivate performance and underscore the importance of achieving, or closely approaching, the targets at this critical time in our development. If we achieve threshold performance on a metric, the payout is 50% of target; if we achieve 100% of target performance, the payout is 100% of target, and if we achieve maximum performance, the payout is 200% of target.
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Performance Metric | | Relative Weighting (%) | | Below Threshold ($/%) | | Threshold ($/%) | | Target ($/%) | | Maximum ($/%) | | Actual Result ($)/%) | | % Achievement | | Weighted Payout % |
Revenue (in millions) | | 50% | | <247.5 | | 247.5 | | 291.2 | | 343.0 | | 286.7 | | 98.5% | | 44.9% |
Percentage of Target Performance | | | | Less than 85% | | 85% | | 100% | | 118% | | | | | | |
Gross Margin % | | 5% | | <62.4 | | 62.4 | | 64.2 | | 65.7 | | 67.7 | | 200% | | 10% |
Non-GAAP Operating Income (Loss)(excluding stock-based compensation expense) | | 10% | | >(140.2) | | (140.2) | | (155.7) | | (168.8) | | (143.0) | | 199% | | 19.9% |
Financial Metric Payout Percentage | | | | 0% | | 50% | | 100% | | 200% | | | | | | 74.8 |
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Milestone Metric | | Relative Weighting (%) | | Actual Achievement (as a % of Target) | | Weighted Payout % |
Regulatory Objectives | | | | | | |
FDA Approval of Guardant 360 In Vitro Diagnostic Premarket Approval Application | | 15% | | 100% | | 15% |
R&D Pipeline Objectives | | | | | | |
Enrollment of patients in a trial of the LUNAR ECLIPSE assay | | 20% | | 175% | | 35% |
Milestone Metric Payout Percentage | | 50% |
Total Financial Metric and Milestone Metric Payout Percentage | | 124.8% |
Target Opportunities
The Committee determines the target cash incentive opportunity available to each NEO by taking the individual’s annual base salary in effect at year end and multiplying it by the individual’s target incentive percentage. Among other factors, the target incentive percentages are determined with reference to the peer group company percentages of salary and the proportion of total direct compensation represented by the annual incentive.
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NEO | | 2020 Target Annual Incentive Plan Opportunity as a % of Base Salary |
Helmy Eltoukhy | | — (1) |
AmirAli Talasaz | | — (1) |
John Saia | | 40% |
Michael Wiley | | 50% |
Derek Bertocci | | 40% |
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(1)In connection with the Founders’ 2020 Performance Awards granted to Drs. Eltoukhy and Talasaz in May 2020, each of Drs. Eltoukhy and Talasaz formally agreed to waive their opportunity to receive annual incentive opportunities or payouts under our annual incentive plan for seven years, including for 2020.
Payout Determination
The Committee verifies our achievement relative to the targets for the financial and milestone metrics to determine the respective performance levels, and then translates those performance levels to a payout level based on the payout curve. For 2020, the payout level was 124.8%, based on the achievement of revenue being slightly below target, achievement of gross margin and adjusted operating loss coming in at the maximum level driven by a solid increase in precision oncology testing revenue and development services and other revenue, as well as meeting one regulatory objective at target and one LUNAR pipeline objective at the maximum level. The Committee agreed to fund the 2020 bonus pool at 124.8% and agreed with management’s recommendation to modify slightly downwards the payouts to all employees entitled to a bonus, including all executive officers, in order to reallocate the differential to other high-performing employees and non-bonus eligible employees.
Having determined the total 2020 annual incentive plan payouts for each eligible NEO, the Committee then presented the determination of annual incentive plan payout amounts to the Board for its review and approval.
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NEO | | Base Salary ($)(1) | | Target Opportunity (%) | | Target Opportunity ($) | | Approved Payout Percentage % | | Total Approved Payout ($) |
Helmy Eltoukhy | | $ | 1 | | | — | | | $ | — | | | — | | | $ | — | |
AmirAli Talasaz | | 1 | | | — | | | — | | | — | | | — | |
John Saia | | 410,000 | | | 40% | | 164,000 | | | 120% | | 196,800 | |
Michael Wiley | | 395,000 | | | 50% | | 197,500 | | | 115% | | 227,520 | |
Derek Bertocci (2) | | 390,000 | | | 40% | | 156,000 | | | — | | | — | |
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(1)Amounts shown are the annual base salary in effect at year end.
(2)Due to his retirement, Mr. Bertocci was not eligible for a payout under the annual incentive plan.
Long-Term Incentives
The third and largest main component of the executive compensation program is long-term equity incentives. The Committee has designed the long-term incentive opportunity for the NEOs other than the CEO and the President/COO to motivate and reward executive officers to achieve multiyear strategic goals and deliver sustained long-term value to stockholders.
The long-term incentives create a strong link between payouts and performance, and a strong alignment between the interests of executive officers and the interests of our stockholders. Long-term equity incentives also promote retention, because executive officers will only receive value if they remain employed by us over the required term, and they foster an ownership culture among our executive officers who are namedby making executive officers become stockholders, with a personal stake in the “Summaryvalue they are incentivized to create.
Equity Vehicles
In 2019, long-term incentive grants took the form of two different vehicles: stock options and RSU awards. The Committee structured the mix of equity vehicles and the relative weight assigned to each type to motivate stock price appreciation over the long term through stock options, which deliver value only if the stock price increases, and to ensure some amount of
value delivery through the RSUs, which are complementary because they have upside potential but deliver some value even if the stock price or the market generally does not go up, while also reinforcing an ownership culture and commitment to us.
We completed our initial public offering in October 2018, and 2019 and 2020 were our initial years as a public company. Our use of these vehicles in 2019 and, to a more limited degree, in 2020 is consistent with other newly-public companies and others in our industry, and the Committee envisions that, over time, as the Company evolves and grows, the executive compensation table”program and the form of the long-term incentives will also evolve.
2020 Equity Grants
Our Committee, after a comprehensive and lengthy process, developed and granted performance-based long-term PSUs to our CEO and President/COO, Drs. Eltoukhy and Talasaz. Each received a grant of 1,695,574 PSUs with stock price vesting hurdles of $120, $150 and $200, representing increases of 55%, 94% and 158% from the base price used by the Committee. See “Long-Term Incentives—Founders’ 2020 Performance Awards” below.
The Committee also made regular annual grants to the other NEOs, in the form of RSUs to Messrs. Saia and Wiley. The RSUs vest ratably over four years. Due to his impending retirement, Mr. Bertocci did not receive a grant.
The Committee intends to make grants of long-term incentive awards annually and might also grant long-term incentive awards when an individual is promoted to a senior executive position to recognize the increase in the scope of his or her role and responsibilities. From time to time, the Committee might make special awards to recognize major accomplishments, or selective awards in situations involving a leadership transition. The Committee might also make grants to newly-hired executive officers.
Introduction of PSUs in 2020
The Company maintains an ongoing commitment to good corporate governance principles and strong performance orientation in our compensation program by proactively reviewing our policies and program design. In 2018,2020, this included an evaluation of our “named executive officers”incentive compensation programs. With respect to our long-term equity incentive program, we adjusted the mix of equity for our annual awards, new hire awards, and awards in connection with promotions to include inaugural grants of performance-based PSUs for certain non-NEO employees in 2020, and we continue to manage award amounts, with a goal of maintaining broad-based equity participation, delivering value that is aligned with our compensation philosophy and proactively managing our share usage as well as dilution during a period of rapid growth.
In 2020, the Company introduced PSUs with a financial performance metric related to revenue and an operational milestone metric related to a LUNAR-2 launch. The Committee believes these metrics incentivize top line growth to fuel further growth, and the pursuit of a key strategic goal of expanding the applicability of our technology and methodology to a broader market.
We expect to continue to evaluate our equity compensation strategy across the organization to manage our equity utilization during 2021 and beyond.
Founders’ 2020 Performance Awards
Executive Summary
Founders’ 2020 Performance Awards Overview
To align the incentives of Drs. Eltoukhy and Talasaz with our long-term, large-scale strategic objectives of making significant headway against cancer, and to secure their positions werecontinued leadership, expertise and energy, and considering the interests of our stockholders and stakeholders, in May 2020, our Board granted awards to each of Drs. Eltoukhy and Talasaz, as follows:
•1,695,574 performance share units, or PSUs, which are 100% performance-based and at-risk (the “Founders’ 2020 Performance Awards”).
•The PSUs vest only if certain rigorous stock price hurdles are reached during the seven-year term of the awards.
•Based on the stock price used by the Board to determine the number of PSUs granted, the price must increase by 55%, 94% and 158% in order for the three tranches of the award to be earned, respectively, corresponding to stockholder value creation of $4.0 billion, $6.9 billion and $11.6 billion, respectively.
•To underscore the “all in” nature of the performance award, each of Drs. Eltoukhy and Talasaz have agreed by means of a written Waiver Letter filed with the SEC to effectively forego all base salary and annual incentive for a period of seven years. Drs. Eltoukhy and Talasaz must remain our employees in order for any tranche of the award to vest.
Background
In 2011, the team of Dr. Helmy Eltoukhy, our Chief Executive Officer;
Officer, and Dr. AmirAli Talasaz, President and Chief Operating Officer;
Leena Das-Young, Chief Lunar Officer; and
Richard Lanman, Chief Medical Officer.
Although AmirAli Talasaz, orour President and Chief Operating Officer is not a named executive officer for 2018 under applicable SEC rules, we chose to include him(collectively, our “Founders”), founded Guardant Health as a named executive officer, and a discussionstart up with the belief that the key to conquering cancer is unprecedented access to its molecular information throughout all stages of his compensation for 2018, given his role and impact at our company.the disease.
Summary Compensation Table
The following table sets forth information concerningCompany enables this access by a routine blood draw, or liquid biopsy blood test, with our Guardant360 and GuardantOMNI tests for advanced stage cancer. GuardantOMNI has been used by our biopharmaceutical customers as a comprehensive genomic profiling tool to help accelerate clinical development programs in both immuno-oncology and targeted therapy.
Performance
Within seven years of our founding, we became a leading precision oncology company. As it is practiced today, precision oncology is primarily focused on matching cancer patients to personalized treatments based on the compensation thatunderlying molecular profile of their existing tumors. In October 2018, we went public, with an IPO valuation of approximately $1.59 billion.
As described above, our 2020 total revenue was awarded$286.7 million, driven by precision oncology testing revenue, primarily as a result of higher testing volume and increased revenue per test, and by development services and other revenue, primarily from new projects.
Approximately 10 years after Drs. Eltoukhy and Talasaz founded our company, as of April 19, 2021, our equity market capitalization was approximately $15.4 billion, a 968% increase since our IPO. Under the leadership of Drs. Eltoukhy and Talasaz, Guardant Health has created approximately $13.8 billion in value for our stockholders since our IPO.
Cumulative Total Stockholder Return
Strategic Opportunity
Having developed Guardant360 and GuardantOMNI for advanced stage cancer (each were designated by the FDA as a breakthrough device for use as a companion diagnostic in connection with certain specified therapeutic products of our biopharmaceutical customers), we are now moving aggressively to earnedthe next phase of our growth and development: solutions for early detection and the detection of recurrence and residual disease (our LUNAR and LUNAR-2 efforts, respectively), and the market opportunity presented by or paidsuch tests.
Our LUNAR assay is intended to address identification of those who are likely to benefit from adjuvant treatment, detection of minimal residual disease in the blood of cancer patients after surgery, and surveillance of patients who have completed curative cancer treatment to potentially detect recurrence at an earlier stage. This assay was launched in 2018 for research use and in late 2019 for investigational use. We are developing our named executive officersLUNAR-2 assay to address early cancer detection in screening eligible asymptomatic individuals and higher risk individuals.
Key 2020 Compensation Decisions Relating to the Founders
The Committee considered the Founders’ success to date in envisioning and executing the development of novel technology and bringing it to market, the corresponding significant stockholder value creation and strong relative performance.
At this critical moment on our path, our Board of Directors sought to incentivize Drs. Eltoukhy and Talasaz to continue driving long-term stockholder value creation and providing strong leadership for services rendered during the years ended December 31,Company. The Founders had not received equity grants since the Summer of 2017 and December 31, 2018.their cash compensation was below market. The Board engaged in a thorough and comprehensive process over approximately 11 months to develop an appropriate incentive.
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Name and Principal | | Year | | Salary | | Bonus (1) | | Option Awards (2) | | Non-Equity Incentive Plan Compensation (3) | | All Other Compensation (4) | | Total |
Helmy Eltoukhy Chief Executive Officer | | 2018 | | $ | 480,000 |
| | — |
| | — |
| | $336,000 | | $2,405 | | $818,405 |
| | 2017 | | $ | 460,000 |
| | — |
| | $3,459,658 | | $215,050 | | $1,405 | | $4,136,113 |
AmirAli Talasaz President and Chief Operating Officer | | 2018 | | $ | 480,000 |
| | — |
| | — |
| | $336,000 | | $2,405 | | $818,405 |
| | 2017 | | $ | 460,000 |
| | — |
| | $3,459,658 | | $215,050 | | $1,405 | | $4,136,113 |
Leena Das-Young Chief Lunar Officer | | 2018 | | $ | 199,000 |
| | $165,746 | | $1,061,000 | | $42,254 | | $250,000 | | $1,718,000 |
Richard Lanman Chief Medical Officer | | 2018 | | $ | 367,666 |
| | $86,824 | | $338,000 | | $64,176 | | $5,926 | | $862,592 |
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Set forth below is an outline of the terms of the Founders’ 2020 Performance Awards granted to each of Drs. Eltoukhy and Talasaz. | | | | | |
(1)Item | AmountsDescription |
Date of Grant | May 26, 2020 |
Performance Awards | 1,695,574 Shares |
Equity Type | Performance-based Restricted Stock Units (“PSUs”) |
Base Price | $89.04 (180-day volume-weighted average price on date of grant) |
Performance Goals | 30-Day Sustained Number of PSUs Price Per Share Goal that Vest
$120 565,192 $150 565,191 $200 565,191 |
Performance Period Term | 7 years |
Post-Vesting Holding Period | 1 year, for Ms. Das-Youngvesting within 3 years of grant; the later of 6 months from vesting date or 4 years from grant, for vesting between years 3 and Dr. Lanman represent discretionary bonuses paid under our 2018 bonus program4; and 6 months from vesting date, for vesting after 4 years. |
Employment Requirement for Continued Vesting | Vesting contingent on continued employment through the applicable vesting date. |
Termination of Employment | Forfeiture of unvested Awards except for termination without “cause” or for “good reason,” or due to death or disability. 1.Without “cause” or for “good reason”: 1/3 will vest on termination and the remaining unvested PSUs remain outstanding for 6 months (and eligible to vest upon achievement of stock price goals during that period). 2.Disability: unvested PSUs remain outstanding and eligible to vest until the later of 1 year after termination or 4 years from the grant date (but not beyond the seven-year performance period). 3.Death: unvested PSUs vest in full. |
Change in Control | If the price received by the Company’s stockholders is equal to or greater than $120 per share, then the PSUs will vest with respect of their services in 2018. In addition,to any stock price goal achieved by the amount for Ms. Das-Young reflects a $120,000 signing bonus that we paid to her in connectiontransaction price, with the commencementnumber of her employment. The signing bonus must be repaid to us, on a pro-rated basis,PSUs vesting dependent upon where the transaction price falls, and if she voluntarily terminates her employment within two years following her employment start date. |
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(2) | In accordance with SEC rules, amounts in this column reflect the aggregate grant-date fair value of stock options granted duringprice received by the applicable year computed in accordance with ASC Topic 718, ratherCompany’s stockholders is less than $120 but greater than the amounts paidbase price ($89.04), then one-third of the PSUs will vest. To the extent any unvested PSUs are assumed, they will be eligible to or realized byvest following the named individual. We provide information regarding the |
assumptions used to calculate the value of all stock options made to executive officers in Note 12 to our audited consolidated financial statements included in our Form 10-K filed with the SEC on March 19, 2019.
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(3) | Amounts in this column represent bonuses earned by the named executive officer in the applicable year under our annual bonus programtransaction based on the achievement of pre-determined Company performance goals. |
| stock price goals adjusted to reflect the transaction. |
(4)Clawback | Amount for Mr. Das-Young reflects a $250,000 relocation bonus madeSubject to Ms. Das-Young in connection withany clawback or recoupment policy adopted or maintained by the commencement of her employment, to induce her to move from San DiegoCompany to the Bay Area. The relocation bonus must be repaidextent required in order to us, in whole or in part, if she voluntarily terminates her employment within two years following her employment start date.comply with applicable law. |
NarrativeBoard of Directors’ Rationale
The Board of Directors engaged in a deliberate and robust process to Summary Compensation Table
Annual Base Salaries
Each named executive officer receives an annual base salary to compensatedesign the executiveFounders’ 2020 Performance Awards, and its rationale for services rendered to our company. The base salary payable to each named executive officer is intended to provide a fixed component of compensation reflectinggranting the executive’s skill set, experience, role and responsibilities.Founders’ 2020 Performance Awards was based on the following:
The following table shows
•Rigorous Stock Price Hurdles Align Awards with Achievement of Large-Scale Strategic and Operational Objectives, Which Drive Significant Stockholder Value Creation. Reaching the 2017, 2018stock price hurdles and 2019 base salaries payablethe Founders’ receipt of value from the Founders’ 2020 Performance Awards are inextricably tied to eachthe successful execution of our named executive officers. The base salaries payablestrategy to Drs. Eltoukhyincrease awareness of liquid biopsy, expand clinical utility and Talasaz increased by $20,000, effective January 1, 2018reimbursement, strengthen relationships with customers and further increased by an additional $20,000, effective January 1, 2019. In September 2018,expand our product portfolio, and to the Company approvedcreation of significant stockholder value well beyond average long-term stock market growth.
•Board Conducted Lengthy Process and Gave Extensive Consideration to All Design Aspects, with Stockholder Viewpoint in Mind. Our Board and Committee conducted a base salary increase for Dr. Lanman of $21,500, which was effective April 1, 2018. In March 2019, our Compensation Committee approved base salary increases for Ms. Das-Youngthorough and Dr. Lanman of $3,000lengthy 11-month process and $68,000, respectively, effective April 1, 2019. Allengaged in robust deliberations and iterations about all aspects of the foregoing changes were made based on recommendations outlined in a peer compensation report conducted by Compensia,Founders’ 2020 Performance Awards prior to setting the final terms, including stockholder and stakeholder views. The Committee favored the chosen design after considering dilution, stockholder alignment, achievement of milestone goals driving the stock price, market benchmarking, implied CAGRs, the appropriate time period for performance, cost and the salary increases for Drs. Eltoukhyeffect on the available share pool.
•Award Magnitude Determined Relative to External Benchmarks, Internal Considerations and Talasaz were intended to targetCommittee’s View. The Committee exhaustively considered the 25th percentilesize of the salaries in the peer group and between the 25th and 50th percentiles of salaries in the peer group for Dr. Lanman. Companies in the peer group included those in the biotechnology, healthcare diagnostics or life sciences industries with comparable revenues and market capitalization to our company. Actual base salaries paid to each named executive officer in 2018 are set forth in the Summary Compensation Table above.
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Name and Title | | 2017 Annual Base Salary | | 2018 Annual Base Salary | | 2019 Annual Base Salary |
Helmy Eltoukhy Chief Executive Officer | | $460,000 | | $480,000 | | $500,000 |
AmirAli Talasaz President and Chief Operating Officer | | $460,000 | | $480,000 | | $500,000 |
Leena Das-Young Chief Lunar Officer | | — |
| | $398,000 | | $401,000 (1) |
Richard Lanman Chief Medical Officer | | $360,500 (2) | | $382,000 (3) | | $450,000 (1) |
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(1) | Annual base salary rate effective April 1, 2019. |
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(2) | Annual base salary rate effective April 1, 2017. |
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(3) | Annual base salary rate effective April 1, 2018. |
2018 Annual Bonuses
Historically, we have awarded annual cash bonuses to certain of our employees, including to our named executive officers. Annual bonuses generally are designed to incentivize our named executive officers to attain company and/or individual performance goals for the applicable year. Our Compensation Committee determines the level of achievementFounders’ 2020 Performance Awards. It took into account comparable-type grants, internal considerations, unique aspects of the performance goals for each year.
In 2018, Drs. Eltoukhy,Company’s situation, its own developed perspective and the more prominent role of co-Founder Dr. Talasaz than a typical second-ranking executive. Ultimately, the Committee recognized that since 2017, the Founders received no equity and Lanmanbelow market median cash compensation, and Ms. Das-Young had anso the Committee referenced the comparable top market quartile in determining a target annual bonus opportunity targeted at 50%, 50%, 30% and 40%, respectively of his or her base salary. For Drs. Eltoukhy and Talasaz, their annual bonus opportunities were based entirely on the achievement of corporate performance goals;value with respect to Ms. Das-Youngeach year in the seven-year term, resulting in the aggregate target value of the award.
•Award Design and Dr. Lanman, their annual bonus opportunities were based 40% onProtective Stockholder Attributes. The Founders’ 2020 Performance Awards provide value to the achievementFounders only if they drive the creation of corporate performance goalssubstantial value for all stockholders that is sustained for 30 days, they must retain the shares for six to twelve months, and 60% on an analysis of individual performance (as determinedshares earned are subject to any clawback policy adopted by the founders). The relevant corporate goals, and their applicable weightings, were as follows:
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Performance Criteria | | Weighting |
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Achieve board-approved financial plan related to revenue, gross margin and operating income | | 50 | % |
Achieve goals related to coverage expansion and certain clinical data development | | 10 | % |
Achieve goals related to FDA regulatory submission | | 20 | % |
Achieve goals related to Lunar 1 development | | 10 | % |
Achieve goals related to long-term growth | | 10 | % |
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Board.In 2018, we exceeded each
As of
our revenue, gross margin and operating income related goals, and fully or partially achieved the
remaining goals. Therefore, our Compensation Committee determined thatdate of this filing, the
corporate performance goals were attained at a level of 144%. With respect to Ms. Das-Young and Dr. Lanman, the founders determined that they achieved 125% of their target bonus opportunities associated with their individual performance. The annual cash bonuses actually earned by each named executive officer for 2018 performance are set forth in the following table. |
| | |
Name and Title | | 2018 Bonus |
Helmy Eltoukhy
Chief Executive Officer
| | $336,000 |
AmirAli Talasaz
President and Chief Operating Officer
| | $336,000 |
Leena Das-Young
Chief Lunar Officer
| | $88,000 |
Richard Lanman
Chief Medical Officer
| | $151,000 |
| | |
Signing bonus; relocation bonus
In addition, in 2018, in conjunction with the commencement of her employment and pursuant to her employment letter, Ms. Das-Young received a one-time sign-on bonus of $120,000 and a one-time relocation bonus of $250,000. These bonuses will not be earned in full until the second anniversary of Ms. Das-Young’s hire date, and are repayable, in part or in full, if the Ms. Das-Young voluntarily resigns her employment prior to such anniversary.
Equity compensation
We historically have used stock options as the primary incentive for long-term compensation to our named executive officers because they are able to profit from stock options only if ourfirst stock price increases relative tohurdle has been achieved and sustained for 30 days and certified by the stock option’s exerciseCommittee and the Board. The other price which generally is set atper share goals have not been achieved. Consequently, the fair market value of our common stock as of the applicable grant date. Prior to our IPO in 2018, our Board was responsible for approving equity-based awards; since our IPO our Compensation Committee has approved equity-based awards to our named executive officers.
In 2018, our Board approved the grant to Ms. Das-Young and Dr. Lanman of stock options covering a number of shares of our common stock as set forth in the table below. Ms Das-Young’s and Dr. Lanman’s stock options have a per-share exercise price of $7.01 and $8.80, respectively, which our Board determined was the fair market value of our common stock on the applicable grant date. The options were granted pursuant to our Amended and Restated 2012 Stock Plan (the "2012 Plan"). Dr. Lanman’s option vests in substantially equal monthly installments over a four-year period starting from the vesting commencement date (August 22, 2018 for Dr. Lanman), subject to his continued service. Ms. Das-Young’s option vests as to 25% of the shares subject to the option will vest on the one year anniversary of the vesting commencement date (June 18, 2018, which is her date of employment start) and 1/48th will be each month thereafter, subject to her continued service. In the event that the applicable named executive officer is terminated by us without cause within six months following a change in control, the executive’s option will vest in full.
The following table sets forth the stock options granted to our named executive officers in the 2018 fiscal year.
|
| | | |
Named Executive Officer | | Number of Shares Subject to Options Granted in 2018 |
|
Leena Das-Young | | 221,340 |
|
Richard Lanman | | 55,335 |
|
| | |
Since our IPO we have maintained the 2018 Incentive Award Plan (the "2018 Plan") in order to facilitate the grant of cash and equity incentives to directors, employees (including our named executive officers) and consultants of our company and certain of its affiliates and to enable our company and certain of its affiliates to obtain and retain services of these individuals, which is essential to our long-term success. With the adoption of the 2018 Plan, no further grants have been madefirst tranche under the 2012 Plan. The number of shares availableFounders’ 2020 Performance Awards, corresponding to 565,192 PSUs for issuance under the 2018 Plan is subject to an annual increase as described under the section entitled “Equity Compensation Plan Information”. In April 2019, the Board waived the automatic annual increase to the
shares available for issuance under the 2018 Plan due to proximity of the annual increase to the closing of our IPO.each executive, has vested.
Other elementsElements of compensationCompensation
Retirement plans401(k) Plan
We currently maintain a 401(k) retirement savings plan for our employees, including our named executive officers,NEOs, who satisfy certain eligibility requirements. The 401(k) plan is intended to qualify as a tax-qualified plan under Section 401(k) of the Internal Revenue Code (the “Code”), and our named executive officersNEOs are eligible to participate in the 401(k) plan on the same basis as our other employees. The Internal Revenue Code allows eligible employees to defer a portion of their compensation, within prescribed
limits, on a pre-tax basis through contributions to the 401(k) plan. We believe that providing a vehicle for tax-deferred retirement savings though our 401(k) plan adds to the overall desirability of our executive compensation package and further incentivizes our employees, including our named executive officers,NEOs, in accordance with our compensation policies. We did not make any matching contributions under our 401(k) plan in 2018; however,In 2020, we have begun making matching contributions in 2019.provided a discretionary 50% of the first 6% contributed by the employee.
Employee benefits and perquisitesBenefits
All of our full-time employees, including our named executive officers,NEOs, are eligible to participate in our health and welfare plans, including:
•medical, dental and vision benefits;
•short-term and long-term disability insurance; and
•life and accidental death and dismemberment insurance.
We also provide supplemental short-term disability coverage to our named executive officersNEOs in addition to the short-term disability coverage provided to our full-time employees generally.
We believe the perquisitesbenefits and benefitslimited perquisite described above are necessary and appropriate to provide a competitive compensation package to our named executive officers.
NoSeverance Arrangements
In September 2018, our Board adopted the Guardant Health, Inc. Executive Severance Plan (the "Severance Plan"). The Severance Plan provides for the payment of certain severance and other benefits to participants. The Severance Plan generally provides for severance amounts if the NEO’s employment is terminated by us without cause or by the NEO for good reason. For terminations not in connection with a change in control, severance amounts range from 50% to 100% of base salary. For terminations from three months prior to one year after a change in control, severance amounts range from 100% to 150% of the sum of base salary and target cash bonus. The Severance Plan also provides for reimbursement for health benefit continuation of up to 18 months. The payments and benefits provided under the Severance Plan are contingent upon the affected NEO’s execution and non-revocation of a general release of claims and compliance with specified restrictive covenants. See “Potential Payments upon a Termination or Change in Control,” which describes the payments to which the participating NEOs may be entitled under the Severance Plan.
In addition, in 2019, we entered into letter agreements with each of Drs. Eltoukhy and Talasaz that provide that if either executive experiences a “qualifying termination” of employment (as defined in the Severance Plan), other than in connection with a change in control, then each time-based vesting Company equity award held by the executive will vest and become exercisable as to the portion of the award that would have vested over the one-year period following the termination date (had the executive remained in continuous service during such period). This acceleration right is subject to the executive’s timely executive and non-revocation of a general release of claims.
V. ADDITIONAL COMPENSATION POLICIES AND PRACTICES
Stock Ownership Policy
To support our commitment to stockholder alignment and ensure non-employee members of our Board and our executive officers, including our NEOs, remain invested in our performance and the performance of our common stock, we adopted a stock ownership policy on November 5, 2020 that became effective January 1, 2021. Our stock ownership policy requires applicable individuals to hold a certain value of our common stock depending on their position with us. The required stock holdings are as follows:
•For our Chief Executive Officer and our President and Chief Operating Officer: $3,774,000 (equal to six times $629,000, which is the 50th percentile of CEO salaries in our peer group selected for decisions relating to 2020 executive compensation),
•For each other executive officer: one times his or her annual base salary, and
•For each non-employee member of our Board: $250,000 (equal to five times $50,000, which is the 50th percentile of annual cash retainers for non-employee directors in our peer group).
Each individual subject to our stock ownership policy has until the later of January 1, 2026 or the fifth anniversary of his or her designation as being subject to the policy to comply with the stock ownership requirements applicable to his or her position. Shares of common stock that count toward satisfaction of the minimum ownership requirement include shares of common stock held directly or indirectly through certain trusts or entities, and shares underlying vested, but unexercised, options to purchase shares of common stock based on the spread between exercise price and the average of the month-end price of our common stock over the prior 12 months.
Until a participant of our stock ownership policy meets the applicable minimum ownership requirement, such participant is required to retain (and not dispose of or otherwise transfer) 20% of all “net settled shares” received from the vesting, delivery and/or exercise of equity awards granted under the Company’s equity incentive plans for one year subsequent to their vesting, delivery and/or exercise. For purposes of this stock ownership policy, “net settled shares” means those shares of common stock that remain after payment of the applicable exercise or purchase price and all applicable withholding taxes and transaction costs.
Anti-Hedging and Anti-Pledging Policies
Our insider trading compliance policy prohibits our directors and executives from (i) engaging in any forms of hedging or short-selling transactions involving our securities, (ii) pledging or margining our securities, or (iii) any other transaction that would directly or indirectly reduce the risk of holding Company securities, however acquired.
Tax Considerations: Section 162(m)
When reviewing compensation matters, the Committee considers the anticipated tax gross-upsconsequences to us (and, when relevant, to our executive officers) of the various payments under our compensation programs. Section 162(m) of the Code generally disallows a tax deduction for any publicly held corporation for individual compensation of more than $1.0 million in any taxable year to certain executive officers. The Committee, after considering the potential impact of the
application of Section 162(m) of the Code, may provide compensation to executive officers that may not be tax deductible if it believes that providing that compensation is in the best interests of the Company and its stockholders.
Accounting Policies for Stock-Based Compensation
We do not make gross-up paymentsfollow the Financial Accounting Standards Board’s Accounting Standards Codification Topic 718, or ASC Topic 718, for our stock-based compensation awards. ASC Topic 718 requires companies to covercalculate the grant date “fair value” of their stock-based awards using a variety of assumptions. ASC Topic 718 also requires companies to recognize the compensation cost of their stock-based awards in their income statements over the period that an employee is required to render service in exchange for the award. Grants of stock options and restricted stock units under our namedequity incentive award plans are accounted for under ASC Topic 718. Our Board or Committee will regularly consider the accounting implications of significant compensation decisions, especially in connection with decisions that relate to our equity incentive award plans and programs. As accounting standards change, the Committee may revise certain programs to appropriately align accounting expenses of equity awards with the overall executive officers’ personal income taxes that may pertaincompensation philosophy and objectives. In connection with the thorough process relating to anythe Founders’ 2020 Performance Awards and equity grants made to other NEOs in 2020, the Committee took into account the accounting for such awards.
Report of the compensationCompensation Committee on Executive Compensation
This Compensation Committee Report shall not be deemed to be incorporated by reference into any filing made by the Company under the Securities Act of 1933 or perquisites paid or providedthe Exchange Act, notwithstanding any general statement contained in any such filing incorporating this proxy statement by our company.
Outstanding equity awards at fiscal year-end
reference, except to the extent the Company incorporates such Report by specific reference.
The Committee has reviewed and discussed the Compensation Discussion and Analysis with the management of the Company. Based on this review and these discussions, we have recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s Annual Report on Form 10-K and the Company’s proxy statement.
The preceding report has been furnished by the following table summarizesmembers of the Compensation Committee:
Ian Clark, Chair
Samir Kaul
Vijaya Gadde
COMPENSATION TABLES
2020 Summary Compensation Table
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Name and Principal Position | | Year | | Salary ($) | | Bonus ($) | | Stock Awards ($) (2)(3) | | Option Awards ($) (4) | | Non-Equity Incentive Plan Compensation ($) (5) | | All Other Compensation ($) (6) | | Total ($) |
Helmy Eltoukhy (1) | | 2020 | | $ | 209,937 | | | $ | — | | | $ | 113,595,323 | | | $ | — | | | $ | — | | | $ | 65,726 | | | $ | 113,870,986 | |
Chief Executive Officer | | 2019 | | 500,000 | | | — | | | — | | | — | | | 412,500 | | | 2,406 | | | 914,906 | |
| 2018 | | 480,000 | | | — | | | — | | | — | | | 336,000 | | | 2,405 | | | 818,405 | |
Derek Bertocci | | 2020 | | 376,390 | | | — | | | — | | | — | | | — | | | 13,510 | | | 389,900 | |
Chief Financial Officer | | 2019 | | 378,313 | | | — | | | 543,958 | | | 971,591 | | | 226,512 | | | 9,234 | | | 2,129,608 | |
AmirAli Talasaz (1) | | 2020 | | 209,937 | | | — | | | 113,595,323 | | | — | | | — | | | 79,780 | | | 113,885,040 | |
President and Chief Operation Officer | | 2019 | | 500,000 | | | — | | | — | | | — | | | 412,500 | | | 2,406 | | | 914,906 | |
| 2018 | | 480,000 | | | — | | | — | | | — | | | 336,000 | | | 2,405 | | | 818,405 | |
John Saia | | 2020 | | 304,346 | | | 30,000 | | | 1,362,000 | | | 1,234,607 | | | 196,800 | | | 9,359 | | | 3,137,112 | |
Senior Vice President, General Counsel & Corporate Secretary | | | | | | | | | | | | | | | | |
Michael Wiley | | 2020 | | 395,000 | | | — | | | 1,112,792 | | | — | | | 227,520 | | | 17,856 | | | 1,753,168 | |
Head of Corporate Affairs | | 2019 | | 392,250 | | | — | | | 543,958 | | | 971,591 | | | 306,323 | | | 1,945 | | | 2,216,067 | |
| 2018 | | 384,000 | | | — | | | — | | | — | | | 269,000 | | | 1,461 | | | 654,461 | |
_______________
(1)In connection with the Founders’ 2020 Performance Awards granted to Drs. Eltoukhy and Talasaz in May 2020, for seven years, each of Drs. Eltoukhy and Talasaz formally agreed to accept a base salary of $1 per year, and waived their opportunity to receive annual incentive opportunities or payouts under our annual incentive plan. For 2020, Drs. Eltoukhy and Talasaz received their base salaries at a rate of $500,000 per year through May 31, 2020.
(2)The amounts shown in the Stock Awards column, other than for Drs. Eltoukhy and Talasaz, represent the aggregate grant date fair value of market condition PSUs and time-based RSUs, computed in accordance with FASB Accounting Standards Codification Topic 718 (“Topic 718”), excluding the effect of estimated forfeitures. Amounts in this column relating to RSUs reflect the market value of the RSUs using the closing price of a share of our common stock as reported on Nasdaq on the date of grant, multiplied by the number of shares underlying each award. For information regarding assumptions, factors and methodologies used in our computations pursuant to Topic 718, see Note 14 to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2020.
(3)The amounts shown for Drs. Eltoukhy and Talasaz represent the Founders’ 2020 Performance Awards, which are market-based RSUs intended to compensate Drs. Eltoukhy and Talasaz over their seven-year term and will become vested only if our stock price reaches sustained stock price hurdles of common$120/share, $150/share and $200/share during such seven-year period. A tranche of the total number of PSUs will become vested each time one of the stock underlying outstanding equityprice hurdles is attained and maintained for 30 days, subject to continued service to us. In addition, any shares received in connection with the vesting of PSUs will be subject to a post-vesting holding period. If any PSUs have not vested by the end of the term of the award, they will be forfeited and Drs. Eltoukhy and Talasaz will not realize the value of such PSUs. As of the date of this filing, one stock price hurdle has been achieved and consequently, 565,192 shares have vested under the Founders’ 2020 Performance Awards. See “Executive Compensation—Compensation Discussion and Analysis—Founders’ 2020 Performance Awards” above. The amounts for the Founders’ 2020 Performance Awards are based on the probable outcome of the market-condition goals, determined using a Monte Carlo simulation model. For information regarding assumptions, factors and methodologies used in our computations pursuant to Topic 718, see Note 14 to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2020.
(4)The amounts shown in the Option Awards column represent the aggregate grant date fair value of stock options computed in accordance with Topic 718. Valuations of options were determined using the Black-Scholes option pricing model. For information regarding assumptions, factors and methodologies used in our computations pursuant to Topic 718, see Note 14 to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2020.
(5)The amounts shown in the Non-Equity Incentive Plan Compensation column are comprised of amounts paid in respect of our annual incentive plan, as determined by the Compensation Committee in accordance with the plan and the awards thereunder. Payments pursuant to the annual incentive plan are generally made early in the year following the year in which they are earned.
(6)The amounts shown in the All Other Compensation column include premiums paid by the Company for supplemental disability coverage paid for all NEOs. In addition, for Drs. Eltoukhy and Talasaz, the amounts include Company payment of health insurance premiums and related taxes imposed during the portion of the year that each waived his salary, and includes $57,692 for Dr. Eltoukhy and $54,000 for Dr. Talasaz for payment of accrued vacation. Finally, for all NEOs except Dr. Eltoukhy, the amounts also include Company matching contributions to the tax-qualified 401(k) retirement plan
2020 Grants of Plan Based Awards Table
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Estimated Future Payouts Under Non-Equity Incentive Plan Awards (1)(2) | | Estimated Future Payouts Under Equity Incentive Plan Awards (3) | | All Other Stock Awards: Number of Shares of Stock or Units (4) | | All Other Option Awards: Number of Securities Underlying Options (5) | | Exercise or Base Price of Option Awards | | Grant Date Fair Value of Stock and Option Awards (6) |
Name | | Grant Date | | Threshold | | Target | | Maximum | | Threshold | | Target | | Maximum | | | | |
| | ($) | | ($) | | ($) | | (#) | | (#) | | (#) | | (#) | | (#) | | ($/Share) | | ($) |
Helmy Eltoukhy | | | | $ | — | | | $ | — | | | $ | — | | | | | | | | | | | | | | | |
| 5/26/2020 | | | | | | | | 565,192 | | | 1,695,574 | | | 1,695,574 | | | | | | | | | 113,595,323 | |
Derek Bertocci | | | | — | | | 156,000 | | | 312,000 | | | | | | | | | | | | | | | |
AmirAli Talasaz | | | | — | | | — | | | — | | | | | | | | | | | | | | | |
| 5/26/2020 | | | | | | | | 565,192 | | | 1,695,574 | | | 1,695,574 | | | | | | | | | 113,595,323 | |
John Saia | | | | — | | | 164,000 | | | 328,000 | | | | | | | | | | | | | | | |
| | 7/22/2020 | | | | | | | | | | | | | | 12,412 | | | | | | | 1,028,086 | |
| | 7/22/2020 | | | | | | | | | | | | | | | | 24,824 | | | 82.83 | | | 1,234,607 | |
| | 9/11/2020 | | | | | | | | | | | | | | 3,491 | | | | | | | 333,914 | |
Michael Wiley | | | | — | | | 197,500 | | | 395,000 | | | | | | | | | | | | | | | |
| | 9/11/2020 | | | | | | | | | | | | | | 11,634 | | | | | | | 1,112,792 | |
Annual Incentive Plan
(1) The annual incentive plan makes a cash payout based on performance. The amounts disclosed in these columns reflect the threshold, target and maximum annual cash incentive opportunities of our NEOs for 2020. The amounts of the annual cash incentive opportunities depend on the eligible annual base salary in effect at year end for each NEO. Below threshold performance on the financial metrics results in 0% payout. However, the milestone metrics do not establish threshold performance and thus payout for those metrics could be as little as 1%. See “Compensation Discussion and Analysis—Compensation Program Components—Annual Incentive Plan” for a detailed description of annual incentive plan awards, including the criteria for determining the amounts payable. Actual 2020 annual incentive plan results are reported in the “Summary Compensation Table” in the “Non-Equity Incentive Plan Compensation” column. The maximum award is 200% of target. Linear interpolation is used to determine the applicable payout amount between threshold and target and between target and maximum.
Founders Annual Incentive Opportunities
(2) In connection with the Founders’ 2020 Performance Awards granted to Drs. Eltoukhy and Talasaz in May 2020 for a maximum term of seven years, each named executive officerof Drs. Eltoukhy and Talasaz formally waived their opportunity to receive annual incentive opportunities and payouts under our annual incentive plan.
Founders’ 2020 Performance Awards
(3) The amounts shown for Drs. Eltoukhy and Talasaz represent the Founders’ 2020 Performance Awards performance-based PSUs which are intended to compensate Drs. Eltoukhy and Talasaz over their seven-year maximum term and will become vested only if our stock price reaches stock price hurdles of $120/share, $150/share and $200/share during such seven-year period. A tranche of the total number of PSUs will become vested only if one of the stock price hurdles is attained and maintained for 30 days, subject to continued service to us. This award was designed to be an incentive for future performance that might take many years to be achieved. Further, the stock price hurdles were selected because they were believed to be difficult to achieve. If any PSUs have not vested by the end of the term of the award, they will be forfeited and Drs. Eltoukhy and Talasaz will not realize the value of such PSUs. See “Executive Compensation—Compensation Discussion and Analysis—Founders’ 2020 Performance Awards” above.
Restricted Stock Units
(4)Amounts disclosed in this column reflect the number of RSUs granted to our NEOs in 2020. The RSUs granted as part of the annual equity grant vest over four years; one-fourth of the RSUs will vest on each anniversary of the grant date, subject to continued service. Valuations of RSUs were determined based on the fair market value of a share of our common stock on the grant date.
Stock Options
(5) Amounts disclosed in this column reflect the number of stock options granted to our NEOs in 2020. The options vest one-fourth on the first anniversary of the grant date, and monthly thereafter at a rate of one forty-eighth (1/48) per month over the next three years, subject to continued service. The grant date fair values were calculated using the Black-Scholes value of each option on the grant date.
Grant Date Fair Value
(6) The amounts for the Founders’ 2020 Performance Awards are based on the probable outcome of the market-condition goals, determined using a Monte Carlo simulation model. The amounts shown in for RSUs represent the aggregate grant date fair value of market condition PSUs and time-based RSUs, computed in accordance with FASB Accounting Standards Codification Topic 718 (“Topic 718”), excluding the effect of estimated forfeitures. Amounts in this column relating to RSUs reflect the market value of the RSUs using the closing price of a share of our common stock as reported on Nasdaq on the date of grant, multiplied by the number of shares underlying each award. The amounts shown in this column for stock options represent the aggregate grant date fair value of the stock options computed in accordance with Topic 718. Valuations of options were determined using the Black-Scholes option pricing model. For information regarding assumptions, factors and methodologies used in our computations pursuant to Topic 718, see Note 14 to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2020.
2020 Outstanding Equity at Fiscal Year End Table
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| | | | | | | Option Awards | | Stock Awards |
| | | | | | | Number of Securities Underlying Unexercised Options | | Option Exercise Price | | Option Expiration Date | | Number of Shares or Units That Have Not Vested (3) | | Market Value of Shares or Units That Have Not Vested (4) | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (5) | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (6) |
Name | | Award Type | | Grant Date | | | Exercisable (1) | | Unexercisable (2) | | | | | | |
| | | | (#) | | (#) | | ($) | | | (#) | | ($) | | (#) | | ($) |
Helmy Eltoukhy | | Options | | 7/14/2017 | (7) | | 635,611 | | | 99,924 | | | $ | 4.18 | | | 7/13/2022 | | | | | | | | |
| PSUs | | 5/26/2020 | (8) | | | | | | | | | | | | | | 1,695,574 | | | 218,525,577 | |
Derek Bertocci | | Options | | 8/22/2018 | (9) | | 3,074 | | | 15,371 | | | 8.80 | | | 8/21/2028 | | | | | | | | |
| | | 8/1/2019 | (9) | | 5,813 | | | 11,629 | | | 94.47 | | | 8/1/2029 | | | | | | | | |
| RSUs | | 8/1/2019 | (10) | | | | | | | | | | 4,319 | | | 556,633 | | | | | |
AmirAli Talasaz | | Options | | 7/14/2017 | (7) | | 491,658 | | | 99,924 | | | 4.18 | | | 7/13/2022 | | | | | | | | |
| PSUs | | 5/26/2020 | (8) | | | | | | | | | | | | | | 1,695,574 | | | 218,525,577 | |
John Saia | | Options | | 7/22/2020 | (11) | | — | | | 24,824 | | | 82.83 | | | 7/21/2030 | | | | | | | | |
| RSUs | | 7/22/2020 | (10) | | | | | | | | | | 12,412 | | | 1,599,659 | | | | | |
| | | 9/11/2020 | (10) | | | | | | | | | | 3,491 | | | 449,920 | | | | | |
Michael Wiley | | Options | | 7/14/2017 | (7) | | 20,167 | | | 12,297 | | | 4.18 | | | 7/13/2027 | | | | | | | | |
| | | 8/1/2019 | (9) | | 5,813 | | | 11,629 | | | 94.47 | | | 8/1/2029 | | | | | | | | |
| RSUs | | 8/1/2019 | (10) | | | | | | | | | | 4,319 | | | 556,633 | | | | | |
| | | 9/11/2020 | (10) | | | | | | | | | | 11,634 | | | 1,499,390 | | | | | |
_______________
(1)Amounts in this column reflect the number of options granted that were subject to time-based vesting and that had vested as of December 31, 2018.
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Option Awards |
Name | | Grant Date | | Number of Securities Underlying Unexercised Options Exercisable | | Number of Securities Underlying Unexercised Options Unexercisable | | Option Exercise Price | | Option Expiration Date |
Helmy Eltoukhy | | 7/14/2017(1) | | 499,617 | | 699,465 | | $4.18 | | 7/13/2022 |
AmirAli Talasaz | | 7/14/2017(1) | | 499,617 | | 699,465 | | $4.18 | | 7/13/2022 |
Leena Das-Young | | 7/24/2018(2) | | 0 | | 221,340 | | $7.01 | | 7/23/2028 |
Richard Lanman | | 10/16/2014 | | 111,652 | | 0 | | $1.43 | | 10/15/2023 |
| | 5/31/2017(3) | | 15,370 | | 21,520 | | $4.18 | | 5/30/2027 |
| | 8/22/2018(3) | | 4,611 | | 50,324 | | $8.80 | | 8/21/2028 |
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(1) | 1/48th of the shares subject to the option will vest on each monthly anniversary of the vesting commencement date (April 23, 2017), subject to the executive’s continued service. In addition, the options granted to Drs. Eltoukhy and Talasaz may be subject to accelerated vesting in connection with certain terminations of employment, as described below.
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(2) | 1/4th of the shares subject to the option will vest on the one year anniversary of the vesting commencement date (June 18, 2018) and 1/48th will be each month thereafter, subject to Ms. Das-Young’s continued service. In addition, this option may be subject to accelerated vesting in connection with certain terminations of employment, as described below.
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(3) | 1/48th of the shares subject to the option will vest on each monthly anniversary of the vesting commencement date (the date of grant), subject to the Dr. Lanman’s continued service. In addition, these options may be subject to accelerated vesting in connection with certain terminations of employment, as described below.
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Employment offer letters
In July 2014, we entered into an offer letter with Rick Lanman, our Chief Medical Officer.
Under his offer letter, Mr. Lanman’s initial annual base salary was $325,000. In addition, Mr. Lanman was eligible2020. The options expire ten years from the date of grant, except for the grants to receive an annual cash incentive bonusDrs. Eltoukhy and Talasaz, which expire five years from the date of up to $50,000 each year.grant. The actual amount of any such bonus was to be determined by reference to the attainment of mutually agreed-upon milestones. Mr. Lanman’s offer letter also provides for an opportunity to participate in customary health, welfare, and fringe benefit plans.
The offer letter also provides that the Company would recommend to the Board that Mr. Lanman be granted an option to purchase 111,652 shares of the Company’s common stock (on a post-split basis), withoptions have an exercise price equal toof no less than 100% of the per-share fair market value of a share of our common stock on the date of grant. The optionSee "Potential Payments Upon Termination or Change in Control" for information about the treatment of options upon retirement, death, disability, termination or change in control.
(2)Amounts in this column reflect the number of options granted that were subject to time-based vesting and that had not vested as of December 31, 2020.
(3)Amounts in this column reflect the number of unvested RSUs granted that were subject to time-based vesting and become exercisable with respect to 25%that had not vested as of December 31, 2020. See “Potential Payments Upon Termination or Change in Control” for information about the treatment of RSUs upon retirement, death, disability, termination or change in control.
(4)Amounts in this column reflect the market value of the sharesRSUs using the closing price of a share of our common stock as reported on Nasdaq on December 31, 2020, the 12 month anniversarylast trading day of the year, multiplied by the number of shares underlying each award.
(5)Amounts in this column reflect the number of unvested PSUs that are subject to performance-based vesting commencement date set forthconditions as of December 31, 2020. See "Potential Payments Upon Termination or Change in Control" for information about the applicable stock option agreement, and with respect to 1/48treatment of PSUs upon retirement, death, disability or change in control.
(6)thAmounts in this column reflect the market value of the totalPSUs using the closing price of a share of our common stock as reported on Nasdaq on December 31, 2020, the last trading day of the year, multiplied by the number of shares underlying each award.
(7)1/48th of the shares subject to the option will vest on each monthly anniversary of the vesting commencement date, thereafter,which was April 23, 2017, subject to the NEO’s continued service. As of December 31, 2018, this option was vested
(8)The amounts shown for Drs. Eltoukhy and exercisable in full.
Leena Das-Young
In May 2018, we entered into an employment offer letter with Leena Das-Young, our Chief LUNAR Officer and General Manager. The following is a summaryTalasaz represent the unvested portion of the material termsFounders’ 2020 Performance Awards which are intended to compensate Drs. Eltoukhy and Talasaz over their seven-year maximum term and will become vested only if our stock price reaches stock price hurdles of the employment letter.
Under her employment letter, Ms. Das-Young’s initial annual base salary is $398,000. In addition, Ms. Das-Young is eligible to receive an annual cash performance bonus targeted at 35% of her base salary, pro-rated$120/share, $150/share and $200/share during such seven-year period. Please see “Founders’ 2020 Performance Awards” above for any partial year of service. The actual amount of any such bonus will be determined by reference to the attainment of applicable Company and individual performance objectives, and may be greater or less than the target amount, or zero. In connection with her hiring and entering into her employment letter, Ms. Das-Young received a sign-on bonus of $120,000 and a relocation payment of $250,000, both of which must be repaid on a prorated basis in the event that she voluntarily terminates her employment prior to completing 24 months of service. In addition, a condition to the relocation payment is that Ms. Das-Young permanently relocates to the Bay Area by December 31, 2018 (which she completed in 2018). Ms. Das-Young also is eligible to participate in customary health, welfare and fringe benefit plans.information about these awards.
The employment letter also provides that the Company will recommend to the Board that Ms. Das Young be granted an option to purchase 221,340 shares of our common stock (on a post-split basis), with an exercise price equal to the per-share fair market value of our common stock on the date of grant. This option will vest and become exercisable with respect to 25%(9)1/48th of the shares on the 12 month anniversary of the vesting commencement date set forth in the applicable stock option agreement, and with respect to 1/48th of the total number of shares subject to the option will vest on each monthly anniversary of the vesting commencement date (the date of grant), subject to the NEO’s continued service.
(10)1/4th of the shares subject to the RSU agreement will vest on each anniversary of the vesting commencement date (the date of grant), subject to the NEO’s continued service.
(11)1/4 of the shares subject to the option vested on April 15, 2021 and 1/48th of the shares subject to the option will vest on each monthly anniversary thereafter, subject to the executive’s continued service.
Severance2020 Options Exercised and Stock Vested
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Option Awards | | Stock Awards |
| | Number of Shares Acquired on Exercise (1) | | Value Realized on Exercise (2) | | Number of Shares Acquired on Vesting (3) | | Value of Realized on Vesting (4) |
Name | | (#) | | ($) | | (#) | | ($) |
Helmy Eltoukhy | | 148,923 | | | $ | 15,140,844 | | | | | |
Derek Bertocci | | 38,428 | | | 2,820,872 | | | 1,439 | | | 122,574 | |
AmirAli Talasaz | | 293,174 | | | 24,463,968 | | | | | |
John Saia | | | | | | | | |
Michael Wiley | | 18,169 | | | 1,654,009 | | | 1,439 | | | 122,574 | |
_______________
(1)The amounts shown in this column represent the number of shares acquired on the exercise of options during 2020.
(2)The amounts shown in this column represent the number of shares acquired on exercise multiplied by the difference between the closing price of a share of our common stock on the date of exercise and the option exercise price.
(3)The amounts shown in this column represent the number of RSUs that vested during 2020.
(4)The amounts shown in this column reflect the value realized upon vesting of the RSUs as calculated based on the price of a share of our common stock on the vesting date, multiplied by the number of shares underlying each award.
Potential Payments Upon Termination or Change in Control
Upon a termination, or upon a change in control of Guardant Health, the Company maintains certain arrangements, guidelines, plans and programs pursuant to which our NEOs could be eligible to receive certain cash severance, equity vesting and other benefits.
The amounts that the NEOs could receive are set forth below for the following types of termination of employment:
•Termination without cause not in connection with a change in control;
•Termination without cause or by executive for good reason following a change in control; and
•Death or disability.
Executive Severance Plan
In September 2018, our Board adopted the Guardant Health, Inc. Executive Severance Plan (the "Severance Plan"). The Severance Plan provides for the payment
of certain severance and other benefits to participants according to their participant tier in the event of a qualifying termination of employment with us. Each of Drs. Eltoukhy and Talasaz and Mr. Wiley is designated as a “Tier 1” participant. Each of Dr. LanmanMessrs. Saia and Ms. Das-Young isBertocci are designated as a “Tier 2” participant.participants.
Severance Not in Connection with a Change in Control. Under the Severance Plan, in the event of a termination of a participant’s employment by us without “cause” or by the participant for “good reason,” in either case, more than three months prior to or more than one year after “a change in control” (as defined in the 2018 Plan), the participant will be eligible to receive the following benefits:
•“Tier 1” participants:
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◦ | a lump-sum cash payment equal to 100% of the participant’s then-current annual base salary; and |
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◦ | company-paid COBRA premium payments for the participant and his or her covered dependents for up to 12 months. |
◦a lump-sum cash payment equal to 100% of the participant’s then-current annual base salary; and
◦company-paid COBRA premium payments for the participant and his or her covered dependents for up to 12 months.
•“Tier 2” participants:
◦a lump-sum cash payment equal to 50% of the participant’s then-current annual base salary; and
◦company-paid COBRA premium payments for the participant and “Tier 3” participants:his or her covered dependents for up to 6 months.
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◦ | a lump-sum cash payment equal to 50% of the participant’s then-current annual base salary; and |
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◦ | company-paid COBRA premium payments for the participant and his or her covered dependents for up to 6 months. |
As discussed under “Founders’ 2020 Performance Awards” above, each of Drs. Eltoukhy and Talasaz have agreed by means of a written Waiver Letter filed with the SEC to effectively forego all base salary and annual incentive for a period of seven years. Consequently, while the terms of the Severance Plan do apply, the amount of base salary upon which they are based is nominal.
Severance in Connection with a Change in Control. In the event of a termination by us of a participant’s employment without “cause” or by the participant for “good reason,” in either case, within the period beginning three months prior to a “change in control” (as defined in the 2018 Plan) and ending on the one-year anniversary of such change in control, the participant will be eligible to receive:
•“Tier 1” participants:
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◦ | a lump sum cash payment equal to the sum of (a) 150% of the participant’s then-current annual base salary and (b) 100% of the participant’s target cash performance bonus, if any, for the year in which the qualifying termination occurs; |
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◦ | accelerated vesting of all equity awards which vest based solely on the participant’s continued service with us or the passage of time; and |
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◦ | company-paid COBRA premium payments for the participant and his or her covered dependents for up to 18 months. |
◦a lump sum cash payment equal to the sum of (a) 150% of the participant’s then-current annual base salary and (b) 100% of the participant’s target cash performance bonus, if any, for the year in which the qualifying termination occurs;
◦accelerated vesting of all equity awards which vest based solely on the participant’s continued service with us or the passage of time; and
◦company-paid COBRA premium payments for the participant and his or her covered dependents for up to 18 months.
•“Tier 2” participants:
◦a lump sum cash payment equal to 100% of the sum of participant’s then-current annual base salary and “Tier 3” participants:target cash performance bonus, if any, for the year in which the qualifying termination occurs;
◦accelerated vesting of all equity awards which vest based solely on the participant’s continued service with us or the passage of time; and
◦company-paid COBRA premium payments for the participant and his or her covered dependents for up to 12 months.
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◦ | a lump sum cash payment equal to 100% (75% for “Tier 3” participants) of the sum of participant’s then-current annual base salary and target cash performance bonus, if any, for the year in which the qualifying termination occurs; |
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◦ | accelerated vesting of all equity awards which vest based solely on the participant’s continued service with us or the passage of time; and |
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◦ | company-paid COBRA premium payments for the participant and his or her covered dependents for up to 12 months (nine months for “Tier 3” participants). |
Any participant’s right to receive the severance payments and benefits described above is subject to his or her delivery and, as applicable, non-revocation of a general release of claims in our favor, and his or her continued compliance with any applicable restrictive covenants.
In addition, in the event that any payment under the Severance Plan, together with any other amounts paid to the participant by us, would subject such participant to an excise tax under Section 4999 of the Internal Revenue Code, such payments will be reduced to the extent that such reduction would produce a better net after-tax result for the participant.
For purposes of the Severance Plan, “cause” generally means the occurrence of any one or more of the following events (unless, to the extent capable of correction, the participant fully corrects the circumstances constituting cause within 15 days after written notice thereof): (i) the participant’s willful failure to substantially perform his or her duties (other than such failure resulting from the participant’s incapacity due to physical or mental illness or any such actual or anticipated failure after his or her issuance of a notice of termination for “good reason”), after a written demand for performance is delivered to the participant by our Compensation Committee; (ii) the participant’s commission of an act of fraud or material dishonesty resulting in reputational, economic or financial injury to us; (iii) the participant’s material misappropriation or embezzlement of our property or the property of any of our affiliates; (iv) the participant’s commission of (including entry of a guilty or no contest plea to) a felony (other than a traffic violation) or other crime involving moral turpitude, or the participant’s commission of unlawful harassment or discrimination; (v) the participant’s willful misconduct or gross negligence with respect to any material aspect of our business or a material breach by the participant of his or her fiduciary duty to us, which willful misconduct, gross negligence or material breach has a material and demonstrable adverse effect on us; or (vi) the participant’s material breach of his or her obligations to us under a written agreement with us.
For purposes of the Severance Plan, “good reason” generally means the occurrence of any one or more of the following without the participant’s prior written consent unless we fully correct the circumstances constituting good reason (provided such circumstances are capable of correction): (i) a material diminution in the participant’s
position (including status, offices, titles and reporting requirements), authority, duties or responsibilities, excluding for this purpose any isolated, insubstantial or inadvertent actions not taken in bad faith and which are remedied by us promptly after receipt of notice thereof given by the participant; (ii) the material reduction by us of participant’s then-current annual base salary, other than as a result of a proportionate, across-the-board reduction of base compensation payable to similarly situated employees; or (iii) a material change in the geographic location at which the participant performs his or her principal duties for us to a new location that is more than 30 miles from the location at which the participant performs his or her principal duties for us as of the date on which he or she first becomes a participant in the Severance Plan. The participant will not be deemed to have resigned for “good reason” unless (1) he or she provides us with written notice setting forth in reasonable detail the facts and circumstances claimed
by the participant to constitute “good reason” within 90 days after the date of the occurrence of any event that the participant knows or should reasonably have known to constitute “good reason,” (2) we fail to cure such acts or omissions within 30 days following its receipt of such notice, and (3) the effective date of the participant’s termination for “good reason” occurs no later than 60 days after the expiration of the 30-day cure period set forth above.
Elthoukhy and Talasaz Letter Agreements
In addition, in 2019 we entered into letter agreements with each of Drs. Eltoukhy and Talasaz that provide that if either executive experiences a “qualifying termination”qualifying termination of employment (as defined infor purposes of the Severance Plan),Plan, other than in connection with a change in control, then each time-based vesting company equity award held by the executive will vest and become exercisable as to the portion of the award that would have vested over the one-year period following the termination date (had the executive remained in continuous service during such period). This acceleration right is subject to the executive’s timely executiveexecution and non-revocation of a general release of claims.
Termination Terms of Founders’ 2020 Performance Awards
Under the terms of the Founders’ 2020 Performance Awards, upon a termination of employment of Dr. Eltoukhy or Dr. Talasaz, the 2020 PSUs granted to such executive will be treated as follows, subject to the executive’s timely execution and non-revocation of a general release of claims:
EQUITY COMPENSATION PLAN INFORMATION•If the employment of Dr. Eltoukhy or Dr. Talasaz is terminated by the Company without cause or by Dr. Eltoukhy or Dr. Talasaz for good reason, then one-third of the total PSUs will vest. Any then-remaining unvested PSUs will remain outstanding for up to six months following the termination of employment and will vest to the extent that the Company achieves a stock price goal during such time period.
•The PSUs will vest in full upon a termination of the Founder’s employment due to his death.
•If the employment of Dr. Eltoukhy or Dr. Talasaz terminates due to his disability, then the PSUs will remain outstanding and eligible to vest through the later to occur of (x) the one-year anniversary the termination date and (y) the four-year anniversary of the grant date (but not beyond the Expiration Date).
In the event of a change in control of the Company:
•If the price per share received by the Company’s common stockholders in a change in control exceeds the greater of (i) the fair market value of the Company’s stock on the grant date and (ii) the volume-weighted average stock price over the 180 days ending on the grant date, but is less than $120 per share, then one-third of the total PSUs will vest.
•If the price per share received by the Company’s common stockholders in a change in control equals or exceeds $120 per share, then the PSUs will vest with respect to any stock price goal achieved by the deal price. In addition, if the deal price is between two stock price goals, then either 50% or 100% of the PSUs associated with the greater goal will vest (depending on whether the deal price is more or less than 50% between the two goals).
•In addition, if any then-remaining unvested PSUs are assumed, they will continue to be eligible to vest following the transaction based on the achievement of stock price goals adjusted to reflect the transaction.
Summary of Potential Payments upon Termination or Change in Control
The following table sets forthsummarizes the payments that would be made to our NEOs upon the occurrence of certain qualifying terminations of employment or a change in control, in any case, occurring on December 31, 2020. In accordance with SEC rules, the potential payments upon termination or change in control do not include certain distributions or benefits to which the NEO is already entitled, including the value of equity awards outstandingthat have already vested and distributions from qualified retirement plans. Since many factors (e.g., the time of year when the event occurs, our stock price and the executive’s age) could affect the nature and amount of benefits an NEO could potentially receive, any amounts paid or distributed upon a future termination may be different from those shown in the tables below.
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Name | | Compensation Component | | Change in Control | | | Involuntary Termination in Connection with a Change in Control | | | Termination without Cause of for Good Reason Termination | | | Death or Disability | |
Helmy Eltoukhy | | Cash Severance | | $ | — | | | | $ | 2 | | (1) | | $ | 1 | | (2) | | $ | — | | |
| | Long Term Incentives | | 109,262,853 | | (3) | | | 121,723,376 | | (4) | | 85,302,468 | | (5) | | 218,525,577 | | (6) |
| | Benefits and Perquisites | | — | | | | 46,692 | | (7) | | 31,128 | | (8) | | — | | |
| | Executive Long Term Disability | | — | | | | — | | | | — | | | | — | | (9) |
| | Total | | 109,262,853 | | | | 121,770,070 | | | | 85,333,597 | | | | 218,525,577 | | |
Derek Bertocci | | Cash Severance | | | | | 546,000 | | (10) | | 195,000 | | (11) | | — | | |
| | Long Term Incentives | | | | | 2,802,537 | | (4) | | — | | | | — | | |
| | Benefits and Perquisites | | | | | 17,088 | | (8) | | 8,544 | | (12) | | — | | |
| | Executive Long Term Disability | | | | | — | | | | — | | | | 16,000 | | (9) |
| | Total | | | | | 3,365,625 | | | | 203,544 | | | | 16,000 | | |
AmirAli Talasaz | | Cash Severance | | — | | | | 2 | | (1) | | 1 | | (2) | | — | | |
| | Long Term Incentives | | 109,262,853 | | (3) | | | 121,723,376 | | (4) | | 85,302,468 | | (5) | | 218,525,577 | | (6) |
| | Benefits and Perquisites | | — | | | | 46,692 | | (7) | | 31,128 | | (8) | | — | | |
| | Executive Long Term Disability | | — | | | | — | | | | — | | | | — | | (9) |
| | Total | | 109,262,853 | | | | 121,770,070 | | | | 85,333,597 | | | | 218,525,577 | | |
John Saia | | Cash Severance | | | | | 630,000 | | (10) | | 225,000 | | (11) | | — | | |
| | Long Term Incentives | | | | | 3,192,724 | | (4) | | — | | | | — | | |
| | Benefits and Perquisites | | | | | — | | | | — | | | | — | | |
| | Executive Long Term Disability | | | | | — | | | | — | | | | 1,800,000 | | (9) |
| | Total | | | | | 3,822,724 | | | | 225,000 | | | | 1,800,000 | | |
Michael Wiley | | Cash Severance | | | | | 790,000 | | (1) | | 395,000 | | (2) | | — | | |
| | Long Term Incentives | | | | | 3,989,613 | | (4) | | — | | | | — | | |
| | Benefits and Perquisites | | | | | 36,198 | | (7) | | 24,132 | | (8) | | — | | |
| | Executive Long Term Disability | | | | | — | | | | — | | | | 2,064,000 | | (9) |
| | Total | | | | | 4,815,811 | | | | 419,132 | | | | 2,064,000 | | |
_______________
(1)Under the Company’s Severance Plan, amount is equal to the sum of 150% of the base salary in effect immediately prior to termination plus target annual incentive.
(2)Under the Company’s Severance Plan, amount is equal to 100% of the base salary in effect immediately prior to termination.
(3)Under the Founders’ 2020 Performance Awards, amount reflects 100% of the amount that vests upon attainment of the first stock price hurdle and 50% of the amount that vests upon attainment of the second stock price hurdle.
(4)Under the Company’s Severance Plan, all unvested stock options and RSUs, which vest based solely on the participant’s continued service with us or the passage of time, will vest. The amount shown is
the value of all unvested stock options based on the difference between the exercise price and the price of a share of our common stock as of December 31, 2018 regarding compensation plans under which our equity securities are authorized for issuance:
|
| | | |
Plan Category | Number of Shares to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of Shares remaining available for future issuance under equity compensation plans (excluding shares reflected in the first column) |
Equity compensation plans approved by security holders (1) | 7,588,405 (2) | $4.58 (2) | 4,478,757 (3) |
Equity compensation plan not approved by security holders | — | — | — |
Total | 7,588,405 | $4.58 | 4,478,757 |
___________
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(1) | Consists of the 2012 Plan, the 2018 Plan and the 2018 Employee Stock Purchase Plan (the “ESPP”). We are no longer permitted to grant awards under the 2012 Plan. |
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(2) | Represents outstanding options and their weighted average exercise price. |
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(3) | Includes 3,556,507 shares available for issuance under the 2018 Plan and 1,405,509 shares reserved for issuance under the ESPP. |
The maximum number2020 ($128.88) plus the market value of shares subject to purchase under our ESPP offering outstandingall unvested RSUs based on December 31, 2018 is 1,405,509 (the maximum numberthe price of shares available for issuance); on January 31, 2019 our employees purchased 119,886 shares under this ESPP offering.
An aggregate of 3,658,602 sharesa share of our common stock as of December 31, 2020. For Drs. Eltoukhy and Talasaz, amount reflects 100% of the amount that vests upon attainment of the first stock price hurdle and 50% of the amount that vests upon attainment of the second stock price hurdle.
(5)Under the Eltoukhy and Talasaz letter agreements, each time-based equity award will vest and become exercisable as to the portion of the award that would have vested over the one-year period following the termination date. Under the Founders’ 2020 Performance Awards, one-third of the total PSUs will vest. Any then-remaining unvested PSUs will remain outstanding for up to six months following the termination of employment and will vest to the extent that the Company achieves a stock price goal during such time period.
(6)Under the Founders’ 2020 Performance Awards, amount reflects the vesting of all three stock price hurdles of all unvested PSUs. If the employment of Dr. Eltoukhy or Dr. Talasaz terminates due to disability, then the PSUs will remain outstanding and eligible to vest through the later to occur of (x) the one-year anniversary the termination date and (y) the four-year anniversary of the grant date (but not beyond the expiration date of the PSUs).
(7)Under the Company’s Severance Plan, amount is the Company's reimbursement for the full amount of the COBRA premium payments for an 18-month period following termination.
(8)Under the Company’s Severance Plan, amount is the Company's reimbursement for the full amount of the COBRA premium payments for a 12-month period following termination.
(9)The amounts reported represent the disability benefit payable to each NEO until age 67 in the event of termination of employment due to disability. Drs. Eltoukhy and Talasaz were not eligible for the executive long term disability benefit because their 2020 annual base salary was initially availablereduced to $1 and therefore would not cover the benefit’s premium.
(10)Under the Company’s Severance Plan, amount is equal to 100% of the base salary in effect immediately prior to termination plus target annual incentive.
(11)Under the Company’s Severance Plan, amount is equal to 50% of the base salary in effect immediately prior to termination.
(12)Under the Company’s Severance Plan, amount is the Company's reimbursement for issuance under awards grantedthe full amount of the COBRA premium payments for a 6-month period following termination.
CEO Pay Ratio
Under rules adopted pursuant to the 2018 Plan. In addition,Dodd-Frank Act, we are required to calculate and disclose the numbertotal compensation paid to our median paid employee, as well as the ratio of shares available for issuance under the 2018 Plan will be increased on January 1 of each calendar year beginning in 2019 and ending in 2028 by an amount equaltotal compensation paid to the leastmedian employee as compared to the total compensation paid to our Chief Executive Officer (the "CEO Pay Ratio"). The paragraphs that follow describe our methodology and the resulting CEO Pay Ratio.
Measurement Date
We identified the median employee using our employee population on October 1, 2020 (including all employees, whether employed on a full-time, part-time, seasonal or temporary basis).
Consistently Applied Compensation Measure
Under the relevant rules, we are required to identify the median employee by use of (i) 3,689,000 shares, (ii) four percenta "consistently applied compensation measure" ("CACM"). We chose a CACM that closely approximates the annual target total direct compensation of our employees. Specifically, we identified the median employee by aggregating, for each employee as of October 1, 2020: (1) annual base pay, (2) annual target cash incentive opportunity, and (3) the grant date fair value for
equity awards granted in 2020. In identifying the median employee, we annualized the compensation values of individuals who joined our Company during 2020.
Methodology and Pay Ratio
After applying our CACM methodology, we identified the median employee. Once the median employee was identified, we calculated the median employee's annual target total direct compensation in accordance with the requirements of the sharesSummary Compensation Table.
Our median employee’s compensation in 2020, as calculated using Summary Compensation Table requirements, was $185,112. Our Chief Executive Officer's compensation in 2020 as reported in the Summary Compensation Table was $113,870,986. Therefore, our CEO Pay Ratio for 2020 is approximately 615:1.
This information is being provided for compliance purposes and is a reasonable estimate calculated in a manner consistent with the SEC rules, based on our internal records and the methodology described above. The SEC rules for identifying the median compensated employee allow companies to adopt a variety of common stock outstanding (on anmethodologies, to apply certain exclusions and to make reasonable estimates and assumptions that reflect their employee populations and compensation practices. Accordingly, the pay ratio reported by other companies may not be comparable to the pay ratio reported above, as converted basis) onother companies have different employee populations and compensation practices and may use different methodologies, exclusions, estimates and assumptions in calculating their own pay ratios. Neither the final dayCompensation Committee nor management of the immediately preceding calendar year, assumingCompany used the conversionCEO Pay Ratio measure in making compensation decisions.
Alternate Pay Ratio Given the Founders’ 2020 Performance Awards
To provide additional perspective for this pay ratio, we calculated an alternate ratio by dividing the value of any shares of preferred stock, but excluding shares issuable upon the exercise or payment of stock options, warrants or other equity securities with respectour CEO’s Founders’ 2020 Performance Awards by seven, to which shares have not actually been issued, and (iii) such smaller number of shares as determined by our Board.
In April 2019, the Board waived the automatic annual increasegive effect to the shares availableintention that the Founders’ 2020 Performance Awards made to our CEO is intended to be an award for issuance under our 2018 Plan and our ESPP due to proximitythat period of the annual increase to the closingtime. The result of our IPO. This waiver will not impact any future annual increases.
this calculation is an alternate pay ratio of approximately 89:1.
PROPOSAL 2
RATIFICATION OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Our Audit Committee has appointed Ernst & Young to serve as our independent registered public accounting firm for our fiscal year ending December 31, 2019.2021. Ernst & Young has served as our independent registered public accounting firm since 2015.
At the Annual Meeting, our stockholders are being asked to ratify the appointment of Ernst & Young as our independent registered public accounting firm for our fiscal year endedending December 31, 2018.
2021. Our Board is submitting the appointment of Ernst & Young to our stockholders because we value our stockholders' views on our independent registered public accounting firm and as a matter of good corporate governance. Notwithstanding the appointment of Ernst & Young, and even if our stockholders ratify their appointment, our Audit Committee, in its discretion, may appoint another independent registered public accounting firm at any time during our fiscal year if our Audit Committee believes that such a change would be in the best interests of our Company and our stockholders. At the Annual Meeting, our stockholders are being asked to ratify the appointment of Ernst & Young as our independent registered public accounting firm for our fiscal year ending December 31, 2019. Our Board is submitting the appointment of Ernst & Young to our stockholders because we value our stockholders' views on our independent registered public accounting firm and as a matter of good corporate governance. If our stockholders do not ratify the appointment of Ernst & Young, our Audit Committee may reconsider the appointment or may continue to retain Ernst & Young for 2019.2021. Representatives of Ernst & Young will be present at the Annual Meeting, and they will have an opportunity to make a statement and will be available to respond to appropriate questions from our stockholders.
Board RecommendationTHE BOARD RECOMMENDS A VOTE “FOR” THE RATIFICATION OF ERNST & YOUNG AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR FISCAL YEAR 2019.
AUDIT MATTERS
Fees Paid to the Independent Registered Public Accounting Firm
The following table presents fees for professional audit services and other services rendered to us by Ernst & Young LLP for the years ended December 31, 20182020 and December 31, 2017,2019, respectively.
| | | | | | | | | | | | | | |
| | Year Ended December 31, |
Type of Fees | | 2020 | | 2019 |
| | | | |
Audit Fees | | $ | 3,450,502 | | | $ | 2,646,000 | |
Audit Related Fees | | — | | | 2,000 | |
Tax Fees | | — | | | — | |
Total Fees | | $ | 3,450,502 | | | $ | 2,648,000 | |
|
| | | | | | | | |
Type of Fees | | 2018 | | 2017 |
Audit Fees | | $ | 2,739,000 |
| | $ | 687,000 |
|
Audit Related Fees | | 271,000 |
| | 145,000 |
|
Tax Fees | | 17,000 |
| | 58,000 |
|
All Other Fees | | — |
| | — |
|
Total Fees | | $ | 3,027,000 |
| | $ | 890,000 |
|
In the above table, in accordance with the definitions of the SEC, are the following fees:
•“Audit Fees” include billed and unbilled fees for the audit of our consolidated financial statements included in our annual report on Form 10-K, and registration statement on Form S-1, the review of the unaudited interim financial statements included in our quarterly report on Form 10-Q and other professional services related to our IPO and various consultation matters;
•“Audit Related Fees” include fees for assurance and related services that are reasonably related to the performance of the audit and the review of our financial statements and are not reported under “Audit Fees”; and
“•"Tax Fees” include fees related to preparation and filing of our U.S. federal and state tax returns, as well as audit support. For the years ended December 31, 2020 and 2019, no amounts were incurred by the Company for tax advice, planning or consulting services.
Pre-Approval Policies and Procedures
The Audit Committee has approved all audit and non-audit services provided in 2018,2020, prior to such service being provided by Ernst & Young. The Audit Committee’s policy is for the Audit Committee to approve all audit and non-audit services prior to such services being performed by the independent registered public accounting firm.
Audit Committee Report
The Audit Committee has reviewed and discussed the audited consolidated financial statements for the year ended December 31, 20182020 with Guardant's management of Guardant Health, Inc. and with Guardant Health, Inc.’sGuardant’s independent registered public accounting firm, Ernst & Young LLP.Young.
The Audit Committee has discussed with Ernst & Young LLP those matters required to be discussed by Statement on Accounting Standards No. 1301, as amended, “Communications with Audit Committees,” as adopted bythe applicable requirements of the Public Company Accounting Oversight Board (the “PCAOB”). and the SEC.
The Audit Committee has received and reviewed the written disclosures and the letter from Ernst & Young LLP required by the PCAOB regarding Ernst & Young LLP’sYoung’s communications with the
Audit Committee concerning independence, and has discussed with Ernst & Young LLP its independence from Guardant Health, Inc. and its management.
Based on the review and discussions referenced above, the Audit Committee recommended to our Board that the audited consolidated financial statements for the year ended December 31, 20182020 be included in the Annual Report on Form 10-K for that year for filing with the SEC.
Respectfully submitted by the Audit Committee,
Stanley Meresman, (Chair)Chair
Ian Clark
Samir KaulBahija Jallal
PROPOSAL 3
ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION
We are seeking an advisory, non-binding stockholder vote to approve the compensation of our NEOs as described in the “Compensation Discussion and Analysis,” executive compensation tables and accompanying narrative disclosures above on pages 34 through 69, referred to as the “say-on-pay vote”. In 2020, following an advisory vote of our stockholders on frequency of advisory votes on our named executive officer compensation, the Board determined to include an advisory vote on our named executive officer compensation in our proxy materials annually until the next required stockholder vote on frequency.
The Board believes that the information provided in the “Compensation Discussion and Analysis” and the executive compensation tables demonstrates that our executive compensation programs are designed appropriately, emphasize pay for performance and are working to ensure that management’s interests are aligned with our stockholders’ interests to support long-term value creation.
This vote is advisory, which means that this vote is not binding on us, our Board or our Compensation Committee. Although non-binding, our Board and our Compensation Committee will review and consider the voting results when making future decisions regarding our executive compensation programs.
RELATIONSHIPS AND RELATED PARTYPERSON TRANSACTIONS
Policies and Procedures for Review, Approval or Ratification of Transactions with Related Persons
Our Board has adopted a Related Person Transaction Policy and Procedures, setting forth the policies and procedures for the review and approval or ratification of related person transactions. This policy covers, with certain exceptions consistent with the exceptions set forth in Item 404 of Regulation S-K, any transaction, arrangement or relationship, or any series of similar transactions, arrangements or relationships, in which we (including any of our subsidiaries) are, were or will be a participant, where the amount involved exceeds $120,000 in any fiscal year and a related person has, had or will have a direct or indirect material interest.
Under the policy, management is responsible for implementing procedures to obtain information with respect to potential related person transactions, and then determining whether such transactions constitute related person transactions subject to the policy. Management then is required to present to the Audit Committee each proposed related person transaction. In reviewing and approving any such transactions, our Audit Committee is tasked to consider all relevant facts and circumstances, including, but not limited to, whether the transaction is on terms comparable to those that could be obtained in an arm's length transaction and the extent of the related person's interest in the transaction. If advance Audit Committee approval of a related person transaction is not feasible, then the transaction may be preliminarily entered into by management upon prior approval by the Chairperson of the Audit Committee, subject to ratification of the transaction by the Audit Committee at the Audit Committee's next regularly scheduled meeting. Management is responsible for updating the Audit Committee as to any material changes to any approved or ratified related person transaction and for providing a status report at least annually of all current related person transactions at a regularly scheduled meeting of the Audit Committee. No director may participate in approval of a related person transaction for which he or she is a related person. Unless noted otherwise, all of the transactions, agreements or relationships described in this section occurred prior to the adoption of this policy.
The following are certain transactions, arrangements and relationships with our directors, executive officers and stockholders owning 5% or more of our outstanding common stock (a “Related Party Stockholder”). We believe that the terms of such agreements are as favorable as those we could have obtained from parties not related to us.
Joint Venture with SoftBank
In May 2018, we formed a joint venture, Guardant Health AMEA, Inc. (the “Joint Venture”), with an entity affiliated with SoftBank Vision Fund (AIV M1) L.P. (“SoftBank”), relating to the sale, marketing and distribution of our tests in all areas in the “JV Territory” which is defined as all areas in the worldwide outside of North America, Central America, South America, the United
Kingdom, all other member states of the European Union as of May 2017, Iceland, Norway, Switzerland and Turkey. In a given country, depending on the market opportunity in a country, the Joint Venture may create direct operations, sell through a distribution model or license to a third party. Direct operations would entail full operations, including a laboratory, sales and marketing and regulatory, among other functions. Under the distribution model, our tests would be marketed and sold by the Joint Venture or a third-party distributor in relevant countries within the JV Territory, and the tests would be performed by or on behalf of us or our affiliates outside
of such countries on samples obtained by the Joint Venture or third-party distributor in such countries. Under the license model, the Joint Venture, or an entity designated by the Joint Venture, would be licensed to market and sell the tests in relevant countries within the JV Territory, and the Joint Venture, or an entity designated by the Joint Venture, would perform the tests on samples obtained in such countries. Following a determination by the board of directors of the Joint Venture on the appropriate model for an individual country, we will enter into agreements with the Joint Venture with respect to the individual country based on the license or distribution model. We expect to rely on the Joint Venture to accelerate commercialization of our products in Asia, the Middle East and Africa, with our initial focus being on Japan. The Joint Venture generated total revenue of $2.6$14.4 million for the year ended December 31, 2018, all2020, the majority of which was from direct sales.
SoftBank Vision Fund (AIV M1) L.P. holdsindirectly beneficially owns more than 5% of our capital stock and Dipchand Nishar, who currently serves on our Board, is a senior managing partner at SoftBank Investment Advisers.stock.
Formation, Capitalization and Financing of Joint Venture
In May 2018, an entity affiliated with SoftBank purchased 50% of the original issued shares of the Joint Venture in exchange for $41.0 million in cash. In May 2018, we also purchased 50% of the original issued shares of the Joint Venture in exchange for $9.0 million in cash and our entry into various ancillary agreements necessary to provide the Joint Venture with the rights needed to operate its business. As a result of these transactions, we and SoftBank each currently own 50% of the outstanding capital stock of the Joint Venture. All stockholders of the Joint Venture have a pro rata right to any dividends or other distributions from the Joint Venture, in proportion to the holder’s percentage ownership in the Joint Venture.
Under the terms of the joint venture agreement, neither we nor SoftBank or its affiliates is obligated to make any further capital contribution, in cash or otherwise, to the Joint Venture. In the event the Joint Venture requires any additional funding for its operations, the Joint Venture may seek debt financing from third parties, or may seek additional financing from its major shareholders, which will be on a pro rata basis among major shareholders unless such shareholders agree otherwise. For purposes of the joint venture agreement, “major shareholder” refers to us, so long as we hold at least 50% of the shares in the Joint Venture issued to us in May 2018, to SoftBank, so long as it and its affiliates hold at least 50% of the shares in the Joint Venture issued to
it in May 2018, and to any other shareholder holding at least 30% of the outstanding shares of the Joint Venture.
Governance and Related Party Transactions
The board of directors of the Joint Venture is responsible for the supervision and management of the Joint Venture. Under the terms of the joint venture agreement, the board of directors of the Joint Venture is required to consist of four directors, with two being appointed by us and two being appointed by SoftBank. Each director is entitled to one vote, and each resolution of the board requires majority approval, including by at least one of our appointed directors and one of SoftBank’s appointed directors. The board’sBoard’s chair position is required to be held in alternate years by a SoftBank appointee and one of our appointees. Both we and SoftBank may remove our own appointed directors by giving written notice to the other party.
Notwithstanding the foregoing, any decision on behalf of the Joint Venture relating to, among other things, action by the Joint Venture relating to the entry into, termination,
amendment or waiver of any provision of an agreement between the Joint Venture and either us or SoftBank is required to be made by the disinterested party’s director appointees.
Put-Call Arrangement
The joint venture agreement includes a put-call arrangement with respect to the shares of the Joint Venture held by SoftBank and its affiliates. Under certain specified circumstances and on terms specified in the joint venture agreement as described below, SoftBank will have the right to cause us to purchase all such shares of the Joint Venture (the “put right”), and we will have a similar right to purchase all such shares (the “call right”) as described below.
Triggers of Rights
Material Change in Business- If our business model were to materially change such that the sale, marketing and distribution of our tests in the territory covered by the joint venture agreement was no longer economical, SoftBank would have the right to cause us to purchase, or we would have the right to purchase, all of the shares of the Joint Venture held by SoftBank and its affiliates. In this instance, we would be required to repurchase the shares at an aggregate purchase price of $41.0 million, the original purchase price paid by SoftBank to the Joint Venture for the shares.
Deadlock Trigger - Additionally, both we and SoftBank may exercise our respective rights in the event of certain disagreements relating to the Joint Venture, other than one relating to the Joint Venture’s business plan or to factual matters that may be capable of expert determination (a “Deadlock Trigger”). In the event of a material disagreement relating to the joint venture or its business that may seriously affect the ability of the joint venture to perform its obligations under the joint venture agreement or may otherwise
seriously impair the ability of the Joint Venture to conduct its business in an effective matter, the matter is to be referred to ours and SoftBank’s respective chairs or chief executives. Following discussions between those individuals, if either party provides written notice to the other of an intention to seek formal resolution of the disagreement within 90 days, and the disagreement has not been resolved within those 90 days, then SoftBank will have a right to exercise its put right and we will have a right to exercise our call right.
Other Triggers - Both we and SoftBank were entitled to exercise our respective rights following the effective time of our IPOinitial public offering (the “IPO Trigger”), and we may also exercise our respective rights following a change in control of our company (the “Change in Control Trigger”) or the seventh anniversary of the formation of the Joint Venture (the “Time-Based Trigger”), or each subsequent anniversary of each of the foregoing events. In order to exercise its right, a party must provide the other party with written notice within 30 days of the IPO Trigger, the Change in Control Trigger or the Time-Based Trigger, as applicable.
Each party may also exercise its right following a material breach of the joint venture agreement by the other party that goes unremedied within 20 business days.
Purchase Procedure and Limitations
In the event either we or SoftBank properly exercise our respective rights, we are required to purchase the shares of the Joint Venture on a date determined by us and no more than 30 business days after the determination of the aggregate purchase price to be paid for the shares.
We may pay the purchase price for the shares of the Joint Venture in cash, in shares of our capital stock (which may be a non-voting security with senior preferences to all other classes of our equity or, if our common stock is publicly traded on a national exchange, our common stock), or in a combination of cash and our capital stock. In the event SoftBank exercises its put right, we will choose the form of consideration. In the event we exercise our call right, SoftBank will choose the form of consideration. To the extent we pay any portion of the purchase price in cash, we may elect to deliver that portion in the form of a promissory note, secured by a first lien stock pledge in the shares of the Joint Venture we are purchasing and payable within 18 months following the closing date of our purchase of the shares. The terms of the note, including interest rate, will be at prevailing market terms for our third-party borrowings. To the extent we pay any portion of the purchase price in our stock and our stock is publicly traded, SoftBank and its affiliates are required under the joint venture agreement to execute and deliver to us an irrevocable proxy appointing us as the attorney-in-fact and proxy, to vote the shares as we, in our sole discretion, deem proper with respect to such shares.
If, in the event SoftBank exercises its put right, the fair value of the Joint Venture is determined to be greater than 40% of the fair value of our company, then we will only be required to purchase the number of shares of the Joint Venture held by SoftBank and its
affiliates having an aggregate value equal to the product of 40% and the pro rata portion of the outstanding shares of the Joint Venture held by SoftBank and its affiliates. If SoftBank and its affiliates continue to hold shares of the Joint Venture on account of this limitation, SoftBank will not be permitted to request that the fair values of the Joint Venture and our company be re-determined for three months.
If, after either we or SoftBank properly exercises our respective rights, we fail to purchase all of the shares of the Joint Venture held by SoftBank and its affiliates, other than in connection with the 40% limitation described in the preceding paragraph, we are required to pay SoftBank interest on the applicable purchase price. The interest will be payable monthly, in cash, at a rate of 15% per annum, and will accrue from the date the purchase of the shares should have occurred until the date we actually purchase the shares.
Determination of Fair Value
In the event either we or SoftBank properly exercises our right respective rights on account of an event other than as described above under “—Triggers“-Triggers of rights—Materialrights-Material change in business,” the purchase price per share of the Joint Venture will be:
•if the shares of the Joint Venture are publicly traded and listed on a national exchange, equal to the average closing price of the shares for the 20 trading days ending on the business day immediately preceding the date of the put notice, provided that, in the event we exercise our call right, the fair value of the Joint Venture will be deemed to be no less than an amount that yields a 20% internal rate of return on each tranche of capital invested by SoftBank and its affiliates in the Joint Venture, taking into account all proceeds received by SoftBank and its affiliates arising from their shares through such date;
•if the shares of the Joint Venture are not publicly traded and listed on a national exchange, determined by a third-party valuation firm, and on the assumption that the sale is on an arm’s-length basis on the date of the put or call notice, as applicable, provided that, in the event we exercise our call right, the fair value of the Joint Venture will be deemed to be no less than an amount that yields a 20% internal rate
of return on each tranche of capital invested by SoftBank and its affiliates in the Joint Venture, taking into account all proceeds received by SoftBank and its affiliates arising from their shares through such date; or
•if the fair value is being determined in connection with a Deadlock Trigger being determined in connection with a potential change of control of the Joint Venture, in accordance with the preceding bullets, but will in no event be less than the consideration proposed to be paid in connection with such potential change of control of the Joint Venture.
In the event either we or SoftBank properly exercises our respective rights, the fair value of a share of our capital stock will be:
•while our common stock is publicly traded and listed on a national exchange, equal to the average closing price of our common stock for the 20 trading days ending on the business day immediately preceding the date of the put notice;
•if our common stock is not publicly traded and listed on a national exchange, determined by a third-party valuation firm, and on the assumption that the sale is on an arm’s-length basis on the date of the put notice; or
•if the fair value of our company is being determined in connection with a put or call notice, as applicable, delivered within 30 days following a Change in Control Trigger, the fair value of a share of our capital stock will be equal to the consideration per share paid or payable by the purchaser in such change of control.
Termination
The joint venture agreement will terminate upon any of the following three events: (i) if one party (including any transferees of that party) ceases to hold any shares of the Joint Venture, (ii) if a resolution is passed by the shareholders or creditors, or an order is made by a court or other competent body or person instituting a process that will lead to the Joint Venture being wound up and its assets being distributed among the Joint Venture’s creditors, shareholders or other contributors or (iii) upon written notice of insolvency (as described in the joint venture agreement) of either us or SoftBank.
Investor Rights Agreement
We are party to an amended and restated investor rights agreement (the “Investor Rights Agreement”), with certain of our stockholders who purchased shares of our convertible preferred stock prior to our IPO, which then converted to shares of our common stock in connection with our IPO. These stockholder include certain holders of 5% of our capital stock and entities affiliated with certain of our directors, as well as certain of our directors and executive officers. The Investor Rights Agreement grants rights to certain holders, including certain registration rights with respect to the registrable securities held by them, and also imposes certain affirmative obligations on us, including with respect to the furnishing of financial statements and information to the holders. The current stockholders include certain of our directors. Previous parties to the Investors Rights Agreement included certain holders of 5% of our capital stock and entities affiliated with certain of our directors, and certain executive officers.
Holders of approximately 430.2 million shares of our common stock are currently entitled to such registration rights pursuant to the Investor Rights Agreement. These registration rights will expire on the earlier of the date that is three years after the completion of the IPO (October 9,
2021) or, with respect to each stockholder following the completion of this offering,the IPO, at such time as such stockholder can sell all of its registrable securities pursuant to Rule 144(b)(1)(i) of the Securities Act of 1933, as amended (the “Securities Act”) or holds one percent or less of our outstanding common stock and all of such stockholder’s registrable securities can be sold in any three month period without registration pursuant to Rule 144 of the Securities Act. The registration of shares of our common stock pursuant to
the exercise of these registration rights would enable the holders thereof to sell such shares without restriction under the Securities Act when the applicable registration statement is declared effective. Under the Investor Rights Agreement, we will pay all expenses relating to such registrations, including the reasonable fees and disbursements of one counsel for the participating holders, and the holders will pay all underwriting discounts and commissions relating to the sale of their shares. The Investor Rights Agreement also includes customary indemnification and procedural terms.
Demand Registration Rights
Certain holders of a majority of the registrable securities then outstanding may, on not more than two occasions, request that we prepare, file and maintain a registration statement to register at least a majority of their registrable securities then outstanding, or a lesser percentage of their registrable securities if the anticipated aggregate offering price, net of underwriting discounts and commissions, would exceed $7.5 million. OnceAs we are eligible to use a registration statement on Form S-3, certain holders of not less than 25% of the registrable securities then outstanding may request that we prepare, file and maintain a registration statement on Form S-3 covering the sale of their registrable securities, but only if the anticipated offering price, net of underwriting discounts and commissions, would exceed $1 million.
Piggyback Registration Rights
In the event that we propose to register any of our securities under the Securities Act, either for our own account or for the account of other security holders, the holders of registrable securities are entitled to certain “piggyback” registration rights allowing them to include their registrable securities in such registration, subject to certain customary marketing and other limitations. As a result, whenever we propose to file a registration statement under the Securities Act other than with respect to a demand registration or a registration statement on Form S-4 or S-8, these holders will be entitled to notice of the registration and will have the right to include their registrable securities in the registration subject to certain limitations.
Voting Agreement – Terminated in Connection with IPO
Prior to the IPO, we were party to an amended and restated voting agreement (the “Voting Agreement”), under which certain holders of our capital stock, including certain holders of 5% of our capital stock and entities affiliated with certain of our directors and certain of our directors and executive officers, agreed to vote in a certain way on certain matters, including with respect to the election of directors. Pursuant to the Voting Agreement, each of Sequoia Capital and Khosla Ventures had the right to designate one member of our Board. Aaref Hilaly and Samir Kaul were designated by Sequoia Capital and Khosla Ventures, respectively, under the Voting Agreement.
The Voting Agreement terminated by its terms in connection with the completion of the IPO, and none of our stockholders have any continuing voting rights, including special rights regarding the election or designation of members of our Board.
Right of First Refusal and Co-Sale Agreement – Terminated in Connection with IPO
Prior to the IPO, we were party to an amended and restated first refusal and co-sale agreement (the “ROFR Agreement”) with holders of our then-outstanding convertible preferred stock, including certain holders of 5% of our capital stock and entities affiliated with certain of our directors, pursuant to which we had a right of first refusal, and certain holders satisfying an ownership threshold of convertible preferred stock had a right of first refusal and co-sale, in respect of certain sales of securities by specified holders of convertible preferred stock. The ROFR Agreement terminated in connection with the completion of the IPO.
Indemnification Agreements
Our Bylaws provide that we will indemnify our directors and officers to the fullest extent permitted by the laws of the State of Delaware in effect from time to time, subject to certain exceptions contained in our bylaws. In addition, our Certificate of Incorporation provide that our directors will not be personally liable to us or our stockholders for any damages other than for breaches of fiduciary duty involving intentional misconduct, fraud or a knowing violation of law.
We have entered into indemnification agreements with each of our executive officers and directors. The indemnification agreements provide the executive officers and directors with contractual rights to indemnification, and expense advancement and reimbursement, to the fullest extent permitted under the laws of the State of Delaware in effect from time to time, subject to certain exceptions contained in those agreements.
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
AND CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding the ownership of our common stock as of April 22, 201919, 2021 by: (i) each director (two(three of whom are the nominees for election to the Board); (ii) each of our named executive officers; (iii) all currently serving executive officers and directors as a group; and (iv) all those known by us to be beneficial owners of more than five percent of our common stock. Except as otherwise noted below, the address for persons listed in the tables is c/o Guardant Health, Inc., 505 Penobscot Dr., Redwood City, California 94063.
Unless otherwise indicated in the footnotes to the table and subject to commoncommunity property laws and the rights of spouses under revocable living trusts where applicable, we believe that each stockholder named in the table has sole voting and investment power with regard to the shares indicated as being beneficially owned. There were 86,935,421101,117,510 shares of common stock outstanding on April 22, 2019.19, 2021.
| | | | | | | | | | | | | | |
Name of Beneficial Owner | | Total Shares Beneficially Owned** | | Percentage of Shares Beneficially Owned** |
5% Stockholders: | | | | |
The Vanguard Group (1) | | 7,621,237 | | | 7.5 | % |
Entities affiliated with SoftBank Group (2) | | 7,037,960 | | | 7.0 | % |
BlackRock, Inc. (3) | | 5,323,941 | | | 5.3 | % |
Directors and Named Executive Officers: | | | | |
Helmy Eltoukhy, Ph.D. (4) | | 3,009,577 | | | 3.0 | % |
AmirAli Talasaz, Ph.D. (5) | | 2,787,804 | | | 2.8 | % |
Derek Bertocci (6) | | 1,641 | | | * |
Michael Wiley (7) | | 29,430 | | | * |
John Saia (8) | | 9,266 | | | * |
Ian Clark (9) | | 12,814 | | | * |
Bahija Jallal, Ph.D. (10) | | 12,505 | | | * |
Samir Kaul (11) | | 31,097 | | | * |
Stanley Meresman (12) | | 21,022 | | | * |
Vijaya Gadde (13) | | 3,151 | | | * |
All directors and executive officers as a group (9 persons) (14) | | 5,887,236 | | | 5.8 | % |
_______________
* Represents beneficial ownership of less than one percent.
** Includes shares which the individuals shown have the right to acquire upon exercise of stock options or the vesting of restricted stock units that are vested or vest within 60 days following April 19, 2021. Such shares are deemed to be outstanding in calculating the percentage ownership of such individual (and the group), but are not deemed to be outstanding as to any other person.
(1) Based solely on information contained in a Schedule 13G filed with the SEC on February 10, 2021 by The Vanguard Group, reporting ownership as of December 31, 2020. Vanguard reported sole voting power as to 0 shares, shared voting power over 62,414 shares, sole dispositive power as to 7,494,908 shares, and shared dispositive power as to 126,329 shares. The address of Vanguard is 100 Vanguard Blvd., Malvern, Pennsylvania 19355.
|
| | | | | | |
Name of Beneficial Owner | | Total Shares Beneficially Owned** | | Percentage of Shares Beneficially Owned** |
5% Stockholders: | | | | |
Entities affiliated with SoftBank Group(1) | | 27,850,460 |
| | 32.0 | % |
Entities affiliated with Sequoia Capital(2) | | 7,784,052 |
| | 9.0 | % |
Entities affiliated with Khosla Ventures(3) | | 7,141,498 |
| | 8.2 | % |
Directors and Named Executive Officers: | | | | |
Helmy Eltoukhy, Ph.D.(4) | | 5,448,461 |
| | 6.2 | % |
AmirAli Talasaz, Ph.D.(5) | | 5,298,985 |
| | 6.0 | % |
Richard Lanman, M.D.(6) | | 136,396 |
| | * |
|
Leena Das-Young, Pharm.D.(7) | | 56,156 |
| | * |
|
Ian Clark(8) | | 6,455 |
| | * |
|
Aaref Hilaly | | — |
| | — |
|
Bahija Jallal, Ph.D. | | — |
| | — |
|
Samir Kaul | | — |
| | — |
|
Stanley Meresman(9) | | 64,142 |
| | * |
|
Dipchand Nishar | | — |
| | — |
|
All directors and executive officers as a group (12 persons)(10) | | 11,524,194 |
| | 13.0 | % |
| | | | |
| |
* | Represents beneficial ownership of less than one percent. |
| |
** | Includes shares which the individuals shown have the right to acquire upon exercise of stock options that are vested or vest within 60 days following April 22, 2019. Such shares are deemed to be outstanding in calculating the percentage ownership of such individual (and the group), but are not deemed to be outstanding as to any other person. |
| |
(1) | Based on a Schedule 13G filed with the SEC on February 13, 2019 as updated by the Form 4/A filed with the SEC on March 15, 2019,(2) Based solely on information contained in a Schedule 13D/A filed with the SEC on October 13, 2020, and consists of 7,037,960 shares held of record by SVF Bluebird (Cayman) Limited, and SVF Bluebird (Cayman) Limited, SVF Enterprise (Cayman) Limited, SVF Endurance (Cayman), SoftBank Vision Fund (AIV M1) L.P. and consists of 27,850,460 shares held of record by SoftBank Vision Fund (AIV M1) L.P. |
SB Investment Advisers (UK) Limited each report shared voting and dispositive power over these shares.
SVF Bluebird (Cayman) Limited is a wholly-ownedsubsidiary of SVF Enterprise (Cayman) Limited, which is a subsidiary of SVF Endurance (Cayman) Limited, which is a wholly owned subsidiary of SoftBank Group Corp., a Japanese kabushiki kaisha,Vision Fund (AIV M1) L.P. SB Investment Advisers (UK) Limited has been appointed as alternative investment fund manager (“AIFM”), of the SoftBank Vision Fund, including SoftBank Vision Fund (AIV M1) L.P., and is exclusively responsible for managing the SoftBank Vision Fund (AIV M1) L.P. in accordance with the Alternative Investment Fund Managers Directive and is authorized and regulated by the UK Financial Conduct Authority accordingly. As AIFM of theSoftBank Vision Fund (AIV M1) L.P., SB Investment Advisers (UK) Limited is exclusively responsible for making all decisions related to the acquisition, structuring, financing and disposal of the SoftBank Vision Fund’sFund (AIV M1) L.P.’s Investments. The registered address for SoftBank Vision Fund (AIV M1) L.PSB Investment Advisers (UK) Limited is 251 Little Falls Drive, Wilmington, New Castle County, DE 19808.69 Grosvenor St., Mayfair, London W1K 3JP.
The amounts reflected above do not include any shares of our capital stock that SoftBank may acquire pursuant to put and call rights in our joint venture agreement with SoftBank as described in “Relationships and Related Party Transactions—JointTransactions-Joint venture with SoftBank.” To the extent SoftBank elects to receive, or we elect to issue, shares of our common stock as any portion of the consideration, SoftBank will be required to execute and deliver to us an irrevocable proxy appointing us as the attorney-in-fact and granting us a proxy to vote as we deem proper with respect to such shares.
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(2) | Based on information contained in a Schedule 13G filed with the SEC on February 14, 2019, and consists of (i) 7,754,890 shares held of record by Sequoia Capital USV XIV Holdco, Ltd. (“SC USV XIV Holdco”), and (ii) 29,162 shares held of record by Sandscape, LLC. |
SC US (TTGP)(3)Based solely on information contained in a Schedule 13G filed with the SEC on February 5, 2021 by BlackRock, Inc., LTD.reporting ownership as of December 31, 2020. BlackRock reported sole voting power as to 5,065,003 shares and sole dispositive power as to 5,323,941 shares. The address of BlackRock is 55 East 52nd Street, New York, New York 10055.
(4)Includes (i) 1,908,267 shares of common stock held by Helmy Eltoukhy, (ii) 735,535 shares of common stock that can be acquired upon the exercise of options that will be vested within 60 days of April 19, 2021. Also includes 365,775 shares held by Eltoukhy Investments, L.P., as to which Dr. Eltoukhy and his spouse have shared voting and dispositive power over 7,784,052 shares. SC USV XIV Holdco, Sequoia Capital U.S. Venture Partners Fund XIV,power.
(5)Includes (i) 1,725,422 shares of common stock held by AmirAli Talasaz, (ii) 591,582 shares of common stock that can be acquired upon the exercise of options that will be vested within 60 days of April 19, 2021. Also includes 470,800 shares of common stock held by Talasaz Investments, L.P., Sequoia Capital U.S. Venture Partners Fund XIV, L.P., Sequoia Capital U.S. Venture Partners Fund XIV (Q), L.P., SC U.S. Venture XIV Management, L.P. each reportedas to which Dr. Talasaz and his spouse have shared voting and dispositive power over 7,754,890 shares. Sandscape, LLC, Sequoia Capital Scout Fund II, L.L.C.power.
(6)Includes 1,641 shares of common stock held by Derek Bertocci.
(7)Includes 933 shares of common stock held by Michael Wiley and 28,497 shares of common stock that can be acquired upon the exercise of options that will be vested within 60 days of April 19, 2021.
(8) Includes 2,026 shares of common stock held by John Saia and 7,240 shares of common stock that can be acquired upon the exercise of options that will be vested within 60 days of April 19, 2021.
(9)Includes 1,302 shares of common stock held by Ian Clark and 8,171 shares of common stock that can be acquired upon the exercise of options, and 3,341 restricted stock units, that will be vested within 60 days of April 19, 2021.
(10)Includes 1,891 shares of common stock held by Bahija Jallal and 7,857 shares of common stock that can be acquired upon the exercise of options, and 2,757 restricted stock units, that will be vested within 60 days of April 19, 2021.
(11) Includes (i) 1,302 shares of common stock held by Samir Kaul, (ii) 7,095 shares of common stock that can be acquired upon the exercise of options, and 2,757 restricted stock units, that will be
vested within 60 days of April 19, 2021. Also includes 19,943 shares held by a trust for the benefit of Samir Kaul and his family.
(12) Includes 1,302 shares of common stock held by Stanley Meresman and 16,963 shares of common stock that can be acquired upon the exercise of options, and 2,757 restricted stock units, that will be vested within 60 days of April 19, 2021.
(13)Includes 1,976 shares of common stock that can be acquired by Vijaya Gadde upon the exercise of options, and 1,175 restricted stock units, that will be vested within 60 days of April 19, 2021.
(14) Includes an aggregate of 3,641,512 shares of common stock that are directly held and 1,376,419 shares of common stock that can be acquired upon the exercise of options, and 12,787 restricted stock units, that will be vested within 60 days of April 19, 2021. Also includes 856,518 shares held by trusts for the benefit of some of our executive officers and board members.
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth the equity awards outstanding as of December 31, 2020 regarding compensation plans under which our equity securities are authorized for issuance:
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Plan Category | | Number of Shares to be Issued Upon Exercise of Outstanding Options & Vesting of RSUs
| | | Weighted-Average Exercise Price of Outstanding Options
| | | Number of Shares Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Shares Reflected in the First Column) | |
Equity compensation plans approved by security holders (1) | | 7,988,906 | | (2) | | $ | 15.80 | | (2) | | 3,355,714 | | (3) |
Equity compensation plan not approved by security holders | | — | | | | — | | | | — | | |
Total | | 7,988,906 | | | | $ | 15.80 | | | | 3,355,714 | | |
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(1)Consists of the Amended and Restated 2012 Plan (the “2012 Plan”), Sequoia Capital U.S. Venture 2010-Seed Fund, L.Pthe 2018 Plan and SC US Venture 2010 Management, L.P. each reported shared votingthe 2018 Employee Stock Purchase Plan (the “ESPP”). We are no longer permitted to grant awards under the 2012 Plan.
(2) Represents 1,118,655 outstanding RSUs, 3,391,148 outstanding Founders’ 2020 Performance Awards, which are market-based RSUs, 377,922 outstanding performance-based RSUs, and dispositive power over 29,162 shares.3,101,181 outstanding options and the weighted average exercise price of such outstanding options. Excludes shares subject to purchase under our ESPP offerings outstanding on December 31, 2020.
SC US (TTGP), Ltd. is(3) Includes 1,819,223 shares available for issuance under the general partner2018 Plan and 1,536,491 shares reserved for issuance under the ESPP as of SC U.S. Venture XIV Management, L.P., which isDecember 31, 2020.
An aggregate of 3,658,602 shares of our common stock was initially available for issuance under awards granted pursuant to the general partner2018 Plan. In addition, the number of shares available for issuance under the 2018 Plan may be increased on January 1 of each calendar year beginning in 2019 and ending in 2028 by an amount equal to the least of Sequoia Capital U.S. Venture Fund XIV, L.P., Sequoia Capital U.S. Venture Partners Fund XIV, L.P. and Sequoia Capital U.S. Venture Partners Fund XIV (Q), L.P. (collectively, the “SC USV XIV Funds”). The SC USV XIV Funds together own 100%(i) 3,689,000 shares, (ii) four percent of the outstanding ordinary shares of SC USV XIV Holdco. SC US (TTGP), Ltd. iscommon stock outstanding (on an as-converted basis) on the general partnerfinal day of SC US Venture 2010 Management, L.P., which is the general partnerimmediately preceding calendar year, assuming the conversion of Sequoia Capital U.S. Venture 2010-Seed Fund, L.P., which isany shares of preferred stock, but excluding shares issuable upon the managing memberexercise or payment of Sequoia Capital Scout Fund II, L.L.C., which is the managing member of Sandscape, LLC. As a result, SC US (TTGP), Ltd. may be deemed to share voting and dispositive powerstock options, warrants or other equity securities with respect to which shares have not actually been issued, and (iii) such smaller number of shares as determined by our Board. Effective as of January 1, 2021, the number of shares available for issuance under the 2018 Plan was increased by 3,689,000 shares, which is not reflected in the table above.
A total of 922,250 shares of our common stock are initially reserved for issuance under our ESPP. In addition to the foregoing, on the first day of each calendar year beginning on January 1, 2019 and ending on and including January 1, 2028, the number of shares of our common stock available for issuance under the Plan may be increased by the least of (i) 1,106,700 shares, (ii) 1% of the shares held by SC USV XIV Holdco and Sandscape, LLC. The address for each of these entities is 2800 Sand Hill Road, Suite 101, Menlo Park, California 94025.
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(3) | Basedoutstanding (on an as-converted basis) on information contained in a Schedule 13G filed with the SEC on February 13, 2019, and consists of (i) 429,132 shares held of record by Khosla Venture IV (CF), LP (“KV IV (CF)”), and (ii) 6,712,366 shares held of record by Khosla Ventures IV, LP (“KV IV”). |
KV IV reported shared voting power over 6,712,366 shares and shared dispositive power over 6,712,366 shares. KV IV (CF) reported shared voting power over 429,132 shares and shared dispositive power over 429,132 shares. Khosla Ventures Associates IV, LLC (“KVA IV”), VK Services, LLC (“VK Services”) and Vinod Khosla each reported shared voting and dispositive power over 7,141,498 shares.
The general partner of KV IV (CF) and KV IV is KVA IV. VK Services is the sole manager of KVA IV. Vinod Khosla is the managing member of VK Services. Each of Mr. Khosla, VK Services and KVA IV may be deemed to share voting and dispositive power over such securities held by KV IV (CF) and KV IV. Samir Kaul, a member of our Board, is a memberlast day of the general partnerimmediately preceding calendar year, assuming the conversion of KV IV (CF) and KV IV and as such may be deemed to have voting and investment powerany shares of preferred stock, but excluding shares issuable upon the exercise or payment of stock options, warrants or other equity securities with respect to which shares have not actually been issued, and (iii) such smaller number of shares as determined by our Board. For 2021, the Board waived the automatic annual increase to the shares held by KV IV (CF)available for issuance under our ESPP. The maximum number of shares subject to purchase under our ESPP offerings outstanding on December 31, 2020 is 1,536,491, the purchase covering these offerings will be on May 15, 2021 and KV IV. Mr. Khosla, VK Services, KVA IV and Mr. Kaul disclaim beneficial ownership of such securities held by KV IV (CF) and KV IV, except to the extent of their respective pecuniary interests therein. The address for each of these entities is 2128 Sand Hill Road, Menlo Park, California 94025.
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(4) | Includes 4,040,370 shares held directly by Helmy Eltoukhy, 624,521 shares of common stock that can be acquired upon the exercise of options that will be vested within 60 days of April 22, 2019, and 119,550 shares held by the Helmy A. Eltoukhy Revocable Trust. Also includes 664,020 shares held by Eltoukhy Investments, L.P., as to which Dr. Eltoukhy and his spouse have shared voting and dispositive power. |
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(5) | Includes 7,949 shares held directly by AmirAli Talasaz and 624,521 shares of common stock that can be acquired upon the exercise of options that will be vested within 60 days of April 22, 2019. Also includes 3,928,715 shares held by the Talasaz and Eskandari 2017 Family Trust, and 737,800 shares held by Talasaz Investments, L.P., as to which Dr. Talasaz and his spouse have shared voting and dispositive power. |
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(6) | Includes 131,419 shares held directly by Richard Lanman and 4,977 shares of common stock that can be acquired upon the exercise of options that will be vested within 60 days of April 22, 2019. |
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(7) | Includes 821 shares held directly by Leena Das-Young and 55,335 shares of common stock that can be acquired upon the exercise of options that will be vested within 60 days of April 22, 2019. |
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(8) | Includes 6,455 shares of common stock that can be acquired upon the exercise of options that will be vested within 60 days of April 22, 2019. |
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(9) | Includes 64,142 shares of common stock that can be acquired upon the exercise of options that will be vested within 60 days of April 22, 2019. |
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(10) | Includes an aggregate of 1,456,109 shares of common stock that can be acquired upon the exercise of options that will be vested within 60 days of April 22, 2019. |
November 15, 2021.
OTHER MATTERS
Delinquent Section 16(a) Beneficial Ownership Reporting ComplianceReports
Section 16(a) of the Exchange Act requires our executive officers, directors and persons who own more than ten percent of a registered class of our equity securities to file reports of ownership and changes in ownership with the SEC. Executive officers, directors and greater than ten-percent stockholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file.
Based solely on our review of the copies of such forms furnished to us and the written representations from certain of the reporting persons that no other reports were required during the fiscal year ended December 31, 2018,2020, all executive officers, directors and greater than ten-percent beneficial owners complied with the reporting requirements of Section 16(a), except that due to administrative errors,oversights, one late Form 3s were4 was filed late by (i) Dipchand Nishar, a memberfor Ian Clark to report the sale of our Board, (ii) SoftBank Group Capital Ltd and Softbank Group Corp., each of whom were deemed by their holdings of preferred stock at effectiveness of the IPO to beneficially own 10% or more538 shares of our common stock, priorand one late Form 4 was filed for John Saia to report the closingreceipt of 3,491 shares of our IPO, and (iii) SoftBank Vision Fund (AIV M1) L.P. and SB Investment Advisers (UK) Limited.common stock from an equity award under the 2018 Plan.
Stockholder Proposals and Nominations
Stockholders who intend to have a proposal considered for inclusion in our proxy materials for presentation at our 20202022 Annual Meeting of Stockholders pursuant to Rule 14a-8 under the Exchange Act must submit the proposal to our Secretary at our offices at 505 Penobscot Dr., Redwood City, California 94063 not later than December 31, 2019.29, 2021.
Stockholders intending to present a proposal at the 20202022 Annual Meeting of Stockholders, but not to include the proposal in our proxy statement, or to nominate a person for election as a director, must comply with the requirements set forth in our Bylaws. Our Bylaws require, among other things, that our Secretary receive written notice from the stockholder of record of their intent to present such proposal or nomination not less than 90 days nor more than 120 days prior to the first anniversary of the preceding year’s annual meeting. Therefore, we must receive notice of such a proposal or nomination for the 20202022 Annual Meeting of Stockholders no earlier than the close of business on February 19, 202016, 2022 and no later than the close of business on March 20, 2020.18, 2022. The notice must contain the information required by the Bylaws, a copy of which is available upon request to our Secretary. In the event that the date of the 20202022 Annual Meeting of Stockholders is more than 30 days before or more than 60 days after June 18, 2020,16, 2022, then our Secretary must receive such written notice not earlier than the close of business on the 120th day prior to the 20202022 Annual Meeting and not later than the close of business on the 90th day prior to the 20202022 Annual Meeting or, if later, the 10th day following the day on which public disclosure of the date of such annual meeting is first made by us. SEC rules permit management to vote proxies in its
discretion in certain cases if the stockholder does not comply with this deadline and, in certain other cases notwithstanding the stockholder's compliance with this deadline.
We reserve the right to reject, rule out of order, or take other appropriate action with respect to any proposal that does not comply with these or other applicable requirements.
Householding of Proxy Materials
The SEC has adopted rules that permit companies and intermediaries (such as banks and brokers) to satisfy the delivery requirements for proxy statements and annual reports with
respect to two or more stockholders sharing the same address by delivering a single proxy statement 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 banks and brokers with account holders who are our stockholders will be householding our proxy materials. A single proxy statement 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 bank or broker that it 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 proxy statement and annual report, please notify your bank or broker. Stockholders who currently receive multiple copies of the proxy statement at their address and would like to request householding of their communications should contact their bank or broker.
No Incorporation by Reference
To the extent that this proxy statement is incorporated by reference into any other filing by us under the Securities Act or the Exchange Act, the sections of this proxy statement entitled “Audit Committee Report” and “Compensation Committee Report” to the extent permitted by the rules of the SEC will not be deemed incorporated, unless specifically provided otherwise in such filing. In addition, references to our website are not intended to function as a hyperlink and the information contained on our website is not intended to be part of this proxy statement. Information on our website, other than our proxy statement, Notice of Annual Meeting of Stockholders and form of proxy, is not part of the proxy soliciting material and is not incorporated herein by referencereference.
Other Matters
As of the date of this proxy statement, the Board knows of no business, other than that described in this proxy statement, that will be presented for consideration at the 2019 Annual Meeting. If any other business comes before the 2019 Annual Meeting or
any adjournment or postponement thereof, proxy holders may vote their respective proxies at their discretion.
By Order of the Board of Directors of Guardant Health, Inc.,
John Saia
Senior Vice President, General Counsel and Corporate Secretary
Michael Wiley
Chief Legal Officer
Redwood City, California,
April 29, 2019
2021
Appendix A
Director Qualification Standards and Additional Selection Criteria
Director Qualification Standards:
The Nominating and Corporate Governance Committee, in recommending director candidates for election to the Board, and the Board, in nominating director candidates, will consider candidates who have a high level of personal and professional integrity, strong ethics and values and the ability to make mature business judgments.
Additional Selection Criteria:
In evaluating director candidates, the Nominating and Corporate Governance Committee and the Board may also consider the following criteria as well as any other factor that they deem to be relevant:
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A. | the candidate’s experience in corporate management, such as serving as an officer or former officer of a publicly held company; |
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B. | the candidate’s experience as a board member of another publicly held company; |
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C. | the candidate’s professional and academic experience relevant to the Company’s industry; |
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D. | the strength of the candidate’s leadership skills; |
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E. | the candidate’s experience in finance and accounting and / or executive compensation practices; |
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F. | whether the candidate has the time required for preparation, participation and attendance at Board meetings and committee meetings, if applicable; and |
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G. | the candidate’s geographic background, gender, age and ethnicity. |
A.the candidate’s experience in corporate management, such as serving as an officer or former officer of a publicly held company;
B.the candidate’s experience as a board member of another publicly held company;
C.the candidate’s professional and academic experience relevant to the Company’s industry;
D.the strength of the candidate’s leadership skills;
E.the candidate’s experience in finance and accounting and / or executive compensation practices;
F.whether the candidate has the time required for preparation, participation and attendance at Board meetings and committee meetings, if applicable; and
G.the candidate’s geographic background, gender, age, ethnicity and other diversity characteristics.
In addition, the Board will consider whether there are potential conflicts of interest with the candidate’s other personal and professional pursuits.
The Board should monitor the mix of specific experience, qualifications and skills of its directors in order to assure that the Board, as a whole, has the necessary tools to perform its oversight function effectively in light of the Company’s business and structure.
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