CLOVER HEALTH INVESTMENTS, CORP. /DE appointed new CEO

Item 5.02. 
Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers. 


The disclosure set forth in Item 2.01 of this Report under the sections entitled “Directors and Executive Officers,” “Director Compensation” and “Executive Compensation” is incorporated herein by reference. 

Executive Officers and Directors 

Upon the consummation of the Transactions, and in accordance with the terms of the Merger Agreement, each executive officer of SCH ceased serving in such capacities, and Chamath Palihapitiya, Ian Osborne, Jacqueline D. Reses and James Ryans ceased serving on SCH's board of directors. 


Vivek Garipalli, Andrew Toy, Chelsea Clinton, Lee A. Shapiro and Nathaniel S. Turner were appointed as directors of Clover Health, to serve until the end of their respective terms and until their successors are elected and qualified. Vivek Garipalli, Lee A. Shapiro and Nathaniel S. Turner were appointed to serve on Clover Health's audit committee with Mr. Shapiro serving as the chair and qualifying as an audit committee financial expert, as such term is defined in Item 407(d)(5) of Regulation S-K. 

Vivek Garipalli was appointed as Clover Health's Chief Executive Officer, Andrew Toy was appointed as Clover Health's President and Chief Technology Officer, Joseph Wagner was appointed as Clover Health's Chief Financial Officer, Gia Lee was appointed as Clover Health's General Counsel and Secretary, and Jamie L. Reynoso was appointed as Clover Health's Chief Operating Officer. 

Reference is also made to the disclosure in the Proxy Statement/Prospectus in the section titled “Director Election Proposal” beginning on page 174 and “Management of Clover Health Following the Business Combination” beginning on page 308 for biographical information about each of the directors and officers, which disclosure is incorporated herein by reference. 

Compensatory Arrangements for Directors 

In connection with the Closing, Clover Health's board of directors approved a compensation program for Clover Health's non-employee directors who are determined not to be affiliated with Clover Health (the “Non-Employee Director Compensation Policy”). Pursuant to the terms of the Non-Employee Director Compensation Policy, non-employee directors are eligible to receive fixed annual cash retainer fees as well as long-term equity compensation awards for their service on Clover Health's board of directors. Additional fixed annual cash retainer fees are paid to non-employee directors for committee membership and chairperson service. A description of the Non-Employee Director Compensation Policy is included in the Proxy Statement/Prospectus in the section titled “Executive Compensation – Non-Employee Director Compensation Policy” beginning on page 321, which is incorporated herein by reference. The foregoing description of the Non-Employee Director Compensation Policy does not purport to be complete and is qualified in its entirety by the full text of the Non-Employee Director Compensation Policy, which is attached hereto as Exhibit 10.8 to this Report and is incorporated herein by reference. 

Compensatory Arrangements for Executive Officers 

Equity Awards Under the 2014 Equity Incentive Plan (the “2014 Plan”) 

Clover's board of directors granted the following stock awards under the 2014 Plan, effective immediately prior to the Closing to Mr. Garipalli and Mr. Toy (the “Pre-Closing Founder Grants”). 


• 
Garipalli Performance-Based Award – Clover granted Mr. Garipalli performance-based RSUs covering 7,164,581 shares of Class B Common Stock, which will vest and become settled by satisfying each of the following two conditions: 


(1) 
Service – 20% will vest on each anniversary of the Closing, subject to Mr. Garipalli's continued service to us as our CEO, Co-CEO or Executive Chairman through each vesting date; and 


(2) 
Performance – Measured beginning after the first anniversary of the Closing, 50% will vest upon our volume-weighted average stock closing price reaching $20 for 90 consecutive calendar days, and the remaining 50% will vest upon our volume-weighted average stock closing price reaching $25 for 90 consecutive calendar days; provided all such vesting occurs within 5 years of the Closing. 


• 
Toy Performance-Based Award – Clover granted Mr. Toy performance-based RSUs covering 3,582,291 shares of Class B Common Stock, which will vest and become settled by satisfying each of the following two conditions: 


(1) 
Service – 20% will vest on each anniversary of the Closing, subject to Mr. Toy's continued service to us through each vesting date; and 


(2) 
Performance – Measured beginning after the first anniversary of the Closing, 100% will vest upon our volume-weighted average stock closing price reaching $20 for 90 consecutive calendar days; provided such vesting occurs on or within 5 years of the Closing. 


In addition, upon a change in control as defined in the 2014 Plan (which did not include the Transactions), the Pre-Closing Founder Grants will fully vest as to their service conditions, and if the per share value in the change in control equals or exceeds the required stock closing price under their performance conditions, the awards will also fully vest as to the applicable performance conditions. Any portion of the awards unvested at the consummation of the change in control will be forfeited. The Pre-Closing Founder Grants are also subject to the terms and conditions of the employment agreements that Mr. Garipalli and Mr. Toy entered into with Clover Health as discussed in the section below entitled “Employment Agreements” 

Employment Agreements: 

Agreement with Vivek Garipalli 

In connection with the Closing, on December 31, 2020, Clover entered into an employment agreement with Mr. Garipalli, which was assumed by Clover Health, pursuant to which Mr. Garipalli serves as our Chief Executive Officer and reports directly to our board of directors. Mr. Garipalli's employment under the employment agreement is at-will. 

Under his employment agreement, Mr. Garipalli is not initially entitled to an annual base salary or incentive cash bonus, but such cash compensation may be provided to him in the future at the discretion of the board of directors or compensation committee. Mr. Garipalli is eligible to participate in the health, welfare and fringe benefit plans provided by us to our employees. 

Pursuant to his employment agreement, we granted Mr. Garipalli two RSU awards under the Management Incentive Plan, effective as of the date of the Closing, which collectively cover 22,284,655 shares of Class B Common Stock, as described in more detail below (together, the “Garipalli Management Plan RSUs”). 

If Mr. Garipalli's employment is terminated by the company without cause, or by Mr. Garipalli for good reason (each term as defined in his employment agreement) during the period beginning one month prior to and ending 12 months following a change in control (as defined in the 2020 Plan) subject to his execution and non-revocation of a general release of claims in our favor and continued compliance with customary confidentiality and non-solicitation requirements, then, in addition to any accrued amounts, Mr. Garipalli will be entitled to receive full accelerated vesting of all his outstanding and unvested equity awards. 

For purposes of Mr. Garipalli's employment agreement: 

“Cause” is generally defined to mean, subject to certain notice requirements and cure rights, Mr. Garipalli's: (i) gross negligence or willful misconduct in the performance of his duties or violation of any written company policy, (ii) commission of any act of fraud, theft, embezzlement, financial dishonesty, misappropriation or other willful misconduct that has caused or is reasonably expected to result in injury to the company, (iii) conviction of, or pleading guilty or nolo contendere to, any felony or a lesser crime involving dishonesty or moral turpitude, (iv) unlawful use (including being under the influence) or possession of illegal drugs on the premises of the company or while performing his duties, (v) unauthorized use or disclosure of any proprietary information or trade secrets of the company or any party to whom he owes an obligation of nondisclosure from his relationship with the company, or (vi) his material breach of any obligations under any written agreement with the company. 

“Good reason” is generally defined to mean, subject to certain notice requirements and cure rights: (i) a material reduction of his duties, authority or responsibilities relative to immediately prior to such reduction, provided that a reduction solely by virtue of the company being acquired and made part of a larger entity will not constitute “good reason,” (ii) a material reduction in base salary (except where applicable to all similarly situated executive officers), provided, that a reduction of less than 10 percent will not be considered material, (iii) a material change in the geographic location of his primary work facility or location, provided, that a relocation of less than 50 miles from his then-present work location will not be considered material, or (v) a material breach by the company of a material provision of his employment agreement. 


Agreement with Andrew Toy 

In connection with the Closing, on December 31, 2020, Clover entered into an employment agreement with Mr. Toy, which was assumed by Clover Health, pursuant to which Mr. Toy serves as our President and Chief Technology Officer and reports directly to Mr. Garipalli. Mr. Toy's employment under the employment agreement is at-will. 

Under his employment agreement, Mr. Toy will receive an initial annual base salary of $450,000 and will be eligible to receive an annual cash incentive bonus targeted at 100 percent (100%) of Mr. Toy's then-current annual base salary. The actual amount of any such bonus will be determined by reference to the attainment of applicable Clover Health and/or individual performance objectives, as determined by the board of directors or compensation committee. Mr. Toy's annual base salary and cash incentive bonus target percentage may be adjusted in the future at the discretion of the board of directors or compensation committee. Mr. Toy is also eligible to participate in the health, welfare and fringe benefit plans provided by us to our employees. 

Pursuant to the employment agreement, we granted Mr. Toy, an RSU award under the Management Incentive Plan, effective as of the date of the Closing that covers 11,142,328 shares of our Class B Common Stock, as described in more detail below. Mr. Toy will also be eligible for future equity awards from us under the 2020 Plan as determined by the board of directors or the compensation committee in their discretion. 

Effective as of the Closing Date, Mr. Toy also received vesting in full of his option granted on February 4, 2020 for 3,669,607 shares of Class B Common Stock (on an as-converted basis) under the 2014 Plan. 

If Mr. Toy's employment is terminated by us without cause, or by Mr. Toy for good reason (each term as defined in his employment agreement), subject to his execution and non-revocation of a general release of claims in our favor and continued compliance with customary confidentiality and non-solicitation requirements, then, in addition to any accrued amounts, Mr. Toy will be entitled to receive the following severance payments and benefits: (i) an amount equal to Mr. Toy's annual base salary then in effect and (ii) continued health care coverage for 12 months after the termination date. In addition, if Mr. Toy terminates his employment due to the failure to promote him to Chief Executive Officer immediately following the resignation or termination of Mr. Garipalli as our Chief Executive Officer, he will receive full accelerated vesting of all outstanding and unvested equity awards of Clover Health. 

However, if either such termination of employment occurs during the period beginning one month prior to and ending 12 months following a change in control (as defined in the 2020 Plan), subject to his execution and non-revocation a general release of claims in our favor and continued compliance with restrictive covenants, then, in addition to any accrued amounts, Mr. Toy instead will be entitled to receive the following severance payments and benefits: (i) an amount equal to one and one-half times Mr. Toy's annual base salary then in effect, (ii) continued health care coverage for 18 months after the termination date and (iii) full accelerated vesting of all outstanding and unvested equity awards of Clover Health. 

In Mr. Toy's employment agreement, “cause” has the same definition as Mr. Garipalli's described above. “Good reason,” for purposes of Mr. Toy's employment agreement is defined as follows: 

“Good reason” is generally defined to mean, subject to certain notice requirements and cure rights: (i) the failure to promote or appoint him, in good faith, to Chief Executive Officer, immediately after the resignation or termination of Mr. Garipalli as Chief Executive Officer, (ii) a material reduction of his duties, authority or responsibilities relative to immediately prior to such reduction, (iii) any change of title (unless to Chief Executive Officer following the resignation of Mr. Garipalli), including a title change related to an acquisition by a larger entity, (iv) a material reduction in his base salary (except where applicable to all similarly situated executive officers), provided, that a reduction of less than ten percent will not be considered material, (v) any requirement for him to report to a work facility or location other than his home office or required business travel, or (iv) a material breach by the company of a material provision of his employment agreement. 


Mr. Garapalli's and Mr. Toy's employment agreements both require customary confidentiality, invention assignment and non-solicitation agreements, and include “best pay” provisions under Section 280G of the Code, pursuant to which any parachute payments that become payable to Mr. Garipalli or Mr. Toy will either be paid in full or reduced such that the payments are not subject to the excise tax under Section 4999 of the Code, whichever results in the better after-tax treatment. 

Copies of Mr. Garipalli's and Mr. Toy's employment agreements are attached hereto as Exhibit 10.9 and Exhibit 10.10 to this Report and are incorporated herein by reference. 

Management Incentive Plan 

At the Special Meeting, on January 6, 2021 the shareholders considered and approved the Management Incentive Plan. The Management Incentive Plan was previously approved, subject to shareholder approval, by the board of directors on October 5, 2020. 

The Management Incentive Plan is intended to (i) incentivize Mr. Garipalli and Mr. Toy with long-term equity-based compensation to align their interests with our shareholders and (ii) promote the success of our business. The Management Incentive Plan only permits the grant of RSUs to Mr. Garipalli and Mr. Toy in the amounts and pursuant to the terms as described below. Subject to adjustments as set forth in the Management Incentive Plan, the maximum aggregate number of shares of our Class B Common Stock that may be issued under the Management Incentive Plan is 33,426,983. The shares may be authorized, but unissued, or reacquired Class B Common Stock. 

The Management Incentive Plan became effective on the date of the Special Meeting and provides for grants of RSU awards to Mr. Garapalli and Mr. Toy. A description of the Management Incentive Plan is included in the section of the Proxy Statement/Prospectus titled “Management Incentive Plan Proposal ” beginning on page 188 and is incorporated herein by reference. The foregoing description of the Management Incentive Plan does not purport to be complete and is qualified in its entirety by the full text of the Management Incentive Plan, which is attached hereto as Exhibit 10.6 to this report and incorporated herein by reference. 

On January 7, 2021, we made the following grants described below, effective as of the Closing Date, under the Management Incentive Plan: 

Garipalli Time-Based Award 

Mr. Garipalli received an RSU award (the “Garipalli Time-Based Award”) covering 16,713,491 shares of Class B Common Stock. The Garipalli Time-Based Award shall become vested as to twenty percent (20%) of the RSUs subject to the Garipalli Time-Based Award on each of the first five (5) anniversaries of the Closing Date, subject to Mr. Garipalli's continuous service as Clover Health's CEO, Co-CEO or Executive Chairman through each vesting date. Except as set forth in Mr. Garipalli's employment agreement with us, if Mr. Garipalli is terminated for any reason prior to any applicable vesting date, any then unvested RSUs will be forfeited for no consideration. The RSUs shall settle as set forth in the RSU award agreement. 

Garipalli Performance-Based Award 

Mr. Garipalli received an RSU award (the, “Garipalli Performance-Based Award”) covering 5,571,164 shares of Class B Common Stock, which will vest and become settled by satisfying two conditions, as set forth below: 


• 
Service requirement—the service requirement will be satisfied at a rate of twenty percent (20%) of the RSUs subject to the Garipalli Performance-Based Award on each of the first five anniversaries of the Closing Date, subject to Mr. Garipalli's continuous service as Clover Health's CEO, Co-CEO or Executive Chairman through each service-based vesting date. Except as set forth in Mr. Garipalli's employment agreement with us, if Mr. Garipalli is terminated for any reason prior to any applicable vesting date, any then unvested RSUs will be forfeited for no consideration. The RSUs shall settle as set forth in the RSU award agreement. 


• 
Performance requirement—the performance requirement will be satisfied if we achieve a volume-weighted average stock price above a threshold of $30, for a period of ninety (90) consecutive calendar days; provided that the performance metrics will not be measured nor may be satisfied prior to the one year anniversary of the Closing Date. 


Toy Performance-Based Award 

Mr. Toy received an RSU award (the “Toy Performance-Based Award”) covering 11,142,328 shares of Class B Common Stock, which will vest and become settled by satisfying two conditions, as set forth below: 


• 
Service requirement—the service requirement will be satisfied at a rate of twenty percent (20%) of the RSUs subject to the Toy Performance-Based Award on each of the first five anniversaries of the Closing Date, subject to Mr. Toy's continuous service as a service provider to Clover Health through each service-based vesting date. Except as set forth in Mr. Toy's employment agreement with us, if Mr. Toy is terminated for any reason prior to any applicable vesting date, any then unvested RSUs will be forfeited for no consideration. The RSUs shall settle as set forth in the RSU award agreement. 


• 
Performance requirement—the performance requirement will be satisfied if we achieve a volume-weighted average stock price above a threshold broken out into two equal tranches as set forth in the below table, for a period of ninety (90) consecutive calendar days; provided that the performance metrics will not be measured nor may be satisfied prior to the one year anniversary of the Closing Date. 


Tranche Number of Shares ofClass BCommon Stock Stock PriceHurdle 

 1 5,571,164 $ 25 

 2 5,571,164 $ 30 


General Terms 

Each of the Garipalli Performance-Based Award and the Toy Performance-Based Award (collectively, the “Performance-Based Awards”) also include the following general terms: 


• 
The performance requirement must be satisfied within five (5) years of the Closing Date (the “Performance Deadline”). Any portion of a Performance-Based Award that is unvested as of the Performance Deadline will be forfeited for no consideration. 


• 
Upon a change in control (as defined in the Management Incentive Plan), if the per share value in the change in control is above the stock price hurdle set forth in the above table or, if the stock price hurdle was satisfied at any time prior to a change in control, then that tranche will vest in connection with the change in control. Any portion of a Performance-Based Award that is unvested as of the consummation of such change in control will be forfeited for no consideration. For the avoidance of doubt, the transaction contemplated by the Merger Agreement, shall not constitute a change in control for purposes of these Performance-Based Awards. 


2020 Equity Incentive Plan 

As previously disclosed, at the Special Meeting, on January 6, 2021, the shareholders considered and approved the 2020 Equity Incentive Plan. The 2020 Equity Incentive Plan (the “2020 Plan”) was previously approved, subject to shareholder approval, by the board of directors on October 5, 2020. The 2020 Plan became effective on the date of the Special Meeting. 

The 2020 Plan permits the grant of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock, RSUs, and stock bonus awards. Subject to adjustments as set forth in the 2020 Plan, the maximum aggregate number of shares of our Class A Common Stock that may be issued under the 2020 Plan is 30,641,401. The shares may be authorized, but unissued, or reacquired Class A Common Stock. Furthermore, subject to adjustments as set forth in the 2020 Plan, in no event will the maximum aggregate number of shares that may be issued under the 2020 Plan pursuant to incentive stock options exceed the number set forth above. The number of shares available for issuance under the 2020 Plan will be increased on the first day of each fiscal year beginning with the 2022 fiscal year in an amount equal to the lessor of (i) seven percent (7%) of the outstanding shares on the last day of the immediately preceding fiscal year and (ii) such number of shares determined by the board of directors; provided that for each fiscal year beginning with the 2025 fiscal year through the fiscal year that includes the expiration date of the 2020 Plan, each such increase shall be reduced to the lessor of five percent (5%) of the outstanding shares on the last day of the immediately preceding fiscal year or such number of shares determined by our board of directors. 


A description of the 2020 Equity Incentive Plan is included in the Proxy Statement/Prospectus in the section titled “Equity Incentive Plan Proposal” beginning on page 178, which is incorporated herein by reference. The foregoing description of the 2020 Equity Incentive Plan does not purport to be complete and is qualified in its entirety by the full text of the 2020 Equity Incentive Plan and the related forms of award agreements under the 2020 Equity Incentive Plan, which are attached hereto as Exhibit 10.4 to this report and incorporated herein by reference. 

2020 Employee Stock Purchase Plan 

As previously disclosed, at the Special Meeting, on January 6, 2021, the stockholders of the Company considered and approved the 2020 Employee Stock Purchase Plan (“ESPP”). The ESPP was previously approved, subject to stockholder approval, by the board of directors on October 5, 2020. The 2020 Employee Stock Purchase Plan became effective on the date of the Special Meeting. 

The ESPP provides a means by which eligible employees and/or eligible service providers of either Clover Health or designated related corporations and affiliates may be given an opportunity to purchase shares of our Class A Common Stock. Subject to adjustments as provided in the ESPP, the maximum number of shares of our Class A Common Stock that may be issued under the ESPP will not exceed 2,785,582, plus the number of shares of our Class A Common Stock that are automatically added on the first day of each fiscal year beginning with the 2022 fiscal year and ending on (and including) the first day of the 2030 fiscal year in an amount equal to the lesser of (i) one percent (1%) of the total number of shares of our Class A Common Stock outstanding on the last day of the calendar month prior to the date of such automatic increase, and (ii) such number of shares of our Class A Common Stock as determined by the ESPP Administrator; provided that the maximum number of shares of our Class A Common Stock reserved under the ESPP shall not exceed 10% of the total outstanding capital stock of the combined company (inclusive of the shares reserved under the ESPP) as of the Closing Date on an as-converted basis. Notwithstanding the foregoing, the ESPP Administrator may act prior to the first day of any fiscal year to provide that there will be no increase in the share reserve for such fiscal year or that the increase in the share reserve for such fiscal year will be a lesser number of shares of our Class A Common Stock than would otherwise occur pursuant to the preceding sentence. If any purchase right granted under the ESPP terminates without having been exercised in full, the shares of our Class A Common Stock not purchased under such purchase right will again become available for issuance under the ESPP. 

A description of the ESPP is included in the Proxy Statement/Prospectus in the section titled “ESPP Proposal” beginning on page 196, which is incorporated herein by reference. The foregoing description of the ESPP does not purport to be complete and is qualified in its entirety by the full text of the ESPP, which is attached hereto as Exhibit 10.5 and incorporated herein by reference. 

Executive Incentive Bonus Plan 

On January 7, 2021, our board of directors approved the Executive Incentive Bonus Plan (the “Bonus Plan”), the purpose of which is to motivate and reward eligible officers and employees of Clover Health, including the named executive officers, for their contributions toward the achievement of certain performance goals through cash incentive awards. 

A description of the Bonus Plan is included in the Proxy Statement/Prospectus in the section titled “Executive Compensation” beginning on page 314, which is incorporated herein by reference. The foregoing description of the Bonus Plan does not purport to be complete and is qualified in its entirety by the full text of the Bonus Plan, which is attached hereto as Exhibit 10.7 and incorporated herein by reference.