EXECUTIVE COMPENSATION
This section discusses the material components of the executive compensation program for Hippo Holdings 2021 named executive officers
(NEOs). Hippo Holdings NEOs for fiscal year ended December 31, 2021 are:
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Assaf Wand, Co-Founder and Chief Executive Officer;
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Richard McCathron, President; and |
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Stewart Ellis, Chief Financial Officer. |
This discussion may contain forward-looking statements that are based on our current plans, considerations, expectations and determinations
regarding future compensation programs. As an emerging growth company as defined in the JOBS Act, Hippo Holdings is not required to include a Compensation Discussion and Analysis section and has elected to comply with the scaled
disclosure requirements applicable to emerging growth companies.
2021 Summary Compensation Table
The following table sets forth information concerning the compensation of our NEOs for the years ended December 31, 2020 and
December 31, 2021.
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Name and Principal Position |
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Year |
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Salary ($)(1) |
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Option Awards ($)(2) |
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Stock Awards ($)(2) |
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All Other Compensation ($)(3) |
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Total ($) |
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Assaf Wand, Co-Founder and Chief Executive
Officer |
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2021 |
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368,216 |
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1,204,053 |
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1,572,269 |
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2020 |
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258,333 |
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258,333 |
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Richard McCathron, President |
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2021 |
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383,333 |
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1,106,327 |
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1,388,781 |
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2,878,441 |
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2020 |
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300,000 |
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1,369,064 |
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31,222 |
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1,700,286 |
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Stewart Ellis, Chief Financial Officer |
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2021 |
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391,667 |
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1,105,481 |
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1,388,781 |
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1,170,703 |
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4,056,632 |
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2020 |
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350,000 |
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1,158,035 |
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1,508,035 |
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(1) |
From September to December 2021, compensation amounts received in
non-U.S. currency have been converted into U.S. dollars using an exchange rate of 3.19 New Israeli Shekel (NIS) per dollar (which was the average exchange rate for 2021). |
(2) |
Amounts reported represent the aggregate grant-date fair value of the stock options awarded to the NEOs,
calculated in accordance with ASC Topic 718. Assumptions used in the calculation of these amounts are included in Note 17 to our financial statements included elsewhere in this prospectus. The NEOs will only realize compensation to the extent the
trading price of our common stock is greater than the exercise price of such stock options. |
(3) |
Amounts reported in 2021 represent the aggregate dollar value of the forgiveness of Messrs. Wands and
Ellis loan extended pursuant to that certain Partial Recourse Promissory Note and Stock Pledge Agreement by and between us and Mr. Wand and the applicable NEO all interest accrued thereon has been forgiven upon the consummation of the
Business Combination. Amounts reported in 2020 represent travel and lodging expenses in connection with Mr. McCathrons travel from his home office in Austin, Texas to Hippos offices in the Bay Area, California.
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Elements of the Companys Executive Compensation Program
For the year ended December 31, 2021, the compensation for each NEO generally consisted of a base salary, standard employee benefits,
equity grants, and a retirement plan. We do not provide annual cash bonuses to our NEOs. These elements (and the amounts of compensation and benefits under each element) were selected because we believe they are necessary to help us attract and
retain executive talent which is fundamental to our success. Below is a more detailed summary of the current executive compensation program as it relates to our NEOs.
106
Base Salaries
The NEOs receive a base salary to compensate them for services rendered to our Company. The base salary payable to each NEO is intended to
provide a fixed component of compensation reflecting the executives skill set, experience, role, and responsibilities. In 2021, Mr. Wands base salary was $300,000 (raised to $450,000 in September 2021), Mr. McCathrons
base salary was $350,000 (raised to $450,000 in September 2021), and Mr. Elliss base salary was $350,000 (raised to $475,000 in September 2021).
Equity Compensation
We maintain
an equity incentive plan, the 2021 Incentive Award Plan, referred to below as the 2021 Plan, in order to facilitate the grant of cash and equity incentives to directors, employees (including our NEOs), 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. The 2021 Plan provides our employees (including the NEOs), consultants, non-employee directors, and other service providers and those of our affiliates the opportunity to participate in the equity appreciation of our business through the receipt of options to purchase shares of our
common stock or restricted stock units. We believe that such stock options encourage a sense of proprietorship and stimulate interest in our development and financial success.
Prior to implementing the 2021 Plan, Hippo granted stock options to its employees, including NEOs, in order to attract and retain them, as
well as to align their interest with the interests of Hippos stockholders. In order to provide a long-term incentive, these stock options generally vest over four years subject to continued service.
Hippo did not grant any equity awards to Mr. Wand in 2021.
In September 2021, we granted each of Mr. McCathron and Mr. Ellis an option to purchase 633,875 shares of Hippo Holdings common
stock for an exercise per share of $5.87, which was the fair market value of Hippos common stock on the date of grant, as determined by its board of directors. Each option vests and become exercisable in respect of 1/16th of the total number of shares for each of the first four quarters following the September 15, 2021, and thereafter shall vest and become exercisable in respect of 3/16ths of the remaining four
quarters, so that 100% of the shares subject to such option shall be vested on September 15, 2023, subject to the applicable NEOs continued service with us through the applicable vesting date. In addition, in November 2021, we granted
each of Mr. McCathron and Mr. Ellis 345,468 restricted stock units, or RSUs. Each award of restricted stock units vest in 1/16th of the total number of RSUs for each of the first four
quarters following November 15, 2021, and thereafter shall vest in respect of 3/16ths of the remaining four quarters, so that 100% of the RSUs vest on November 15, 2023, subject to the
applicable NEOs continued service with us through the applicable vesting date.
Other Elements of Compensation
Retirement Plans
Hippo maintains a
401(k) retirement savings plan for Hippo employees, including the NEOs, who satisfy certain eligibility requirements. The NEOs are eligible to participate in the 401(k) plan on the same terms as other full-time employees. Hippo believes that
providing a vehicle for tax-deferred retirement savings though our 401(k) plan adds to the overall desirability of its executive compensation package and further incentivizes its employees, including the NEOs,
in accordance with its compensation policies.
All of Hippos full-time employees, including the NEOs, are eligible to participate in
Hippos health and welfare plans. These health and welfare plans include medical, dental and vision benefits; short-term and long-term disability insurance; and supplemental life and AD&D insurance.
107
Perquisites and Other Personal Benefits
Hippo determines perquisites on a case-by-case basis and will
provide a perquisite to a NEO when it believes it is necessary to attract or retain the NEO. In 2021, Hippo forgave loans (and all interest accrued thereon) that were extended to Mr. Wand and Mr. Ellis pursuant to a Partial Recourse
Promissory Note and Stock Pledge Agreement upon the consummation of the Business Combination in the amounts set forth in the Summary Compensation Table. No other additional perquisites were extended to NEOs in 2021.
No Tax Gross-Ups
We do not make gross-up payments to cover our NEOs personal income taxes that may pertain to any
of the compensation or perquisites paid or provided by us.
Outstanding Equity Awards at Fiscal Year-End
The following table summarizes the number of shares of common stock underlying outstanding equity incentive plan awards for each named
executive officer as of December 31, 2021.
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Option Awards |
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Stock Awards |
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Name |
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Vesting Commencement Date |
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Number of Securities Underlying Unexercised Options (#) Exercisable |
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Number of Securities Underlying Unexercised Options (#) Unexercisable |
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Option Exercise Price ($) |
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Option Expiration Date |
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Number of Shares or Units of Stock That Have Not Vested |
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Market Value of Shares or Units That Have Not Vested ($)(1) |
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Assaf Wand |
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10/15/2019(2) |
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4,586,013 |
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4,586,020 |
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0.81 |
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10/14/2029 |
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1/23/2019(3) |
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928,719 |
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2,628,275 |
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Richard McCathron |
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11/15/2021(4) |
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345,468 |
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977,674 |
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9/15/2021(5) |
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39,617 |
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594,258 |
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5.87 |
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9/10/2031 |
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12/1/2020(6) |
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782,353 |
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2,214,059 |
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8/27/2020(7) |
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231,811 |
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463,622 |
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1.06 |
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9/28/2030 |
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5/13/2019(7) |
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74,792 |
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307,874 |
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0.34 |
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5/15/2029 |
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1/23/2018(8) |
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130,992 |
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32,601 |
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0.16 |
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1/23/2028 |
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Stewart Ellis |
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11/9/2021(4) |
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345,468 |
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977,674 |
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9/15/2021(5) |
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39,617 |
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594,258 |
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5.87 |
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9/10/2031 |
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12/1/2020(9) |
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782,353 |
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2,214,059 |
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2/25/2019(10) |
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1,041,918 |
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2,948,628 |
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(1) |
Represents the fair market value per share of our common stock of $2.83 on December 31, 2021, multiplied
by the number of shares that had not vested as of that date. |
(2) |
1/4th of the shares subject to the option vest on the first anniversary of the vesting commencement date, and
1/16th of the shares subject to the option vest on each quarterly anniversary thereafter, subject to continued service with us through the applicable vesting date. If the NEOs employment with us is terminated without cause or the NEOs
employment is constructively terminated in connection with a change of control, 50% of the shares subject to the option will vest and become exercisable on the date of termination. |
(3) |
Mr. Wand purchased 3,429,118 shares upon early exercise of his option prior to vesting. The unvested
shares are subject to repurchase by us at the original exercise price of $0.34 per share upon a termination of Mr. Wands service. The shares vest as to 1/48th of the shares on each monthly anniversary of the vesting commencement date,
subject to continued service with us through the applicable vesting date. Notwithstanding the foregoing, 100% of the unvested shares will vest upon a change in control. |
(4) |
The RSUs shall vest in 1/16th of the total number of RSUs for each of the first four quarters following the
Vesting Commencement Date, and thereafter shall vest in respect of 3/16ths of the remaining four quarters, subject to continued service with us through the applicable vesting date. |
108
(5) |
1/16th of the shares on each of the first four quarterly anniversary following the vesting commencement date,
and 3/16ths of the shares on each of the remaining four quarterly anniversaries thereafter, subject to continued service with us through the applicable vesting date. |
(6) |
Mr. McCathron purchased 1,043,149 shares upon early exercise of an option prior to vesting. The unvested
shares are subject to repurchase by us at the original exercise price of $1.06 per share upon a termination of Mr. McCathrons service. The shares vest as to 1/48th of the shares vest on each monthly anniversary of the vesting commencement
date, subject to continued service with us through the applicable vesting date. |
(7) |
1/48th of the shares subject to the option vest on each monthly anniversary of the vesting commencement date,
subject to continued service with us through the applicable vesting date. |
(8) |
1/16th of the shares subject to the option vest on each quarterly anniversary of the vesting commencement date,
subject to continued service with us through the applicable vesting date. |
(9) |
Mr. Ellis purchased 1,043,149 shares upon early exercise of his option prior to vesting. The unvested
shares are subject to repurchase by us at the original exercise price of $1.06 per share upon a termination of Mr. Elliss service. The shares vest as to 1/48th of the shares on each monthly anniversary of the vesting commencement date,
subject to continued service with us through the applicable vesting date. Notwithstanding the foregoing, 100% of the unvested shares will vest upon a change in control. |
(10) |
Mr. Ellis purchased 3,334,136 shares upon early exercise of his option prior to vesting. The unvested
shares are subject to repurchase by us at the original exercise price of $0.34 per share upon a termination of Mr. Elliss service. 1/4th of the shares will vest on the on first anniversary of the vesting commencement date, and the
remaining 3/4th vest quarterly over three years subject to continued service with us through the applicable vesting date. Notwithstanding the foregoing, 100% of the unvested shares will vest upon a change in control. |
Executive Compensation Arrangements
Employment
Arrangements
Assaf Wand
Mr. Wands offer letter does not provide for severance or other payments in connection with a termination of employment or change in
control of our company.
Richard McCathron
Mr. McCathrons offer letter provides that 50% of the shares subject to the option granted to him in March 2017 will vest if both
(i) our control is transferred in a transaction for cash or liquid securities, and (ii) his employment is constructively terminated or terminated without cause within 12 months thereafter.
Stewart Ellis
Mr. Elliss
offer letter provides that 100% of the shares subject to the option granted to him in February 2019 will vest if (i) a sale event is consummated, (ii) within 30 days prior to such sale event he continues to have a service relationship, and
(iii) his employment is constructively terminated or terminated without cause within 12 months following the consummation of such sale event.
Non-Employee Director Compensation Program
On August 2, 2021, we adopted a Non-Employee Director Compensation Program. Hippo has not historically maintained a formal non-employee director compensation program and did not pay any director any cash or
grant any equity awards in 2021 prior to the adoption of the Non-Employee Director Compensation Program. Pursuant to the Non-Employee Director Compensation Program,
our non-employee directors will receive cash compensation as follows:
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Each non-employee director will receive an annual cash retainer in the
amount of $35,000 per year. The lead independent director of the board will receive an additional annual cash compensation in the amount of $22,500 per year for such lead independent directors service on the board. |
109
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The chairperson of the audit committee will receive additional annual cash compensation in the amount of $20,000
per year for such chairpersons service on the audit committee. Each non-chairperson member of the audit committee will receive additional annual cash compensation in the amount of $10,000 per year for
such members service on the audit committee. |
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The chairperson of the compensation committee will receive additional annual cash compensation in the amount of
$12,000 per year for such chairpersons service on the compensation committee. Each non-chairperson member of the compensation committee will receive additional annual cash compensation in the amount of
$6,000 per year for such members service on the compensation committee. |
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The chairperson of the nominating and corporate governance committee will receive additional annual cash
compensation in the amount of $8,000 per year for such chairpersons service on the nominating and corporate governance committee. Each non-chairperson member of the nominating and corporate governance
committee will receive additional annual cash compensation in the amount of $4,000 per year for such members service on the nominating and corporate governance committee. |
Director fees will be payable in cash in arrears in four equal quarterly installments not later than 30 days following the final day of each
calendar quarter, provided that the amount of each payment will be prorated for any portion of a quarter that a director is not serving on our board.
Under the Non-Employee Director Compensation Program, each
non-employee director will automatically be granted that number of RSUs calculated by dividing (i) $300,000 by (ii) the grant date value upon the directors initial appointment or election to our
board of directors, referred to as the Initial Grant, and that number of RSUs calculated by dividing (i) $150,000 by (ii) the grant date value automatically on the date of each annual stockholders meeting thereafter, referred to as the
Annual Grant. Each non-employee director who was elected to the board within one year of the date of the Business Combination, subject to the registration of the common stock on a Form S-8, was granted an Initial Grant automatically on the date following the date on which the registration of our common stock on a Form S-8 was effective, subject to the
directors continued service through the date of grant. The Initial Grant will vest as to one-third of the RSUs on each anniversary of the date of grant (or for Initial Grants made effective upon the Form
S-8, the date when the director commenced services on the board), subject to continued service through each applicable vesting date. The Annual Grant will vest in full on the earlier of (i) the first
anniversary of the date of grant and (ii) immediately prior to the next annual stockholders meeting following the date of grant, subject to continued service through each applicable vesting date. All equity awards held by a director will
vest in full upon the consummation of a Change in Control (as defined in the 2021 Equity Incentive Plan).
Non-Employee Director Compensation
The following table sets forth information regarding the compensation earned for service on the Board by our
non-employee directors during the year ended December 31, 2021. The compensation for Messrs. Wand and McCathron as executive officers is set forth above under 2021 Summary Compensation
Table.
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Name |
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Fees Earned or Paid in Cash ($) |
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Stock Awards ($)(1) |
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Total ($) |
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Amy Errett |
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16,250 |
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132,600 |
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148,850 |
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Eric Feder |
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17,083 |
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132,600 |
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149,683 |
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Lori Dickerson Fouché |
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19,583 |
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132,600 |
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152,183 |
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Hugh R. Frater |
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18,750 |
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132,600 |
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151,350 |
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Noah Knauf |
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23,750 |
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132,600 |
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156,350 |
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Sam Landman |
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18,750 |
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132,600 |
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151,350 |
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Sandra Wijnberg |
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33,958 |
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132,600 |
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166,558 |
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(1) |
Amounts reported represent the aggregate grant-date fair value of the restricted stock units awarded to the
non-employee directors, calculated in accordance with ASC Topic 718. Assumptions used in the calculation of these amounts are included in Note 17 to our financial statements included elsewhere in this prospectus. |
110
The table below shows the aggregate numbers of option awards (exercisable and unexercisable)
and unvested stock awards held as of December 31, 2021 by each non-employee director who was serving as of December 31, 2021.
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Name |
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Stock Awards Outstanding at Year End (#) |
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Option Awards Outstanding at Year End (#) |
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Amy Errett |
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30,000 |
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Eric Feder |
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30,000 |
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Lori Dickerson Fouché |
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30,000 |
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Hugh R. Frater |
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30,000 |
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Noah Knauf |
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30,000 |
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Sam Landman |
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30,000 |
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Sandra Wijnberg |
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30,000 |
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243,401 |
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111
PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of Hippo Holdings common stock on 567,175,909 shares of common stock outstanding as of
April 1, 2022 by:
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each person who is known to be the beneficial owner of more than 5% of shares of Hippo Holdings common stock;
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each of Hippo Holdings current named executive officers and directors; and |
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all current executive officers and directors of Hippo Holdings as a group. |
Beneficial ownership is determined according to the rules of the SEC, which generally provide that a person has beneficial ownership of a
security if he, she or it possesses sole or shared voting or investment power over that security, including options and warrants that are currently exercisable or exercisable within 60 days.
Unless otherwise indicated, Hippo Holdings believes that all persons named in the table below have sole voting and investment power with
respect to the voting securities beneficially owned by them.
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Number of Shares of Hippo Holdings Common Stock |
|
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+60 Days Vested |
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Number of Shares Beneficially Owned |
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% |
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Name and Address of Beneficial
Owner(1) |
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Five Percent Holders: |
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Fifth Wall Ventures, L.P. and affiliates
(2) |
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51,812,546 |
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|
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51,812,546 |
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9.14 |
% |
LEN FW INVESTOR, LLC and affiliates
(3) |
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77,189,421 |
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|
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|
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77,189,421 |
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13.61 |
% |
Mitsui Sumitomo Insurance Co., Ltd
(4) |
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39,555,425 |
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39,555,425 |
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6.97 |
% |
Bond Capital Fund, LP and affiliate
(5) |
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30,003,193 |
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30,003,193 |
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5.29 |
% |
Named Executive Officers and Directors |
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Assaf Wand (6) |
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32,384,660 |
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|
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4,586,013 |
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36,970,673 |
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|
6.52 |
% |
Richard McCathron (7) |
|
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2,771,530 |
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|
|
651,072 |
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|
|
3,422,602 |
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|
|
* |
|
Stewart Ellis (8) |
|
|
3,391,203 |
|
|
|
39,617 |
|
|
|
3,430,820 |
|
|
|
* |
|
Amy Errett |
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|
|
|
|
|
|
|
|
|
|
|
|
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Eric Feder (9) |
|
|
125,000 |
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|
|
|
|
|
|
125,000 |
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|
|
* |
|
Lori Dickerson Fouché |
|
|
|
|
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|
|
|
|
|
|
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|
|
Hugh R. Frater (10) |
|
|
1,076,362 |
|
|
|
|
|
|
|
1,076,362 |
|
|
|
* |
|
Noah Knauf (11) |
|
|
167,213 |
|
|
|
|
|
|
|
167,213 |
|
|
|
* |
|
Sam Landman |
|
|
11,813 |
|
|
|
|
|
|
|
11,813 |
|
|
|
* |
|
Sandra Wijnberg (12) |
|
|
117,000 |
|
|
|
101,416 |
|
|
|
218,416 |
|
|
|
* |
|
Ran Harpaz (13) |
|
|
2,104,125 |
|
|
|
66,582 |
|
|
|
2,170,707 |
|
|
|
* |
|
Simon Fleming-Wood |
|
|
|
|
|
|
544,684 |
|
|
|
544,684 |
|
|
|
* |
|
All executive officers and directors as a group |
|
|
42,148,906 |
|
|
|
5,989,384 |
|
|
|
48,138,290 |
|
|
|
8.49 |
% |
(1) |
Unless otherwise noted, the business address of each of those listed in the table above is c/o Hippo Holdings
Inc., 150 Forest Avenue, Palo Alto, California 94301. |
(2) |
Based solely on a Schedule 13G filed with the SEC on August 12, 2021 and a Form 4 filed with the SEC on
April 12, 2022. Consists of 51,812,546 shares of common stock, of which (i) 25,974,574 are shares of common stock directly held by Fifth Wall Ventures SPV IV, L.P., (ii) 229,302 are common stock directly held by Fifth Wall Ventures SPV XVII,
L.P. and (iii) 25,608,670 are shares of common stock directly held by Fifth Wall Ventures, L.P. Fifth Wall Ventures GP, LLC is the general partner of Fifth Wall Ventures SPV XVII, L.P., Fifth Wall Ventures SPV IV, L.P. and Fifth Wall Ventures, L.P.,
each a Delaware limited partnership (the Subsidiary Funds). Fifth Wall Ventures Management, L.P. serves as the sole manager of |
112
|
Fifth Wall Ventures GP, LLC. Fifth Wall Ventures Management GP, LLC is the general partner of Fifth Wall Ventures Management, L.P. Each of Fifth Wall Ventures GP, LLC, Fifth Wall Ventures
Management, L.P. and Fifth Wall Ventures Management GP, LLC expressly disclaims beneficial ownership of the shares held by each Subsidiary Fund. Each Subsidiary Fund expressly disclaims ownership of any shares held by any other Subsidiary Fund.
Fifth Wall Ventures SPV IV, L.P. has granted LEN FW Investor, LLC an irrevocable voting proxy in respect of the shares referred to in clause (i) herein, which are held directly by Fifth Wall Ventures SPV IV L.P. The address of the above persons
and entities is 6060 Center Drive, Los Angeles, California 90045. |
(3) |
Based solely on a Schedule 13D/A filed with the SEC on April 12, 2022. Consists of 77,189,421 shares of
Hippo Holdings common stock, as to which (i) 51,465,797 are common stock held directly by LEN FW Investor, LLC and (ii) 25,723,623 are common stock held directly by Fifth Wall Ventures SPV IV L.P. Fifth Wall Ventures SPV IV, L.P. has granted LEN FW
Investor, LLC an irrevocable voting proxy in respect of the shares referred to in clause (ii) herein, which are held directly by Fifth Wall Ventures SPV IV L.P. Because LEN FW Investor, LLC has agreed not to vote with regard to more than 9.99%
of the voting securities of Hippo Holdings, and LEN FW Investor, LLC directly owns or has voting power with regard to more than 9.99% of Hippo Holdings common stock, LEN FW Investor, LLC denies beneficial ownership of the shares as to which it holds
an irrevocable proxy to the extent they would increase LEN FW Investor, LLCs voting power above 9.99%. Eric Feder is currently a member of our board of directors and an officer of the parent of LEN FW Investor, LLC. The address of the above
persons and entities is 700 Northwest 107th Avenue, Miami, Florida 33172. |
(4) |
Based solely on a Schedule 13D filed with the SEC on August 12, 2021. Mitsui Sumitomo Insurance Co.,
Ltd.s address is 9, Kanda-Surugadai 3-chome, Chiyoda-Ku, Tokyo, Japan. |
(5) |
Based solely on a Schedule 13D filed with the SEC on February 9, 2022. Consists of 29,962,810 shares of
common stock beneficially owned by BOND Capital Fund, LP and 40,383 shares of Common Stock beneficially owned by BOND Capital Founders Fund, LP, all of which are held of record by BOND Capital Fund, LP as nominee for BOND Capital Fund, LP and BOND
Capital Founders Fund, LP (together, the BOND Funds). The general partner of the Bond Funds is BOND Capital Associates, LLC. Noah Knauf, a member of our board of directors, is a managing member of BOND Capital Associates, LLC and shares
voting and dispositive power over the shares held for the account of the BOND Funds. The address of each of the BOND Funds is 100 The Embarcadero, San Francisco, California 94105. |
(6) |
Consists of (i) 36,970,673 shares of common stock, of which approximately 17,151,793 shares are held by
Mr. Wand and 15,232,867 shares are held by Mr. Wand as trustee of a trust, and (ii) approximately 4,586,013 shares of common stock issuable pursuant to Hippo options, all of which are held directly by Mr. Wand.
|
(7) |
Consists of (i) 3,422,602 shares of Hippo Holdings common stock, of which approximately 2,771,530 shares are
held by Mr. McCathron and (ii) 651,072 shares of common stock issuable pursuant to Hippo options. |
(8) |
Consists of (i) 3,391,203 shares of common stock, of which approximately 3,132,825 shares are held by
Mr. Ellis and 258,375 shares are held by Mr. Ellis as trustee of a trust, and (ii) approximately 39,617 shares of common stock issuable pursuant to Hippo options, all of which are held directly by Mr. Ellis. |
(9) |
125,000 shares of common stock are held under Beep Investment LLC, all of which is own by Eric Feder.
|
(10) |
Consists of 1,076,362 shares of common stock, all of which are held by Mr. Frater as trustee of a trust.
|
(11) |
Noah Knauf, a member of our board of directors, is a managing member of BOND Capital Associates, LLC and shares
voting and dispositive power over the shares held for the account of the BOND Funds. |
(12) |
Consists of (i) 218,416 shares of common stock, of which approximately 177,000 shares are held by
Mrs. Wijnberg as trustee of a trust and (ii) 101,416 shares of common stock issuable pursuant to Hippo options |
(13) |
Consists of (i) 2,170,707 shares of common stock, of which approximately 2,104,125 shares are held by
Mr. Harpaz and (ii) 66,582 shares of common stock issuable pursuant to Hippo options. |
113
SELLING SECURITYHOLDERS
The selling securityholders may offer and sell, from time to time, any or all of the shares of common stock or warrants being offered for
resale by this prospectus, which consists of:
|
|
|
up to 55,000,000 PIPE Shares; |
|
|
|
up to 14,592,527 shares of common stock held by Hippo Holdings holders issuable upon the exercise of equity
awards; |
|
|
|
up to 4,400,000 shares of common stock issuable upon the exercise of private placement warrants;
|
|
|
|
up to 316,640,538 shares of Hippo Holdings common stock; and |
|
|
|
up to 637,463 shares of common stock issuable upon the exercise of Hippo Holdings warrants; and
|
|
|
|
up to 4,400,000 private placement warrants. |
The term selling securityholders includes the securityholders listed in the tables below and their permitted transferees.
The following table provides, as of the date of this prospectus, information regarding the beneficial ownership of our common stock and
warrants of each selling securityholder, the number of shares of common stock and number of warrants that may be sold by each selling securityholder under this prospectus and that each selling securityholder will beneficially own after this
offering.
Because each selling securityholder may dispose of all, none or some portion of their securities, no estimate can be given as
to the number of securities that will be beneficially owned by a selling securityholder upon termination of this offering. For purposes of the table below, however, we have assumed that after termination of this offering none of the securities
covered by this prospectus will be beneficially owned by the selling securityholders other than securities that are subject to lock-up, vesting or other restrictions and further assumed that the Selling Securityholders will not acquire beneficial
ownership of any additional securities during the offering. In addition, the selling securityholders may have sold, transferred or otherwise disposed of, or may sell, transfer or otherwise dispose of, at any time and from time to time, our
securities in transactions exempt from the registration requirements of the Securities Act after the date on which the information in the table is presented.
We may amend or supplement this prospectus from time to time in the future to update or change this selling securityholders list and the
securities that may be resold.
Please see the section titled Plan of Distribution for further information regarding the
stockholders method of distributing these shares.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares of Common Stock |
|
Name |
|
Number Beneficially Owned Prior to Offering(1) |
|
|
Number Registered for Sale Hereby |
|
|
Number Beneficially Owned After Offering |
|
|
Percent Owned After Offering(2) |
|
140 Summer Partners Master Fund
LP(3) |
|
|
500,000 |
|
|
|
500,000 |
|
|
|
|
|
|
|
|
|
Ally Financial Inc.(4) |
|
|
200,000 |
|
|
|
200,000 |
|
|
|
|
|
|
|
|
|
Alyeska Master Fund, L.P.(5) |
|
|
1,271,007 |
|
|
|
1,260,000 |
|
|
|
|
|
|
|
|
|
Assaf Wand(6) |
|
|
36,906,828 |
|
|
|
36,906,828 |
|
|
|
27,680,121 |
|
|
|
4.9 |
% |
Beagle Limited(7) |
|
|
25,000 |
|
|
|
25,000 |
|
|
|
|
|
|
|
|
|
BHHP LLC(8) |
|
|
500,000 |
|
|
|
500,000 |
|
|
|
|
|
|
|
|
|
Bond Capital Fund, LP(9) |
|
|
30,003,193 |
|
|
|
30,003,193 |
|
|
|
15,001,597 |
|
|
|
2.6 |
% |
Byron Auguste(10) |
|
|
30,000 |
|
|
|
30,000 |
|
|
|
|
|
|
|
|
|
David Mayer de Rothschild(11) |
|
|
140,000 |
|
|
|
140,000 |
|
|
|
|
|
|
|
|
|
114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares of Common Stock |
|
Name |
|
Number Beneficially Owned Prior to Offering(1) |
|
|
Number Registered for Sale Hereby |
|
|
Number Beneficially Owned After Offering |
|
|
Percent Owned After Offering(2) |
|
Diameter Master Fund LP (12) |
|
|
881,128 |
|
|
|
881,128 |
|
|
|
|
|
|
|
|
|
EMJ Master Fund LP(13) |
|
|
777,750 |
|
|
|
777,750 |
|
|
|
|
|
|
|
|
|
Entities Affiliated with Brosh
Capital(14) |
|
|
500,000 |
|
|
|
500,000 |
|
|
|
|
|
|
|
|
|
Entities Affiliated with Clal
Insurance(15) |
|
|
13,880,906 |
|
|
|
1,000,000 |
|
|
|
12,880,906 |
|
|
|
2.3 |
% |
Entities Affiliated with Comcast(16) |
|
|
26,823,284 |
|
|
|
26,823,284 |
|
|
|
13,411,642 |
|
|
|
2.4 |
% |
Entities Affiliated with Corbin
Capital(17) |
|
|
600,000 |
|
|
|
600,000 |
|
|
|
|
|
|
|
|
|
Entities Affiliated with Darlington
Partners(18) |
|
|
3,000,000 |
|
|
|
3,000,000 |
|
|
|
|
|
|
|
|
|
Entities Affiliated with Fifth Wall
Ventures(19) |
|
|
51,812,546 |
|
|
|
51,812,546 |
|
|
|
25,906,273 |
|
|
|
4.6 |
% |
Entities Affiliated with Horizon(20) |
|
|
26,872,544 |
|
|
|
26,872,544 |
|
|
|
12,436,272 |
|
|
|
2.2 |
% |
Entities Affiliated with Luxor
Capital(21) |
|
|
592,923 |
|
|
|
524,695 |
|
|
|
|
|
|
|
|
|
Entities Affiliated with Park
West(22) |
|
|
4,000,000 |
|
|
|
4,000,000 |
|
|
|
|
|
|
|
|
|
Entities Affiliated with Saba
Capital(23) |
|
|
2,000,000 |
|
|
|
2,000,000 |
|
|
|
|
|
|
|
|
|
Entities Affiliated with Sentinel
Dome(24) |
|
|
1,000,000 |
|
|
|
1,000,000 |
|
|
|
|
|
|
|
|
|
Entities Managed by UBS(25) |
|
|
300,000 |
|
|
|
300,000 |
|
|
|
|
|
|
|
|
|
Gan Eden Ventures, Inc.(26) |
|
|
1,000,000 |
|
|
|
1,000,000 |
|
|
|
|
|
|
|
|
|
Garden Fund, LLC(27) |
|
|
100,000 |
|
|
|
100,000 |
|
|
|
|
|
|
|
|
|
Gores HP, LLC(28) |
|
|
9,926 |
|
|
|
9,926 |
|
|
|
|
|
|
|
|
|
The HGC Fund LP(29) |
|
|
500,000 |
|
|
|
500,000 |
|
|
|
|
|
|
|
|
|
Hound Partners, LLC(30) |
|
|
529,682 |
|
|
|
529,682 |
|
|
|
|
|
|
|
|
|
Hugh R. Frater Irrevocable Trust Dtd
12/11/2012(31) |
|
|
1,076,362 |
|
|
|
1,076,362 |
|
|
|
807,272 |
|
|
|
* |
|
Invus Public Equities, L.P.(32) |
|
|
600,000 |
|
|
|
600,000 |
|
|
|
|
|
|
|
|
|
Julie Hanna(33) |
|
|
30,000 |
|
|
|
30,000 |
|
|
|
|
|
|
|
|
|
Lee Linden(34) |
|
|
30,000 |
|
|
|
30,000 |
|
|
|
|
|
|
|
|
|
Len FW Investor, LLC(35) |
|
|
77,189,421 |
|
|
|
77,189,421 |
|
|
|
38,544,711 |
|
|
|
6.8 |
% |
Linda Rottenberg(36) |
|
|
30,000 |
|
|
|
30,000 |
|
|
|
|
|
|
|
|
|
Madison Rock Investments LP (37) |
|
|
100,000 |
|
|
|
100,000 |
|
|
|
|
|
|
|
|
|
Octahedron Master Fund, L.P.(38) |
|
|
250,000 |
|
|
|
250,000 |
|
|
|
|
|
|
|
|
|
Psagot Provident Funds and Pensions
Ltd.(39) |
|
|
1,000,000 |
|
|
|
1,000,000 |
|
|
|
|
|
|
|
|
|
Reinvent Capital Fund LP(40) |
|
|
1,000,000 |
|
|
|
1,000,000 |
|
|
|
|
|
|
|
|
|
Reinvent Sponsor Z LLC(41) |
|
|
10,030,000 |
|
|
|
10,030,000 |
|
|
|
4,222,500 |
|
|
|
* |
|
Ribbit Capital VI, L.P.(42) |
|
|
300,000 |
|
|
|
300,000 |
|
|
|
|
|
|
|
|
|
Richard McCathron(43) |
|
|
3,422,602 |
|
|
|
3,176,134 |
|
|
|
2,566,952 |
|
|
|
* |
|
RPM Ventures III, L.P.(44) |
|
|
30,644,982 |
|
|
|
30,644,982 |
|
|
|
15,322,491 |
|
|
|
2.7 |
% |
Sandra Wijnberg(45) |
|
|
218,416 |
|
|
|
81,130 |
|
|
|
60,848 |
|
|
|
* |
|
Senator Global Opportunity Master Fund
L.P.(46) |
|
|
2,250,000 |
|
|
|
2,250,000 |
|
|
|
|
|
|
|
|
|
Shapero 2015 Trust(47) |
|
|
75,000 |
|
|
|
75,000 |
|
|
|
|
|
|
|
|
|
Slate Path Master Fund LP(48) |
|
|
1,000,000 |
|
|
|
1,000,000 |
|
|
|
|
|
|
|
|
|
Smiths Point Family Partners
LLC(49) |
|
|
700,000 |
|
|
|
700,000 |
|
|
|
|
|
|
|
|
|
Standard Latitude Master Fund
Ltd.(50) |
|
|
4,000,000 |
|
|
|
4,000,000 |
|
|
|
|
|
|
|
|
|
Stewart Ellis(51) |
|
|
3,172,442 |
|
|
|
3,172,442 |
|
|
|
2,379,332 |
|
|
|
* |
|
Transcend Partners LLC(52) |
|
|
200,000 |
|
|
|
200,000 |
|
|
|
|
|
|
|
|
|
West Coast Equity Partners LLC(53) |
|
|
600,000 |
|
|
|
600,000 |
|
|
|
|
|
|
|
|
|
XN Exponent Master Fund LP(54) |
|
|
4,500,000 |
|
|
|
4,500,000 |
|
|
|
|
|
|
|
|
|
115
(1) |
This table includes shares beneficially owned as determined in accordance with Rule 13d-3 of the Exchange Act.
Included in these amounts are the PIPE Shares, Sponsor Shares, Hippo Holdings holder shares, shares of common stock issuable upon exercise of certain equity awards, shares of common stock issuable upon exercise of the Hippo Holdings Warrants and
shares of common stock issuable upon exercise of the private placement warrants (collectively, the Resale Securities). We do not know when or in what amounts the selling securityholders will offer the Resale Securities for sale, if at
all. |
(2) |
The percentage of shares to be beneficially owned after completion of the offering is calculated on the basis
of 567,175,909 shares of common stock outstanding, assuming the exercise of all currently outstanding warrants and the sale of all Resale Securities by the selling securityholders. |
(3) |
Shares offered hereby consist of 500,000 PIPE Shares. The securities to which this filing relates are held
directly by 140 Summer Partners Master Fund LP, a Delaware limited partnership (the Fund). 140 Summer Partners Fund GP LLC, a Delaware limited liability company, serves as the general partner of 140 Summer Partners Master Fund LP and as
such has discretion over the portfolio securities beneficially owned by 140 Summer Partners Master Fund LP. Peter Rosenblum is the managing member of 140 Summer Partners Fund GP LLC and directs 140 Summer Partners Fund GP LLC operations. Each of the
reporting persons disclaims beneficial ownership of the securities reported herein for purposes of Section 16 of the Securities and Exchange Act of 1934, as amended, except as to such extent of such reporting persons pecuniary interest in
the securities. |
(4) |
Shares hereby offered consist of 200,000 PIPE Shares held by Ally Ventures, a business unit of Ally Financial
Inc. The business address of Ally Ventures is 300 Park Avenue, 4th Floor, New York, NY 10022. |
(5) |
Shares hereby offered consist of the 1,000,000 PIPE Shares and 260,000 shares of Hippo Holdings common stock
issuable upon the exercise of Hippo Holdings warrants held by Alyeska Master Fund, L.P. Alyeska Investment Group, L.P., the investment manager of Alyeska Master Fund, L.P., has voting and investment control of the shares held by Alyeska Master Fund,
L.P. Anand Parekh is the Chief Executive Officer of Alyeska Investment Group, L.P. and may be deemed to be the beneficial owner of such shares. Mr. Parekh, however, disclaims any beneficial ownership of the shares held by Alyeska Master Fund,
L.P. The registered address of Alyeska Master Fund, L.P. is at c/o Maples Corporate Services Limited, P.O. Box 309, Ugland House, South Church Street George Town, Grand Cayman, KY1-1104, Cayman Islands.
Alyeska Investment Group, L.P. is located at 77 W. Wacker, Suite 700, Chicago IL 60601. |
(6) |
Consists of (i) 36,906,828 shares of Hippo Holdings common stock, of which approximately 17,087,948 shares are
held by Mr. Wand and 15,232,867 shares are held by Mr. Wand as trustee of a trust, and (ii) approximately 4,586,013 shares of Hippo Holdings common stock issuable pursuant to Hippo options of which all are held by Mr. Wand and
none are held by Mr. Wand as trustee of a trust. |
(7) |
Shares hereby offered consist of 25,000 PIPE Shares held directly by Beagle Limited. Beagle Limited is a
corporation organized under the laws of the British Virgin Islands. Giovanni Pigozzi is the beneficial owner of Beagle Limited and has voting and/or investment control over the shares held by Beagle Limited. Mr. Pigozzi disclaims beneficial
ownership of the securities reported herein for purposes of Section 16 of the Securities and Exchange Act of 1934, as amended, except as to such extent of such reporting persons pecuniary interest in the securities. The business address
of Beagle Limited is 50 Rockefeller Plaza, 4th Floor, New York, New York, 10020. |
(8) |
Shares hereby offered consist of 500,000 PIPE Shares held directly by BHHP LLC. BHHP LLC is a limited
partnership organized under Delaware law. Chaim Tvzi Nash and Shmuel Gniwisch are the managers of Kli Capital LLP, a Delaware limited liability company and general partner of BHHP LLC, and have voting and/or investment control over the shares held
by BHHP LLC. Mr. Nash and Mr. Gniwisch disclaim beneficial ownership of the securities reported herein for purposes of Section 16 of the Securities and Exchange Act of 1934, as amended, except as to such extent of such reporting
persons pecuniary interest in the securities. The business address of BHHP LLC is 1083 Main Street, Champlain, New York 12919. |
(9) |
Consists of 30,003,193 shares of Hippo Holdings common stock held in the name of BOND Capital Fund, LP, as
nominee, for the account of BOND Capital Fund, LP and BOND Capital Founders Fund, LP (together, the BOND Funds). Daegwon Chae, Juliet de Baubigny, Noah Knauf, Mary Meeker, Mood Rowghani, Jay Simons and Paul Vronsky are managing members
of BOND Capital Associates, LLC, the |
116
|
general partner of the BOND Funds, and share voting and dispositive power over the shares held for the account of the BOND Funds. The address of each of these entities is 100 The Embarcadero, San
Francisco, California 94105. |
(10) |
Consists of 30,000 shares of Hippo Holdings common stock held directly by Byron Auguste. |
(11) |
Shares hereby offered consist of 140,000 PIPE Shares. |
(12) |
Shares hereby offered consist of 700,000 PIPE Shares held directly by Diameter Master Fund LP and 181,128
shares of Hippo Holdings common stock issuable upon the exercise of Hippo Holdings warrants, of which (i) 140,064 are held by Diameter Master Fund LP, (ii) 16,700 are held by Diameter SPO Master Fund LP and (iii) 24,364 are held by Diameter
Dislocation Master Fund LP. Diameter Capital Partners LP is the investment manager of the Diameter Master Fund LP and, therefore, has investment and voting power over these shares. Scott Goodwin and Jonathan Lewinsohn, as the sole managing members
of the general partner of the investment manager, make voting and investment decisions on behalf of the investment manager. As a result, the investment manager, Mr. Goodwin and Mr. Lewinsohn may be deemed to be the beneficial owners of
these shares. Notwithstanding the foregoing, each of Mr. Goodwin and Mr. Lewinsohn disclaims beneficial ownership of the securities reported herein for purposes of Section 16 of the Securities and Exchange Act of 1934, as amended,
except as to such extent of such reporting persons pecuniary interest in the securities. The business address of Diameter Master Fund LP is 55 Hudson Yards, 29B, New York, New York 10001. |
(13) |
Shares hereby offered consist of 700,000 PIPE Shares and 77,750 shares of Hippo Holdings common stock issuable
upon the exercise of Hippo Holdings warrants held directly by EMJ Master Fund LP. EMJ Master Fund LP is a limited partnership organized pursuant to the Exempted Limited Partnership Law, 2018 of the Cayman Islands. Eric M. Jackson is the president
and founder of EMJ Capital Ltd, an Ontario corporation which acts as Investment Manager to EMJ Master Fund LP and has voting and/or investment control over the shares held by EMJ Master Fund LP. Mr. Jackson disclaims beneficial ownership of the
securities reported herein for purposes of Section 16 of the Securities and Exchange Act of 1934, as amended, except as to such extent of such reporting persons pecuniary interest in the securities. The legal address of EMJ Master Fund LP
is c/o Waystone Governance Ltd., Suite 5B201, 2nd Floor, One Nexus Way, PO Box 2587, KY1-1103, Cayman Islands and the business address 1370 Don Mills Road, Suite 300, Toronto, Ontario, Canada M3B 3N7.
|
(14) |
Shares hereby offered consist of 500,000 PIPE Shares, of which (i) 455,000 are held by Brosh Capital Partners
L.P., (ii) 22,500 are held by Halman Aldubi on behalf of Roni Biram and (iii) 22,500 are held by Halman Aldubi on behalf of Ester Deutsch. Brosh Capital Partners L.P. is a limited partnership organized under the laws of the Cayman Islands. Amir
Efrati is the CEO and Director of Exodus Management Israel Ltd., which is the general partner of Brosh Capital Partners L.P. and has voting and/or investment control over the shares held by Brosh Capital Partners L.P. Mr. Efrati disclaims
beneficial ownership of the securities reported herein for purposes of Section 16 of the Securities and Exchange Act of 1934, as amended, except as to such extent of such reporting persons pecuniary interest in the securities. The
business address for the above-referenced entities is 4 Ariel Sharon Street, Givataim 5320047 Israel. |
(15) |
Shares hereby offered consist of 1,000,000 PIPE Shares, of which (i) 430,000 are held by Clal Insurance Company
Ltd. and (ii) 570,000 are held by Clal Pension and Provident Funds Ltd. (together, the Clal Insurance Companies). The Clal Insurance Companies are insurance companies organized under the laws of Israel. Barak Benksi and Dov Caspi are the
chief investment officer and deputy chief investment officer of the Clal Insurance Companies, respectively, and have voting and/or investment control over the shares held by the Clal Insurance Companies. Mr. Benski and Mr. Caspi disclaim
beneficial ownership of the securities reported herein for purposes of Section 16 of the Securities and Exchange Act of 1934, as amended, except as to such extent of such reporting persons pecuniary interest in the securities. The
business address for the above-referenced entities is 4 Ariel Sharon Street, Givataim 5320047 Israel. |
(16) |
Consists of 26,823,284 shares of Hippo Holdings common stock, of which (i) 26,388,639 are held by Comcast
Ventures, LP and (ii) 434,645 are held by Comcast Warranty and Home Insurance. The business address for Comcast Ventures, LP and Comcast Warranty and Home Insurance is 1701 John F. Kennedy Boulevard, Philadelphia, Pennsylvania 19103.
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(17) |
Shares hereby offered consist of 600,000 PIPE Shares, of which (i) 246,000 are held by Pinehurst Partners,
L.P., (ii) 108,000 are held by Corbin Opportunity Fund, L.P. and (iii) 246,000 are held by Corbin ERISA Opportunity Fund, Ltd. Corbin Capital Partners, L.P. (CCP) is the investment manager of Pinehurst Partners, L.P., Corbin Opportunity
Fund, L.P. and Corbin ERISA Opportunity Fund, Ltd. Corbin Capital Partners, L.P. and its general partner, Corbin Capital Partners Group, LLC, may be deemed beneficial owners of the Company securities being registered in the Registration Statement on
behalf of Corbin ERISA Opportunity Fund, Ltd., Pinehurst Partners, L.P. and Corbin Opportunity Fund, L.P. Craig Bergstrom is the Chief Investment Officer of Corbin Capital Partners, L.P., the investment manager of Pinehurst Partners, L.P., Corbin
Opportunity Fund, L.P. and Corbin ERISA Opportunity Fund, Ltd., and accordingly may be deemed to have voting and dispositive power with respect to shares held by Pinehurst Partners, L.P., Corbin Opportunity Fund, L.P. and Corbin ERISA Opportunity
Fund, Ltd. Mr. Bergstrom disclaims beneficial ownership of such shares. The business address of each of the above-mentioned funds is 590 Madison Avenue, 31st Floor, New York, New York 10022. |
(18) |
Shares hereby offered consist of 3,000,000 PIPE Shares, of which (i) 2,655,000 are held by Darlington Partners,
LP and (ii) 345,000 are held by Darlington Partners II, LP (together, the Darlington Funds). Darlington Partners GP, LLC is the general partner of the Darlington Funds and have voting and/or investment control over the shares held by the
Darlington Funds. Darlington Partners GP, LLC disclaims beneficial ownership of the securities reported herein for purposes of Section 16 of the Securities and Exchange Act of 1934, as amended, except as to such extent of such reporting
persons pecuniary interest in the securities. The business address of the Darlington Funds is 300 Drakes Landing Road, Suite 290, Greenbrae, California 94904. |
(19) |
Consists of 51,812,546 shares of Hippo Holdings common stock, of which (i) 25,974,574 are common stock directly
held by Fifth Wall Ventures SPV IV L.P., (ii) 229.302 are common stock directly held by Fifth Wall Ventures SPV XVII, L.P. and (iii) 25,608,670 are common stock directly held by Fifth Wall Ventures, L.P. Fifth Wall Ventures, L.P. has granted LEN FW
Investor, LLC an irrevocable voting proxy in respect of the shares referred to in clause (i) herein, which are held directly by Fifth Wall Ventures SPV IV L.P. The address of the above persons and entities is 6060 Center Drive, Los Angeles,
California 90045. |
(20) |
Shares hereby offered consist of 24,872,544 shares of Hippo Holdings common stock held by Digital Fortune
Limited and 2,000,000 PIPE Shares, of which (i) 24,570 are held by Celestial Ally Limited, (ii) 982,801 are held by Eliot International Limited, (iii) 982,801 are held by Famous Giant Limited and (iv) 9,828 are held by Moon Stream
Investments Limited. Kang Tzu Ping is the ultimate beneficial owner of Celestial Ally Limited and as such, Ms. Kang may be deemed to beneficially own the PIPE Shares directly held by Celestial Ally Limited. Chau Hoi Shuen Solina Holly is the
ultimate beneficial owner of Eliot International Limited and as such, Ms. Chau may be deemed to beneficially own the PIPE Shares directly held by Eliot International Limited. Li Ka Shing is the ultimate beneficial owner of Famous Giant Limited
and as such, Mr. Li may be deemed to beneficially own the PIPE Shares directly held by Famous Giant Limited. The business address of each of the above-mentioned entities is Vistra Corporate Services Centre, Wickhams Cay II, Road Town, Tortola,
VG1110, British Virgin Islands. |
(21) |
Shares hereby offered consist of (i) 221,253 PIPE Shares, held by Lugard Road Capital Master Fund, LP
(Lugard) beneficially owned by Luxor Capital Group, LP, the investment manager of Lugard; (ii) 2,506 PIPE Shares held by Luxor Capital Partners Long Offshore Master Fund, LP (Luxor Long Offshore) beneficially owned by Luxor
Capital Group, LP, the investment manager of Luxor Long Offshore; (iii) 7,532 PIPE Shares held by Luxor Capital Partners Long, LP (Luxor Long) beneficially owned by Luxor Capital Group, LP, the investment manager of Luxor Long; (iv)
79,222 PIPE Shares held by Luxor Capital Partners Offshore Master Fund, LP (Luxor Offshore) beneficially owned by Luxor Capital Group, LP, the investment manager of Luxor Offshore; (v) 126,103 PIPE Shares held by Luxor Capital Partners,
LP (Luxor Capital) beneficially owned by Luxor Capital Group, LP, the investment manager of Luxor Capital; and (vi) 88,079 PIPE Shares held by Luxor Wavefront, LP (Luxor Wavefront) beneficially owned by Luxor Capital Group,
LP, the investment manager of Luxor Wavefront. Christian Leone, in his position as Portfolio Manager at Luxor Capital Group, LP, may be deemed to have voting and investment power with respect to the securities owned by Luxor Long Offshore, Luxor
Long, Luxor Offshore, Luxor Capital, and Luxor Wavefront. Jonathan Green, in his position as Portfolio Manager at Luxor Capital Group, LP, may be deemed to have voting and |
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investment power with respect to the securities held by Lugard. Mr. Leone and Mr. Green each disclaims beneficial ownership of any of the PIPE shares over which each exercises voting
and investment power. The mailing address of each of the above-mentioned funds is 1114 Avenue of the Americas, 28th Fl, New York, NY 10036. |
(22) |
Shares hereby offered consist of 4,000,000 PIPE Shares, of which (i) 3,642,400 are held by Park West Investors
Master Fund, Limited and (ii) 357,600 are held by Park West Partners International, Limited (collectively, the PW Funds). Park West Asset Management LLC is the investment manager to the PW Funds. Peter S. Park, through one or more
affiliated entities, is the controlling manager of Park West Asset Management LLC. The business address for the PW Funds is c/o Park West Asset Management LLC, 900 Larkspur Landing Circle, Suite 165, Larkspur, California 94939.
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(23) |
Shares hereby offered consist of 2,000,000 PIPE Shares, of which (i) 488,200 are held by Saba Capital Master
Fund, Ltd., (ii) 1,325,600 are held Saba Capital Master Fund II, Ltd. and (iii) 186,200 are held by Saba Capital Master Fund III, L.P. (the Saba Funds). Boaz Weinstein is the managing member of the general partner of the Saba Funds
investment manager and accordingly may be deemed to have voting and dispositive power with respect to shares held by the Saba Funds. Mr. Boaz disclaims beneficial ownership of the securities reported herein for purposes of Section 16 of
the Securities and Exchange Act of 1934, as amended, except as to such extent of such reporting persons pecuniary interest in the securities. The business address of the Saba Funds is c/o Saba Capital Management, LP, 405 Lexington Avenue, 58th
Floor, New York, New York 10174. |
(24) |
Shares hereby offered consist of 1,000,000 PIPE Shares, of which (i) 565,000 are held by SDP Flagship Master
Fund, L.P., (ii) 200,000 are held by NPB Manager Fund, SPC., on behalf of and for the account of Segregated Portfolio 103, (iii) 170,000 are held by SDP Opportunities Master Fund, L.P. and (iv) 65,000 are held by NPB Manager Fund, SPC., on behalf of
and for the account of Segregated Portfolio 102 (together, the Sentinel Entities). Qazi Munirul Alam is the chief investment officer of Sentinel Dome Partners, LLC, the investment adviser to the Sentinel Entities and has voting and/or
investment control over the shares held by the Sentinel Entities. The business address of the Sentinel Entities is 3 Embarcadero Center, Suite 1680, San Francisco, California 94111. |
(25) |
Shares hereby offered consist of 300,000 PIPE Shares, of which (i) 137,970 are held by Nineteen77 Global
Multi-Strategy Alpha Master Limited, (ii) 137,970 are held by Nineteen77 Global Merger Arbitrage Master Limited, (ii) 23,040 are held by Nineteen77 Global Merger Arbitrage Opportunity Fund and (iv) 1,020 are held by IAM Investments ICAV -
OConnor Event Driven UCITS Fund (together, the UBS Entities). Kevin Russell, the chief investment officer of UBS OConnor LLC, the investment manager of the UBS Entities, has voting and/or investment control over the shares
held by the UBS Entities. Mr. Russell disclaims beneficial ownership of the securities reported herein for purposes of Section 16 of the Securities and Exchange Act of 1934, as amended, except as to such extent of such reporting
persons pecuniary interest in the securities. The business address for the UBS Entities is c/o UBS OConnor LLC, One North Wacker Drive, 31st Floor, Chicago, Illinois 60606. |
(26) |
Shares offered hereby consist of 1,000,000 PIPE Shares held directly by Gan Eden Ventures, Inc. Gan Eden
Ventures, Inc. is a corporation organized under Canadian law. Mark Chess and Edward Weisz are the directors of Gan Eden Ventures, Inc. and have voting and/or investment control over the shares held by Gan Eden Ventures, Inc. The business address of
Gan Eden Ventures, Inc. is 1 Herons Will Way, Toronto, Ontario, Canada M2J O2G. |
(27) |
Shares offered hereby consist of 100,000 PIPE Shares held directly by Garden Fund, LLC. Garden Fund, LLC is a
limited liability company organized under California law. The business address of Garden Fund, LLC is 1 Sansome Street, Suite 3500, San Francisco, California 94104. |
(28) |
Shares hereby offered consist of 9,926 PIPE Shares held directly by Gores HP, LLC. Gores HP, LLC is a
partnership organized under the laws of Delaware. The business address of Gores HP, LLC is 6260 Lookout Road, Boulder, Colorado 80301. |
(29) |
Shares hereby offered consist of 500,000 PIPE Shares held in trust by Gundy Co for The HGC Fund LP. The HGC
Fund LP is a limited partnership organized under the laws of Canada. Sean Kallir is the chief executive officer and primary manager of HGC Investment Management Inc., the investment manager of
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The HGC Fund LP and has voting and/or investment control over the shares held by The HGC Fund LP. The business address of The HGC Fund LP is 366 Adelaide St W, Suite 601, Toronto, ON, M5V 1R9.
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(30) |
Shares hereby offered consist of 500,000 PIPE Shares and 29,682 shares of Hippo Holdings common stock issuable
upon the exercise of Hippo Holdings warrants held by clients of Hound Partners, LLC. Hound Partners, LLC is a limited liability company organized under the laws of Delaware. Jonathan Auerbach is the portfolio manager of Hound Partners, LLC and has
voting and/or investment control over the shares held by such clients. The business address of Hound Partners, LLC is 101 Park Avenue, 48th Floor, New York, New York 10178. |
(31) |
Consists of 1,076,362 shares of Hippo Holdings common stock, all of which are held by Mr. Frater as
trustee of a trust. |
(32) |
Shares hereby offered consist of 600,000 PIPE Shares held directly by Invus Public Equities, L.P. Invus Public
Equities Advisors, LLC (Invus PE Advisors) controls Invus PE, as its general partner and accordingly, may be deemed to beneficially own the shares held by Invus PE. Artal Treasury Limited (Artal Treasury) controls Invus PE
Advisors, as its managing member and accordingly, may be deemed to beneficially own the shares held by Invus PE. Artal International S.C.A. (Artal International) through its Geneva branch, is the sole stockholder of Artal Treasury and
may be deemed to beneficially own the 600,000 shares that Artal Treasury may be deemed to beneficially own. Artal International Management S.A. (Artal International Management), as the managing partner of Artal International, controls
Artal International and accordingly, may be deemed to beneficially own the shares that Artal International may be deemed to beneficially own. Artal Group S.A., as the sole stockholder of Artal International Management, controls Artal International
Management and accordingly, may be deemed to beneficially own the shares that Artal International Management may be deemed to beneficially own. Westend S.A. (Westend), as the parent company of Artal Group S.A. (Artal Group),
controls Artal Group and accordingly, may be deemed to beneficially own the shares that Artal Group may be deemed to beneficially own. Stichting Administratiekantoor Westend (the Stichting), as majority shareholder of Westend, controls
Westend and accordingly, may be deemed to beneficially own the shares that Westend may be deemed to beneficially own. As of August 17,2021 Mr. Amaury Wittouck, as the sole member of the board of the Stichting, controls the Stichting and
accordingly, may be deemed to beneficially own the shares that the Stichting may be deemed to beneficially own. The business address of Invus Public Equities, L.P. is 750 Lexington Avenue, 30th Floor, New York, New York 10022. |
(33) |
Consists of 30,000 shares of Hippo Holdings common stock held directly by Julie Hanna. |
(34) |
Consists of 30,000 shares of Hippo Holdings common stock held directly by Lee Linden. |
(35) |
Shares hereby offered consist of 100,000 PIPE Shares owned directly by LEN FW Investor, LLC and 77,089,421
shares of Hippo Holdings common stock, of which (i) 25,723,624 are common stock directly held by Fifth Wall Ventures SPV IV L.P., and (ii) 51,365,797 are common stock directly held by LEN FW Investor, LLC. Fifth Wall Ventures, L.P. has granted LEN
FW Investor, LLC an irrevocable voting proxy in respect of the shares referred to in clause (i) herein, which are held directly by Fifth Wall Ventures SPV IV L.P. The address of the above persons and entities is 700 Northwest 107th Avenue,
Miami, Florida 33172. |
(36) |
Consists of 30,000 shares of Hippo Holdings common stock held directly by Linda Rottenberg.
|
(37) |
Shares hereby offered consist of 100,000 PIPE Shares held directly by Madison Rock Investments LP. Madison Rock
Investments LP is a partnership organized under the laws of Delaware. The business address of Madison Rock Investments LP is 630 Fifth Avenue, New York, New York 10111. |
(38) |
Shares hereby offered consist of 250,000 PIPE Shares held directly by Octahedron Master Fund, L.P. Octahedron
Master Fund, L.P. is a limited partnership organized under the laws of the Cayman Islands. Octahedron Fund GP LLC is the general partner of Octahedron Master Fund, L.P. Rajaraman Parameswaram is the managing member of Octahedron Fund GP LLC and has
voting and/or investment control over the shares held by Octahedron Master Fund L.P. Mr. Parameswaram disclaims beneficial ownership of the securities reported herein for purposes of Section 16 of the Securities and Exchange Act of 1934,
as amended, except as to such extent of such reporting persons pecuniary interest in the securities. The business address for Octahedron Mater Fund, L.P. is 4126 17th Street, Suite #2, San Francisco, California 94114. |
120
(39) |
Shares hereby offered consist of 1,000,000 PIPE Shares held directly by Psagot Provident Funds and Pensions
Ltd. Psagot Provident Funds and Pensions Ltd is a management company organized under the laws of Israel. The business address for Psagot Provident Funds and Pensions Ltd is 14 Ahad Haam Street, Tel Aviv, Israel 6514211. |
(40) |
Shares hereby offered consist of 1,000,000 PIPE Shares held directly by Reinvent Capital Fund LP. Reinvent
Capital Fund GP LLC is the general partner of Reinvent Capital Fund LP. Due to its relationship with Reinvent Capital Fund LP, Reinvent Capital Fund GP LLC may be deemed to beneficially own the PIPE Shares directly held by Reinvent Capital Fund LP.
Mark Pincus and Michael Thompson are the managing members of Reinvent Capital Fund GP LLC and may therefore be deemed to beneficially own the PIPE Shares held directly by Reinvent Capital Fund LP. Mr. Pincus and Mr. Thompson each disclaim
beneficial ownership of the PIPE Shares held directly by Reinvent Capital Fund LP except to the extent of their pecuniary interest therein. The business address of Reinvent Capital Fund LP is 215 Park Avenue S, 11th Floor, New York, New York 10023.
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(41) |
Shares offered hereby consist of (i) 5,630,000 shares of Hippo Holdings common stock held directly by the
Sponsor and (ii) 4,400,000 shares of Hippo Holdings common stock issuable upon exercise of the private placement warrants. Each of Reid Hoffman, Mark Pincus, Michael Thompson, David Cohen, and Lee Linden (who are each former directors and/or
officers of RTPZ), or entities related thereto, among others, are members of the Sponsor. Messrs. Hoffman and Pincus may be deemed to beneficially own shares held by the Sponsor by virtue of their shared control over the Sponsor. Other than Messrs.
Hoffman and Pincus, no member of the Sponsor exercises voting or dispositive control over any of the shares held by the Sponsor. Each of Messrs. Hoffman and Pincus disclaims beneficial ownership of the ordinary shares held by the Sponsor, except to
the extent of his pecuniary interest therein. The 4,400,000 private placement warrants offered hereby are held directly by the Sponsor. 5,630,000 shares of Hippo Holdings common stock are subject to a contractual
lock-up as described under Certain Relationships and Related Party Transactions - Old Hippo - Lockup Agreements. These securities are being registered for resale in accordance with the terms
of an Amended and Restated Registration Rights Agreement, dated as of August 2, 2021, by and between the Company, the selling securityholder and the other parties thereto, as described under Certain Relationships and Related Party
Transactions - Old Hippo - Registration Rights Agreement. |
(42) |
Shares hereby offered consist of 300,000 PIPE Shares held directly by Ribbit Capital VI, L.P. Ribbit Capital
VI, L.P. is an exempt limited partnership organized under the laws of the Cayman Islands. Ribbit Capital GP VI, Ltd. is the general partner of Ribbit Capital VI, L.P. Meyer Malka is the director of Ribbit Capital GP VI, Ltd. and has voting and/or
investment control over the shares held by Ribbit Capital VI, L.P. The business address for Ribbit Capital VI, L.P. is 362 University Avenue, Palo Alto, California 94301. |
(43) |
Consists of (i) 3,422,602 shares of Hippo Holdings common stock, of which approximately 2,771,530 shares are
held by Mr. McCathron and (ii) 651,072 shares of Hippo Holdings common stock issuable pursuant to Hippo options. |
(44) |
Consists of 30,644,982 shares of Hippo Holdings, of which (i) 26,369,086 are common stock directly held by RPM
Ventures III, L.P. and (ii) 4,275,687 are common stock directly held by BGW Ventures II, LP, an affiliate of RPM Ventures III, L.P. The address of the above persons and entities is 320 N. Main Street, Suite 400, Ann Arbor, Michigan 48104.
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(45) |
Consists of (i) 218,416 shares of common stock, of which approximately 177,000 shares are held by
Mrs. Wijnberg as trustee of a trust and (ii) 101,416 shares of common stock issuable pursuant to Hippo options. |
(46) |
Shares hereby offered consist of 2,250,000 PIPE Shares held directly by Senator Global Opportunity Master Fund
L.P. Senator Global Opportunity Master Fund L.P. is a limited partnership organized under the laws of the Cayman Islands. Senator Investment Group LP (Senator) is investment manager of Senator Global Opportunity Master Fund L.P. and may
be deemed to have voting and dispositive power with respect to the shares. The general partner of Senator is Senator Management LLC (the Senator GP). Douglas Silverman controls Senator GP, and, accordingly, may be deemed to have voting
and dispositive power with respect to the shares held by this selling security holder. Mr. Silverman disclaims beneficial ownership of the securities reported herein for purposes of Section 16 of the Securities and Exchange Act of 1934, as
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amended, except as to such extent of such reporting persons pecuniary interest in the securities. The business address for Senator Global Opportunity Master Fund L.P. is 510 Madison Avenue,
28th Floor, New York, New York 10022. |
(47) |
Shares hereby offered consist of 75,000 PIPE Shares held directly by Shapero 2015 Trust. Daniel Shapero is the
trustee for Shapero 2015 Trust and has voting and/or investment control over the shares held by Shapero 2015 Trust. The business address of Shapero 2015 Trust is 920 Hamilton Avenue, Palo Alto, California 94301. |
(48) |
Shares hereby offered consist of 1,000,000 PIPE Shares held directly by Slate Path Master Fund LP. Slate Path
Master Fund LP is an exempted limited partnership organized under the laws of the Cayman Islands. Slate Path Capital GP LLC is the general partner of Slate Path Master Fund LP. David Greenspan is the managing member of Slate Path Capital GP LLC and
has voting and/or investment control over the shares held by Slate Path Master Fund LP. Mr. Greenspan disclaims beneficial ownership of the securities reported herein for purposes of Section 16 of the Securities and Exchange Act of 1934,
as amended, except as to such extent of such reporting persons pecuniary interest in the securities. The business address for Slate Path Master Fund LP is 717 Fifth Avenue, 16th Floor, New York, New York 10022. |
(49) |
Shares hereby offered consist of 700,000 PIPE Shares held directly by Smiths Point Family Partners LLC.
Smiths Point Family Partners LLC is a limited liability company organized under the laws of Pennsylvania. The business address of Smiths Point Family Partners LLC is PO Box 500, Gladwyne, Pennsylvania 19035. |
(50) |
Shares hereby offered consist of 4,000,000 PIPE Shares held by Standard Latitude Master Fund Ltd. (formerly
known as 40 North Latitude Master Fund Ltd.) (Latitude). David Winter and David Millstone are sole managers of Standard Investments LLC, which holds the sole voting power for Latitude. Mr. Winter and Mr. Millstone are sole
directors of Latitude. The business address of Latitude is c/o Standard Investments LLC, 9 West 57th Street, 46th floor, New York, NY 10019. |
(51) |
Consists of (i) 3,172,442 shares of Hippo Holdings common stock, of which approximately 3,132,825 are held by
Mr. Ellis and (ii) 39,617 shares of Hippo Holdings common stock issuable pursuant to Hippo options. |
(52) |
Shares hereby offered consist of 200,000 PIPE Shares held directly by Transcend Partners LLC. Transcend
Partners LLC is a limited liability company organized under the laws of Delaware. Malcolm Fairbairn and Emily Fairbairn are members of Transcend Partners LLC and have voting and/or investment control over the shares held by Transcend Partners LLC.
The business address of Transcend Partners LLC is 10 Orginda View, Orinda, California 94563. |
(53) |
Shares hereby offered consist of 600,000 PIPE Shares held directly by West Coast Equity Partners LLC. WCEP
Management LLC is the managing company of West Coast Equity Partners LLC. Alexander Lazovsky, Anton Baranchuk and Sergey Yushin are the management members of WCEP Management LLC and have voting and/or investment control over the shares held by West
Coast Equity Partners LLC. Mr. Lazovsky, Mr. Baranchuck and Mr. Yushin disclaim beneficial ownership of the securities reported herein for purposes of Section 16 of the Securities and Exchange Act of 1934, as amended, except as
to such extent of such reporting persons pecuniary interest in the securities. The business address of West Coast Equity Partners LLC is 703 Crestview Drive, San Carlos, California 94070. |
(54) |
Shares hereby offered consist of 4,500,000 PIPE Shares held directly by XN Exponent Master Fund LP. XN Exponent
Master Fund LP is a limited partnership organized under the laws of the Cayman Islands. XN Exponent Advisors LLC serves as investment manager to XN Exponent Master Fund LP (the Fund) and has discretionary authority to make investment
decisions and determine how to vote any securities held by the Fund. XN Exponent Advisors LLC is wholly owned by XN LP, a registered investment advisor. The general partner of XN LP is XN Management GP LLC, which is indirectly controlled by Gaurav
Kapadia. The principal business address of the entities referenced herein is 412 West 15th Street, 13th Floor, New York, New York. |
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CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS
In addition to the compensation arrangements with directors and executive officers described under Executive Compensation and
Management and the registration rights described elsewhere in this prospectus, the following is a description of each transaction since January 1, 2020 and each currently proposed transaction in which:
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Hippo was or is to be a participant following the closing of the Business Combination or Old Hippo was a
participant prior to the closing of the Business Combination; |
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the amount involved exceeds or will exceed $120,000; and |
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any director, executive officer or beneficial holder of more than 5% of our capital stock of (i) Hippo
following the closing of the Business Combination or (ii) Old Hippo prior to the closing of the Business Combination, or any immediate family member of, or person sharing the household with, any of these individuals (other than tenants or
employees), had or will have a direct or indirect material interest. |
Note Purchase Agreement (November 2020)
In November 2020, Old Hippo entered into a note purchase agreement with respect to the issuance of up to an aggregate of $400 million in
convertible notes (the Hippo notes). The Hippo notes provided for an annual payment-in-kind interest rate of 2.5%, or 5.0% after the 15-month anniversary of the interest commencement date if no conversion event had occurred, and 7.5% after the 21-month anniversary of the interest commencement date if no
conversion event had occurred, with a maturity date of November 30, 2023. In connection with the Business Combination, the Hippo notes converted into shares of Hippo common stock equal to ninety percent of the fair market value of the lowest
price offered in the private placement in connection with the PIPE investment. Upon conversion of outstanding principal and unpaid, accrued interest under the Hippo notes, $350,000,000 in aggregate principal amount of Hippo notes held by Mitsui
Sumitomo Insurance Co., Ltd. was converted into 39,396,604 shares of Hippo common stock. Mitsui Sumitomo Insurance Co., Ltd. is a beneficial owner of more than 5% of Hippo capital stock.
Series E Preferred Stock Financing (July 2020)
In July 2020, Old Hippo issued an aggregate of 7,628,075 shares of Series E preferred stock at $19.6642 per share for aggregate proceeds to Old
Hippo of approximately $150 million.
The table below sets forth the number of shares of Series E preferred stock sold to Hippo or
Old Hippo directors, executive officers, or owners of more than 5% of a class of Hippo or Old Hippo capital stock, or an affiliate or immediate family member thereof:
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Name |
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Number of Shares of Series E Preferred Stock |
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Aggregate Purchase Price ($) |
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Bond Capital Fund, LP(1) |
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915,369 |
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17,999,999.09 |
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Comcast Ventures, LP(2) |
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50,853 |
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999,983.57 |
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Fifth Wall Ventures, L.P.(3) |
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66,109 |
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1,299,980.60 |
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LEN FW Investor, LLC(4) |
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381,403 |
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7,499,984.88 |
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RPM Ventures III, L.P.(5) |
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50,853 |
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999,983.57 |
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(1) |
Bond Capital Fund, LP and its affiliated funds beneficially owned (in the aggregate) more than 5% of the Old
Hippo capital stock outstanding at the time of the Series E preferred stock financing. Noah Knauf is currently, and was at the time of the Series E preferred stock financing, a member of the Hippo or Old Hippo Boards of Directors and a Member of the
General Partner of Bond Capital Fund, LP. |
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(2) |
Comcast Ventures, LP and its affiliates beneficially owned (in the aggregate) more than 5% of the Old Hippo
capital stock outstanding at the time of the Series E preferred stock financing. Sam Landman is |
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currently, and was at the time of the Series E preferred stock financing, a member of the Hippo or Old Hippo Boards of Directors and is no longer currently, but was at the time, a Managing
Director of Comcast Ventures, LP. |
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(3) |
Fifth Wall Ventures, L.P. and their affiliated funds beneficially owned (in the aggregate) more than 5% of the
Old Hippo capital stock outstanding at the time of the Series E preferred stock financing. |
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(4) |
LEN FW Investor, LLC beneficially owned more than 5% of the Old Hippo capital stock outstanding at the time of
the Series E preferred financing. Eric Feder is an officer of the parent of LEN FW Investor, LLC and is currently, and was at the time of the Series E preferred stock financing, a member of Hippos or Old Hippos Board of Directors.
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(5) |
RPM Ventures III, L.P. and its affiliates beneficially owned (in the aggregate) more than 5% of the Old Hippo
capital stock outstanding at the time of the Series E preferred stock financing. |
Stock Transfer Agreements
Since January 1, 2020, the following directors, executive officers or beneficial owners of more than 5% of a class of Old Hippo capital stock transferred
or received shares of Old Hippo capital stock pursuant to certain stock transfer agreements:
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Stock Transfer Agreement by and between Assaf Wand and the Wand Family Delaware Trust dated May 13, 2020.
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Stock Transfer Agreement by and between the Wand Family Delaware Trust and Bond Capital Fund, LP dated
July 20, 2020. |
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Stock Transfer Agreement by and between the Wand Family Delaware Trust and NPC Opportunity Fund dated
July 20, 2020. |
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Stock Transfer Agreement by and between the Wand Family Delaware Trust and Innovius Capital Canopus I, L.P. dated
July 21, 2020. |
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Stock Transfer Agreement by and between the Wand Family Delaware Trust and Celestial Ally Limited dated
July 27, 2020. |
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Stock Transfer Agreement by and between Ran Harpaz and Innovius Capital Canopus I, L.P. dated July 21, 2020.
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Stock Transfer Agreement by and between Ran Harpaz and Eric Reiner dated July 23, 2020.
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Stock Transfer Agreement by and between Stewart Ellis and Innovius Capital Canopus I, L.P. dated July 21,
2020. |
Warrants
In
December 2018, Hippo issued a warrant to purchase common stock to Comcast Warranty and Home Insurance Agency, LLC (the Comcast Warrant), exercisable for up to an aggregate of 4,738,051 shares at a warrant price of $0.01 per share subject
to the achievement of certain specified milestones. In December 2020, the warrant was amended to make it exercisable for up to 62,500 shares of Hippo Holdings common stock without any vesting requirements. The Comcast Warrant is no longer
outstanding.
In December 2017, Old Hippo issued a warrant to purchase common stock to Fifth Wall Ventures SPV IV, L.P. (the Fifth
Wall Warrant), as amended in October 2018 and March 2021, for up to an aggregate of 4,738,051 shares at a warrant price of $0.01 per share. The Fifth Wall Warrant is no longer outstanding.
Director and Executive Officer Compensation
Please see Executive Compensation for information regarding the compensation of Hippo directors and executive officers.
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Employment Agreements
Hippo has entered into employment agreements with its executive officers. For more information regarding these agreements, see
Executive Compensation.
Indemnification Agreements and Directors and Officers Liability Insurance
Hippo has entered into indemnification agreements with each of its directors and executive officers. These agreements require Hippo to, among
other things, indemnify each director and executive officer to the fullest extent permitted by Delaware law, including indemnification of expenses such as attorneys fees, judgments, penalties, fines and settlement amounts incurred by the
director or executive officer in any action or proceeding, including any action or proceeding by or in right of Hippo, arising out of the persons services as a director or executive officer. Hippo has obtained an insurance policy that insures
Hippos directors and officers against certain liabilities, including liabilities arising under applicable securities laws. For additional information see Description of Our Securities Limitations on Liability and
Indemnification of Officers and Directors.
Investors Rights Agreement
Old Hippo entered into an amended and restated investors rights agreement with the purchasers of Old Hippo preferred stock, including
entities with which certain Hippo and Old Hippo directors were or are affiliated. Upon the closing of the Business Combination, the amended and restated investors rights agreement terminated.
Voting Agreement
Old Hippo entered into
an amended and restated voting agreement with certain holders of Old Hippo common stock and Old Hippo preferred stock. Upon the closing of the Business Combination, the amended and restated voting agreement terminated.
Right of First Refusal and Co-Sale Agreement
Old Hippo entered into an amended and restated right of first refusal and co-sale agreement with
certain holders of Old Hippo common stock and Old Hippo preferred stock. Upon the closing of the Business Combination, the amended and restated right of first refusal and co-sale agreement terminated.
Registration Rights Agreement
At the
closing of the Business Combination, Hippo, RTPZ, and the other holders of RTPZ Class B ordinary shares, certain former stockholders of Old Hippo, including certain of Hippos directors and officers, and Reinvent Capital Fund entered into
the Registration Rights Agreement pursuant to which Hippo agreed to register for resale, pursuant to Rule 415 under the Securities Act, certain shares of Hippo Holdings common stock and other equity securities of Hippo that are held by the parties
thereto from time to time. Pursuant to the Registration Rights Agreement, Hippo agreed to file a shelf registration statement registering the resale of the Hippo Holdings common stock (including the Hippo warrants and shares of Hippo Holdings common
stock issued or issuable upon the exercise of any other equity security) held by a party immediately following the closing (including any securities distributable pursuant to Merger Agreement and any shares of Hippo Holdings common stock purchased
pursuant to those certain subscription agreements entered into by and between RTPZ and certain qualified institutional buyers and accredited investors (the PIPE Investment) within 30 days of the closing. Up to twice in any 12-month period, RTPZ, Reinvent Capital Fund and the former stockholders of Old Hippo may each request to sell all or any portion of their Registrable Securities (as defined in the Registration Rights Agreement) in
an underwritten offering so long as the total offering price is reasonably expected to exceed $100 million. Hippo also agreed to provide customary piggyback registration rights, subject to certain requirements and customary
conditions. The Registration Rights Agreement also provides that Hippo will pay certain expenses relating to such registrations and indemnify the stockholders against certain liabilities.
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Lockup Agreements
At the closing of the Business Combination, Hippo entered into lock-up agreements with (i) certain
of the Companys directors and officers (as defined in the Merger Agreement) (the Company D&O Lock-Up Agreements), and (ii) each of the major company equityholders (as defined in the
Merger Agreement) (the Major Company Equityholders Lock-Up Agreements).
The Company
D&O Lock-Up Agreements contain certain restrictions on transfer with respect to shares of Hippo Holdings common stock held by the Companys directors and officers immediately following the closing
(other than shares purchased in the public market or in the PIPE Investment) and the shares of Hippo Holdings common stock issuable to the Companys directors and officers upon settlement or exercise of restricted stock units, stock options or
other equity awards outstanding as of immediately following the closing of the Business Combination in respect of equity awards of Hippo outstanding immediately prior to the closing of the Business Combination (the D&O Lock-up Shares). Such restrictions began at the closing and end in tranches of 25% of the D&O Lock-up Shares on (i) February 2, 2022, (ii) August 2,
2022, (iii) February 2, 2023, and (iv) August 2, 2023. If Hippo completes a transaction that results in a change of control, the D&O Lock-up Shares are released from restriction immediately
prior to such change of control.
Acquisition
In December 2020, Old Hippo acquired First Connect Insurance Services, a wholesale P&C insurance provider for independent agents interested
in gaining access to the advanced quoting platforms that are provided by insurtech companies. One of Hippos directors and executive officers, Richard McCathron, was the President and Chief Executive Officer of First Connect Insurance Services
from 2012 to 2017 and owned greater than 10% of First Connect Insurance Services prior to the time of the transaction. The Company paid Mr. McCathron $6.4 million for his equity interests in First Connect Insurance Services in connection
with the transaction.
Commercial Transactions
Our subsidiary Spinnaker Insurance Company entered into a Homeowners Quota Share Reinsurance Contract with Mitsui Sumitomo Insurance Co., Ltd.
effective January 1, 2021 relating to the cession of certain premiums and liabilities for business written by or through Hippo Analytics, Inc. Mitsui Sumitomo Insurance Co., Ltd. is currently and was at the time the agreement was executed a
beneficial owner of more than 5% of Hippo or Old Hippo capital stock.
In February 2020, Comcast Neptune, LLC assumed the Master Services
Agreement between Loop Labs, Inc. d/b/a Notion and Old Hippo. Comcast Neptune, LLC and/or its affiliated funds are former beneficial owners of more than 5% of outstanding Hippo or Old Hippo capital stock. Old Hippo incurred a total of
$3.2 million of expenses during the year ended December 31, 2020 related to this services agreement. Hippo incurred a total of $2.7 million of expenses during the year ended December 31, 2021 related to this services agreement.
In October 2020, Old Hippo entered into a Master Services Agreement with Forecast Labs, LLC, which operates a startup studio for Comcast
Ventures, LP, which provides accelerator and incubator services to select portfolio companies of Comcast Ventures. At the time the agreement was executed, Comcast Ventures and its affiliated funds were beneficial owners of more than 5% of
outstanding Old Hippo capital stock. Old Hippo incurred a total of $2.2 million of expenses during the years ended December 31, 2020 and 2019 related to this agreement. Hippo incurred a total of $1.7 million of expenses during the
year ended December 31, 2021 related to this agreement.
In February 2018, Old Hippo entered into a
Co-Marketing Program Agreement with Comcast Warranty and Home Insurance Agency, LLC. Comcast Warranty and Home Insurance, LLC and/or its affiliated funds are former beneficial owners of more than 5% of
outstanding Hippo or Old Hippo capital stock. Old Hippo incurred
126
a total of $500,000 of expenses during the years ended December 31, 2020, 2019 and 2018 related to this program agreement. Hippo incurred a total of $191,000 of expenses during the year
ended December 31, 2021 related to this program agreement.
In April 2019, Old Hippo entered into a Limited Liability Company
Agreement with CalAtlantic Title Group, LLC, an affiliate of Lennar Insurance Agency, LLC, in connection with the acquisition of North American Advantage Insurance Services, LLC. Lennar Insurance Agency, LLC and its affiliated funds were beneficial
owners of more than 5% of outstanding Old Hippo capital stock. Old Hippo incurred a total of $3.2 million of expenses and $0.6 million of revenues during the years ended December 31, 2021 and 2020 in connection with agreements between
Hippo and Lennar Insurance Agency, LLC.
In the years ended December 31, 2020 and 2021, we paid to
Cal-Atlantic Title Group, LLC, an affiliate of Lennar Insurance Agency, LLC, earnout payments in the amounts of $5.2 million and $3.9 million, respectively, relating to Old Hippos 2019
acquisition of North American Advantage Insurance Services, LLC. There is no limit to the maximum potential earnout payments, as the consideration is based on acquired customers. Lennar Insurance Agency, LLC is affiliated with LEN FW Investor, LLC
and its affiliates, which together beneficially own more than 5% of Hippo capital stock. Eric Feder is an officer of the parent of LEN FW Investor, LLC and is a member of our Board of Directors. For the years ended December 2020 and 2021 we incurred
expenses of $3.7 million due to the signing of Amendment No. 1 to the purchase agreement of North American Advantage Insurance Services, LLC signed in December 2020.
Policies and Procedures for Related Person Transactions
On August 2, 2021, the Board of Directors adopted a written related person transaction policy that sets forth the following policies and
procedures for the review and approval or ratification of related person transactions. A related person transaction is a transaction, arrangement, or relationship (or any series of similar transactions, arrangements, or relationships) in
which Hippo (including any of its subsidiaries and affiliates) was, is or will be a participant and in which any Related Person (as defined below) had, has or will have a direct or indirect material interest. A related person means:
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any person who is, or at any time since the beginning of Hippos last fiscal year was, a director or
executive officer of Hippo or a nominee to become a director of Hippo; |
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any person who is known to be the beneficial owner of more than 5% of any class of Hippos voting
securities; |
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any immediate family member of any of the foregoing persons, which means any child, stepchild, parent,
stepparent, spouse, sibling, mother-in-law, father-in-law,
son-in-law, daughter-in-law, brother- in-law or sister-in-law of a director, executive officer or a beneficial owner of more than 5% of Hippos voting stock, and any person (other than a tenant or employee) sharing the
household of such director, executive officer or beneficial owner of more than 5% of Hippos voting stock; |
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any firm, corporation, or other entity in which any of the foregoing persons is a partner or principal, or in a
similar position, or in which such person has a 5% or greater beneficial ownership interest; and |
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any firm, corporation, or other entity in which any director, executive officer, nominee or more than 5%
beneficial owner is employed (whether or not as an executive officer). |
Hippo has policies and procedures designed to
minimize potential conflicts of interest arising from any dealings it may have with its affiliates and to provide appropriate procedures for the disclosure of any real or potential conflicts of interest that may exist from time to time.
Specifically, pursuant to its charter, the Audit Committee has the responsibility to review related party transactions.
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DESCRIPTION OF SECURITIES
The following summary of certain provisions of our securities does not purport to be complete and is subject to the Certificate of
Incorporation, the Bylaws, the Warrant Agreement and the provisions of applicable law. Copies of the Certificate of Incorporation, the Bylaws and the Warrant Agreement are attached as exhibits to the registration statement of which this prospectus
is a part.
Capital Stock
Authorized
Capitalization
General
The total amount of Hippo Holdings authorized capital stock consists of 2,000,000,000 shares of Hippo Holdings common stock, par value
$0.0001 per share, and 10,000,000 shares of Hippo Holdings preferred stock, par value $0.0001 per share.
The following summary describes
all material provisions of Hippo Holdings capital stock. Hippo Holdings urges you to read the Certificate of Incorporation and the Bylaws.
Preferred Stock
Hippo
Holdings board of directors has authority to issue shares of Hippo Holdings preferred stock in one or more series, to fix for each such series such voting powers, designations, preferences, qualifications, limitations or restrictions
thereof, including dividend rights, conversion rights, redemption privileges and liquidation preferences for the issue of such series all to the fullest extent permitted by the DGCL. The issuance of Hippo Holdings preferred stock could have
the effect of decreasing the trading price of Hippo Holdings common stock, restricting dividends on Hippo Holdings capital stock, diluting the voting power of Hippo Holdings common stock, impairing the liquidation rights of Hippo
Holdings capital stock, or delaying or preventing a change in control of Hippo Holdings.
Redeemable Warrants
Public Warrants
Public warrants refer to
our companys warrants that were offered and sold in our initial public offering pursuant to a registration statement. As of December 31, 2021, there were 4,600,000 public warrants outstanding. Each whole warrant entitles the registered
holder to purchase one share of Hippo Holdings common stock at a price of $11.50 per share, subject to adjustment as discussed below, provided that there is an effective registration statement under the Securities Act covering the shares of our
common stock issuable upon exercise of the warrants and a current prospectus relating to them available (or we permit holders to exercise their warrants on a cashless basis under the circumstances specified in the Warrant Agreement) and such shares
are registered, qualified or exempt from registration under the securities, or blue sky, laws of the state of residence of the holder. Pursuant to the Warrant Agreement, a warrant holder may exercise his, her or its warrants only for a whole number
of shares of Hippo Holdings common stock. This means only a whole warrant may be exercised at a given time by a warrant holder. The warrants will expire on August 2, 2026 at 5:00 p.m., New York City time, or earlier upon redemption or
liquidation.
Hippo Holdings is not obligated to deliver any shares of Hippo Holdings common stock pursuant to the exercise of a warrant
and will have no obligation to settle such warrant exercise unless a registration statement under the Securities Act covering the issuance of the Hippo Holdings common stock issuable upon exercise of the warrants is then effective and a current
prospectus relating thereto is current, subject to Hippo Holdings satisfying its obligations described below with respect to registration, or a valid exemption from registration is
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available. No warrant is exercisable for cash or on a cashless basis, and Hippo Holdings is not obligated to issue any shares to holders seeking to exercise their warrants, unless the issuance of
the shares upon such exercise is registered or qualified under the securities laws of the state of the exercising holder, or an exemption is available. In the event that the conditions in the two immediately preceding sentences are not satisfied
with respect to a warrant, the holder of such warrant will not be entitled to exercise such warrant and such warrant may have no value and expire worthless.
We have agreed to use our commercially reasonable efforts to maintain the effectiveness of a registration statement covering the issuance,
under the Securities Act, of the shares of common stock issuable upon exercise of the warrants, and a current prospectus relating thereto, until the expiration of the warrants in accordance with the provisions of the Warrant Agreement.
Notwithstanding the above, if shares of Hippo Holdings common stock are, at the time of any exercise of a warrant, not listed on a national securities exchange such that they satisfy the definition of a covered security under
Section 18(b)(1) of the Securities Act, Hippo Holdings may, at its option, require holders of public warrants who exercise their warrants to do so on a cashless basis in accordance with Section 3(a)(9) of the Securities Act
and, in the event Hippo Holdings so elects, Hippo Holdings will not be required to file or maintain in effect a registration statement, but will use its commercially reasonable efforts to register or qualify the shares under applicable blue sky laws
to the extent an exemption is not available. In the case of a cashless exercise, each holder would pay the exercise price by surrendering the warrants for that number of shares of Hippo Holdings common stock equal to the lesser of (A) the
quotient obtained by dividing (x) the product of the number of shares of Hippo Holdings common stock underlying the warrants, multiplied by the excess of the fair market value (defined below) less the exercise price of the warrants
by (y) the fair market value and (B) 0.361 shares of Hippo Holdings common stock per warrant. The fair market value as used in the preceding sentence shall mean the volume weighted average price of the Hippo Holdings common stock
for the 10 trading days ending on the trading day prior to the date on which the notice of exercise is received by the warrant agent.
Redemption of warrants when the price per share of Hippo Holdings common stock equals or exceeds $18.00. Once the warrants become
exercisable, Hippo Holdings may redeem the outstanding warrants (except as described herein with respect to the private placement warrants):
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in whole and not in part; |
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at a price of $0.01 per warrant; |
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upon not less than 30 days prior written notice of redemption to each warrant holder; and
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if, and only if, the last reported sale price of the Hippo Holdings common stock for any 20 trading days within a
30-trading day period ending on the third trading day prior to the date on which Hippo Holdings send the notice of redemption to the warrant holders (the Reference Value) equals or exceeds $18.00
per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like). |
Hippo
Holdings will not redeem the warrants as described above unless a registration statement under the Securities Act covering the issuance of the Hippo Holdings common stock issuable upon exercise of the warrants is then effective and a current
prospectus relating to that Hippo Holdings common stock is available throughout the 30-day redemption period. If and when the warrants become redeemable by Hippo Holdings, Hippo Holdings may exercise its
redemption right even if it is unable to register or qualify the underlying securities for sale under all applicable state securities laws.
The last of the redemption criterion discussed above has been established to prevent a redemption call unless there is at the time of the call
a significant premium to the warrant exercise price. If the foregoing conditions are satisfied and Hippo Holdings issues a notice of redemption of the warrants, each warrant holder will be entitled to exercise his, her or its warrant prior to the
scheduled redemption date. However, the price of the Hippo Holdings common stock may fall below the $18.00 redemption trigger price (as adjusted for as
129
adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) as well as the $11.50 (for whole shares) warrant exercise price after the redemption notice is issued.
Redemption of warrants when the price per share of Hippo Holdings common stock equals or exceeds $10.00. Once the warrants become
exercisable, Hippo Holdings may redeem the outstanding warrants:
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in whole and not in part; |
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at $0.10 per warrant upon a minimum of 30 days prior written notice of redemption provided that holders
will be able to exercise their warrants on a cashless basis prior to redemption and receive that number of shares determined by reference to the table below, based on the redemption date and the fair market value (as defined below) of
Hippo Holdings common stock except as otherwise described below; |
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if, and only if, the Reference Value (as defined above) equals or exceeds $10.00 per share (as adjusted for stock
splits, stock dividends, reorganizations, recapitalizations and the like); and |
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if the Reference Value is less than $18.00 per share (as adjusted for as adjusted for stock splits, stock
dividends, reorganizations, recapitalizations and the like), the private placement warrants must also be concurrently called for redemption on the same terms as the outstanding public warrants, as described above. |
During the period beginning on the date the notice of redemption is given, holders may elect to exercise their warrants on a cashless basis.
The numbers in the table below represent the number of shares of Hippo Holdings common stock that a warrant holder will receive upon such cashless exercise in connection with a redemption by Hippo Holdings pursuant to this redemption feature, based
on the fair market value of Hippo Holdings common stock on the corresponding redemption date (assuming holders elect to exercise their warrants and such warrants are not redeemed for $0.10 per warrant), determined for these purposes
based on the volume weighted average price of Hippo Holdings common stock during the 10 trading days immediately following the date on which the notice of redemption is sent to the holders of warrants, and the number of months that the corresponding
redemption date precedes the expiration date of the warrants, each as set forth in the table below. Hippo Holdings will provide the warrant holders with the final fair market value no later than one business day after the 10-trading day period described above ends.
The share prices set forth in the column headings of the
table below will be adjusted as of any date on which the number of shares issuable upon exercise of a warrant or the exercise price of a warrant is adjusted as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the
like. If the number of shares issuable upon exercise of a warrant is adjusted, the adjusted share prices in the column headings will equal the share prices immediately prior to such adjustment, multiplied by a fraction, the numerator of which is the
number of shares deliverable upon exercise of a warrant immediately prior to such adjustment and the denominator of which is the number of shares deliverable upon exercise of a warrant as so adjusted. The number of shares in the table below shall be
adjusted in the same manner and at the same time as the number of shares issuable upon exercise of a warrant.
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Fair Market Value of Hippo Holdings Common Stock |
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Redemption Date (period to expiration of warrants) |
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≤10.00 |
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11.00 |
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12.00 |
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13.00 |
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14.00 |
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15.00 |
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16.00 |
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17.00 |
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≥18.00 |
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60 months |
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0.261 |
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0.281 |
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0.297 |
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0.311 |
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0.324 |
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0.337 |
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0.348 |
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0.358 |
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0.361 |
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57 months |
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0.257 |
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0.277 |
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0.294 |
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0.310 |
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0.324 |
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0.337 |
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0.348 |
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0.358 |
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0.361 |
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54 months |
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0.252 |
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0.272 |
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0.291 |
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0.307 |
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0.322 |
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0.335 |
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0.347 |
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0.357 |
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0.361 |
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51 months |
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0.246 |
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0.268 |
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0.287 |
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0.304 |
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0.320 |
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0.333 |
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0.346 |
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0.357 |
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0.361 |
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48 months |
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0.241 |
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0.263 |
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0.283 |
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0.301 |
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0.317 |
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0.332 |
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0.344 |
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0.356 |
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0.361 |
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45 months |
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0.235 |
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0.258 |
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0.279 |
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0.298 |
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0.315 |
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0.330 |
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0.343 |
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0.356 |
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0.361 |
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42 months |
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0.228 |
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0.252 |
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0.274 |
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0.294 |
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0.312 |
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0.328 |
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0.342 |
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0.355 |
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0.361 |
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Fair Market Value of Hippo Holdings Common Stock |
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Redemption Date (period to expiration of warrants) |
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≤10.00 |
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11.00 |
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12.00 |
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13.00 |
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14.00 |
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15.00 |
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16.00 |
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17.00 |
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≥18.00 |
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39 months |
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0.221 |
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0.246 |
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0.269 |
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0.290 |
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0.309 |
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0.325 |
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0.340 |
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0.354 |
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0.361 |
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36 months |
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0.213 |
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0.239 |
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0.263 |
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0.285 |
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0.305 |
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0.323 |
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0.339 |
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0.353 |
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0.361 |
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33 months |
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0.205 |
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0.232 |
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0.257 |
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|
|
0.280 |
|
|
|
0.301 |
|
|
|
0.320 |
|
|
|
0.337 |
|
|
|
0.352 |
|
|
|
0.361 |
|
30 months |
|
|
0.196 |
|
|
|
0.224 |
|
|
|
0.250 |
|
|
|
0.274 |
|
|
|
0.297 |
|
|
|
0.316 |
|
|
|
0.335 |
|
|
|
0.351 |
|
|
|
0.361 |
|
27 months |
|
|
0.185 |
|
|
|
0.214 |
|
|
|
0.242 |
|
|
|
0.268 |
|
|
|
0.291 |
|
|
|
0.313 |
|
|
|
0.332 |
|
|
|
0.350 |
|
|
|
0.361 |
|
24 months |
|
|
0.173 |
|
|
|
0.204 |
|
|
|
0.233 |
|
|
|
0.260 |
|
|
|
0.285 |
|
|
|
0.308 |
|
|
|
0.329 |
|
|
|
0.348 |
|
|
|
0.361 |
|
21 months |
|
|
0.161 |
|
|
|
0.193 |
|
|
|
0.223 |
|
|
|
0.252 |
|
|
|
0.279 |
|
|
|
0.304 |
|
|
|
0.326 |
|
|
|
0.347 |
|
|
|
0.361 |
|
18 months |
|
|
0.146 |
|
|
|
0.179 |
|
|
|
0.211 |
|
|
|
0.242 |
|
|
|
0.271 |
|
|
|
0.298 |
|
|
|
0.322 |
|
|
|
0.345 |
|
|
|
0.361 |
|
15 months |
|
|
0.130 |
|
|
|
0.164 |
|
|
|
0.197 |
|
|
|
0.230 |
|
|
|
0.262 |
|
|
|
0.291 |
|
|
|
0.317 |
|
|
|
0.342 |
|
|
|
0.361 |
|
12 months |
|
|
0.111 |
|
|
|
0.146 |
|
|
|
0.181 |
|
|
|
0.216 |
|
|
|
0.250 |
|
|
|
0.282 |
|
|
|
0.312 |
|
|
|
0.339 |
|
|
|
0.361 |
|
9 months |
|
|
0.090 |
|
|
|
0.125 |
|
|
|
0.162 |
|
|
|
0.199 |
|
|
|
0.237 |
|
|
|
0.272 |
|
|
|
0.305 |
|
|
|
0.336 |
|
|
|
0.361 |
|
6 months |
|
|
0.065 |
|
|
|
0.099 |
|
|
|
0.137 |
|
|
|
0.178 |
|
|
|
0.219 |
|
|
|
0.259 |
|
|
|
0.296 |
|
|
|
0.331 |
|
|
|
0.361 |
|
3 months |
|
|
0.034 |
|
|
|
0.065 |
|
|
|
0.104 |
|
|
|
0.150 |
|
|
|
0.197 |
|
|
|
0.243 |
|
|
|
0.286 |
|
|
|
0.326 |
|
|
|
0.361 |
|
0 months |
|
|
|
|
|
|
|
|
|
|
0.042 |
|
|
|
0.115 |
|
|
|
0.179 |
|
|
|
0.233 |
|
|
|
0.281 |
|
|
|
0.323 |
|
|
|
0.361 |
|
The exact fair market value and redemption date may not be set forth in the table above, in which case, if the
fair market value is between two values in the table or the redemption date is between two redemption dates in the table, the number of shares of Hippo Holdings common stock to be issued for each warrant exercised will be determined by a
straight-line interpolation between the number of shares set forth for the higher and lower fair market values and the earlier and later redemption dates, as applicable, based on a 365 or 366-day year, as
applicable. For example, if the volume weighted average price of Hippo Holdings common stock during the 10 trading days immediately following the date on which the notice of redemption is sent to the holders of the warrants is $11.00 per share, and
at such time there are 57 months until the expiration of the warrants, holders may choose to, in connection with this redemption feature, exercise their warrants for 0.277 shares of Hippo Holdings common stock for each whole warrant. For an example
where the exact fair market value and redemption date are not as set forth in the table above, if the volume weighted average price of Hippo Holdings common stock during the 10 trading days immediately following the date on which the notice of
redemption is sent to the holders of the warrants is $13.50 per share, and at such time there are 38 months until the expiration of the warrants, holders may choose to, in connection with this redemption feature, exercise their warrants for 0.298
shares of Hippo Holdings common stock for each whole warrant. In no event will the warrants be exercisable in connection with this redemption feature for more than 0.361 shares of Hippo Holdings common stock per warrant (subject to adjustment).
Finally, as reflected in the table above, if the warrants are out of the money and about to expire, they cannot be exercised on a cashless basis in connection with a redemption by Hippo Holdings pursuant to this redemption feature, since they will
not be exercisable for any shares of Hippo Holdings common stock.
This redemption feature is structured to allow for all of the
outstanding warrants to be redeemed when the Hippo Holdings common stock is trading at or above $10.00 per share, which may be at a time when the trading price of the Hippo Holdings common stock is below the exercise price of the warrants. This
redemption feature has been established to provide Hippo Holdings with the flexibility to redeem the warrants without the warrants having to reach the $18.00 per share threshold set forth above under - Redemption of warrants when the price per
share of Hippo Holdings common stock equals or exceeds $18.00. This redemption right provides Hippo Holdings with an additional mechanism by which to redeem all of the outstanding warrants, and therefore have certainty as to its capital
structure as the warrants would no longer be outstanding and would have been exercised or redeemed. Hippo Holdings will be required to pay the applicable redemption price to warrant holders if it chooses to exercise this redemption right and it will
allow Hippo Holdings to quickly proceed with a redemption of the warrants if it determine it is in its best interest to do so. As such, Hippo Holdings would redeem the warrants in this manner when it believe it is in its best interest to update its
capital structure to remove the warrants and pay the redemption price to the warrant holders.
131
As stated above, Hippo Holdings can redeem the warrants when the Hippo Holdings common stock
is trading at a price starting at $10.00 per share, which is below the exercise price of $11.50 per share, because it will provide certainty with respect to Hippo Holdings capital structure and cash position while providing warrant holders
with the opportunity to exercise their warrants on a cashless basis for the applicable number of shares. If Hippo Holdings chooses to redeem the warrants when the Hippo Holdings common stock is trading at a price below the exercise price of the
warrants, this could result in the warrant holders receiving fewer shares of Hippo Holdings common stock than they would have received if they had chosen to wait to exercise their warrants for Hippo Holdings common stock if and when such Hippo
Holdings common stock was trading at a price higher than the exercise price of $11.50.
No fractional shares of Hippo Holdings common
stock will be issued upon exercise. If, upon exercise, a holder would be entitled to receive a fractional interest in a share, Hippo Holdings will round down to the nearest whole number of the number of shares of Hippo Holdings common stock to be
issued to the holder. If, at the time of redemption, the warrants are exercisable for a security other than Hippo Holdings common stock pursuant to the Warrant Agreement, the warrants may be exercised for such security. At such time as the warrants
become exercisable for a security other than Hippo Holdings common stock, Hippo Holdings (or the surviving company) will use its commercially reasonable efforts to register under the Securities Act the security issuable upon the exercise of the
warrants.
Redemption procedures. A holder of a warrant may notify Hippo Holdings in writing in the event it elects to be subject
to a requirement that such holder will not have the right to exercise such warrant, to the extent that after giving effect to such exercise, such person (together with such persons affiliates), to the warrant agents actual knowledge,
would beneficially own in excess of 9.8% (or such other amount as a holder may specify) of the shares of Hippo Holdings common stock issued and outstanding immediately after giving effect to such exercise.
Anti-dilution Adjustments. If the number of issued and outstanding shares of Hippo Holdings common stock is increased by a
capitalization or share dividend payable in shares of Hippo Holdings common stock, or by a split-up of Hippo Holdings common stock or other similar event, then, on the effective date of such capitalization or
share dividend, split-up or similar event, the number of shares of Hippo Holdings common stock issuable on exercise of each warrant will be increased in proportion to such increase in the issued and
outstanding shares of Hippo Holdings common stock. A rights offering made to all or substantially all holders of Hippo Holdings common stock entitling holders to purchase Hippo Holdings common stock at a price less than the historical fair
market value (as defined below) will be deemed a share dividend of a number shares of Hippo Holdings common stock equal to the product of (1) the number of shares of Hippo Holdings common stock actually sold in such rights offering (or
issuable under any other equity securities sold in such rights offering that are convertible into or exercisable for Hippo Holdings common stock) and (2) one minus the quotient of (x) the price per share of Hippo Holdings common stock paid
in such rights offering and (y) the historical fair market value. For these purposes, (1) if the rights offering is for securities convertible into or exercisable for Hippo Holdings common stock, in determining the price payable for Hippo
Holdings common stock, there will be taken into account any consideration received for such rights, as well as any additional amount payable upon exercise or conversion and (2) historical fair market value means the volume weighted
average price of Hippo Holdings common stock during the 10 trading day period ending on the trading day prior to the first date on which the Hippo Holdings common stock trade on the applicable exchange or in the applicable market, regular way,
without the right to receive such rights.
In addition, if Hippo Holdings, at any time while the warrants are outstanding and unexpired,
pay to all or substantially all of the holders of Hippo Holdings common stock a dividend or make a distribution in cash, securities or other assets to the holders of Hippo Holdings common stock on account of such Hippo Holdings common stock (or
other securities into which the warrants are convertible), other than (a) as described above or (b) any cash dividends or cash distributions which, when combined on a per share basis with all other cash dividends and cash distributions
paid on the Hippo Holdings common stock during the 365-day period ending on
132
the date of declaration of such dividend or distribution does not exceed $0.50 (as adjusted for share sub-divisions, share dividends, rights issuances,
consolidations, reorganizations, recapitalizations and other similar transactions) but only with respect to the amount of the aggregate cash dividends or cash distributions equal to or less than $0.50 per share, then the warrant exercise price will
be decreased, effective immediately after the effective date of such event, by the amount of cash and/or the fair market value of any securities or other assets paid on each share of Hippo Holdings common stock in respect of such event.
If the number of issued and outstanding shares of Hippo Holdings common stock is decreased by a consolidation, combination, reverse share sub-division or reclassification of Hippo Holdings common stock or other similar event, then, on the effective date of such consolidation, combination, reverse share
sub-division, reclassification or similar event, the number of shares of Hippo Holdings common stock issuable on exercise of each warrant will be decreased in proportion to such decrease in issued and
outstanding Hippo Holdings common stock.
Whenever the number of shares of Hippo Holdings common stock purchasable upon the exercise of
the warrants is adjusted, as described above, the warrant exercise price will be adjusted by multiplying the warrant exercise price immediately prior to such adjustment by a fraction (x) the numerator of which will be the number of shares of
Hippo Holdings common stock purchasable upon the exercise of the warrants immediately prior to such adjustment and (y) the denominator of which will be the number of shares of Hippo Holdings common stock so purchasable immediately thereafter.
In case of any reclassification or reorganization of the issued and outstanding Hippo Holdings common stock (other than those described
above or that solely affects the par value of such Hippo Holdings common stock), or in the case of a merger or consolidation of Hippo Holdings with or into another corporation (other than a merger or consolidation in which Hippo Holdings is the
continuing corporation and that does not result in any reclassification or reorganization of the issued and outstanding Hippo Holdings common stock), or in the case of any sale or conveyance to another corporation or entity of the assets or other
property of Hippo Holdings as an entirety or substantially as an entirety in connection with which Hippo Holdings is dissolved, the holders of the warrants will thereafter have the right to purchase and receive, upon the basis and upon the terms and
conditions specified in the warrants and in lieu of Hippo Holdings common stock immediately theretofore purchasable and receivable upon the exercise of the rights represented thereby, the kind and amount of shares, stock or other equity securities
or property (including cash) receivable upon such reclassification, reorganization, merger or consolidation, or upon a dissolution following any such sale or transfer, that the holder of the warrants would have received if such holder had exercised
their warrants immediately prior to such event. However, if such holders were entitled to exercise a right of election as to the kind or amount of securities, cash or other assets receivable upon such merger or consolidation, then the kind and
amount of securities, cash or other assets for which each warrant will become exercisable will be deemed to be the weighted average of the kind and amount received per share by such holders in such merger or consolidation that affirmatively make
such election, and if a tender, exchange or redemption offer has been made to and accepted by such holders under circumstances in which, upon completion of such tender or exchange offer, the maker thereof, together with members of any group (within
the meaning of Rule 13d-5(b)(1) under the Exchange Act) of which such maker is a part, and together with any affiliate or associate of such maker (within the meaning of Rule
12b-2 under the Exchange Act) and any members of any such group of which any such affiliate or associate is a part, own beneficially (within the meaning of Rule 13d-3
under the Exchange Act) more than 50% of the issued and outstanding Hippo Holdings common stock, the holder of a warrant will be entitled to receive the highest amount of cash, securities or other property to which such holder would actually have
been entitled as a shareholder if such warrant holder had exercised the warrant prior to the expiration of such tender or exchange offer, accepted such offer and all of the shares of Hippo Holdings common stock held by such holder had been purchased
pursuant to such tender or exchange offer, subject to adjustment (from and after the consummation of such tender or exchange offer) as nearly equivalent as possible to the adjustments provided for in the Warrant Agreement. Additionally, if less than
70% of the consideration receivable by the holders of Hippo Holdings common stock in such a transaction is payable in the form of RTPZ Class A ordinary shares in the successor entity that is listed for trading on a national
133
securities exchange or is quoted in an established over-the-counter market, or is to be so listed for trading or
quoted immediately following such event, and if the registered holder of the warrant properly exercises the warrant within 30 days following public disclosure of such transaction, the warrant exercise price will be reduced as specified in the
Warrant Agreement based on the per share consideration minus Black-Scholes Warrant Value (as defined in the Warrant Agreement) of the warrant.
You should review a copy of the Warrant Agreement, which was filed as an exhibit to this registration statement, for a complete description of
the terms and conditions applicable to the warrants.
The warrant holders do not have the rights or privileges of holders of Hippo
Holdings common stock until they exercise their warrants and receive Hippo Holdings common stock. After the issuance of Hippo Holdings common stock upon exercise of the warrants, each holder will be entitled to one vote for each share held of record
on all matters to be voted on by shareholders.
Subject to applicable law, any action, proceeding or claim against Hippo Holdings arising
out of or relating in any way to the Warrant Agreement will be brought and enforced in the courts of the State of New York or the United States District Court for the Southern District of New York, and Hippo Holdings irrevocably submits to such
jurisdiction, which jurisdiction will be the exclusive forum for any such action, proceeding or claim. This provision applies to claims under the Securities Act but does not apply to claims under the Exchange Act or any claim for which the federal
district courts of the United States of America are the sole and exclusive forum.
Private Placement Warrants
Private placement warrants refer to the warrants issued in a private placement to Reinvent Sponsor Z LLC (the Sponsor). As of
December 31, 2021, there were 4,400,000 private placement warrants outstanding. The private placement warrants (including the Hippo Holdings common stock issuable upon exercise of the private placement warrants) are not redeemable by Hippo
Holdings so long as they are held by the Sponsor or its permitted transferees. The Sponsor, or its permitted transferees, has the option to exercise the private placement warrants on a cashless basis. Except as described below, the private placement
warrants have terms and provisions that are identical to those of the public warrants. If the private placement warrants are held by holders other than the Sponsor or its permitted transferees, the private placement warrants will be redeemable by
Hippo Holdings in all redemption scenarios and exercisable by the holders on the same basis as the public warrants.
Except as described
above under the heading Redemption of warrants when the price per share of Hippo Holdings common stock equals or exceeds $10.00, if holders of the private placement warrants elect to exercise them on a cashless basis, they would pay the
exercise price by surrendering their warrants for that number of shares of Hippo Holdings common stock equal to the quotient obtained by dividing (x) the product of the number of shares of Hippo Holdings common stock underlying the warrants,
multiplied by the excess of the sponsor fair market value (defined below) less the exercise price of the warrants by (y) the sponsor fair market value. For these purposes, the sponsor fair market value shall mean the
average last reported sale price of the Hippo Holdings common stock for the 10 trading days ending on the third trading day prior to the date on which the notice of warrant exercise is sent to the warrant agent.
Common Stock
Hippo Holdings
common stock does not entitle its holders to preemptive or other similar subscription rights to purchase any of Hippo Holdings securities. Hippo Holdings common stock is neither convertible nor redeemable. Unless Hippo Holdings board of
directors determines otherwise, Hippo Holdings will issue all of Hippo Holdings capital stock in uncertificated form.
134
Voting Rights
Each holder of Hippo Holdings common stock is entitled to one vote per share on each matter submitted to a vote of stockholders, as provided by
the Certificate of Incorporation. The Bylaws provide that the holders of a majority of the capital stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, will constitute a quorum at all meetings of the
stockholders for the transaction of business. When a quorum is present, the affirmative vote of a majority of the votes cast is required to take action, unless otherwise specified by law, the Bylaws or the Certificate of Incorporation, and except
for the election of directors, which is determined by a plurality vote. There are no cumulative voting rights. In addition, the affirmative vote of holders of 66 2/3% of the voting power of all of the then outstanding voting stock will be required
to take certain actions, including amending certain provisions of our Certificate of Incorporation, such as the provisions relating to amending our Bylaws, the classified board and director liability.
Dividend Rights
Each holder of
shares of Hippo Holdings capital stock is entitled to the payment of dividends and other distributions as may be declared by Hippo Holdings board of directors from time to time out of Hippo Holdings assets or funds legally
available for dividends or other distributions. These rights are subject to the preferential rights of the holders of Hippo Holdings preferred stock, if any, and any contractual limitations on Hippo Holdings ability to declare and pay
dividends.
Other Rights
The
rights of each holder of Hippo Holdings common stock are subject to, and may be adversely affected by, the rights of the holders of any series of Hippo Holdings preferred stock that Hippo Holdings may designate and issue in the future.
Liquidation Rights
If Hippo
Holdings is involved in voluntary or involuntary liquidation, dissolution or winding up of Hippo Holdings affairs, or a similar event, each holder of Hippo Holdings common stock will participate pro rata in all assets remaining after payment
of liabilities, subject to prior distribution rights of Hippo Holdings preferred stock, if any, then outstanding.
Anti-takeover Effects of the
Certificate of Incorporation and the Bylaws
The Certificate of Incorporation and the Bylaws contain provisions that may delay, defer
or discourage another party from acquiring control of Hippo Holdings. Hippo Holdings expects that these provisions, which are summarized below, will discourage coercive takeover practices or inadequate takeover bids. These provisions are also
designed to encourage persons seeking to acquire control of Hippo Holdings to first negotiate with Hippo Holdings board of directors, which Hippo Holdings believes may result in an improvement of the terms of any such acquisition in favor of
Hippo Holdings stockholders. However, they also give Hippo Holdings board of directors the power to discourage mergers that some stockholders may favor.
Undesignated Preferred Stock
The
Certificate of Incorporation provides Hippo Holdings board of directors with the ability to authorize undesignated preferred stock will make it possible for Hippo Holdings board of directors to issue preferred stock with voting or other
rights or preferences that could impede the success of any attempt to change control of Hippo Holdings. These and other provisions may have the effect of deterring hostile takeovers or delaying changes in control or management of Hippo Holdings.
135
Classified Board of Directors
The Certificate of Incorporation provides that Hippo Holdings board of directors is divided into three classes of directors, with the
classes to be as nearly equal in number as possible, and with each director serving a three-year term. As a result, approximately one-third of the board of directors will be elected each year. The
classification of directors has the effect of making it more difficult for stockholders to change the composition of Hippo Holdings board of directors.
Special Meetings of Stockholders
The
Certificate of Incorporation provides that a special meeting of stockholders may be called by the (a) the Chairperson of Hippo Holdings board of directors, (b) Hippo Holdings board of directors, (c) the Chief Executive
Officer of Hippo Holdings or (d) the President of Hippo Holdings, provided that such special meeting may be postponed, rescheduled or cancelled by Hippo Holdings board of directors or other person calling the meeting.
Requirements for Advance Notification of Stockholder Nominations and Proposals
The Bylaws establish advance notice procedures with respect to stockholder proposals and the nomination of candidates for election as
directors, other than nominations made by or at the direction of the board of directors or a committee of the board of directors.
Action by Written
Consent
The Certificate of Incorporation provides that any action required or permitted to be taken by the stockholders must be
effected at an annual or special meeting of the stockholders, and may not be taken by written consent in lieu of a meeting.
Removal of Directors
Hippo Holdings board of directors or any individual director may be removed from office at any time, but only for cause and only
by the affirmative vote of the holders of at least a majority of the voting power of all of the then outstanding shares of voting stock of Hippo Holdings entitled to vote at an election of directors.
Delaware Anti-Takeover Statute
Section 203 of the DGCL provides that if a person acquires 15% or more of the voting stock of a Delaware corporation, such person becomes
an interested stockholder and may not engage in certain business combinations with such corporation for a period of three years from the time such person acquired 15% or more of such corporations voting stock, unless:
(1) the board of directors of such corporation approves the acquisition of stock or the merger transaction before the time that the person becomes an interested stockholder, (2) the interested stockholder owns at least 85% of the
outstanding voting stock of such corporation at the time the merger transaction commences (excluding voting stock owned by directors who are also officers and certain employee stock plans), or (3) the merger transaction is approved by the board
of directors and at a meeting of stockholders, not by written consent, by the affirmative vote of 2/3 of the outstanding voting stock which is not owned by the interested stockholder. A Delaware corporation may elect in its certificate of
incorporation or bylaws not to be governed by this particular Delaware law. Under the Certificate of Incorporation, Hippo Holdings opted out of Section 203 of the DGCL, but the Certificate of Incorporation provides other similar restrictions
regarding takeovers by interested stockholders.
Limitations on Liability and Indemnification of Officers and Directors
The Certificate of Incorporation provides that Hippo Holdings will indemnify Hippo Holdings officers and directors to the fullest extent
authorized or permitted by applicable law. Hippo Holdings has entered into and
136
expects to continue to enter into agreements to indemnify Hippo Holdings directors, executive officers and other employees as determined by Hippo Holdings board of directors. Under
the Bylaws, Hippo Holdings is required to indemnify each of Hippo Holdings directors and officers if the basis of the indemnitees involvement was by reason of the fact that the indemnitee is or was a director or officer of Hippo Holdings
or was serving at Hippo Holdings request as a director, officer, employee or agent for another entity. Hippo Holdings must indemnify Hippo Holdings officers and directors against all expenses (including attorneys fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by the indemnitee in connection with such action, suit or proceeding if the indemnitee acted in good faith and in a manner the indemnitee reasonably believed to be in or not
opposed to the best interests of Hippo Holdings, and, with respect to any criminal action or proceeding, had no reasonable cause to believe the indemnitees conduct was unlawful. The Bylaws also require Hippo Holdings to advance expenses
(including attorneys fees) incurred by a director or officer in defending any civil, criminal, administrative or investigative action, suit or proceeding, provided that such person will repay any such advance if it is ultimately determined
that such person is not entitled to indemnification by Hippo Holdings. Any claims for indemnification by Hippo Holdings directors and officers may reduce Hippo Holdings available funds to satisfy successful third-party claims against
Hippo Holdings and may reduce the amount of money available to Hippo Holdings.
Exclusive Jurisdiction of Certain Actions
Our Certificate of Incorporation and Bylaws provide, that: (i) unless Hippo Holdings consents in writing to the selection of an
alternative forum, the Court of Chancery of the State of Delaware (or, if such court does not have subject matter jurisdiction thereof, the federal district court of the State of Delaware) will, to the fullest extent permitted by law, be the sole
and exclusive forum for: (A) any derivative action or proceeding brought on behalf of Hippo Holdings, (B) any action asserting a claim for or based on a breach of a fiduciary duty owed by any of Hippo Holdings current or former
director, officer, other employee, agent or stockholder to the company or Hippo Holdings stockholders, including without limitation a claim alleging the aiding and abetting of such a breach of fiduciary duty, (C) any action asserting a
claim against the company or any of our current or former director, officer, employee, agent or stockholder arising pursuant to any provision of the DGCL or the Certificate of Incorporation, Bylaws or as to which the DGCL confers jurisdiction on the
Court of Chancery of the State of Delaware, or (D) any action asserting a claim related to or involving the company that is governed by the internal affairs doctrine; (ii) unless Hippo Holdings consents in writing to the selection of an
alternative forum, the federal district courts of the United States will, to the fullest extent permitted by law, be the sole and exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act, and
the rules and regulations promulgated thereunder; (iii) any person or entity purchasing or otherwise acquiring or holding any interest in shares of capital stock of the company will be deemed to have notice of and consented to these provisions;
and (iv) failure to enforce the foregoing provisions would cause Hippo Holdings irreparable harm, and Hippo Holdings will be entitled to equitable relief, including injunctive relief and specific performance, to enforce the foregoing
provisions. Nothing in the Certificate of Incorporation or Bylaws precludes stockholders that assert claims under the Exchange Act, from bringing such claims in federal court to the extent that the Exchange Act confers exclusive federal jurisdiction
over such claims, subject to applicable law.
Although the Certificate of Incorporation or Bylaws contain the choice of forum provision
described above, it is possible that a court could find that such a provision is inapplicable for a particular claim or action or that such provision is unenforceable. For example, Section 22 of the Securities Act creates concurrent
jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. Accordingly, there is uncertainty as to whether a court would enforce such a
forum selection provision as written in connection with claims arising under the Securities Act.
Transfer Agent
The transfer agent for Hippo Holdings common stock is Continental Stock Transfer & Trust Company.
137
SECURITIES ACT RESTRICTIONS ON RESALE OF OUR SECURITIES
Pursuant to Rule 144 under the Securities Act (Rule 144), a person who has beneficially owned restricted Hippo Holdings
common stock or Hippo Holdings warrants for at least six months would be entitled to sell their securities provided that (i) such person is not deemed to have been an affiliate of Hippo Holdings at the time of, or at any time during the three
months preceding, a sale and (ii) Hippo Holdings is subject to the Exchange Act periodic reporting requirements for at least three months before the sale and has filed all required reports under Section 13 or 15(d) of the Exchange Act
during the 12 months (or such shorter period as Hippo Holdings was required to file reports) preceding the sale.
Persons who have
beneficially owned restricted Hippo Holdings common stock shares or Hippo Holdings warrants for at least six months but who are affiliates of Hippo Holdings at the time of, or at any time during the three months preceding, a sale, would be subject
to additional restrictions, by which such person would be entitled to sell within any three-month period only a number of securities that does not exceed the greater of:
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|
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1% of the total number of Hippo Holdings common stock then outstanding; or |
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|
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the average weekly reported trading volume of Hippo Holdings common stock during the four calendar weeks
preceding the filing of a notice on Form 144 with respect to the sale. |
Sales by affiliates of Hippo Holdings under Rule
144 are also limited by manner of sale provisions and notice requirements and to the availability of current public information about Hippo Holdings.
Restrictions on the Use of Rule 144 by Shell Companies or Former Shell Companies
Rule 144 is not available for the resale of securities initially issued by shell companies (other than business combination related shell
companies) or issuers that have been at any time previously a shell company. However, Rule 144 also includes an important exception to this prohibition if the following conditions are met:
|
|
|
the issuer of the securities that was formerly a shell company has ceased to be a shell company;
|
|
|
|
the issuer of the securities is subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act; |
|
|
|
the issuer of the securities has filed all Exchange Act reports and material required to be filed, as applicable,
during the preceding 12 months (or such shorter period that the issuer was required to file such reports and materials), other than Form 8-K reports; and |
|
|
|
at least one year has elapsed from the time that the issuer filed current Form 10 type information with the SEC
reflecting its status as an entity that is not a shell company. |
Hippo Holdings is no longer a shell company and so,
once the conditions set forth in the exceptions listed above are satisfied, Rule 144 will become available for the resale of the above-noted restricted securities.
138
PLAN OF DISTRIBUTION
The Selling Securityholders, which as used herein, includes donees, pledgees, transferees, distributees or other successors-in-interest selling shares of our common stock or warrants or interests in our common stock or warrants received after the date of this prospectus from the Selling
Securityholders as a gift, pledge, partnership distribution or other transfer, may, from time to time, sell, transfer, distribute or otherwise dispose of certain of their shares of common stock or warrants or interests in our common stock or
warrants on any stock exchange, market or trading facility on which shares of our common stock or warrants, as applicable, are traded or in private transactions. These dispositions may be at fixed prices, at prevailing market prices at the time of
sale, at prices related to the prevailing market price, at varying prices determined at the time of sale, or at negotiated prices.
The
Selling Securityholders may use any one or more of the following methods when disposing of their shares of common stock or warrants or interests therein:
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|
|
ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
|
|
|
|
one or more underwritten offerings; |
|
|
|
block trades in which the broker-dealer will attempt to sell the shares of common stock or warrants as agent, but
may position and resell a portion of the block as principal to facilitate the transaction; |
|
|
|
purchases by a broker-dealer as principal and resale by the broker-dealer for its accounts;
|
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|
|
an exchange distribution in accordance with the rules of the applicable exchange; |
|
|
|
privately negotiated transactions; |
|
|
|
distributions to their members, partners or shareholders; |
|
|
|
short sales effected after the date of the registration statement of which this prospectus is a part is declared
effective by the SEC; |
|
|
|
through the writing or settlement of options or other hedging transactions, whether through an options exchange
or otherwise; |
|
|
|
in market transactions, including transactions on a national securities exchange or quotations service or over-the-counter market; |
|
|
|
directly to one or more purchasers; |
|
|
|
broker-dealers may agree with the Selling Securityholders to sell a specified number of such shares of common
stock or warrants at a stipulated price per share or warrant; and |
|
|
|
a combination of any such methods of sale. |
The Selling Securityholders may, from time to time, pledge or grant a security interest in some shares of our common stock or warrants owned
by them and, if a Selling Securityholder defaults in the performance of its secured obligations, the pledgees or secured parties may offer and sell such shares of common stock or warrants, as applicable, from time to time, under this prospectus, or
under an amendment or supplement to this prospectus amending the list of the Selling Securityholders to include the pledgee, transferee or other successors in interest as the Selling Securityholders under this prospectus. The Selling Securityholders
also may transfer shares of our common stock or warrants in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.
In connection with the sale of shares of our common stock or warrants or interests therein, the Selling Securityholders may enter into hedging
transactions with broker-dealers or other financial institutions, which
139
may in turn engage in short sales of our common stock or warrants in the course of hedging the positions they assume. The Selling Securityholders may also sell shares of our common stock or
warrants short and deliver these securities to close out their short positions, or loan or pledge shares of our common stock or warrants to broker-dealers that in turn may sell these securities. The Selling Securityholders may also enter into option
or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities that require the delivery to such broker-dealer or other financial institution of shares of our common stock or warrants
offered by this prospectus, which shares or warrants such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).
The aggregate proceeds to the Selling Securityholders from the sale of shares of our common stock or warrants offered by them will be the
purchase price of such shares of our common stock or warrants less discounts or commissions, if any. The Selling Securityholders reserve the right to accept and, together with their agents from time to time, to reject, in whole or in part, any
proposed purchase of share of our common stock or warrants to be made directly or through agents. We will not receive any of the proceeds from any offering by the Selling Securityholders.
The Selling Securityholders also may in the future resell a portion of our common stock or warrants in open market transactions in reliance
upon Rule 144 under the Securities Act, provided that they meet the criteria and conform to the requirements of that rule, or pursuant to other available exemptions from the registration requirements of the Securities Act.
The Selling Securityholders and any underwriters, broker-dealers or agents that participate in the sale of shares of our common stock or
warrants or interests therein may be underwriters within the meaning of Section 2(11) of the Securities Act. Any discounts, commissions, concessions or profit they earn on any resale of shares of our common stock or warrants may be
underwriting discounts and commissions under the Securities Act. If any Selling Securityholder is an underwriter within the meaning of Section 2(11) of the Securities Act, then the Selling Securityholder will be subject to the
prospectus delivery requirements of the Securities Act. Underwriters and their controlling persons, dealers and agents may be entitled, under agreements entered into with us and the Selling Securityholders, to indemnification against and
contribution toward specific civil liabilities, including liabilities under the Securities Act.
To the extent required, our common stock
or warrants to be sold, the respective purchase prices and public offering prices, the names of any agent, dealer or underwriter, and any applicable discounts, commissions, concessions or other compensation with respect to a particular offer will be
set forth in an accompanying prospectus supplement or, if appropriate, a post-effective amendment to the registration statement that includes this prospectus.
To facilitate the offering of shares of our common stock and warrants offered by the Selling Securityholders, certain persons participating in
the offering may engage in transactions that stabilize, maintain or otherwise affect the price of our common stock or warrants. This may include over-allotments or short sales, which involve the sale by persons participating in the offering of more
shares of common stock or warrants than were sold to them. In these circumstances, these persons would cover such over-allotments or short positions by making purchases in the open market or by exercising their over-allotment option, if any. In
addition, these persons may stabilize or maintain the price of our common stock or warrants by bidding for or purchasing shares of common stock or warrants in the open market or by imposing penalty bids, whereby selling concessions allowed to
dealers participating in the offering may be reclaimed if shares of common stock or warrants sold by them are repurchased in connection with stabilization transactions. The effect of these transactions may be to stabilize or maintain the market
price of our common stock or warrants at a level above that which might otherwise prevail in the open market. These transactions may be discontinued at any time.
Under the Registration Rights Agreement, we have agreed to indemnify the Selling Securityholders party thereto against certain liabilities
that they may incur in connection with the sale of the securities registered
140
hereunder, including liabilities under the Securities Act, and to contribute to payments that the Selling Securityholders may be required to make with respect thereto. In addition, we and the
Selling Securityholders have agreed to indemnify any underwriter against certain liabilities related to the selling of the securities, including liabilities arising under the Securities Act.
We have agreed to maintain the effectiveness of this registration statement until all such securities have been sold under this registration
statement or Rule 144 under the Securities Act or are no longer outstanding. We have agreed to pay all expenses in connection with this offering, other than underwriting commissions and discounts, brokerage fees, underwriter marketing costs, and
certain legal expenses. The Selling Securityholders will pay any underwriting commissions and discounts, brokerage fees, underwriter marketing costs, and certain legal expenses relating to the offering.
Selling Securityholders may use this prospectus in connection with resales of shares of our common stock and warrants. This prospectus and any
accompanying prospectus supplement will identify the Selling Securityholders, the terms of our common stock or warrants and any material relationships between us and the Selling Securityholders. Selling Securityholders may be deemed to be
underwriters under the Securities Act in connection with shares of our common stock or warrants they resell and any profits on the sales may be deemed to be underwriting discounts and commissions under the Securities Act. Unless otherwise set forth
in a prospectus supplement, the Selling Securityholders will receive all the net proceeds from the resale of shares of our common stock or warrants.
A Selling Securityholder that is an entity may elect to make an in-kind distribution of common stock
or warrants to its members, partners or shareholders pursuant to the registration statement of which this prospectus is a part by delivering a prospectus. To the extent that such members, partners or shareholders are not affiliates of ours, such
members, partners or shareholders would thereby receive freely tradable shares of common stock or warrants pursuant to the distribution through a registration statement.
We are required to pay all fees and expenses incident to the registration of shares of our common stock and warrants to be offered and sold
pursuant to this prospectus.
141
LEGAL MATTERS
Latham & Watkins LLP has passed upon the validity of the securities of Hippo Holdings offered by this prospectus and certain other
legal matters related to this prospectus.
EXPERTS
The consolidated financial statements of Hippo at December 31, 2021 and 2020, and for each of the two years in the period ended
December 31, 2021 included in this prospectus, have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their report appearing elsewhere herein, and are included in reliance upon such
report given on the authority of such firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE
INFORMATION
We file annual, quarterly and current reports, proxy statements and other information with the SEC pursuant to the
Exchange Act. We have also filed a registration statement on Form S-1, including exhibits, under the Securities Act with respect to the shares of common stock offered by this prospectus. This prospectus is
part of the registration statement, but does not contain all of the information included in the registration statement or the exhibits. Our SEC filings are available to the public on the internet at a website maintained by the SEC located at
www.sec.gov. Those filings are also available to the public on, or accessible through, our investor relations website under the heading Financials at investors.hippo.com. The information on our web site, however, is not, and should not
be deemed to be, a part of this prospectus.
142
HIPPO HOLDINGS INC.
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
Schedules other than those listed are omitted for the reason that they are not required, are not applicable or that equivalent
information has been included in the financial statements or notes thereto or elsewhere herein.
F-1
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Hippo Holdings Inc.
Opinion on the Financial Statements
We have audited the
accompanying consolidated balance sheets of Hippo Holdings Inc. (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive loss, convertible preferred stock and stockholders equity
(deficit) and cash flows for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021,
in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on the Companys financial
statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance
with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not
required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of
expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test
basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Companys auditor since 2019
San
Francisco, California
March 14, 2022
F-2
HIPPO HOLDINGS INC.
Consolidated Balance Sheets
(In millions, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2021 |
|
|
2020 |
|
Assets |
|
|
|
|
|
|
|
|
Investments: |
|
|
|
|
|
|
|
|
Fixed maturities available-for-sale, at fair value (amortized cost: $55.6 million and $55.9
million, respectively) |
|
$ |
54.9 |
|
|
$ |
56.0 |
|
Short-term investments |
|
|
9.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments |
|
|
64.0 |
|
|
|
56.0 |
|
Cash and cash equivalents |
|
|
775.6 |
|
|
|
452.3 |
|
Restricted cash |
|
|
43.1 |
|
|
|
40.1 |
|
Accounts receivable, net of allowance of $0.4 million and $0.5 million, respectively |
|
|
56.5 |
|
|
|
37.1 |
|
Reinsurance recoverable on paid and unpaid losses and LAE |
|
|
266.9 |
|
|
|
134.1 |
|
Prepaid reinsurance premiums |
|
|
231.6 |
|
|
|
129.4 |
|
Ceding commissions receivable |
|
|
41.6 |
|
|
|
21.3 |
|
Capitalized internal use software |
|
|
25.9 |
|
|
|
14.7 |
|
Goodwill |
|
|
53.5 |
|
|
|
47.8 |
|
Intangible assets |
|
|
32.2 |
|
|
|
33.9 |
|
Other assets |
|
|
51.8 |
|
|
|
12.7 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,642.7 |
|
|
$ |
979.4 |
|
|
|
|
|
|
|
|
|
|
Liabilities, convertible preferred stock, and stockholders equity (deficit) |
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
Loss and loss adjustment expense reserve |
|
$ |
260.8 |
|
|
$ |
105.1 |
|
Unearned premiums |
|
|
253.1 |
|
|
|
150.3 |
|
Reinsurance premiums payable |
|
|
159.4 |
|
|
|
86.1 |
|
Provision for commission |
|
|
12.3 |
|
|
|
28.2 |
|
Convertible promissory notes |
|
|
|
|
|
|
273.0 |
|
Derivative liability on notes |
|
|
|
|
|
|
113.3 |
|
Contingent consideration liability |
|
|
11.6 |
|
|
|
12.0 |
|
Preferred stock warrant liabilities |
|
|
|
|
|
|
22.9 |
|
Accrued expenses and other liabilities |
|
|
83.8 |
|
|
|
43.2 |
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
781.0 |
|
|
|
834.1 |
|
Commitments and contingencies (Note 15) |
|
|
|
|
|
|
|
|
Convertible preferred stock: |
|
|
|
|
|
|
|
|
Preferred stock, $0.0001 par value per share; 10,000,000 and 323,232,460 shares authorized as of
December 31, 2021 and December 31, 2020, respectively; 0 and 305,887,443 shares issued and outstanding as of December 31, 2021 and December 31, 2020, respectively; Liquidation preferences of $0 and $359.4 million as of
December 31, 2021 and December 31, 2020, respectively |
|
|
|
|
|
|
344.8 |
|
Stockholders equity (deficit) |
|
|
|
|
|
|
|
|
Common stock, $0.0001 par value per share; 2,000,000,000 and 582,981,484 shares authorized as of
December 31, 2021 and December 31, 2020, respectively; 565,031,129 and 92,547,013 shares issued and outstanding as of December 31, 2021 and December 31, 2020, respectively |
|
|
|
|
|
|
|
|
Additional paid-in capital |
|
|
1,488.3 |
|
|
|
56.9 |
|
Accumulated other comprehensive (loss) income |
|
|
(0.7 |
) |
|
|
0.1 |
|
Accumulated deficit |
|
|
(628.0 |
) |
|
|
(256.6 |
) |
|
|
|
|
|
|
|
|
|
Total Hippo stockholders equity (deficit) |
|
|
859.6 |
|
|
|
(199.6 |
) |
Noncontrolling interest |
|
|
2.1 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
Total stockholders equity (deficit) |
|
|
861.7 |
|
|
|
(199.5 |
) |
|
|
|
|
|
|
|
|
|
Total liabilities, convertible preferred stock, and stockholders equity (deficit) |
|
$ |
1,642.7 |
|
|
$ |
979.4 |
|
|
|
|
|
|
|
|
|
|
See Notes to the Consolidated Financial Statements
F-3
HIPPO HOLDINGS INC.
Consolidated Statements of Operations and Comprehensive Loss
(In millions, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2021 |
|
|
2020 |
|
Revenue: |
|
|
|
|
|
|
|
|
Net earned premium |
|
$ |
38.9 |
|
|
$ |
17.1 |
|
Commission income, net |
|
|
37.5 |
|
|
|
27.1 |
|
Service and fee income |
|
|
14.5 |
|
|
|
6.3 |
|
Net investment income |
|
|
0.3 |
|
|
|
1.1 |
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
91.2 |
|
|
|
51.6 |
|
Expenses: |
|
|
|
|
|
|
|
|
Losses and loss adjustment expenses |
|
|
84.4 |
|
|
|
25.3 |
|
Insurance related expenses |
|
|
41.7 |
|
|
|
19.3 |
|
Technology and development |
|
|
36.2 |
|
|
|
18.0 |
|
Sales and marketing |
|
|
95.0 |
|
|
|
69.4 |
|
General and administrative |
|
|
49.2 |
|
|
|
36.8 |
|
Interest and other expense, net |
|
|
198.9 |
|
|
|
26.0 |
|
Gain on extinguishment of debt |
|
|
(47.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
458.4 |
|
|
|
194.8 |
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
|
(367.2 |
) |
|
|
(143.2 |
) |
Income taxes expense (benefit) |
|
|
0.7 |
|
|
|
(1.8 |
) |
|
|
|
|
|
|
|
|
|
Net loss |
|
|
(367.9 |
) |
|
|
(141.4 |
) |
|
|
|
|
|
|
|
|
|
Net income attributable to noncontrolling interests, net of tax |
|
|
3.5 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Hippo |
|
$ |
(371.4 |
) |
|
|
(141.5 |
) |
|
|
|
|
|
|
|
|
|
Other comprehensive loss: |
|
|
|
|
|
|
|
|
Change in net unrealized gain or loss on investments, net of tax |
|
|
(0.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss attributable to Hippo |
|
$ |
(372.2 |
) |
|
$ |
(141.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Per share data: |
|
|
|
|
|
|
|
|
Net loss attributable to Hippo basic and diluted |
|
$ |
(371.4 |
) |
|
$ |
(141.5 |
) |
|
|
|
|
|
|
|
|
|
Weighted-average shares used in computing net loss per share attributable to Hippo basic
and diluted |
|
|
272,168,933 |
|
|
|
86,897,893 |
|
|
|
|
|
|
|
|
|
|
Net loss per share attributable to Hippo basic and diluted |
|
$ |
(1.36 |
) |
|
$ |
(1.63 |
) |
|
|
|
|
|
|
|
|
|
See Notes to the Consolidated Financial Statements
F-4
HIPPO HOLDINGS INC.
Consolidated Statements of Convertible Preferred Stock and Stockholders Equity (Deficit)
(In millions, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Preferred Stock |
|
|
Common Stock |
|
|
Additional Paid-in Capital |
|
|
Accumulated Other Comprehensive Income (Loss) |
|
|
Accumulated Deficit |
|
|
Total Hippo Stockholders Equity (Deficit) |
|
|
Non controlling Interests |
|
|
Total Stockholders Equity (Deficit) |
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
Balance at January 1, 2020 |
|
|
250,604,066 |
|
|
$ |
190.3 |
|
|
|
83,936,968 |
|
|
$ |
|
|
|
$ |
36.7 |
|
|
$ |
0.1 |
|
|
$ |
(115.1 |
) |
|
$ |
(78.3 |
) |
|
$ |
|
|
|
$ |
(78.3 |
) |
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(141.5 |
) |
|
|
(141.5 |
) |
|
|
0.1 |
|
|
|
(141.4 |
) |
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Series D preferred stock, net of issuance costs |
|
|
2,235,226 |
|
|
|
4.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Series E preferred stock, net of issuance costs |
|
|
53,048,151 |
|
|
|
149.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock upon exercise of stock options |
|
|
|
|
|
|
|
|
|
|
8,205,205 |
|
|
|
|
|
|
|
2.5 |
|
|
|
|
|
|
|
|
|
|
|
2.5 |
|
|
|
|
|
|
|
2.5 |
|
Vesting of early exercised stock options |
|
|
|
|
|
|
|
|
|
|
269,091 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vesting of restricted stock awards |
|
|
|
|
|
|
|
|
|
|
135,749 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17.7 |
|
|
|
|
|
|
|
|
|
|
|
17.7 |
|
|
|
|
|
|
|
17.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2020 |
|
|
305,887,443 |
|
|
$ |
344.8 |
|
|
|
92,547,013 |
|
|
$ |
|
|
|
$ |
56.9 |
|
|
$ |
0.1 |
|
|
$ |
(256.6 |
) |
|
$ |
(199.6 |
) |
|
$ |
0.1 |
|
|
$ |
(199.5 |
) |
Net Loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(371.4 |
) |
|
|
(371.4 |
) |
|
|
3.5 |
|
|
|
(367.9 |
) |
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.8 |
) |
|
|
|
|
|
|
(0.8 |
) |
|
|
|
|
|
|
(0.8 |
) |
Exercise of preferred stock warrant |
|
|
17,344,906 |
|
|
|
173.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible preferred stock conversion |
|
|
(323,232,349 |
) |
|
|
(518.2 |
) |
|
|
323,232,349 |
|
|
|
|
|
|
|
518.2 |
|
|
|
|
|
|
|
|
|
|
|
518.2 |
|
|
|
|
|
|
|
518.2 |
|
Convertible debt conversion |
|
|
|
|
|
|
|
|
|
|
43,449,312 |
|
|
|
|
|
|
|
434.5 |
|
|
|
|
|
|
|
|
|
|
|
434.5 |
|
|
|
|
|
|
|
434.5 |
|
Issuance of common stock in connection with the Business Combination, net |
|
|
|
|
|
|
|
|
|
|
54,988,620 |
|
|
|
|
|
|
|
453.9 |
|
|
|
|
|
|
|
|
|
|
|
453.9 |
|
|
|
|
|
|
|
453.9 |
|
Acquisition of public and private placement warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14.6 |
) |
|
|
|
|
|
|
|
|
|
|
(14.6 |
) |
|
|
|
|
|
|
(14.6 |
) |
Issuance of common stock in an acquisition |
|
|
|
|
|
|
|
|
|
|
1,200,000 |
|
|
|
|
|
|
|
6.2 |
|
|
|
|
|
|
|
|
|
|
|
6.2 |
|
|
|
|
|
|
|
6.2 |
|
Issuance of common stock upon exercise of stock options and vesting of RSUs |
|
|
|
|
|
|
|
|
|
|
22,089,626 |
|
|
|
|
|
|
|
5.2 |
|
|
|
|
|
|
|
|
|
|
|
5.2 |
|
|
|
|
|
|
|
5.2 |
|
Vesting of early exercised stock options |
|
|
|
|
|
|
|
|
|
|
343,370 |
|
|
|
|
|
|
|
0.8 |
|
|
|
|
|
|
|
|
|
|
|
0.8 |
|
|
|
|
|
|
|
0.8 |
|
Exercise of common stock warrants, net |
|
|
|
|
|
|
|
|
|
|
27,202,571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of common stock |
|
|
|
|
|
|
|
|
|
|
(21,732 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27.2 |
|
|
|
|
|
|
|
|
|
|
|
27.2 |
|
|
|
|
|
|
|
27.2 |
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.5 |
) |
|
|
(1.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2021 |
|
|
|
|
|
$ |
|
|
|
|
565,031,129 |
|
|
$ |
|
|
|
$ |
1,488.3 |
|
|
$ |
(0.7 |
) |
|
$ |
(628.0 |
) |
|
$ |
859.6 |
|
|
$ |
2.1 |
|
|
$ |
861.7 |
|
See Notes to the Consolidated Financial Statements
F-5
HIPPO HOLDINGS INC.
Consolidated Statements of Cash Flows
(In millions)
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2021 |
|
|
2020 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(367.9 |
) |
|
$ |
(141.4 |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
11.0 |
|
|
|
6.7 |
|
Stockbased compensation expense |
|
|
24.3 |
|
|
|
17.2 |
|
Change in fair value of preferred stock warrant liabilities |
|
|
121.6 |
|
|
|
16.2 |
|
Change in fair value of warrant liability |
|
|
(10.3 |
) |
|
|
|
|
Change in fair value of contingent consideration liability |
|
|
3.5 |
|
|
|
3.4 |
|
Change in fair value of derivative liability on notes |
|
|
61.4 |
|
|
|
6.2 |
|
Amortization of debt discount |
|
|
20.4 |
|
|
|
|
|
Gain on extinguishment of debt |
|
|
(47.0 |
) |
|
|
|
|
Non-cash interest expense |
|
|
5.7 |
|
|
|
|
|
Non-cash service expense |
|
|
7.0 |
|
|
|
|
|
Other non-cash items |
|
|
2.1 |
|
|
|
1.3 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
|
(19.5 |
) |
|
|
(14.7 |
) |
Reinsurance recoverable on paid and unpaid losses and LAE |
|
|
(132.8 |
) |
|
|
(17.7 |
) |
Ceding commissions receivable |
|
|
(20.3 |
) |
|
|
(3.4 |
) |
Prepaid reinsurance premiums |
|
|
(102.2 |
) |
|
|
2.5 |
|
Other assets |
|
|
(32.8 |
) |
|
|
(7.8 |
) |
Provision for commission |
|
|
(15.9 |
) |
|
|
15.3 |
|
Accrued expenses and other liabilities |
|
|
35.4 |
|
|
|
10.9 |
|
Loss and loss adjustment expense reserves |
|
|
155.7 |
|
|
|
11.8 |
|
Unearned premiums |
|
|
102.8 |
|
|
|
18.1 |
|
Reinsurance premiums payable |
|
|
73.3 |
|
|
|
10.0 |
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(124.5 |
) |
|
|
(65.4 |
) |
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Capitalized internal use software costs |
|
|
(13.3 |
) |
|
|
(9.0 |
) |
Purchase of intangible assets |
|
|
(3.3 |
) |
|
|
|
|
Purchases of property and equipment |
|
|
(0.8 |
) |
|
|
(0.4 |
) |
Purchases of investments |
|
|
(26.2 |
) |
|
|
(16.7 |
) |
Maturities of investments |
|
|
5.8 |
|
|
|
76.8 |
|
Sales of investments |
|
|
10.7 |
|
|
|
30.7 |
|
Cash paid for acquisitions, net of cash acquired |
|
|
(0.6 |
) |
|
|
(83.7 |
) |
Other |
|
|
(2.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(30.0 |
) |
|
|
(2.3 |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from Series D preferred stock, net of issuance costs |
|
|
|
|
|
|
4.9 |
|
Proceeds from Series E preferred stock, net of issuance costs |
|
|
|
|
|
|
149.7 |
|
Proceeds from the exercise of preferred stock warrants |
|
|
29.0 |
|
|
|
|
|
Proceeds from reverse recapitalization, net of redemptions, secondaries and costs |
|
|
450.3 |
|
|
|
|
|
Proceeds from exercise of options |
|
|
5.5 |
|
|
|
2.4 |
|
Payments of contingent consideration |
|
|
(2.4 |
) |
|
|
(3.9 |
) |
Proceeds from promissory notes, net of issuance costs |
|
|
|
|
|
|
365.0 |
|
Other |
|
|
(1.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
480.8 |
|
|
|
518.1 |
|
|
|
|
|
|
|
|
|
|
Net increase in cash, cash equivalents, and restricted cash |
|
|
326.3 |
|
|
|
450.4 |
|
Cash, cash equivalents, and restricted cash at the beginning of the period |
|
|
492.4 |
|
|
|
42.0 |
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents, and restricted cash at the end of the period |
|
$ |
818.7 |
|
|
$ |
492.4 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of non-cash financing and investing activities: |
|
|
|
|
|
|
|
|
Conversion of preferred stock for common stock |
|
$ |
518.2 |
|
|
$ |
|
|
Conversion of convertible notes for common stock |
|
|
434.5 |
|
|
|
|
|
Acquisition of public and private placement warrants |
|
|
14.6 |
|
|
|
|
|
Convertible promissory notes issued for services |
|
|
7.0 |
|
|
|
12.5 |
|
Equity issued for acquisitions |
|
|
6.2 |
|
|
|
|
|
See Notes to the Consolidated Financial Statements
F-6
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
1. Description of Business and Summary of Significant Accounting Policies
Description of Business
Hippo Holdings
Inc., referred to herein as Hippo or the Company was originally incorporated under the name Reinvent Technology Partners Z (RTPZ), a Cayman Islands exempted company, on October 2, 2020 for the purpose of
effecting a merger, capital stock-exchange, asset acquisition, share purchase, reorganization, or similar business combination. On August 2, 2021, RTPZ domesticated as a Delaware corporation and changed its name to Hippo Holdings
Inc. (the Domestication) and consummated the merger (the First Merger) of RTPZ Merger Sub Inc. (Merger Sub), a Delaware corporation and subsidiary of RTPZ, with and into Hippo Enterprises Inc., a Delaware
corporation (Old Hippo), with Old Hippo surviving the Merger as a wholly owned subsidiary of the Company immediately following the First Merger, Old Hippo (as the surviving corporation of the First Merger) was merged with and into the
Company, with the Company surviving (the Second Merger and, together with the First Merger, the Mergers or the Business Combination). The Business Combination was completed pursuant to the terms of the Agreement
and Plan of Merger, dated as of March 3, 2021, by and among RTPZ, Merger Sub and Old Hippo. For additional information on the Business Combination, refer to Note 2. The Companys headquarters are located in Palo Alto, California.
The Companys subsidiary, Hippo Analytics Inc., is a licensed insurance agency that provides various insurance services, including some
or all of the following services for affiliated and non-affiliated insurance carriers: soliciting, marketing, servicing, underwriting, or providing claims processing services for a variety of commercial and personal insurance products. The
Companys insurance company subsidiaries, Spinnaker Insurance Company (Spinnaker), an Illinois domiciled insurance company, Spinnaker Specialty Insurance Company (SSIC), a Texas domiciled authorized surplus lines
insurance company, and Mainsail Insurance Company (MIC), a Texas domiciled insurance company, underwrite personal and commercial insurance products on a direct basis through licensed insurance agents and surplus lines brokers. Hippo
Analytics Inc. offers its insurance products through licensed insurance agents, and direct-to-consumer channels. The insurance products offered through Hippo Analytics Inc. primarily include homeowners insurance policies that protect customers
from the risks of fire, wind, and theft. Hippo Analytics Inc. is licensed as an insurance agency in 50 states and the District of Columbia and currently underwrites and distributes policies in 37 states as a managing general agent. The
Companys other non-insurance subsidiaries offer service contracts, home health check-ups, and home care advice.
In November of
2019, Old Hippo formed a wholly-owned Cayman domiciled captive insurance company, RH Solutions Insurance (Cayman) Ltd. (RHS). In January of 2020, RHS began assuming insurance risk of policies from affiliated and non-affiliated insurance
carriers solely for business written through Hippo Analytics Inc.
In August 2020, Old Hippo acquired Spinnaker, which is a licensed
property casualty carrier in all 50 states and the District of Columbia. Beginning in September 2020, in connection with the acquisition of Spinnaker, the Company also retains portions of direct insurance risk for programs underwritten by third
parties. The amount of risk retention is varied across the different programs. The Company retains approximately 12% of the proportional risk through Spinnaker or RHS.
Basis of Presentation and Consolidation
The consolidated financial statements and accompanying notes of the Company have been prepared in accordance with generally accepted accounting
principles in the United States of America (U.S. GAAP). The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries where it has controlling financial interests, and any variable interest
entities for which the Company is deemed to be the primary beneficiary. All intercompany transactions and balances have been eliminated in consolidation.
F-7
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
As a result of the Business Combination, which was completed on August 2, 2021, prior
period share and per share amounts presented in the accompanying Consolidated Financial Statements and these related notes have been converted in accordance with Accounting Standards Codification (ASC) 805, Business Combinations. Refer
to Note 2 for additional information.
Use of Estimates
The preparation of the Companys consolidated financial statements in conformity with GAAP requires management to make estimates that
affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting periods. Significant
items subject to such estimates and assumptions include, but are not limited to, loss and loss adjustment expense (LAE) reserves, provision for commission slide and cancellations, reinsurance recoverable on paid and unpaid losses and
LAE, the fair values of investments, common stock, stock-based awards, warrant liabilities, contingent consideration liabilities, embedded derivative liabilities, acquired intangible assets and goodwill, deferred tax assets and uncertain tax
positions, and revenue recognition. The Company evaluates these estimates on an ongoing basis. These estimates are informed by experience and other assumptions that the Company believes are reasonable under the circumstances. Actual results may
differ significantly from these estimates.
Business Combinations
The Company accounts for acquisitions of entities or asset groups that qualify as businesses using the acquisition method of accounting in
accordance with ASC 805, Business Combinations. Purchase consideration is allocated to the tangible and intangible assets acquired and liabilities assumed based on the estimated fair values as of the acquisition date, which are measured in
accordance with the principles outlined in ASC 820, Fair Value Measurement. The determination of fair value requires management to make estimates about discount rates, future expected cash flows, market conditions and other future events that are
highly subjective in nature. The excess of the total purchase consideration over the fair value of the identified net assets acquired is recognized as goodwill. The results of the acquired businesses are included in the results of operations
beginning from the date of acquisition. Acquisition-related costs are expensed as incurred.
During the measurement period, which may be
up to one year from the acquisition date, the Company may record adjustments to the allocation of purchase consideration and to the fair values of assets acquired and liabilities assumed to the extent that additional information becomes available.
After this period, any subsequent adjustments are recorded in the Consolidated Statements of Operations and Comprehensive Income (Loss).
The Business Combination on August 2, 2021 was accounted for as a reverse recapitalization. See Note 2 for additional information.
Segment Information
The Companys
chief operating decision maker reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. As such, the Company has a single operating and reportable segment structure.
Primarily all the Companys long-lived assets are in the United States.
Cash, Cash Equivalents, and Restricted Cash
Cash consists of cash on deposit. The Company considers all highly liquid securities readily convertible to cash, that mature within three
months or less from the original date of purchase to be cash equivalents. The
F-8
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
Companys restricted cash relates to cash restricted to support issued letter of credits and collateral to insurers. The Companys restricted cash also includes fiduciary assets.
Fiduciary Assets and Liabilities
In its
capacity as an insurance agent and broker, the Company collects premiums from insureds and, after deducting its commission, remits the premiums to the respective insurers. The Company also processes claims on behalf of insurers and collects claims
from insurers on behalf of insureds. Premiums collected from insureds but not yet remitted to insurance companies and claims collected from insurance companies but not yet remitted to insureds are fiduciary assets. Fiduciary assets are recorded
within restricted cash in the Companys consolidated balance sheets. Unremitted insurance premiums and claims held in a fiduciary capacity and the obligation to remit these funds is recorded as fiduciary liabilities within accrued expenses and
other liabilities in the consolidated balance sheets.
Investments
The Company has categorized its investment portfolio as available-for-sale and has reported the portfolio at fair value, adjusted for
other-than-temporary declines in fair value, with unrealized gains and losses, net of tax, reported as an amount in other comprehensive loss. Fair values are based on quoted market prices or dealer quotes, if available. If a quoted market price is
not available, fair value is estimated using quoted market prices for similar securities. Amortization of premium and accretion of discount are computed using the scientific method (constant yield to worst). Realized gains and losses are determined
using specific identification method and included in the determination of income. Net investment income includes interest and dividend income, amortization and accretion of investment premiums and discounts, respectively, realized gains and losses
on sales of securities, and other-than-temporary declines in the fair value of securities, if any.
The Company regularly reviews all the
investments for other-than-temporary declines in fair value. The review includes the consideration of the cause of the impairment, including the creditworthiness of the security issuers, the number of securities in an unrealized loss position, the
severity and duration of the unrealized losses, whether the Company has the intent to sell the securities, and whether it is more likely than not the Company will be required to sell the securities before the recovery of their amortized cost basis.
When the Company determines that the decline in fair value of an investment is below the accounting basis and the decline is other-than-temporary, it reduces the carrying value of the security and records a loss for the amount of such decline in net
investment income in the consolidated statements of operations and comprehensive loss.
Fair Value of Financial Instruments
The Company applies fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized
or disclosed at fair value in the consolidated financial statements on a recurring basis. The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair value, the Company considers the principal or most advantageous market in which the
Company would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as risks inherent in valuation techniques, transfer restrictions, and credit risk. Fair value is
estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair
value measurement:
|
|
|
Level 1 Quoted prices in active markets for identical assets or liabilities that are publicly accessible
at the measurement date. |
F-9
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
|
|
|
Level 2 Observable inputs other than quoted prices in active markets for identical assets and liabilities,
quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
|
|
|
|
Level 3 Inputs that are generally unobservable and typically reflect managements estimate of
assumptions that market participants would use in pricing the asset or liability. |
The Companys financial
instruments include cash equivalents, restricted cash, fixed maturities, short-term investments, accounts receivable, accounts payable, assumed and ceded reinsurance contracts, preferred stock warrants and public and private warrants. Cash
equivalents and restricted cash are principally stated at amortized cost, which approximates their fair value. Short-term investments and preferred stock warrants are reported at fair value. The recorded carrying amount of accounts receivable,
assumed and ceded reinsurance contracts, and accounts payable approximates their fair value due to their short-term nature.
Concentration of Credit
Risks
Financial instruments that potentially subject the Company to concentrations of credit risk are primarily comprised of cash and
cash equivalents, short-term investments, fixed maturities available-for-sale, and reinsurance recoverables. Cash deposits may, at times, exceed amounts insured by the Federal Deposit Insurance Corporation and the Securities Investor Protection
Corporation. However, its exposure to credit risk in the event of default by the financial institutions is limited to the extent of amounts recorded on the balance sheet. The Company performs evaluations of the relative credit standing of these
financial institutions to limit the amount of credit exposure. The Company has not experienced any losses on its deposits of cash and cash equivalents to date. The Company limits its exposure to credit losses by investing in money market funds, U.S.
government securities, or securities with average credit quality of AA- or better. Premium receivables are a mix of receivables due from policyholders, agents, and program administrators. The Company has no significant off-balance-sheet
concentration of credit risks such as foreign exchange contracts, option contracts, or other foreign hedging arrangements.
The Company
enters into quota share and excess of loss contracts which may be susceptible to catastrophe exposure. The ceding of insurance does not legally discharge the Company from its primary liability for the full amount of the policy coverage, and
therefore the Company will be required to pay the loss and bear collection risk if the reinsurer fails to meet its obligations under the reinsurance agreement. To minimize exposure to significant losses from reinsurance insolvencies, the Company
evaluates the financial condition of its reinsurers, monitors concentrations of credit risk and, in certain circumstances, holds substantial collateral (in the form of funds withheld and letters of credit) as security under the reinsurance
agreements.
Accounts Receivable
Accounts receivable consists of premium receivables and commission receivables and is reported net of an allowance for premium amounts or
estimated uncollectible commission. Such allowance is based upon an ongoing review of amounts outstanding, length of collection periods, the creditworthiness of the insured and other relevant factors. Amounts deemed to be uncollectible are written
off against the allowance. As of December 31, 2021 and 2020, the Company has an allowance of $0.4 million and $0.5 million, respectively. Write-offs of receivables have not been material to the Company during the years ended December 31,
2021 and 2020.
F-10
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
Reinsurance
Reinsurance recoverable, including amounts related to incurred but not reported claims (IBNR), represent paid losses and LAE and
reserves for unpaid losses and LAE ceded to reinsurers that are subject to reimbursement under reinsurance treaties. To minimize exposure to losses related to a reinsurers inability to pay, the financial condition of such reinsurer is
evaluated initially upon placement of the reinsurance and periodically thereafter. In addition to considering the financial condition of a reinsurer, the collectability of the reinsurance recoverable is evaluated based upon a number of other
factors. Such factors include the amounts outstanding, length of collection periods, disputes, any collateral or letters of credit held and other relevant factors. To the extent that an allowance for uncollectible reinsurance recoverable is
established, amounts deemed to be uncollectible would be written off against the allowance for estimated uncollectible reinsurance recoverable. The Company currently has no allowance for uncollectible reinsurance recoverable.
Ceded premium written is recorded in accordance with the applicable terms of the reinsurance contracts and ceded premium earned is charged
against revenue over the period of the reinsurance contracts. Ceded losses incurred reduce net loss and LAE incurred over the applicable periods of the reinsurance contracts with third-party reinsurers.
Prepaid reinsurance premiums represents the unearned portion of premiums ceded to reinsurers.
Amounts recoverable from reinsurers are estimated in a manner consistent with the liability associated with the reinsured business and
consistent with the terms of the underlying contract.
Deferred Policy Acquisition Costs, net of Ceding Commissions
Incremental direct costs of acquiring insurance contracts and certain costs related directly to the acquisition process are deferred and
amortized over the term of the policies or reinsurance treaties to which they relate. Those costs include commissions, premium taxes, and board and bureau fees. Ceding commissions relating to reinsurance agreements are recorded as a reimbursement
for both deferrable and non-deferrable acquisition costs. The portion of the ceding commission that is equal to the pro-rata share of acquisition costs based on quota share percentage is recorded as an offset to the direct deferred acquisition
costs. Any portion of the ceding commission that exceeds the deferrable acquisition costs of the business ceded is recorded as a deferred liability and amortized over the same period in which the related premiums are earned. The amortization of
deferred policy acquisition costs is included in insurance related expenses on the consolidated statements of operations and comprehensive loss.
The Company amortized deferred policy acquisition costs of $13.9 million and $3.7 million for the years ended December 31, 2021 and 2020,
respectively.
Premium Deficiency
A
premium deficiency is recognized if the sum of expected losses and LAE, unamortized acquisition costs, and policy maintenance costs exceeds the remaining unearned premiums. A premium deficiency would first be recognized by charging any unamortized
acquisition costs to expense to the extent required to eliminate the deficiency. If the premium deficiency was greater than unamortized acquisition costs, a liability would be accrued for the excess deficiency. The Company does not consider
anticipated investment income when determining if a premium deficiency exists. The Company recognized a $0.3 million and nil premium deficiency at December 31, 2021 and 2020, respectively.
F-11
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
Property and Equipment
Property and equipment is stated at cost, net of accumulated depreciation and is reflected within other assets on the consolidated balance
sheets. Depreciation of property and equipment is calculated using the straight-line method over the estimated useful life of three years for furniture, fixtures, and equipment and two years for computer equipment. Leasehold improvements are also
depreciated using the straight-line method and are amortized over the shorter of the remaining term of the lease or the useful life of the improvement. Depreciation expense totaled $0.4 million for the years ended December 31, 2021 and
2020, respectively.
Expenditures for improvements are capitalized, and expenditures for maintenance and repairs are expensed as incurred.
Upon sale or retirement, the cost and related accumulated depreciation is removed from the related accounts, and the resulting gain or loss, if any, is reflected in interest and other expense in the consolidated statements of operations and
comprehensive loss.
Leases
The
Company categorizes leases at their inception as either operating or capital leases. As of and for the years ended December 31, 2021 and 2020, the Companys leases are categorized as operating. In certain lease agreements, the Company may
receive rent holidays and other incentives. For operating leases, the Company recognizes lease costs on a straight-line basis once control of the space is achieved, without regard to deferred payment terms such as rent holidays that defer the
commencement date of required payments. Additionally, incentives received are treated as a reduction of costs over the term of the agreement.
Capitalized Internal Use Software
The
Company capitalizes the costs to develop its internal use software when preliminary development efforts are successfully completed, management has authorized and committed project funding, it is probable that the project will be completed, and the
software will be used as intended. Such costs are amortized on a straight-line basis over the estimated useful life of five years. Costs incurred prior to meeting these criteria, in addition to costs incurred for training and maintenance, are
expensed as incurred.
Goodwill and Intangible Assets
The Company accounts for business combinations using the acquisition method of accounting, which requires that assets acquired and liabilities
assumed be recorded at their fair values as of the acquisition date on the consolidated balance sheets. Any excess of purchase price over the fair value of net assets acquired is recorded as goodwill. The determination of estimated fair value
requires the Company to make significant estimates and assumptions. Transaction costs associated with business combinations are expensed as they are incurred.
Included in the purchase price of an acquisition may be an estimation of the fair value of liabilities associated with contingent
consideration. The fair value of contingent consideration is based upon the present value of the expected future payments to be made to the sellers of an acquired business in accordance with the provisions contained in the respective purchase
agreements. Subsequent changes in the fair value of contingent consideration are recorded in the consolidated statements of operations and comprehensive loss.
When the Company determines net assets acquired does not meet the definition of a business combination under the acquisition method of
accounting, the transaction is accounted for as an acquisition of assets and, therefore, no goodwill is recorded.
F-12
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
Amortization and Impairment
Intangible assets with finite useful lives are amortized over their estimated useful lives in the consolidated statements of operations and
comprehensive loss.
Indefinite-lived intangible assets and goodwill are not amortized but are tested for impairment annually, or more
frequently if necessary. The goodwill impairment test is performed at the reporting unit level. To review for impairment the Company first assess qualitative factors to determine whether events or circumstances lead to a determination that it is
more likely than not that the fair value of a reporting unit is less than its carrying amount. After assessing the totality of events and circumstances, if the Company determines that it is not more likely than not that the fair value of a reporting
units is less than its carrying amount, no further assessment is performed. If the Company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company calculates the fair value of
that reporting unit and compares the fair value to the reporting units net book value. If the fair value of the reporting unit is greater than its net book value, there is no impairment. If the net book value exceeds the reporting units
fair value, an impairment loss is recognized, with the loss not exceeding the total amount of goodwill allocated to that reporting unit. Determining the fair value of a reporting unit involves the use of significant estimates and assumptions.
Indefinite-lived intangible assets are tested for impairment by comparing the estimated fair value of the asset to the assets carrying value. If the carrying value of the asset exceeds its estimated fair value, an impairment loss is
recognized, and the asset is written down to its estimated fair value. There were no material impairment losses recognized on indefinite-lived intangible assets or goodwill during the years ended December 31, 2021 and 2020.
The Company evaluates the recoverability of long-lived assets, excluding goodwill and indefinite-lived intangible assets, whenever events or
changes in circumstances indicate the carrying value of such asset may not be recoverable. Should there be an indication of impairment, the Company tests for recoverability by comparing the estimated undiscounted future cash flows expected to result
from the use of the asset to the carrying amount of the asset or asset group. If the asset or asset group is determined to be impaired, any excess of the carrying value of the asset or asset group over its estimated fair value is recognized as an
impairment loss. There were no material impairment losses recognized on long-lived assets during the years ended December 31, 2021 and 2020.
Loss
and Loss Adjustment Expense Reserve
The reserve for unpaid losses and loss adjustment expenses include estimates for unpaid claims,
claims adjustment expenses on reported losses and estimates of losses incurred but not reported (IBNR), net of salvage and subrogation recoveries. The liability is based on the Companys best estimate of the amounts yet to be paid for all loss
and loss adjustment expenses that will be paid on claims that occurred during the period and prior, whether those claims are currently known or unknown.
Loss and loss adjustment reserves at December 31, 2021 are the amount of ultimate loss and loss adjustment expense less the paid amounts
as of December 31, 2021.
Ultimate loss and loss adjustment expense is the sum of the following items:
|
1. |
Loss and loss adjustment expense paid through a given evaluation date |
|
2. |
Case reserves for loss and loss adjustment expense for losses that have been reported but not yet paid as of a
given evaluation date |
|
3. |
IBNR for loss and loss adjustment expense include an estimate for future loss payments on incurred claims not
yet reported and for expected development on reported claims |
F-13
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
Case reserves are established within the claims adjustment process based on all known
circumstances of a claim at the time. In addition, IBNR reserves are established by the Company based on reported loss and loss adjustment expenses and estimates of ultimate loss and loss adjustment expenses based on generally accepted actuarial
reserving techniques that consider quantitative loss experience data and qualitative factors as appropriate.
The most significant
assumptions used in the determination of the recorded reserve for loss and loss adjustment expenses are historical aggregate claim reporting and payment patterns, which is assumed to be indicative of future loss development and trends. Additionally,
claim counts are used for analyses relating to natural disasters, such as hurricanes, earthquakes, and wildfires as losses from these events are inherently more difficult to estimate due to the potential exposure of the catastrophic events. Other
assumptions considered include information developed from internal and independent external sources such as premium, rate and cost trends, litigation and regulatory trends, legislative activity, climate change, social and economic patterns.
Inherent in the estimates of ultimate loss and loss adjustment expenses are expected trends in claims severity and frequency among other
factors that could vary significantly as claims are settled. The Companys loss and loss adjustment expense reserves are continually reviewed, and adjustments, if any, are reflected in current operations in the consolidated statements of
operations and comprehensive loss in the period in which they become known. The establishment of new loss and loss adjustment expense reserves or the adjustment of previously recorded loss and loss adjustment expense reserves could result in
significant positive or negative changes to the Companys financial condition for any particular period. While the Company believes that it has made a reasonable estimate of loss and loss adjustment expense reserves, the ultimate loss
experience may not be as reliably predicted as may be the case with other insurance expenses, and it is possible that actual loss and loss adjustment expenses will be higher or lower than the loss and loss adjustment reserve amount recorded by the
Company.
Provision for Commission
Provision for commission includes return commission payable to insurers based on the actual performance of insurance policies issued by the
Company against a contractual range of performance targets. The Companys reserve estimation is based on current and historical performance of the portfolio of insurance policies placed with the insurance carriers.
Provision for commission also includes cancellation reserve which represent the Companys estimate of return commission payable to
insureds based on policy cancellations after the effective date. The Companys estimation for the reserve uses historical policy cancellation.
The commission slide and cancellation liabilities are based on assumptions and estimates, and while management believes the amount recorded is
the Companys best estimate, the ultimate liability may differ from the amount recorded. The methods for making such estimates and for establishing the resulting liability are continually reviewed, and any adjustments are reflected in the
period in which they become known.
Revenue Recognition
Net Earned Premium
Net earned premium
represents the earned portion of the Companys gross written premium for insurance policies written or assumed by the Company and less ceded written premium (any portion of the Companys gross written premium that is ceded to third-party
reinsurers under the Companys reinsurance agreements). The
F-14
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
Company earns written premiums on a pro-rata basis over the term of the policies. Unearned premium represents the unexpired portion of the Companys gross written premium. Amounts applicable
to reinsurance ceded for unearned premium reserves are reported as a prepaid reinsurance premiums on the consolidated balance sheet.
Commission
Income, net
Commission income, net includes:
|
1. |
Managing General Agent (MGA) Commission: The Company operates as a MGA for multiple insurers. The
Company designs and underwrites insurance products on behalf of the insurers culminating in the sale of insurance policies. The Company earns recurring commission and policy fees associated with the policies, they sell. While the Company has
underwriting authority and responsibility for administering claims, the Company does not take the risk associated with policies on the consolidated balance sheets. Rather, the Company works with affiliated and unaffiliated carrier platforms and a
diversified panel of highly rated reinsurance companies who pay the Company commission in exchange for the opportunity to take that risk on their balance sheets. The Companys performance obligation associated with these contracts is the
placement of the policy, which is met on the effective data. Upon issuance of a new policy, the Company charges policy fees and inspection fees, retains the share of ceding commission, and remits the balance of premium collected to the respective
insurers. Subsequent ceding commission adjustments arising from policy changes such as endorsements, are recognized when the adjustments can be reasonably estimated. |
|
2. |
Agency Commission: The Company also operates licensed insurance agencies that are engaged solely in the sale of
policies, including non-Hippo policies. For these policies, the Company earns a recurring agency commission from the carriers whose policies the Company sells, which is recorded in the commission income, net line in the consolidated statements of
operations and comprehensive loss. Similar to the MGA business, the performance obligation from the agency contracts is the placement of the insurance policies. For both MGA and insurance agency activities, the Company recognizes commission received
from insurers for the sale of insurance contracts as revenue at a point in time on the policy effective dates. |
|
3. |
Ceding Commission: The Company receives revenue based on the premium it cedes to third-party reinsurers for the
compensation reimbursement for the Companys acquisition and underwriting services. Excess ceding commission over the cost of acquisition and underwriting expenses is included in commission income, net line on the consolidated statements of
operations and comprehensive loss. For the policies that the Company write on its own carrier as MGA, the Company recognizes the commission as ceding commission on the consolidated statements of operations and comprehensive loss. The Company earns
commission on reinsurance premium ceded in a manner consistent with the recognition of the earned premium on the underlying insurance policies, on a pro-rata basis over the terms of the policies reinsured. The Company records the portion of ceding
commission income which represents reimbursement of successful direct acquisition costs related to the underlying policies as an offset to the applicable direct acquisition costs. |
|
4. |
Carrier Fronting Fees: Through the Companys insurance-as-a-service business the Company earns recurring
fees from the MGA programs it supports. The Company earns fronting fees in a manner consistent with the recognition of the earned premium on the underlying insurance policies, on a pro-rata basis over the terms of the policies. This revenue is
included in the commission income, net line on the consolidated statements of operations and comprehensive loss. |
|
5. |
Claim Processing Fees: As a MGA the Company receives a fee, that is calculated as a percent of the premium,
from the insurers in exchange for providing claims adjudication services. The claims |
F-15
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
|
adjudication services are provided over the term of the policy and recognized ratably over the same period. |
Service and Fee Income
Service and fee
income mainly represent policy fees and small portion of other revenue. The Company directly bills policyholders for policy fees and collect and retain fees per the terms of the contracts between the Company and its insurers. Similar to the
commission revenue, the Company estimates a cancellation reserve for policy fees using historical information. The performance obligation associated with these fees is satisfied at a point in time upon completion of the underwriting process, which
is the policy effective date. Accordingly, the Company recognizes all fees as revenue on the policy effective date.
Disaggregated Revenue
The following table disaggregates the Companys revenues by major source (in millions):
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2021 |
|
|
2020 |
|
Net earned premium |
|
$ |
38.9 |
|
|
$ |
17.1 |
|
Ceding commissions, net |
|
|
21.3 |
|
|
|
1.2 |
|
Agency commissions, net |
|
|
12.3 |
|
|
|
8.4 |
|
Policy fees |
|
|
10.9 |
|
|
|
2.6 |
|
MGA commissions, net |
|
|
2.6 |
|
|
|
12.8 |
|
Claims processing fees |
|
|
1.3 |
|
|
|
4.6 |
|
Other revenue |
|
|
3.6 |
|
|
|
3.8 |
|
Net investment income |
|
|
0.3 |
|
|
|
1.1 |
|
|
|
|
|
|
|
|
|
|
Total revenue, net |
|
$ |
91.2 |
|
|
$ |
51.6 |
|
|
|
|
|
|
|
|
|
|
All revenues for the years ended December 31, 2021, and 2020 are from business conducted in the
United States.
Insurance-Related Expenses
Insurance-related expenses primarily consist of amortization of commissions costs and deferred acquisition costs, and credit card processing
fees not charged to the Companys customers. Insurance-related expenses also include employee compensation (including stock-based compensation and benefits) of the Companys underwriting teams as well as allocated occupancy costs and
related overhead based on headcount, and amortization of capitalized internal use software costs. Insurance-related expenses are offset by the portion of ceding commission income which represents reimbursement of successful acquisition costs related
to the underlying policies. Additionally, insurance-related expenses are comprised of the costs of providing bound policies and delivering claims services to the Companys customers. These costs include technology service costs including
software, data services, and third-party call center costs in addition to personnel-related costs.
Technology and Development
Technology and development expenses primarily consist of employee compensation (including stock-based compensation and benefits) for the
Companys technology staff, which includes technology development, infrastructure support, actuarial, and third-party services. Technology and development also includes allocated facility costs and related overhead based on headcount.
F-16
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
Sales and Marketing
Sales and marketing expenses primarily consist of sales commissions, advertising costs, and marketing expenditures, as well as employee
compensation (including stock-based compensation and benefits) for employees engaged in sales, marketing, data analytics, and customer acquisition. The Company expenses advertising costs as incurred. Sales and marketing also include allocated
facility costs and related overhead based on headcount. Advertising costs were $28.9 million and $12.2 million for the years ended December 31, 2021 and 2020, respectively.
General and Administrative
General and
administrative expenses primarily consist of employee compensation (including stock-based compensation and benefits) for the Companys finance, human resources, legal, and general management functions as well as facilities, insurance, and
professional services.
Interest and Other (Income) Expense
Interest and other (income) expense after the Business Combination in August 2021 primarily consist of fair value adjustments on outstanding
warrants. Prior to the Business Combination, interest and other (income) expense primarily consisted of interest expense incurred for the convertible promissory notes, fair value adjustments on preferred stock warrant liabilities, and fair value
adjustments on the embedded derivative on convertible promissory notes.
Gain on extinguishment of debt
The Company recorded a gain on the extinguishment of the convertible promissory notes and related derivative liability of $47.0 million
and nil for the years ended December 31, 2021 and 2020, respectively.
Stock-Based Compensation Expense
The Company recognizes stock-based compensation expense based on the estimated fair value of equity-based payment awards on the date of grant
using the Black-Scholes-Merton option-pricing model. The Company recognizes stock-based compensation expenses for the value of its awards granted based on the straight-line method over the requisite service period of each of the awards in the
Companys consolidated statements of operations and comprehensive loss. The Company has elected to record forfeitures as they occur.
Certain employees early exercised stock options in exchange for promissory notes. The Company accounted for the promissory notes as
nonrecourse in their entirety since the promissory notes are not aligned with a corresponding percentage of the underlying shares. The fair value of the stock option is recognized over the requisite service period through a charge to stock-based
compensation expenses. The maturity date of the promissory notes reflects the legal term of the stock option for purposes of valuing the award. These loans and all interest accrued thereon was forgiven upon the consummation of the Business
Combination. The forgiveness of the promissory notes were deemed to be exercises.
Income Taxes
The Company accounts for income taxes using the asset and liability method, under which deferred tax liabilities and assets are recognized for
the expected future tax consequences of temporary differences between consolidated financial statement carrying amounts and the tax basis of assets and liabilities and net operating loss
F-17
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
and tax credit carryforwards. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The effect on deferred taxes of a change in
tax rate is recognized in income in the period that includes the enactment date.
The Company accounts for application of the U.S. Global
Intangible Low Taxed Income rules by recognizing the tax in the period in which it is incurred.
The Company determines whether it is more
likely than not that a tax position will be sustained upon examination. If it is not more likely than not that a position will be sustained, no amount of benefit attributable to the position is recognized. The tax benefit to be recognized of any tax
position that meets the more likely than not recognition threshold is calculated as the largest amount that is more than 50% likely of being realized upon resolution of the contingency.
Net Loss Per Share Attributable to Common Stockholders of Hippo Holdings Inc.
Basic and diluted net loss per share attributable to common stockholders of Hippo Holdings Inc. is presented in conformity with the two-class
method required for common stock and participating securities. Under the two-class method, net loss is attributed to common stockholders and participating securities based on their participation rights. The
Company considers all series of its convertible preferred stock and unvested common stock, which includes early exercised stock options and restricted stock awards, to be participating securities as holders of such securities have non-forfeitable
dividend rights in the event of the Companys declaration of a dividend for shares of common stock.
Under the two-class method, the
net loss attributable to common stockholders of Hippo Holdings Inc. is not allocated to the convertible preferred stock and unvested common stock as these securities do not have a contractual obligation to share in the Companys losses.
Distributed and undistributed earnings allocated to participating securities are subtracted from net loss in determining net loss attributable
to common stockholders. Under the two-class method, basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted-average shares used in computing net loss per
share attributable to common stockholders.
For periods in which the Company reports net losses, diluted net loss per share attributable
to common stockholders is the same as basic net loss per share attributable to common stockholders because potentially dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.
Emerging Growth Company
The Company
currently qualifies as an emerging growth company under the Jumpstart Our Business Startups Act of 2012 and is provided the option to adopt new or revised accounting guidance either (i) within the same periods as those otherwise
applicable to non-emerging growth companies or (ii) within the same time periods as private companies.
The Company has elected to
adopt new or revised accounting guidance within the same time period as private companies, unless, indicated below, management determines it is preferable to take advantage of early adoption provisions offered within the applicable guidance.
F-18
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
Recent Accounting Pronouncements
Accounting Pronouncements Recently Adopted
Internal
Use Software
In August 2018, the FASB issued ASU No. 2018-15, Intangibles Goodwill and Other Internal
Use Software (Subtopic 350-40): Customers Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The intent of this pronouncement is to align the requirements for capitalizing
implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal use software as defined in ASC 350-40. ASU
2018-15 is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company adopted this new guidance on a prospective basis on January 1, 2021. The adoption of this guidance did
not have a material effect on the Companys consolidated financial statements.
Accounting Pronouncements Not Yet Adopted
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes FASB ASC Topic 840, Leases, and makes other
conforming amendments to U.S. GAAP. ASU 2016-02 requires, among other changes to the lease accounting guidance, lessees to recognize most leases on-balance sheet via a right of use asset and lease liability, with an optional policy election to not
recognize lease assets and lease liabilities for leases with a term of 12 months or less. The amendments also require new disclosures, including qualitative and quantitative disclosures to enable users to understand the amount, timing, and
judgements related to leases and the related cash flows. ASU 2016-02 is effective for the annual periods in fiscal years beginning after December 15, 2018, and interim periods therein, using a modified retrospective approach. The Company will
apply the provisions of this ASU to lease contracts as of January 1, 2022, using the modified retrospective method of adoption. The Company will use the package of practical expedients which permits to (i) not reassess whether any expired
or existing contracts are or contain a lease, (ii) to not reassess historical lease classifications for existing leases, and (iii) to not reassess initial direct costs for existing leases. The Company does not anticipate lease
classification of leases to change but does expect to recognize right-of-use assets and lease liabilities. These assets and liabilities are expected to represent approximately 2% of assets and liabilities on the consolidated balance sheets for
existing operating leases. The Company expects the new guidance to have minimal impact on the Consolidated Statement of Operations and Consolidated Statement of Cash Flows.
In June 2016, the FASB issued ASU No. 2016-13, Financial instruments Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments (ASU 2016-13), and subsequent related ASUs, which amends the guidance on the impairment of financial instruments by requiring measurement and recognition of expected credit losses for financial assets
held. ASU 2016-13 is effective for fiscal years, and for interim periods within the fiscal years, beginning after December 15, 2022. The Company expects to adopt Topic 326 effective January 1, 2022 using the modified retrospective
approach. Under this method, the Company will recognize the cumulative effect of adopting the standard as an adjustment to the opening balance of retained earnings as of January 1, 2022. The Company does not expect the adoption of this standard
to have a material effect on the financial statements.
In January 2020, the FASB issued ASU No. 2019-12, Income Taxes (Topic
740): Simplifying the Accounting for Income Taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and clarifies and amends existing guidance to improve consistent application. This ASU will be effective
for annual periods beginning after December 15, 2020, and interim periods beginning after December 15, 2020. ASU 2019-12 will be effective for private entities for annual periods beginning after December 15, 2021, and
F-19
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
interim periods beginning after December 15, 2022, with early adoption permitted. The Company expects to adopt ASU 2019-12 under the private company transition guidance beginning
January 1, 2022 and does not expect the adoption of this standard to have a material impact on the Companys consolidated financial statements.
In August 2020, the FASB issued ASU No. 2020-06, Debt Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives
and Hedging Contracts in Entitys Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entitys Own Equity, which simplifies the accounting for convertible instruments by reducing the number
of accounting models available for convertible debt instruments. This guidance also eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method. This ASU is
effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. The Company is currently evaluating the timing of adoption and the impact on the consolidated financial statements, however, the
Company does not expect the adoption of this standard to have a material effect on the financial statements.
2. Business Combinations
Business Combination Reverse Recapitalization
On August 2, 2021, the Company completed the Business Combination (the Closing).
The Business Combination was accounted for as a reverse recapitalization, with no goodwill or other intangible assets recorded, in accordance
with GAAP. Under this method of accounting, RTPZ was treated as the acquired company for financial reporting purposes. Accordingly, for accounting purposes, the reverse recapitalization was treated as the equivalent of Old Hippo issuing
stock for the net assets of RTPZ, accompanied by a recapitalization. Operations prior to the reverse recapitalization were those of Old Hippo.
In connection with the Business Combination:
|
|
|
Certain accredited investors (the PIPE Investors) entered into subscription agreements (the
PIPE Subscription Agreements) pursuant to which the PIPE Investors agreed to purchase 55,000,000 shares (the PIPE Shares) of the Companys common stock at a purchase price per share of $10.00 and an aggregate purchase
price of $550.0 million (the PIPE Investment). The PIPE Investment was consummated concurrently with the Closing. |
|
|
|
Hippo used $95.0 million to reacquire 9,500,000 shares of common stock from certain stockholders of Old
Hippo prior to the Business Combination. |
|
|
|
Prior to the Business Combination, RTPZ issued an aggregate of 5,750,000 shares of Class B common stock (the
Founder Shares) to Reinvent Sponsor Z LLC, a Cayman Islands limited liability company (the Sponsor) for an aggregate purchase price of $25,000 in cash. All outstanding Founder Shares were automatically converted into shares
of the Companys common stock on a one-for-one basis at the Closing and will continue to be subject to the transfer restrictions applicable to such Founder Shares. |
|
|
|
Prior to the Closing, holders of 19,261,380 shares of Class A common stock of RTPZ exercised their rights to
redeem those shares for cash at an approximate price of $10.00 per share, for an aggregate of approximately $192.6 million which was paid to such holders at Closing. The remaining Class A common stock of RTPZ converted into shares of the
Companys common stock on a one-for-one basis at the Closing. |
|
|
|
Immediately after giving effect to the Merger and the PIPE Investment, there were 559,731,226 shares of Hippo
common stock outstanding. |
F-20
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
The aggregate gross cash consideration received by the Company in connection with the
Business Combination and the PIPE investment was $587.7 million, which consisted of proceeds of $550.0 million from the PIPE Investment, plus approximately $37.7 million of cash from the Companys trust account that held the
proceeds from RTPZs initial public offering (the Trust Account) post-redemption of shares of RTPZs Class A common stock from RTPZs Class A stockholders. The aggregate cash consideration received was reduced by
$95.0 million for the repurchase of common stock and reduced by $42.4 million for the payment of direct transaction costs incurred by Old Hippo and the Company which were reflected as a reduction of proceeds. The remaining consideration
consisted of 495,242,606 newly issued shares of the Companys common stock.
The following table reconciles the elements of the
Business Combination and the PIPE investment to the Condensed Consolidated Statements of Cash Flows and the Condensed Consolidated Statements of Stockholders Equity (Deficit) for the year ended December 31, 2021:
|
|
|
|
|
in millions |
|
Recapitalization |
|
Cash in trust, net of redemptions |
|
$ |
37.7 |
|
Cash PIPE |
|
|
550.0 |
|
Less: Cash used for repurchase of common stock |
|
|
(95.0 |
) |
Less: transaction costs and advisory fees |
|
|
(42.4 |
) |
|
|
|
|
|
Net cash received from the Business Combination and PIPE investment |
|
$ |
450.3 |
|
Net assets acquired from the Business Combination |
|
|
3.6 |
|
|
|
|
|
|
Total |
|
$ |
453.9 |
|
|
|
|
|
|
The number of shares of common stock issued immediately following the consummation of the Business Combination
and the PIPE Investment:
|
|
|
|
|
|
|
Number of Shares |
|
Class A common stock outstanding prior to Business Combination |
|
|
23,000,000 |
|
Less: Redemption of RTPZ Class A common stock |
|
|
(19,261,380 |
) |
|
|
|
|
|
Class A common stock of RTPZ |
|
|
3,738,620 |
|
RTPZ Founder shares Class B |
|
|
5,750,000 |
|
PIPE Shares |
|
|
55,000,000 |
|
|
|
|
|
|
Business Combination and PIPE shares which converted to Hippo common stock |
|
|
64,488,620 |
|
Old Hippo shares, net of repurchase
(1) |
|
|
495,242,606 |
|
|
|
|
|
|
Total shares of common stock outstanding immediately after Business Combination and PIPE
investment |
|
|
559,731,226 |
|
(1) |
The number of Old Hippo shares was determined based on Old Hippo common stock outstanding immediately prior
to the closing of the Business Combination multiplied by the Exchange Ratio of 6.95433 adjusted for buyback of 9,500,000 shares of common stock. For further details, refer to Note 17, Stockholders Equity. |
In connection with the Business Combination, preferred stock warrants were exercised for cash proceeds of $29.0 million. See also Note
13, Convertible Promissory Notes and Derivative Liability, Note 14, Public Warrants and Private Placement Warrants, Note 16, Convertible Preferred Stock, and Note 17, Stockholders Equity for additional information regarding changes to the
instruments as a result of the Business Combination.
F-21
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
3. Investments
The amortized cost and fair value of fixed maturities securities and short-term investments are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021 |
|
|
|
Amortized Cost |
|
|
Unrealized Gains |
|
|
Unrealized Losses |
|
|
Fair Value |
|
Fixed maturities available-for-sale: |
|
|
|
|
|
|
|
|
U.S. government and agencies |
|
$ |
9.3 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
9.3 |
|
States, and other territories |
|
|
5.8 |
|
|
|
|
|
|
|
(0.1 |
) |
|
|
5.7 |
|
Corporate securities |
|
|
17.3 |
|
|
|
|
|
|
|
(0.2 |
) |
|
|
17.1 |
|
Foreign securities |
|
|
0.9 |
|
|
|
|
|
|
|
|
|
|
|
0.9 |
|
Residential mortgage-backed securities |
|
|
10.8 |
|
|
|
|
|
|
|
(0.2 |
) |
|
|
10.6 |
|
Commercial mortgage-backed securities |
|
|
4.8 |
|
|
|
|
|
|
|
(0.1 |
) |
|
|
4.7 |
|
Asset backed securities |
|
|
6.7 |
|
|
|
|
|
|
|
(0.1 |
) |
|
|
6.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities available-for-sale |
|
|
55.6 |
|
|
|
|
|
|
|
(0.7 |
) |
|
|
54.9 |
|
Short-term investments: |
|
|
|
|
|
|
|
|
U.S. government and agencies |
|
|
9.1 |
|
|
|
|
|
|
|
|
|
|
|
9.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
64.7 |
|
|
$ |
|
|
|
$ |
(0.7 |
) |
|
$ |
64.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020 |
|
|
|
Amortized Cost |
|
|
Unrealized Gains |
|
|
Unrealized Losses |
|
|
Fair Value |
|
Fixed maturities available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agencies |
|
$ |
10.1 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
10.1 |
|
States, and other territories |
|
|
5.1 |
|
|
|
|
|
|
|
|
|
|
|
5.1 |
|
Corporate securities |
|
|
17.4 |
|
|
|
|
|
|
|
|
|
|
|
17.4 |
|
Foreign securities |
|
|
0.8 |
|
|
|
|
|
|
|
|
|
|
|
0.8 |
|
Residential mortgage-backed securities |
|
|
12.9 |
|
|
|
|
|
|
|
|
|
|
|
12.9 |
|
Commercial mortgage-backed securities |
|
|
5.4 |
|
|
|
0.1 |
|
|
|
|
|
|
|
5.5 |
|
Asset backed securities |
|
|
4.2 |
|
|
|
|
|
|
|
|
|
|
|
4.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
55.9 |
|
|
$ |
0.1 |
|
|
$ |
|
|
|
$ |
56.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2021, no securities have been in a continuous unrealized loss position for greater
than 12 months. There were no other-than-temporary impairments recognized for the years ended December 31, 2021 and 2020.
F-22
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
The amortized cost and fair value of fixed maturities securities by contractual maturity are
as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021 |
|
|
|
Amortized Cost |
|
|
Fair Value |
|
Due to mature: |
|
|
|
|
|
|
|
|
One year or less |
|
$ |
10.5 |
|
|
$ |
10.5 |
|
After one year through five years |
|
|
18.3 |
|
|
|
18.1 |
|
After five years |
|
|
4.5 |
|
|
|
4.4 |
|
Residential mortgage-backed securities |
|
|
10.8 |
|
|
|
10.6 |
|
Commercial mortgage-backed securities |
|
|
4.8 |
|
|
|
4.7 |
|
Asset backed securities |
|
|
6.7 |
|
|
|
6.6 |
|
|
|
|
|
|
|
|
|
|
Total fixed maturities available-for-sale |
|
$ |
55.6 |
|
|
$ |
54.9 |
|
|
|
|
|
|
|
|
|
|
Expected maturities will differ from contractual maturities because issuers may have the right to call or
prepay obligations with or without call or prepayment penalties.
Net realized gains on fixed maturity securities were insignificant for
the years ended December 31, 2021 and 2020, respectively.
The Companys net investment income is comprised of the following (in
millions):
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2021 |
|
|
2020 |
|
Fixed maturities income |
|
$ |
0.4 |
|
|
$ |
1.1 |
|
Short-term investment income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross investment income |
|
|
0.4 |
|
|
|
1.1 |
|
Investment expenses |
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
$ |
0.3 |
|
|
$ |
1.1 |
|
|
|
|
|
|
|
|
|
|
F-23
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
Pursuant to certain regulatory requirements, the Company is required to hold assets on
deposit with various state insurance departments for the benefit of policyholders. These special deposits are included in cash and cash equivalents, or fixed maturities, available-for-sale on the consolidated balance sheets. The following table
summarizes special deposits (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
|
|
Amortized Cost |
|
|
Fair Value |
|
|
Amortized Cost |
|
|
Fair Value |
|
State |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New York |
|
$ |
3.2 |
|
|
$ |
3.2 |
|
|
$ |
3.1 |
|
|
$ |
3.1 |
|
Illinois |
|
|
1.9 |
|
|
|
1.9 |
|
|
|
1.6 |
|
|
|
1.6 |
|
Colorado |
|
|
1.4 |
|
|
|
1.5 |
|
|
|
1.5 |
|
|
|
1.5 |
|
Virginia |
|
|
0.3 |
|
|
|
0.4 |
|
|
|
0.4 |
|
|
|
0.4 |
|
North Carolina |
|
|
0.3 |
|
|
|
0.3 |
|
|
|
0.3 |
|
|
|
0.3 |
|
New Mexico |
|
|
0.3 |
|
|
|
0.3 |
|
|
|
0.4 |
|
|
|
0.4 |
|
Vermont |
|
|
0.3 |
|
|
|
0.3 |
|
|
|
0.3 |
|
|
|
0.3 |
|
Florida |
|
|
0.3 |
|
|
|
0.3 |
|
|
|
0.3 |
|
|
|
0.3 |
|
Nevada |
|
|
0.2 |
|
|
|
0.2 |
|
|
|
0.4 |
|
|
|
0.4 |
|
Massachusetts |
|
|
0.1 |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
0.1 |
|
Georgia |
|
|
0.1 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total states |
|
$ |
8.4 |
|
|
$ |
8.6 |
|
|
$ |
8.4 |
|
|
$ |
8.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4. Cash, Cash Equivalents, and Restricted Cash
The following table sets forth the cash, cash equivalents, and restricted cash (in millions):
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
Cash |
|
$ |
219.2 |
|
|
$ |
56.7 |
|
Money market funds |
|
|
556.4 |
|
|
|
372.1 |
|
Treasury bills |
|
|
|
|
|
|
23.5 |
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents |
|
|
775.6 |
|
|
|
452.3 |
|
|
|
|
|
|
|
|
|
|
Restricted cash: |
|
|
|
|
|
|
|
|
Fiduciary assets |
|
|
25.0 |
|
|
|
12.1 |
|
Letters of credit and cash on deposit |
|
|
18.1 |
|
|
|
28.0 |
|
|
|
|
|
|
|
|
|
|
Total restricted cash |
|
|
43.1 |
|
|
|
40.1 |
|
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents, and restricted cash |
|
$ |
818.7 |
|
|
$ |
492.4 |
|
|
|
|
|
|
|
|
|
|
F-24
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
5. Fair Value Measurement
The following table summarizes the Companys fair value hierarchy for its financial assets and liabilities measured at fair value on a
recurring basis (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021 |
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
556.4 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
556.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash equivalents |
|
|
556.4 |
|
|
|
|
|
|
|
|
|
|
|
556.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agencies |
|
|
9.3 |
|
|
|
|
|
|
|
|
|
|
|
9.3 |
|
States, and other territories |
|
|
|
|
|
|
5.7 |
|
|
|
|
|
|
|
5.7 |
|
Corporate securities |
|
|
|
|
|
|
17.1 |
|
|
|
|
|
|
|
17.1 |
|
Foreign securities |
|
|
|
|
|
|
0.9 |
|
|
|
|
|
|
|
0.9 |
|
Residential mortgage-backed securities |
|
|
|
|
|
|
10.6 |
|
|
|
|
|
|
|
10.6 |
|
Commercial mortgage-backed securities |
|
|
|
|
|
|
4.7 |
|
|
|
|
|
|
|
4.7 |
|
Asset backed securities |
|
|
|
|
|
|
6.6 |
|
|
|
|
|
|
|
6.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities available-for-sale |
|
|
9.3 |
|
|
|
45.6 |
|
|
|
|
|
|
|
54.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short term investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agencies |
|
|
|
|
|
|
9.1 |
|
|
|
|
|
|
|
9.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets |
|
$ |
565.7 |
|
|
$ |
54.7 |
|
|
$ |
|
|
|
$ |
620.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration liability |
|
$ |
|
|
|
$ |
|
|
|
$ |
11.6 |
|
|
$ |
11.6 |
|
Public warrants |
|
|
2.2 |
|
|
|
|
|
|
|
|
|
|
|
2.2 |
|
Private placement warrants |
|
|
|
|
|
|
2.1 |
|
|
|
|
|
|
|
2.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial liabilities |
|
$ |
2.2 |
|
|
$ |
2.1 |
|
|
$ |
11.6 |
|
|
$ |
15.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-25
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020 |
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
372.1 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
372.1 |
|
Treasury bills |
|
|
23.5 |
|
|
|
|
|
|
|
|
|
|
|
23.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash equivalents |
|
|
395.6 |
|
|
|
|
|
|
|
|
|
|
|
395.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agencies |
|
|
10.1 |
|
|
|
|
|
|
|
|
|
|
|
10.1 |
|
States, and other territories |
|
|
|
|
|
|
5.1 |
|
|
|
|
|
|
|
5.1 |
|
Corporate securities |
|
|
|
|
|
|
17.4 |
|
|
|
|
|
|
|
17.4 |
|
Foreign securities |
|
|
|
|
|
|
0.8 |
|
|
|
|
|
|
|
0.8 |
|
Residential mortgage-backed securities |
|
|
|
|
|
|
12.9 |
|
|
|
|
|
|
|
12.9 |
|
Commercial mortgage-backed securities |
|
|
|
|
|
|
5.5 |
|
|
|
|
|
|
|
5.5 |
|
Asset backed securities |
|
|
|
|
|
|
4.2 |
|
|
|
|
|
|
|
4.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities available-for-sale |
|
|
10.1 |
|
|
|
45.9 |
|
|
|
|
|
|
|
56.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets |
|
$ |
405.7 |
|
|
$ |
45.9 |
|
|
$ |
|
|
|
$ |
451.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability on convertible promissory notes |
|
$ |
|
|
|
$ |
|
|
|
$ |
113.3 |
|
|
$ |
113.3 |
|
Contingent consideration liability |
|
|
|
|
|
|
|
|
|
|
12.0 |
|
|
|
12.0 |
|
Preferred stock warrant liabilities |
|
|
|
|
|
|
|
|
|
|
22.9 |
|
|
|
22.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial liabilities |
|
$ |
|
|
|
$ |
|
|
|
$ |
148.2 |
|
|
$ |
148.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys policy is to recognize transfers into and transfers out of fair value hierarchy levels at
the end of each reporting period. Other than the Private Warrant Liability noted below there were no transfers between levels in the fair value hierarchy during the years ended December 31, 2021 and December 31, 2020.
Preferred Stock Warrant Liabilities
The
table below presents changes in the preferred stock warrant liability valued using Level 3 inputs (in millions):
|
|
|
|
|
|
|
|
|
|
|
2021 |
|
|
2020 |
|
Balance as of January 1, |
|
$ |
22.9 |
|
|
$ |
6.7 |
|
Changes in fair value |
|
|
121.6 |
|
|
|
16.2 |
|
Settlement of preferred stock warrants |
|
|
(144.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, |
|
$ |
|
|
|
$ |
22.9 |
|
|
|
|
|
|
|
|
|
|
Contingent Consideration
The contingent consideration, relating to the Companys 2019 acquisition of North American Advantage Insurance Services, LLC is re-valued
to fair value at the end of each reporting period using the present value of future payments based on an estimate of revenue and customer renewals of the acquiree. North American Advantage Insurance Services, LLCs ultimate parent company was
Lennar Corporation, a related party of the Company. There is no limit to the maximum potential contingent consideration as the consideration is based on
F-26
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
acquired customer retention. The table below presents the changes in the contingent consideration liability valued using Level 3 inputs (in millions):
|
|
|
|
|
|
|
|
|
|
|
2021 |
|
|
2020 |
|
Balance as of January 1, |
|
$ |
12.0 |
|
|
$ |
13.8 |
|
Payments of contingent consideration |
|
|
(3.9 |
) |
|
|
(5.2 |
) |
Changes in fair value |
|
|
3.5 |
|
|
|
3.4 |
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, |
|
$ |
11.6 |
|
|
$ |
12.0 |
|
|
|
|
|
|
|
|
|
|
Derivative liability on notes
The embedded derivative liabilities on the issued and outstanding convertible promissory notes are re-valued to the current fair value at the
end of each reporting period using the income-based approach with or without a 10% discount. As of August 2, 2021, the expected time to conversion used in the final mark to market valuation was 0.0-2.6 years. The table below presents the
changes in derivative liability on convertible promissory notes valued using Level 3 inputs (in millions):
|
|
|
|
|
|
|
|
|
|
|
2021 |
|
|
2020 |
|
Balance as of January 1, |
|
$ |
113.3 |
|
|
$ |
|
|
Initial measurement of new derivative |
|
|
2.8 |
|
|
|
107.2 |
|
Changes in fair value |
|
|
61.4 |
|
|
|
6.1 |
|
Settlement of derivative liability |
|
|
(177.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, |
|
$ |
|
|
|
$ |
113.3 |
|
|
|
|
|
|
|
|
|
|
Warrant liability
The public and private warrants (as noted in Note 14) were acquired as part of the Business Combination and are measured at fair value on a
recurring basis at the end of each reporting period within accrued expenses and other liabilities in the consolidated balance sheet.
The
Public Warrant Liability is classified as a Level 1 fair value measurement due to the use of an observable market quote in an active market. The Company reclassified the Private Placement Warrants from Level 3 to Level 2 as of December 31,
2021, as the Company considers the fair value of each Private Placement Warrant to be equivalent to that of each Public Warrant, with an immaterial adjustment for short-term marketability restrictions.
The following table presents the changes in the fair value of the warrant liability (Public Warrants and Private Placement Warrants) (in
millions):
|
|
|
|
|
|
|
2021 |
|
Balance as of January 1, |
|
$ |
|
|
Initial measurement of warrants |
|
|
14.6 |
|
Changes in fair value |
|
|
(10.3 |
) |
|
|
|
|
|
Balance as of December 31, |
|
$ |
4.3 |
|
|
|
|
|
|
F-27
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
6. Goodwill
The following table represents the changes in goodwill (in millions):
|
|
|
|
|
Balance at January 1, 2020 |
|
$ |
1.9 |
|
Additions from acquisitions |
|
|
45.9 |
|
|
|
|
|
|
Balance at December 31, 2020 |
|
$ |
47.8 |
|
Additions from acquisitions |
|
|
5.2 |
|
Other adjustments |
|
|
0.5 |
|
|
|
|
|
|
Balance at December 31, 2021 |
|
$ |
53.5 |
|
|
|
|
|
|
See Note 20 for additional information regarding the Companys acquisitions including recognition of
goodwill.
7. Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
|
|
Weighted- Average Useful Life Remaining (in years) |
|
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Net Carrying Amount |
|
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Net Carrying Amount |
|
|
|
|
|
|
(in millions) |
|
|
(in millions) |
|
Agency and carrier relationships |
|
|
6.9 |
|
|
$ |
13.5 |
|
|
$ |
(1.7 |
) |
|
$ |
11.8 |
|
|
$ |
13.5 |
|
|
$ |
(0.1 |
) |
|
$ |
13.4 |
|
State licenses and domain name |
|
|
Indefinite |
|
|
|
10.5 |
|
|
|
|
|
|
|
10.5 |
|
|
|
7.1 |
|
|
|
|
|
|
|
7.1 |
|
Customer relationships |
|
|
3.2 |
|
|
|
13.7 |
|
|
|
(6.0 |
) |
|
|
7.7 |
|
|
|
13.2 |
|
|
|
(3.8 |
) |
|
|
9.4 |
|
Developed technology |
|
|
0.3 |
|
|
|
3.6 |
|
|
|
(2.7 |
) |
|
|
0.9 |
|
|
|
3.6 |
|
|
|
(1.4 |
) |
|
|
2.2 |
|
VOBA |
|
|
0.7 |
|
|
|
0.1 |
|
|
|
(0.1 |
) |
|
|
|
|
|
|
0.1 |
|
|
|
|
|
|
|
0.1 |
|
Other |
|
|
6.5 |
|
|
|
2.0 |
|
|
|
(0.7 |
) |
|
|
1.3 |
|
|
|
1.9 |
|
|
|
(0.2 |
) |
|
|
1.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets, net |
|
|
|
|
|
$ |
43.4 |
|
|
$ |
(11.2 |
) |
|
$ |
32.2 |
|
|
$ |
39.4 |
|
|
$ |
(5.5 |
) |
|
$ |
33.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense related to intangible assets for the years ended December 31, 2021 and 2020 was $5.7
million and $3.7 million, respectively. The amortization expense is included in technology and development expenses for developed technology, sales and marketing expenses for customer relationships, agency relationships, carrier relationships and
other. Amortization expense related to value of business acquired (VOBA) is included in general and administrative expenses in the accompanying consolidated statements of operations and comprehensive loss.
As of December 31, 2021, the projected annual amortization expense for the Companys intangible assets for the next five years is as
follows (in millions):
|
|
|
|
|
Year ending December 31, |
|
2022 |
|
$ |
5.2 |
|
2023 |
|
|
4.2 |
|
2024 |
|
|
4.0 |
|
2025 |
|
|
2.4 |
|
2026 |
|
|
1.7 |
|
Thereafter |
|
|
4.2 |
|
|
|
|
|
|
Total |
|
$ |
21.7 |
|
|
|
|
|
|
F-28
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
8. Capitalized Internal Use Software
The following table represents the changes in capitalized internal use software:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
|
|
(in millions) |
|
Capitalized internal use software |
|
$ |
34.5 |
|
|
$ |
18.4 |
|
Less: accumulated amortization |
|
|
(8.6 |
) |
|
|
(3.7 |
) |
|
|
|
|
|
|
|
|
|
Total capitalized internal use software |
|
$ |
25.9 |
|
|
$ |
14.7 |
|
|
|
|
|
|
|
|
|
|
Amortization expense totaled $4.9 million and $2.6 million for the years ended December 31, 2021 and
2020, respectively.
9. Accrued Expenses and Other Liabilities
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
|
|
(in millions) |
|
Claim payments outstanding |
|
$ |
23.2 |
|
|
$ |
9.9 |
|
Deferred revenue |
|
|
11.2 |
|
|
|
1.7 |
|
Advances from customers |
|
|
8.7 |
|
|
|
4.4 |
|
Employee related accruals |
|
|
8.5 |
|
|
|
5.0 |
|
Accrued licenses and taxes |
|
|
5.8 |
|
|
|
2.5 |
|
Premium refund liability |
|
|
4.8 |
|
|
|
2.6 |
|
Warrant liability |
|
|
4.3 |
|
|
|
|
|
Fiduciary liability |
|
|
3.7 |
|
|
|
5.0 |
|
Other |
|
|
13.6 |
|
|
|
12.1 |
|
|
|
|
|
|
|
|
|
|
Total accrued expenses and other liabilities |
|
$ |
83.8 |
|
|
$ |
43.2 |
|
|
|
|
|
|
|
|
|
|
F-29
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
10. Loss and Loss Adjustment Expense Reserves
The reconciliation of the beginning and ending reserve balances for losses and loss adjustment expenses, net of reinsurance is summarized as
follows for the year ended December 31, (in millions):
|
|
|
|
|
|
|
|
|
|
|
2021 |
|
|
2020 |
|
Reserve for losses and LAE gross of reinsurance recoverables on unpaid losses and LAE as of
beginning of the period |
|
$ |
105.1 |
|
|
$ |
|
|
Reinsurance recoverables on unpaid losses |
|
|
(92.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve for losses and LAE, net of reinsurance recoverables as of beginning of the period |
|
|
13.0 |
|
|
|
|
|
Add: Incurred losses and LAE, net of reinsurance, related to: |
|
|
|
|
|
|
|
|
Current year |
|
|
85.0 |
|
|
|
25.3 |
|
Prior years |
|
|
(0.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total incurred |
|
|
84.4 |
|
|
|
25.3 |
|
Deduct: Loss and LAE payments, net of reinsurance, related to: |
|
|
|
|
|
|
|
|
Current year |
|
|
43.6 |
|
|
|
17.0 |
|
Prior year |
|
|
9.8 |
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
Total paid |
|
|
53.4 |
|
|
|
17.3 |
|
Reserve for losses and LAE, net of reinsurance recoverables acquired from Spinnaker |
|
|
|
|
|
|
5.0 |
|
Reserve for losses and LAE, net of reinsurance recoverables at end of period |
|
|
44.0 |
|
|
|
13.0 |
|
Add: Reinsurance recoverables on unpaid losses and LAE at end of period |
|
|
216.8 |
|
|
|
92.1 |
|
|
|
|
|
|
|
|
|
|
Reserve for losses and LAE gross of reinsurance recoverables on unpaid losses and LAE as of end of
the period |
|
$ |
260.8 |
|
|
$ |
105.1 |
|
|
|
|
|
|
|
|
|
|
Loss development occurs when actual losses incurred vary from the Companys previously developed
estimates, which are established through our reserve analysis processes.
Net incurred losses and LAE experienced favorable development of
$0.6 million and nil for the years ended December 31, 2021 and 2020, respectively. The prior period net reserve release of $0.6 million was driven by favorable net loss development relating to the 2020 accident year. While the 2020 accident
year had unfavorable gross reserve development of $6.2 million on Hurricane Sally, the net impact for that event was nil due to our reinsurance protection. These changes are generally a result of ongoing analysis of recent loss development
trends. Loss and LAE are updated as additional information becomes known.
Unpaid loss and LAE includes anticipated salvage and
subrogation recoverable. The amount of anticipated salvage and subrogation recoverable is insignificant as of December 31, 2021.
Incurred loss
and LAE, net of reinsurance
The following tables present information about incurred and paid loss development as of December 31,
2021, net of reinsurance, as well as cumulative claim frequency and the total of IBNR reserves. For the purpose of defining claims frequency, the number of reported claims is by loss occurrence and does not include claims that do not result in
indemnification of loss. The information about incurred and paid claims development for the years ended prior to December 31, 2021 is presented as unaudited supplementary information. In addition, the
F-30
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
following table shows incurred loss and LAE by accident year in aggregate as the Company has one single operating and reportable segment (in millions, except for number of claims):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, 2021 |
|
|
|
2015* |
|
|
2016* |
|
|
2017* |
|
|
2018* |
|
|
2019* |
|
|
2020* |
|
|
2021 |
|
|
IBNR |
|
|
Cumulative Number of Reported Claims |
|
Accident Year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
7 |
|
2016 |
|
|
|
|
|
|
2.5 |
|
|
|
1.9 |
|
|
|
1.9 |
|
|
|
1.8 |
|
|
|
1.8 |
|
|
|
1.8 |
|
|
|
|
|
|
|
715 |
|
2017 |
|
|
|
|
|
|
5.2 |
|
|
|
4.4 |
|
|
|
4.0 |
|
|
|
4.0 |
|
|
|
4.0 |
|
|
|
|
|
|
|
3,072 |
|
2018 |
|
|
|
|
|
|
|
|
|
|
7.8 |
|
|
|
7.2 |
|
|
|
7.2 |
|
|
|
7.2 |
|
|
|
0.5 |
|
|
|
5,882 |
|
2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.8 |
|
|
|
4.9 |
|
|
|
4.7 |
|
|
|
|
|
|
|
14,952 |
|
2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28.1 |
|
|
|
27.7 |
|
|
|
1.5 |
|
|
|
28,304 |
|
2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76.7 |
|
|
|
32.1 |
|
|
|
38,903 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total incurred Loss and Loss Adjustment Expenses, net |
|
|
$ |
122.1 |
|
|
$ |
34.1 |
|
|
|
91,835 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
Presented as unaudited required supplementary information |
Cumulative paid loss and LAE, net of reinsurance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2015* |
|
|
2016* |
|
|
2017* |
|
|
2018* |
|
|
2019* |
|
|
2020* |
|
|
2021 |
|
Accident Year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
2016 |
|
|
|
|
|
|
1.2 |
|
|
|
1.8 |
|
|
|
1.9 |
|
|
|
1.8 |
|
|
|
1.8 |
|
|
|
1.8 |
|
2017 |
|
|
|
|
|
|
3.0 |
|
|
|
4.0 |
|
|
|
4.0 |
|
|
|
4.0 |
|
|
|
4.0 |
|
2018 |
|
|
|
|
|
|
|
|
|
|
5.3 |
|
|
|
5.7 |
|
|
|
5.7 |
|
|
|
5.7 |
|
2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.2 |
|
|
|
4.4 |
|
|
|
4.6 |
|
2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17.1 |
|
|
|
26.8 |
|
2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total paid losses and LAE, net |
|
|
$ |
78.1 |
|
Total unpaid loss and LAE reserves, net |
|
|
|
44.0 |
|
Ceded unpaid loss and LAE |
|
|
$ |
216.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross unpaid loss and LAE |
|
|
$ |
260.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
Presented as unaudited required supplementary information |
Average annual percentage payout of incurred loss by age, net of reinsurance (unaudited supplementary information)
The following table presents the average annual percentage payout of incurred losses by age, net of reinsurance as of December 31, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years |
|
1 |
|
|
2 |
|
|
3 |
|
|
4 |
|
|
5 |
|
Property and Casualty |
|
|
81 |
% |
|
|
12 |
% |
|
|
3 |
% |
|
|
3 |
% |
|
|
2 |
% |
F-31
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
The reconciliation of the net incurred and paid loss information in the loss reserve rollforward table and
development tables with respect to the 2021 and 2020 accident year is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
2021 Current Accident Year |
|
|
|
Incurred |
|
|
Paid |
|
Development table |
|
$ |
76.7 |
|
|
$ |
35.2 |
|
Unallocated loss adjustment expense |
|
|
8.3 |
|
|
|
8.3 |
|
Other |
|
|
|
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
Rollforward table |
|
$ |
85.0 |
|
|
$ |
43.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020 Current Accident Year |
|
|
|
Incurred |
|
|
Paid |
|
Development table |
|
$ |
28.1 |
|
|
$ |
17.1 |
|
Unallocated loss adjustment expense |
|
|
2.2 |
|
|
|
(2.1 |
) |
Loss and LAE of Spinnaker prior to the acquisition |
|
|
(5.0 |
) |
|
|
2.0 |
|
|
|
|
|
|
|
|
|
|
Rollforward table |
|
$ |
25.3 |
|
|
$ |
17.0 |
|
|
|
|
|
|
|
|
|
|
11. Reinsurance
The Companys insurance company subsidiaries have entered into proportional and non-proportional reinsurance treaties, under which the
insurance company subsidiaries have ceded some, but not all of, the liabilities to third-party reinsurers including, but not limited to, catastrophe exposure. Additionally, the reinsurance contracts are subject to contingent commission adjustments
and loss participation features, which aligns our interests with those of our reinsurers.
For the Companys primary homeowners
reinsurance treaty commencing in 2021, the Company secured proportional reinsurance from a diverse panel of nine third-party reinsurers with AM Best ratings of A- or better. A total of approximately 12% of the premium was retained either
by Spinnaker or RHS, which aligns interests with third-party reinsurers. Two of the reinsurers, representing approximately one-third of the programs, provided three-year agreements.
As the Company is exposed to the risk of larger losses and natural catastrophe events, the Company obtained excess of loss (XOL)
and per-risk reinsurance treaties. The XOL program provides protection from catastrophes that could impact a large number of insurance policies, which is expected to reduce the probability of losses exceeding the protection purchased to no more than
0.4%, or equivalent to a 1:250 year return period. This reinsurance also caps losses at a level which protects the Company from all but the most severe catastrophic events.
The per-risk program protects the Company from large, individual claims that are less likely to be associated with catastrophes, such as house
fires. The Company purchased this coverage for the benefit of its retained shares for losses on single policies in excess of $0.5 million.
Other Spinnaker reinsurance treaties are a mix of proportional and XOL in which approximately 80% to 100% of the risk is ceded.
With all reinsurance programs, the Company is not relieved of its primary obligations to policyholders in the event of a default or the
insolvency of its reinsurers. As a result, a credit exposure exists to the extent that any
F-32
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
reinsurer fails to meet its obligations assumed in the reinsurance agreements. To mitigate this exposure to reinsurance insolvencies, the Company evaluates the financial condition of its
reinsurers and, in certain circumstances, hold substantial collateral (in the form of funds withheld, qualified trusts, and letters of credit) as security under the reinsurance agreements. No amounts have been recorded in the years ended
December 31, 2021 and 2020 for amounts anticipated to be uncollectible or for the anticipated failure of a reinsurer to meet its obligations under the contracts.
The following tables reflect amounts affecting the consolidated balance sheets and statements of operations and comprehensive loss for ceded
reinsurance as of and for the years ended December 31, 2021, and 2020 (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2021 |
|
|
2020 |
|
|
|
Loss and LAE Reserve |
|
|
Unearned premiums |
|
|
Loss and LAE Reserve |
|
|
Unearned premiums |
|
Direct |
|
$ |
253.4 |
|
|
$ |
246.6 |
|
|
$ |
102.7 |
|
|
$ |
143.7 |
|
Assumed |
|
|
7.4 |
|
|
|
6.5 |
|
|
|
2.4 |
|
|
|
6.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
260.8 |
|
|
|
253.1 |
|
|
|
105.1 |
|
|
|
150.3 |
|
Ceded |
|
|
(216.8 |
) |
|
|
(231.6 |
) |
|
|
(92.1 |
) |
|
|
(129.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net |
|
$ |
44.0 |
|
|
$ |
21.5 |
|
|
$ |
13.0 |
|
|
$ |
20.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, |
|
|
|
2021 |
|
|
2020 |
|
|
|
Written premiums |
|
|
Earned premiums |
|
|
Loss and LAE incurred |
|
|
Written premiums |
|
|
Earned premiums |
|
|
Loss and LAE incurred |
|
Direct |
|
$ |
474.0 |
|
|
$ |
364.7 |
|
|
$ |
498.5 |
|
|
$ |
90.0 |
|
|
$ |
88.7 |
|
|
$ |
93.6 |
|
Assumed |
|
|
3.3 |
|
|
|
9.8 |
|
|
|
16.9 |
|
|
|
26.1 |
|
|
|
9.3 |
|
|
|
13.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
477.3 |
|
|
|
374.5 |
|
|
|
515.4 |
|
|
|
116.1 |
|
|
|
98.0 |
|
|
|
106.9 |
|
Ceded |
|
|
(434.8 |
) |
|
|
(335.6 |
) |
|
|
(431.0 |
) |
|
|
(78.4 |
) |
|
|
(80.9 |
) |
|
|
(81.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net |
|
$ |
42.5 |
|
|
$ |
38.9 |
|
|
$ |
84.4 |
|
|
$ |
37.7 |
|
|
$ |
17.1 |
|
|
$ |
25.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recoverable from reinsurers are recognized in a manner consistent with the claims liabilities
associated with the reinsurance placement and presented on the balance sheet as reinsurance recoverable on paid and unpaid losses and LAE. Such balance is presented in the table below (in millions).
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2021 |
|
|
2020 |
|
Reinsurance recoverable on paid loss |
|
$ |
50.1 |
|
|
$ |
42.0 |
|
Ceded unpaid loss and LAE |
|
|
216.8 |
|
|
|
92.1 |
|
|
|
|
|
|
|
|
|
|
Total reinsurance recoverable |
|
$ |
266.9 |
|
|
$ |
134.1 |
|
|
|
|
|
|
|
|
|
|
F-33
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
To reduce credit exposure to reinsurance recoverable and prepaid reinsurance premium
balances, the Company evaluates the financial condition of its reinsurers and, in certain circumstances holds collateral in the form of funds withheld and letters of credit as security under the terms of its reinsurance contracts. The Company has
the following unsecured reinsurance recoverable and prepaid reinsurance premium balances from reinsurers as of December 31, 2021 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
AM Best Rating |
|
Reinsurer |
|
2021 |
|
|
2020 |
|
A+ |
|
Everest Insurance Company |
|
$ |
65.7 |
|
|
$ |
4.2 |
|
A |
|
Validus Reinsurance (Switzerland) Ltd. |
|
|
57.5 |
|
|
|
22.6 |
|
A+ |
|
Transatlantic Reinsurance Company |
|
|
46.3 |
|
|
|
28.8 |
|
A+ |
|
Renaissance Reinsurance U.S. Inc. |
|
|
28.9 |
|
|
|
5.5 |
|
A+ |
|
Munich Reinsurance America, Inc. |
|
|
18.3 |
|
|
|
11.7 |
|
A |
|
Validus Reinsurance, Ltd. |
|
|
9.6 |
|
|
|
46.9 |
|
A++ |
|
General Reinsurance Corporation |
|
|
7.9 |
|
|
|
14.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
234.2 |
|
|
$ |
134.1 |
|
|
|
Other reinsurers |
|
|
86.9 |
|
|
|
28.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
321.1 |
|
|
$ |
162.5 |
|
|
|
|
|
|
|
|
|
|
|
|
12. Geographical Breakdown of Gross Written Premium
Gross written premium by state is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2021 |
|
|
2020 |
|
|
|
Amount |
|
|
% of GWP |
|
|
Amount |
|
|
% of GWP |
|
State |
|
|
|
|
|
|
|
|
Texas |
|
$ |
139.2 |
|
|
|
29.2 |
% |
|
$ |
43.9 |
|
|
|
37.8 |
% |
California |
|
|
85.2 |
|
|
|
17.9 |
% |
|
|
10.4 |
|
|
|
9.0 |
% |
Florida |
|
|
26.8 |
|
|
|
5.6 |
% |
|
|
7.3 |
|
|
|
6.3 |
% |
Georgia |
|
|
22.0 |
|
|
|
4.6 |
% |
|
|
4.7 |
|
|
|
4.0 |
% |
Illinois |
|
|
19.1 |
|
|
|
4.0 |
% |
|
|
4.9 |
|
|
|
4.2 |
% |
Colorado |
|
|
13.6 |
|
|
|
2.8 |
% |
|
|
2.5 |
|
|
|
2.2 |
% |
Missouri |
|
|
13.0 |
|
|
|
2.7 |
% |
|
|
3.4 |
|
|
|
2.9 |
% |
Arizona |
|
|
11.4 |
|
|
|
2.4 |
% |
|
|
1.6 |
|
|
|
1.4 |
% |
Ohio |
|
|
10.5 |
|
|
|
2.2 |
% |
|
|
3.0 |
|
|
|
2.6 |
% |
New Jersey |
|
|
10.4 |
|
|
|
2.2 |
% |
|
|
3.4 |
|
|
|
2.9 |
% |
Other |
|
|
126.1 |
|
|
|
26.4 |
% |
|
|
31.0 |
|
|
|
26.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
477.3 |
|
|
|
100 |
% |
|
$ |
116.1 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13. Convertible Promissory Notes and Derivative Liability
In November 2020, and December 2020, Old Hippo issued convertible promissory notes totaling $377.5 million that mature in November 2023,
and December 2023. In February 2021, Old Hippo issued an additional convertible promissory note of $7.0 million that mature in February 2024 for management services provided. The convertible promissory notes bore interest at 2.5% compounded
semi-annually. If a conversion event had not occurred, the annual interest rate would have automatically increased by 2.5% up to 7.5% after
F-34
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
certain periods specified in the Purchase Agreement. After 15 months from issuance, if a conversion event had not occurred, interest would accrue at 5% per annum, compounding semi-annually,
unless the Company filed an S-1 or signed a letter of intent or definitive agreements with respect to a qualified private round or public issuer merger, in which case the interest rate would have increased to 5% to apply after 21 months from
issuance, provided a conversion on event had not occurred. With a prior written consent from the investor, the Company had the ability to repay the convertible promissory notes and interest, in whole or in part, any time in cash before the maturity
date without a prepayment penalty. The convertible promissory notes contained an embedded derivative.
The fair value of the embedded
derivatives upon issuance of the notes was $110.0 million. Interest expense was accreted on the convertible promissory notes between issuance and maturity dates with the expectation that principal and interest are likely to be settled in shares of
common stock of the Company at a variable conversion price calculated at 90% of the price of the common stock of the Company. For additional information on derivative liability, refer to Note 5, Fair Value Measurement of these consolidated financial
statements.
In connection with the Closing of the Business Combination on August 2, 2021, the convertible promissory notes converted
into 43,449,312 shares of the Company common stock.
The carrying value of the convertible promissory notes at the conversion date was
$304.0 million, net of $86.9 million of the deferred discount and issuance costs, and the carrying value of the derivative liability of $177.5 million after the final fair value adjustment on the conversion date were recorded to
equity. A gain of $47.0 million was recognized upon the extinguishment of the debt and related derivative liability as the carrying amounts exceeded the value of the shares issued.
14. Public Warrants and Private Placement Warrants
In November 2020, in connection with the RTPZ IPO, RTPZ issued 4,600,000 warrants (the Public Warrants) to purchase its
Class A ordinary shares at $11.50 per share. Concurrently, RTPZ also issued 4,400,000 warrants (the Private Placement Warrants and, together with the Public Warrants, the Public and Private Placement Warrants) to its
Sponsor to purchase its Class A ordinary shares at $11.50 per share. In connection with the Business Combination, the Public and Private Placement warrants converted, on a one-for-one basis, into warrants to purchase Company common stock. All
of the Public and Private Placement Warrants were outstanding as of December 31, 2021.
The Company classified the Public and Private
Placement Warrants as other liabilities on its consolidated balance sheets as these instruments are precluded from being indexed to our own stock. In certain events outside of our control, the Public Warrant and Private Placement Warrant holders are
entitled to receive cash, while in certain scenarios, the holders of the common stock are not entitled to receive cash or may receive less than 100% of any proceeds in cash, which precludes these instruments from being classified within equity. The
Public and Private Placement Warrants were initially recorded at fair value on the date of the Business Combination and are subsequently adjusted to fair value at each subsequent reporting date. Changes in the fair value of these instruments are
recognized within interest and other (income) expense, net in the Consolidated Statements of Operations and Comprehensive Loss. See Note 5, Fair Value Measurement for additional information on valuation.
F-35
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
15. Commitments and Contingencies
Operating Leases
The Company leases
office space under non-cancelable operating leases with various expiration dates through 2030. Rent expense, which is recognized on a straight-line basis over the lease term was $3.1 million and $2.8 million, during the years
ended December 31, 2021 and 2020, respectively.
At December 31, 2021, future minimum rental payments required under operating
leases that have initial or remaining non-cancelable lease terms in excess of one year, most of which pertain to real estate leases, are as follows (in millions):
|
|
|
|
|
Year ending December 31, |
|
|
|
2022 |
|
$ |
4.1 |
|
2023 |
|
|
5.1 |
|
2024 |
|
|
5.2 |
|
2025 |
|
|
5.2 |
|
2026 |
|
|
4.2 |
|
Thereafter |
|
|
5.2 |
|
|
|
|
|
|
Total |
|
$ |
29.0 |
|
|
|
|
|
|
During the year ended December 31, 2021, the Company extended a current lease and leased additional
square footage in Texas resulting in additional future payments of approximately $8.0 million extending through 2026.
Purchase Commitments
As of December 31, 2021, the Company has total minimum purchase commitments, which must be made during the next three years, of
$34.6 million.
Litigation
From
time to time, the Company may become involved in litigation or other legal proceedings. The Company is routinely named in litigation involving claims from policyholders. Legal proceedings relating to claims are reserved in the normal course of
business. The Company does not believe it is a party to any pending litigation or other legal proceedings that is likely to have a material adverse effect on our business, financial condition or results of operations. Regardless of outcome,
litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
On November 19, 2021, Hippo and its Chief Executive Officer (CEO) were named in a civil action in San Francisco Superior
Court brought by Eyal Navon. Mr. Navon brings six causes of action against Hippos CEO for breach of fiduciary duty, breach of contract, promissory estoppel, fraud, negligent misrepresentation, and constructive fraud surrounding a loan and
call option entered into between Innovius Capital Canopus I, L.P. (Innovius) and Mr. Navon, as well as alleged promises made by Hippos CEO to Mr. Navon while Mr. Navon was an employee of Hippo. Mr. Navon brings
two causes of action against Hippo he repeats the fraud claim that is alleged against the CEO, and also alleges a claim for declaratory judgment, requesting that the Court declare that Mr. Navon properly revoked the call option he
entered into with Innovius.
On January 20, 2022, Hippo filed a demurrer, moving to dismiss the claims alleged in the complaint
against Hippo. The Court sustained Hippos demurrer on March 8, 2022, dismissing all claims against Hippo without
F-36
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
prejudice, and Mr. Navon did not contest the ruling. Hippos CEO has yet to be properly served in the matter, but filed a motion to quash the attempted service of the complaint on
February 16, 2022. A hearing on that motion is currently scheduled for March 18, 2022. The lawsuit is in the early stages and, at this time, the Company is unable to predict the outcome and cannot estimate the likelihood or magnitude of
our possible or potential loss contingency.
16. Convertible Preferred Stock
Prior to December 31, 2020, Old Hippo issued Series A-1, A-2, B, C, D, and E convertible preferred stock. There were no new issuances of
preferred stock during the year ended December 31, 2021, other than the exercise of preferred stock warrants noted below.
Upon the
Closing of the Business Combination, after the exercise of preferred stock warrants, all outstanding shares of Old Hippos preferred stock automatically converted into 323,232,349 shares of the Companys common stock after giving effect to
the Exchange Ratio. See Note 2, Business Combinations for additional information on the Business Combination.
The following tables
summarize the authorized, issued and outstanding convertible preferred stock of the Company (in millions, except share and per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020 |
|
|
|
Issuance Price Per Share |
|
|
Authorized Shares |
|
|
Shares Issued and Outstanding |
|
|
Net Carrying Value |
|
|
Liquidation Preference |
|
Preferred A-1 Stock |
|
$ |
0.56965 |
|
|
|
40,959,815 |
|
|
|
40,959,815 |
|
|
$ |
3.4 |
|
|
$ |
3.4 |
|
Preferred A-2 Stock |
|
|
1.57432 |
|
|
|
48,790,097 |
|
|
|
48,590,772 |
|
|
|
10.9 |
|
|
|
11.0 |
|
Preferred B Stock |
|
|
3.59757 |
|
|
|
48,326,627 |
|
|
|
48,326,627 |
|
|
|
24.9 |
|
|
|
25.0 |
|
Preferred C Stock |
|
|
7.04471 |
|
|
|
69,101,902 |
|
|
|
69,101,895 |
|
|
|
56.1 |
|
|
|
70.0 |
|
Preferred C-1 Stock |
|
|
11.74119 |
|
|
|
17,145,581 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred D Stock |
|
|
15.16420 |
|
|
|
45,860,183 |
|
|
|
45,860,183 |
|
|
|
99.8 |
|
|
|
100.0 |
|
Preferred E Stock |
|
|
19.66420 |
|
|
|
53,048,255 |
|
|
|
53,048,151 |
|
|
|
149.7 |
|
|
|
150.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
323,232,460 |
|
|
|
305,887,443 |
|
|
$ |
344.8 |
|
|
$ |
359.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Although the convertible preferred stock was not mandatorily or currently redeemable, a liquidation or winding
up of the Company, a merger or consolidation, or a sale of substantially all the Companys assets would have constituted a redemption event not solely within the Companys control. Therefore, all shares of convertible preferred stock have
been presented outside of permanent equity.
Preferred Stock Warrant Liabilities
In connection with obtaining a line of credit in March 2017, Old Hippo issued 28,662 warrants to purchase Series A-2 Preferred Stock. The
warrants vested immediately and were exercisable up to March 13, 2027.
In connection with the issuance of Series C Preferred Stock,
in October 2018, Old Hippo issued to an investor 2,465,454 warrants to purchase Series C-1 Preferred Stock. The warrants are exercisable upon vesting. In April 2020, the warrants were fully vested. The warrants will expire at the earliest
of a deemed liquidation event, stock sale, or October 25, 2022.
In August 2021, prior to the Business Combination, the holders
exercised their warrants for 2,494,116 shares of Old Hippo preferred stock. After giving effect to the Exchange Ratio upon the Closing of the Business Combination, the 2,494,116 shares of Old Hippo preferred stock converted into 17,344,906 shares of
the Companys common stock.
F-37
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
Warrants to purchase shares of redeemable convertible preferred stock were classified as a
liability as the underlying redeemable convertible preferred stock was not considered redeemable and would have required us to transfer assets upon exercise. The warrants were recorded at fair value upon issuance and are subject to remeasurement to
fair value at each balance sheet date. The preferred stock warrant liability is remeasured at each reporting period end with changes in fair value upon remeasurement being recorded within interest and other (income) expense in the consolidated
statements of operations and comprehensive loss. See Note 5, Fair Value Measurement for additional information on the fair value of preferred stock warrant liability.
Prior to the Business Combination on August 2, 2021, the aggregate fair value of the preferred stock warrant liability was determined
based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy.
The
Company used the Black-Scholes-Merton option-pricing model, which incorporates assumptions and estimates, to value the preferred stock warrants. Estimates and assumptions impacting the fair value measurement include the fair value per share of the
underlying shares of the Companys Series A-2 and Series C-1 convertible preferred stock, risk free interest rate, expected dividend yield, expected volatility of the price of the underlying preferred stock, and an expected term of the
preferred stock warrants.
The most significant assumption impacting the fair value of the preferred stock warrants is the fair value of
the Series A-2 and C-1 Preferred Stock as of each remeasurement date. The Company determined the fair value per share of the underlying preferred stock by taking into consideration the most recent sales of its preferred stock, results obtained from
third-party valuations, and additional factors that were deemed relevant. The Company used the fair value of its common share per the Business Combination to mark to market the value the warrants upon exercise immediately prior to the Business
Combination.
The following assumptions were used in determining fair value of the convertible preferred stock warrant liabilities:
|
|
|
|
|
December 31, 2020 |
Fair value of Series A-2 Preferred Stock |
|
$18.25 |
Fair value of Series C-1 Preferred Stock |
|
$20.09 |
Exercise price A-2 Preferred Stock |
|
$1.57 |
Exercise price C-1 Preferred Stock |
|
$11.74 |
Expected term (in years) |
|
1.8-6.2 |
Expected volatility |
|
29.0%-40.7% |
Risk-free interest rate |
|
0.1%-0.5% |
Expected dividend yield |
|
% |
17. Stockholders Equity
Common Stock
On August 2, 2021, the
Companys common stock and warrants began trading on the New York Stock Exchange (NYSE) under the ticker symbols HIPO and HIPO.WS, respectively. Pursuant to Certificate of Incorporation, the Company is
authorized to issue 2 billion shares of common stock, with a par value of $0.0001 per share. Each share of common stock is entitled to one vote. The holders of the common stock are also entitled to receive dividends whenever funds are legally
available and when declared by the board of directors. No dividends have been declared or paid since inception.
F-38
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
As described in Note 2, Business Combinations, the Company issued 495,242,606 shares of the
Companys common stock in the Business Combination. The below table shows the conversion of Old Hippos outstanding instruments on the date of the Closing that were converted, exercised, or issued as stock consideration.
|
|
|
|
|
|
|
|
|
|
|
|
|
Description |
|
Balance outstanding prior to the Business Combination |
|
|
Exchange Ratio |
|
|
Post Conversion Balances |
|
Old Hippo common stock |
|
|
15,940,914 |
|
|
|
6.95433 |
|
|
|
110,858,374 |
|
Old Hippo convertible preferred stock |
|
|
43,985,178 |
|
|
|
6.95433 |
|
|
|
305,887,443 |
|
Old Hippo convertible promissory notes |
|
|
6,247,807 |
|
|
|
6.95433 |
|
|
|
43,449,312 |
|
Old Hippo preferred stock warrants |
|
|
2,494,116 |
|
|
|
6.95433 |
|
|
|
17,344,906 |
|
Old Hippo common stock warrants |
|
|
3,911,610 |
|
|
|
6.95433 |
|
|
|
27,202,571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
504,742,606 |
|
Less: Repurchase of common stock |
|
|
|
|
|
|
|
|
|
|
(9,500,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Old Hippo shares consideration |
|
|
|
|
|
|
|
|
|
|
495,242,606 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In connection with the Closing of the Business Combination on August 2, 2021, the Company issued
55,000,000 shares of Common Stock in the PIPE Investment to certain qualified institutional buyers and accredited investors that agreed to purchase such shares, for aggregate consideration of $550.0 million. Refer to Note 2, Business
Combinations for more information.
Common Stock Warrants
In December 2017, the Company issued 4,738,051 warrants for common stock to one of its investors. The warrants were subject to performance
vesting and are accounted for as stock-based compensation expense when it is probable that the awards will vest. In October 2018 in connection with the issuance of Series C Preferred Stock, these warrants were amended to eliminate the performance
vesting conditions and replace it with a time-based condition. Up until the amended date, none of the warrants were probable of being vested and no expense had been recorded. The fair value of the warrant upon the amendment was allocated to
additional paid-in capital as part of the issuance of Series C Preferred Stock, net of issuance costs and preferred stock warrants.
In
February 2018, the Company issued 4,738,051 warrants for common stock to one of its investors. The warrants are subject to performance vesting and is accounted for as stock-based compensation expense when it is probable that the awards will vest. In
December 2020, these warrants were amended, and 62,500 warrants were vested. As a result of the modification, the Company recorded a stock-based compensation charge of $1.0 million to reflect the acceleration of 62,500 shares that would
otherwise not have vested. Up until the amended date, none of the remaining warrants were probable of being vested and no expense had been recorded.
On August 2, 2021, 3,911,610 warrants were exercised for shares of Old Hippo common stock and the remaining 5,564,492 warrants were
cancelled. After giving effect to the Exchange Ratio and upon the Closing of the Business Combination, the exercised warrants converted into 27,202,571 shares of Hippo Holdings Inc. common stock.
The following common stock warrants were outstanding as of December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issue Date |
|
Exercise Price Per Share |
|
|
Number of Warrants |
|
|
Expiration Date |
|
Outstanding as of December 31, 2020 |
|
December 11, 2017 |
|
$ |
0.01 |
|
|
|
4,738,051 |
|
|
December 31, 2022 |
|
|
4,738,051 |
|
February 19, 2018 |
|
$ |
0.01 |
|
|
|
4,738,051 |
|
|
August 19, 2022 |
|
|
4,738,051 |
|
F-39
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
Stock-Based Compensation Plans
2019 Stock Option and Grant Plan
Adopted in 2019, the 2019 Stock Option and Grant Plan (the 2019 Stock Plan) provides for the direct award or sale of shares, the
grant of options to purchase shares, and the grant of restricted stock units (RSUs) to employees, consultants, and outside directors of the Company. Stock options under the plan may be either incentive stock options (ISOs) or
non-qualified stock options (NSOs), with an exercise price of not less than 100% of fair market value on the grant date, with a term less than or equal to ten years. The vesting period of each option and RSU shall be as determined by a
committee of the Companys board of directors but is generally over four years. Upon the closing of the Business Combination, the remaining unallocated share reserve under the 2019 Plan was cancelled and no new awards will be granted under such
plan. Awards outstanding under the 2019 Plan were assumed by the Company upon the Closing and continue to be governed by the terms of the 2019 Plan.
2021 Incentive Award Plan
In
connection with the Closing of the Business Combination, on August 2, 2021, the Company adopted the 2021 Incentive Award Plan (the 2021 Plan), which authorized for issuance 78,000,000 shares of common stock. The 2021 Plan provides
for the issuance of a variety of stock-based compensation awards, including stock options, stock appreciation rights (SARs), restricted stock awards, restricted stock unit awards, performance bonus awards, performance stock unit awards,
dividend equivalents, or other stock or cash-based awards. The vesting period of each option and award shall be as determined by a committee of the Companys board of directors but is generally over two to four years. This reserve increases on
January 1 of each year through 2031, by an amount equal to the smaller of: (i) 5% of the number of shares of common stock issued and outstanding on the last day of the immediately preceding fiscal year, or (ii) an amount determined by
the board of directors.
Restricted Share Awards
In 2016 and 2015, the Company granted RSAs which were subject to service-based vesting conditions to certain employees, with a vesting period
of three or four years. Other than the modification charge noted below, the stock-based compensation charges relating to these awards were not material for the periods presented. The 133,871 shares of awards outstanding at December 31, 2019
were fully vested during the year ended December 31, 2020.
Stock Options
The following table summarizes option activity under the plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
|
Weighted-Average Remaining Contract Term (In Years) |
|
|
Aggregate Intrinsic Value (In Millions) |
|
|
|
Number of Shares |
|
|
Weighted Average Exercise Price |
|
Outstanding as of January 1, 2021 |
|
|
72,205,242 |
|
|
$ |
0.70 |
|
|
|
8.90 |
|
|
$ |
108.9 |
|
Granted |
|
|
9,686,589 |
|
|
|
4.81 |
|
|
|
|
|
Exercised |
|
|
(22,801,742 |
) |
|
|
0.33 |
|
|
|
|
|
Cancelled/Expired |
|
|
(11,551,163 |
) |
|
|
2.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2021 |
|
|
47,538,926 |
|
|
$ |
1.39 |
|
|
|
8.30 |
|
|
$ |
84.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and exercisable as of December 31, 2021 |
|
|
15,919,802 |
|
|
$ |
0.81 |
|
|
|
7.88 |
|
|
$ |
32.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-40
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
The aggregate intrinsic value of options exercised during the years ended December 31,
2021 and 2020 was $41.6 million and $15.4 million, respectively, and is calculated based on the difference between the exercise price and the fair value of the Companys common stock as of the exercise date. The weighted-average grant date
fair value of options granted during the years ended December 31, 2021 and 2020 was $2.16 and $0.70 per share, respectively.
Total
unrecognized compensation cost of $28.9 million as of December 31, 2021 is expected to be recognized over a weighted-average period of 2.4 years.
Valuation Assumptions of Stock Options
The fair value of granted stock options was estimated as of the date of grant using the Black-Scholes-Merton option-pricing model, based on the
following inputs:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2021 |
|
|
2020 |
|
Expected term (in years) |
|
|
5.4 - 6.5 |
|
|
|
5.6 - 6.1 |
|
Expected volatility |
|
|
29.6% - 30.1% |
|
|
|
22.6% - 29.9% |
|
Risk-free interest rate |
|
|
0.6% - 1.4% |
|
|
|
0.3% - 1.6% |
|
Expected dividend yield |
|
|
% |
|
|
|
% |
|
Expected Term The expected term represents the period that the Companys stock-based awards
are expected to be outstanding. The Company has opted to use the simplified method for estimating the expected term of options. Accordingly, the expected term equals the arithmetic average of the vesting term and the original contractual term of the
option (generally 10 years).
Expected Volatility Due to the Companys limited operating history and a lack of company
specific historical and implied volatility data, the Company has based its estimate of expected volatility on the historical volatility of a group of peer companies that are publicly traded. The historical volatility data was computed using the
daily closing prices for the selected companies shares during the equivalent period of the calculated expected term of the stock-based awards.
Risk-Free Interest Rate The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for
zero coupon U.S. Treasury notes with maturities approximately equal to the grants expected term.
Expected Dividend Yield
The Company has never paid dividends and does not currently expect to pay dividends.
Fair value of common stock
Prior to contemplating a public market transaction, the Company established the fair value of common stock by using the option pricing model (Black-Scholes Model based) via the back-solve method and through placing weight on previously redeemable
preferred stock transactions. Once the Company made intentional progress toward pursuing a public market transaction, it began applying the probability-weighted expected return method to determine the fair value of its common stock. The probability
weightings assigned to certain potential exit scenarios were based on managements expected near-term and long-term funding requirements and assessment of the most attractive liquidation possibilities at the time of the valuation. Subsequent to
the Business Combination, the Company determined the value of its common stock based on the observable daily closing price of its common stock (ticker symbol HIPO).
F-41
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
Early Exercises of Stock Options
In 2019, certain employees early exercised stock options in exchange for promissory notes. The Company accounted for the promissory notes as
nonrecourse in their entirety because the promissory notes are not aligned with a corresponding percentage of the underlying shares. The early exercises of options were not deemed to be substantive exercises for accounting purposes. Each of these
loans and all interest accrued thereon was forgiven upon the consummation of the Business Combination. The forgiveness of the promissory notes were deemed to be exercises of the 9.4 million stock options with an intrinsic value of
$94.0 million on the date of forgiveness. The Company accounted for the forgiveness as a modification to the options granted and incurred an incremental stock-based compensation charge of $2.1 million during the year. The related number of
unvested shares subject to repurchase as of December 31, 2021 was 2,948,602.
In 2020 and 2021, certain employees early exercised
stock option with cash. On December 31, 2021 and December 31, 2020, the Company had $2.2 million and $2.5 million, respectively, recorded in accrued expenses and other liabilities related to early exercises of the stock options, and the
related number of unvested shares subject to repurchase was 2,060,221 and 2,399,245, respectively.
Restricted Stock Units
In August 2021, the Company began granting RSUs under the 2021 Incentive Award Plan. The RSUs granted to employees are measured based on the
grant-date fair value. In general, the Companys RSUs vest over a service period of two to four years. Stock-based compensation expense is recognized based on the straight-line basis over the requisite service period. The Company accounts for
forfeitures as they occur.
|
|
|
|
|
|
|
|
|
|
|
Number of Shares |
|
|
Weighted Average Grant-Date Fair Value per Share |
|
Unvested and outstanding as of December 31, 2020 |
|
|
|
|
|
$ |
|
|
Granted |
|
|
28,233,515 |
|
|
|
3.91 |
|
Vested |
|
|
(187,125 |
) |
|
|
4.00 |
|
Canceled and forfeited |
|
|
(875,460 |
) |
|
|
3.97 |
|
|
|
|
|
|
|
|
|
|
Unvested and outstanding as of December 31, 2021 |
|
|
27,170,930 |
|
|
|
3.91 |
|
|
|
|
|
|
|
|
|
|
Total unrecognized compensation cost related to unvested RSUs is $106.3 million as
of December 31, 2021, and it is expected to be recognized over a weighted-average period of 3.3 years.
Performance Restricted Stock
Units
In August 2021 and November 2021, the Company granted performance-based restricted stock units (PRSUs), which become eligible to
vest subject to the achievement of specified performance conditions within 18-months of the grant date. Compensation expense for PRSUs reflects the estimated probability that performance conditions will be met. As of December 31, 2021,
1,768,419 PRSUs have been granted with a weighted-average grant date fair value of $5.21, all of which were unvested at period end.
The
Company recognized $3.0 million of stock-based compensation expense associated with the PRSUs for the year ended December 31, 2021. Total unrecognized compensation cost related to unvested PRSUs is $6.2 million as
of December 31, 2021, and it is expected to be recognized within the next nine months.
F-42
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
2021 Employee Stock Purchase Plan
In connection with the closing of the Business Combination, the Company adopted the 2021 Employee Stock Purchase Plan (the 2021
ESPP), which authorized 13,000,000 shares of common stock for issuance. The 2021 ESPP became effective on October 25,2021. The 2021 ESPP is designed to allow eligible employees of the Company to purchase shares of our common stock with
their accumulated payroll deductions at a price equal to 85% of the lesser of the fair market value on the first business day of the offering period or on the designated purchase date of the offering period up to $25,000 during the calendar year.
The ESPP offers a six-month look-back feature as well as an automatic reset feature that provides for an offering period to be reset to a new lower-priced offering if the offering price of the new offering period is less than that of the current
offering period. No shares have been issued under the 2021 ESPP as of December 31, 2021. In addition, the number of shares available for issuance under the 2021 ESPP will be annually increased on January 1 of each calendar year beginning
in 2021 and ending in 2031, by an amount equal to the lesser of (i) one percent of the shares outstanding (on a converted basis) on the last day of the immediately preceding fiscal year and (ii) such number of shares as may be determined
by the board of directors.
Stock-Based Compensation
The company recorded a modification charge of $2.6 million in 2021 relating to the cancellation of options granted to an executive officer
of the Company without replacement.
Total stock-based compensation expense, classified in the accompanying consolidated statements of
operations and comprehensive loss was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2021 |
|
|
2020 |
|
Losses and loss adjustment expenses |
|
$ |
0.6 |
|
|
$ |
0.1 |
|
Insurance related expenses |
|
|
1.1 |
|
|
|
0.2 |
|
Technology and development |
|
|
6.8 |
|
|
|
2.4 |
|
Sales and marketing |
|
|
5.0 |
|
|
|
2.1 |
|
General and administrative |
|
|
10.8 |
|
|
|
12.4 |
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense |
|
$ |
24.3 |
|
|
$ |
17.2 |
|
|
|
|
|
|
|
|
|
|
18. Income Taxes
Income tax expense
The Company and its
U.S. subsidiaries file a consolidated federal income tax return. Tax liabilities and benefits realized by the consolidated group are allocated on a separate return basis. The Companys international subsidiaries file various income tax returns
in their respective jurisdictions.
Income (loss) before tax consists of the following (in millions)
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2021 |
|
|
2020 |
|
United States |
|
$ |
(371.3 |
) |
|
$ |
(143.2 |
) |
Foreign |
|
|
0.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(370.7 |
) |
|
$ |
(143.2 |
) |
|
|
|
|
|
|
|
|
|
F-43
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
The components of the total provision for income taxes are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2021 |
|
|
2020 |
|
Loss before income taxes |
|
$ |
(370.7 |
) |
|
$ |
(143.2 |
) |
Income tax benefit from statutory rate |
|
|
(77.9 |
) |
|
|
(30.1 |
) |
Effect of: |
|
|
|
|
|
|
|
|
Meals, entertainment & parking |
|
|
0.1 |
|
|
|
0.1 |
|
Deferred compensation |
|
|
27.8 |
|
|
|
8.1 |
|
Transaction costs |
|
|
0.1 |
|
|
|
0.1 |
|
State taxes |
|
|
(7.2 |
) |
|
|
(1.1 |
) |
Non-deductible interest |
|
|
5.5 |
|
|
|
|
|
Increase in valuation allowance |
|
|
53.4 |
|
|
|
19.9 |
|
Other |
|
|
(1.1 |
) |
|
|
1.2 |
|
|
|
|
|
|
|
|
|
|
Income taxes expense (benefit) |
|
$ |
0.7 |
|
|
$ |
(1.8 |
) |
|
|
|
|
|
|
|
|
|
The components of the provision for income taxes are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2021 |
|
|
2020 |
|
Income tax applicable to: |
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
State |
|
$ |
0.2 |
|
|
$ |
0.2 |
|
Foreign |
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current provision |
|
$ |
0.7 |
|
|
$ |
0.2 |
|
Deferred |
|
|
|
|
|
|
|
|
Federal |
|
$ |
|
|
|
$ |
(1.9 |
) |
State |
|
|
|
|
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
Total deferred provision |
|
$ |
|
|
|
$ |
(2.0 |
) |
|
|
|
|
|
|
|
|
|
Total provision for income taxes |
|
$ |
0.7 |
|
|
$ |
(1.8 |
) |
|
|
|
|
|
|
|
|
|
F-44
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
Deferred tax
Significant components of the Companys deferred tax assets and liabilities are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2021 |
|
|
2020 |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Net operating loss carryforward |
|
$ |
87.4 |
|
|
$ |
35.4 |
|
Provision for commission |
|
|
|
|
|
|
5.4 |
|
Intangible assets |
|
|
3.5 |
|
|
|
3.1 |
|
Research and development credit |
|
|
2.4 |
|
|
|
0.2 |
|
Deferred compensation |
|
|
2.2 |
|
|
|
0.3 |
|
Unearned premium reserve |
|
|
1.2 |
|
|
|
1.0 |
|
Loss reserve discount |
|
|
0.6 |
|
|
|
0.1 |
|
Unrealized losses |
|
|
0.2 |
|
|
|
|
|
Deferred rent |
|
|
0.2 |
|
|
|
0.1 |
|
Other accruals |
|
|
3.5 |
|
|
|
0.9 |
|
Interest expense limitation |
|
|
|
|
|
|
0.6 |
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets |
|
$ |
101.2 |
|
|
$ |
47.1 |
|
Valuation allowance |
|
|
(93.2 |
) |
|
|
(39.6 |
) |
|
|
|
|
|
|
|
|
|
Total deferred income tax assets |
|
$ |
8.0 |
|
|
$ |
7.5 |
|
Deferred tax liabilities |
|
|
|
|
|
|
|
|
Property and equipment |
|
$ |
0.3 |
|
|
$ |
0.1 |
|
Provision for commission |
|
|
0.2 |
|
|
|
|
|
Capitalized software |
|
|
6.1 |
|
|
|
3.3 |
|
Acquired intangibles |
|
|
0.2 |
|
|
|
0.5 |
|
Unrealized gains |
|
|
|
|
|
|
0.4 |
|
Spinnaker stepped-up adjustment |
|
|
|
|
|
|
2.9 |
|
Deferred acquisition costs |
|
|
0.9 |
|
|
|
0.3 |
|
Other |
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
$ |
8.0 |
|
|
$ |
7.5 |
|
|
|
|
|
|
|
|
|
|
Deferred income tax assets, net |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Valuation Allowance
Recognition of deferred tax assets is appropriate when realization of these assets is more likely than not. Based upon the weight of all
available evidence, with primary focus on the Companys history of recent losses, the Company has concluded that it is not more likely than not that the recorded deferred tax assets will be realized. As a result, the Company has recorded a full
valuation allowance against its net deferred tax assets recorded as of December 31, 2021 and 2020.
Unrecognized Tax Benefits
The Company recognizes the tax benefit of tax positions taken in the consolidated financial statements only when it is more likely than not
that the position will be sustained on examination by the relevant taxing authority based on the tax technical merits of the position. The tax benefit of a position that meets this standard is measured at the largest amount of benefit that is
expected to be more likely than not to be realized on settlement. A liability is established for the difference between the tax benefit of positions taken in a tax return and the tax benefit of tax positions recognized in the consolidated financial
statements.
F-45
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
The Company recognized $1.1 million and $0.0 million unrecognized tax benefit as of
December 31, 2021 and 2020, respectively, fully offset by a valuation allowance. No interest or penalties were incurred during the years ended December 31, 2021 or 2020.
As of December 31, 2021, there were no material positions for which the Company believes it is reasonably possible that the total amounts
of unrecognized tax benefits will significantly increase or decrease within the next twelve months.
Net Operating Losses
As of December 31, 2021, the Company has U.S. federal and state net operating loss (NOL) carryforwards of $372.9 million
and $136.3 million, respectively. The Company has $53.3 million of Dual Consolidating Losses in RHS, a 953(d) company. The provisions of the Tax Cuts and Jobs Act of 2017 eliminated the 20-year carryforward period and made it indefinite
for federal NOLs generated in tax years after December 31, 2017. For such amounts generated prior to 2018, the 20-year carryforward periods continue to apply.
In general, a corporations ability to utilize its NOL carryforwards may be subject to a substantial limitation due to ownership changes
that may have occurred or that could occur in the future, as required by section 382 of the Internal Revenue Code of 1986 (the Code), as amended, as well as similar state provisions. These ownership changes may limit the amount of NOL
and research & development (R&D) credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an ownership change, as defined by section 382 of the Code,
results from transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percent of the capital (as defined) of a company by certain stockholders or public groups. The Company has performed a
section 382 analysis and experienced two historical ownership changes in 2016 and 2018, and the Companys tax attributes subject to such limitations under section 382 have been considered. Components of the NOL carryforwards are as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20-year Carryforward Expires in 2035 - 2041 |
|
|
Indefinite Carryforward Period |
|
|
Total |
|
U.S. Federal |
|
$ |
62.4 |
|
|
$ |
310.5 |
|
|
$ |
372.9 |
|
U.S. State |
|
|
136.3 |
|
|
|
|
|
|
|
136.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2021 |
|
$ |
198.7 |
|
|
$ |
310.5 |
|
|
$ |
509.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax credit carryforwards
As of December 31, 2021, the Company has U.S. federal R&D credit carryforwards of $2.1 million, which have a 20-year carryforward
and expire 2040-2041, as well as state R&D credit carryforwards of $1.8 million, which have an indefinite carryforward period.
Taxing
Authority Audits
The Companys income tax returns are subject to federal and state tax examinations. There are no pending tax
examinations as of December 31, 2021. For U.S. federal purposes, the Company is open to examination for the 2018 2020 tax years and for state purposes, the Company is open for from 2017 2020 tax years. No interest or penalties
were incurred during the years ended December 31, 2021 and 2020.
F-46
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
19. Net Loss Per Share Attributable to Common Stockholders
Net loss per share attributable to common stockholders was computed as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2021 |
|
|
2020 |
|
Numerator: |
|
|
|
|
|
|
|
|
Net loss attributable to Hippo basic and diluted (in millions) |
|
$ |
(371.4 |
) |
|
$ |
(141.5 |
) |
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
Weighted-average shares used in computing net loss per share attributable to Hippo basic
and diluted |
|
|
272,168,933 |
|
|
|
86,897,893 |
|
|
|
|
|
|
|
|
|
|
Net loss per share attributable to Hippo basic and diluted |
|
$ |
(1.36 |
) |
|
$ |
(1.63 |
) |
|
|
|
|
|
|
|
|
|
Potential dilutive securities that were not included in the diluted loss per share calculations because they
would be anti-dilutive were as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2021 |
|
|
2020 |
|
Convertible preferred stock (on an as if converted basis) |
|
|
|
|
|
|
275,009,550 |
|
Outstanding options |
|
|
47,538,926 |
|
|
|
58,168,262 |
|
Warrants to purchase common shares |
|
|
9,000,000 |
|
|
|
33,127,646 |
|
Warrants to purchase preferred shares |
|
|
|
|
|
|
17,344,906 |
|
Common stock subject to repurchase |
|
|
5,008,767 |
|
|
|
9,499,253 |
|
RSU and PRSUs |
|
|
28,939,349 |
|
|
|
|
|
Convertible notes |
|
|
|
|
|
|
15,146,260 |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
90,487,042 |
|
|
|
408,295,877 |
|
|
|
|
|
|
|
|
|
|
20. Acquisitions
Spinnaker Insurance Company Acquisition
On August 31, 2020, the Company acquired 100% of all issued and outstanding share capital of Spinnaker, a privately-held entity that is an
Illinois domiciled property and casualty insurance carrier licensed in 50 states plus the District of Columbia in exchange for cash consideration. The acquisition has been accounted for as a business combination and allows the Company to vertically
integrate an insurance carrier and enhance the Companys control over unit economics and future carrier capacity.
F-47
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
There were no other components of purchase consideration other than cash payments. The
following table summarizes the closing date fair value of the consideration transferred, reflecting the measurement period adjustments recorded at the acquisition date (in millions).
|
|
|
|
|
|
|
Fair value of Consideration Transferred |
|
Cash paid |
|
$ |
95.6 |
|
Less: consideration for settlement of pre-existing liability due to Spinnaker |
|
|
(5.1 |
) |
|
|
|
|
|
Total value of consideration transferred |
|
$ |
90.5 |
|
|
|
|
|
|
The Company recognized $0.8 million of acquisition transaction costs as general and administrative
expense in the Companys consolidated statements of operations and comprehensive loss during the year ended December 31, 2020. The following table presents the allocation of the purchase price for Spinnaker, measured as of the acquisition
date:(in millions):
|
|
|
|
|
|
|
|
|
|
|
Acquisition-Date Fair Value |
|
|
Estimated Useful Life of Finite-Lived Intangible Assets |
|
Tangible assets acquired and (liabilities) assumed: |
|
|
|
|
|
|
|
|
Investments: |
|
|
|
|
|
|
|
|
Fixed maturities available-for-sale, at fair value |
|
$ |
45.7 |
|
|
|
|
|
Short term investments |
|
|
5.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments |
|
$ |
50.7 |
|
|
|
|
|
Cash and cash equivalents |
|
|
16.9 |
|
|
|
|
|
Restricted cash |
|
|
2.1 |
|
|
|
|
|
Accounts receivable, net |
|
|
18.3 |
|
|
|
|
|
Reinsurance recoverable on paid and unpaid losses and LAE |
|
|
116.3 |
|
|
|
|
|
Ceding commissions receivable |
|
|
18.7 |
|
|
|
|
|
Prepaid reinsurance premiums |
|
|
131.9 |
|
|
|
|
|
Other assets |
|
|
0.6 |
|
|
|
|
|
Accrued expenses and other liabilities |
|
|
(6.6 |
) |
|
|
|
|
Loss and loss adjustment expense reserves |
|
|
(93.3 |
) |
|
|
|
|
Unearned premiums |
|
|
(132.1 |
) |
|
|
|
|
Reinsurance premium payable |
|
|
(76.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net tangible assets acquired |
|
$ |
47.4 |
|
|
|
|
|
Intangible assets acquired |
|
|
|
|
|
|
|
|
Agency relationships |
|
|
3.4 |
|
|
|
8 years |
|
VOBA |
|
|
0.1 |
|
|
|
2 years |
|
State licenses |
|
|
7.1 |
|
|
|
Indefinite |
|
Goodwill |
|
|
32.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total purchase price |
|
$ |
90.5 |
|
|
|
|
|
Goodwill represents the excess of the Purchase Consideration over the fair value of the net tangible and
intangible assets acquired and has been allocated to the Companys one operating segment. Goodwill is primarily attributable to expected post-acquisition synergies from integrating Spinnakers property and casualty insurance carrier
business into the Companys homeowners insurance business to improve the Companys speed to market
F-48
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
for new products and offers incremental revenue opportunities from Spinnakers existing programs. The goodwill recorded is not deductible for income tax purposes.
The results of operations of Spinnaker have been included in the Companys consolidated statements of operations from the acquisition
date. The following unaudited pro forma financial information gives effect to the acquisition of Spinnaker as if it were consummated on January 1, 2019, including pro forma adjustments related to the valuation and allocation of the purchase
price, primarily amortization of acquired intangible assets; stock-based compensation expense; alignment of accounting policies; to Spinnakers historical financial statements; and direct transaction costs reflected in the historical financial
statements. This data is presented for informational purposes only and is not intended to represent or be indicative of the results of operations that would have been reported had the acquisition occurred on the assumed date. It should not be taken
as representative of future results of operations of the Company (in millions):
|
|
|
|
|
|
|
Year Ended December 31, 2020 |
|
Pro forma revenue |
|
$ |
54.1 |
|
Pro forma net loss |
|
$ |
(136.6 |
) |
Agency Acquisition
On December 31, 2020, the Company acquired an insurance agency aggregator for purchase consideration of $24.4 million, consisting
primarily of cash and the issuance of a convertible promissory note of $12.5 million. See Note 13 for additional information of the convertible promissory note. The acquisition allows the Company to continue to expand its customer base.
Of the total purchase consideration, $11.0 million has been recorded to acquired intangible assets, $13.9 million to goodwill, and
$0.5 million of net liabilities, primarily working capital. The Company incurred $0.1 million in acquisition related costs, which were recognized as general and administrative expenses in the accompanying consolidated statements of
operations and comprehensive income (loss).
The intangible assets acquired primarily relate to carrier and agency relationships and have
a useful life of eight years. The Company valued the intangibles using income-based approaches including the excess earnings and relief from royalty method as well as the with and without approach. The goodwill represents the future economic
benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including expected future synergies. The goodwill recognized is expected to be deductible for tax purposes.
Other Acquisition
On August 31,
2021, the Company acquired a software development and engineering consulting firm for the aggregate purchase price of $7.8 million, consisting of cash and equity. The acquisition has been accounted for as a business combination under ASC 805
and was made to further strengthen the Companys technology and development capabilities. Of the total purchase consideration, $5.3 million has been recorded to goodwill, $0.6 million to acquired intangible assets, and
$2.0 million to net working capital. The Company incurred $0.4 million in acquisition related costs which were recognized as general and administrative expenses in the accompanying condensed consolidated statements of operations and
comprehensive income (loss).
Included in the arrangement is $9.2 million in equity instruments granted to certain employees that
have vesting conditions contingent on certain performance milestones and are accounted for as equity-settled stock-
F-49
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
based compensation transactions. These will be recorded as post-combination compensation expense over a service period of up to 18 months, when the performance milestones become probable, if not
forfeited by the employees.
21. Related Party
In December 2020, the Company acquired First Connect Insurance Services, a wholesale P&C insurance provider for independent agents
interested in gaining access to the advanced quoting platforms that are provided by insurtech companies. One of our executive officers, Richard McCathron, was the President and Chief Executive Officer of First Connect Insurance services from 2012 to
2017 and owned greater than 10% of First Connect Insurance Services prior to the time of the transaction. The Company paid Mr. McCathron $6.4 million for his equity interests in First Connect Insurance Services prior to the transaction.
The Company also entered into an agency aggregator agreement with First Connect. The Company incurred a total of $9.9 million of expenses during the year ended December 31, 2020 related to this agreement.
In October 2020, Hippo entered into a Master Services Agreement with Forecast Labs, LLC, which operates a startup studio for Comcast Ventures,
LP, which provides accelerator and incubator services to select portfolio companies of Comcast Ventures. Comcast Ventures and its affiliated funds are beneficial owners of more than 5% of outstanding Hippo capital stock. Hippo incurred a total of
$2.2 million of expenses during the year ended December 31, 2020 related to this agreement. As of December 31, 2021 this entity is no longer a related party.
In February 2020, Comcast Neptune, LLC assumed the Master Services Agreement between Loop Labs, Inc. d/b/a Notion and the Company. Comcast
Neptune, LLC and its affiliated funds is a beneficial owner of more than 5% of our outstanding capital stock. The Company incurred a total of $3.2 million of expenses during the year ended December 31, 2020 related to this services
agreement. As of December 31, 2021 this entity is no longer a related party.
In February 2019, the Company entered into an
Accelerate Agreement with Comcast Ventures, LLC. Comcast Ventures, LLC and its affiliated funds are beneficial owners of more than 5% of our outstanding capital stock. The Company incurred over $120,000 of expenses during the year ended
December 31, 2020 related to this services agreement. As of December 31, 2021 this entity is no longer a related party.
22. Statutory
Financial Information
The Companys insurance subsidiaries are subject to insurance laws and regulations in the jurisdictions in
which they operate. U.S. state insurance laws and regulations prescribe accounting practices for determining statutory net income and capital and surplus for insurance companies. In addition, state regulators may permit statutory accounting
practices (SAP) that differ from prescribed practices. The principal differences between SAP and GAAP as they relate to the financial statements of the Companys insurance subsidiaries are (a) policy acquisition costs are expensed as
incurred under SAP, whereas they are deferred and amortized under GAAP, (b) certain assets are not admitted for purposes of determining surplus under SAP, (c) investments in fixed income securities are carried at amortized cost under SAP
whereas such securities are carried at fair value under GAAP , and (d) the criteria for recognizing net DTAs and the methodologies used to determine such amounts are different under SAP and GAAP.
Risk-Based Capital (RBC) requirements promulgated by the National Association of Insurance Commissioners require property/casualty
insurers to maintain minimum capitalization levels determined based on formulas incorporating various business risks of the insurance subsidiaries. As of December 31, 2021 and 2020, the companys capital and surplus exceeds its authorized
control level.
F-50
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
The statutory net income and statutory capital and surplus of the Companys insurance
subsidiaries in accordance with regulatory accounting practices were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statutory Net Income |
|
|
Capital Surplus |
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
Statutory net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. insurance subsidiaries |
|
$ |
(0.5 |
) |
|
$ |
6.6 |
|
|
$ |
131.8 |
|
|
$ |
69.6 |
|
International insurance subsidiary |
|
|
(54.7 |
) |
|
|
(16.7 |
) |
|
|
7.7 |
|
|
|
22.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statutory capital and surplus |
|
$ |
(55.2 |
) |
|
$ |
(10.1 |
) |
|
$ |
139.5 |
|
|
$ |
92.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23. Dividend Restrictions
Spinnaker Insurance Company
The maximum
amount of dividends that can be paid by an Illinois-domiciled property and casualty insurance company without prior approval of the Illinois Insurance Commissioner in a 12 month period, measured retrospectively from the date of payment, is the
greater of (1) ten percent (10%) of surplus as regards policyholders as of December 31 of the preceding year; or (2) the net income of such insurer as of December 31 of the preceding year, provided unassigned funds (surplus)
exceeds zero following payment of such dividends. At December 31, 2021, $11.7 million was available for the payment of dividends without prior approval of the Illinois Department of Insurance.
Spinnaker Specialty Insurance Company (SSIC) and Mainsail Insurance Company (MIC)
The maximum amount of dividends that can be paid by a Texas-domiciled property and casualty insurance company without prior approval of the
Texas Insurance Commissioner in a 12 month period, measured retrospectively from the date of payment, is the greater of (1) ten percent (10%) of surplus as regards policyholders as of December 31, 2021; or (2) the net income of
such insurer as of December 31, 2021. At December 31, 2021, surplus as regards policyholders for SSIC and MIC was $47.0 million and $10.0 million respectively. Net income was nil for SSIC and MIC for the year ended
December 31, 2021.
RH Solutions Insurance (Cayman) Ltd.
The Companys insurance subsidiary in the Cayman Islands, RHS, is regulated by the Cayman Islands Monetary Authority (CIMA).
CIMA must be given advanced notice of any dividend payments. At December 31, 2021 and 2020, approximately $5.4 million and $28.0 million, respectively, of excess capital were available for the payment of dividends contingent on
receiving the prior approval of CIMA. Dividend distributions to RH Solutions stakeholders are recognized in the period in which the dividends are declared by the Directors. In accordance with the terms of the Insurance (Capital and Solvency)
(Class B, C, and D Insurers) Regulations, 2012, as a Class B(iii) issuer under the Law, RH Solutions is required to maintain the Prescribed Capital Requirement (PCR) of $2.3 million, which is based on net earned premium during the
fiscal year.
F-51
Hippo Holdings Inc.
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