Root, Inc. 10-K

Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures Our management, with the participation of our principal executive officer and principal financial officer, evaluated, as part of the end of the period covered in this Annual Report on Form 10-K, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2021. Management’s Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of December 31, 2021, our internal control over financial reporting was effective. Deloitte & Touche LLP, an independent registered public accounting firm, has audited the consolidated financial statements contained in this Annual Report on Form 10-K, and has issued an attestation report on its effectiveness of our internal controls over financial reporting, which is included below. Changes in Internal Control There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the fiscal period ended December 31, 2021 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Limitations on Effectiveness of Controls and Procedures Our management, including our principal executive officer and principal financial officer, do not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Due to inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. 130 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Root, Inc. Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of Root, Inc. and subsidiaries (the “Company”) as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2021, of the Company and our report dated February 23, 2022, expressed an unqualified opinion on those consolidated financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Controls over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ DELOITTE & TOUCHE LLP Columbus, Ohio February 23, 2022 131 Item 9B. Other Information On February 17, 2022, the Compensation Committee of the Board of Directors (the “Board”) of Root, Inc. (the “Company”) approved a cash payment arrangement for Daniel Rosenthal, the Chief Revenue and Operating Officer and Chief Financial Officer of the Company, an amendment to Mr. Rosenthal’s employment agreement and an amendment to the employment agreement of Alexander Timm, the Company’s Chief Executive Officer. The Compensation Committee approved a cash payment to Mr. Rosenthal in the amount of $4,981,250, in light of his promotion to Chief Revenue and Operating Officer, effective September 17, 2021, while simultaneously continuing as the Chief Financial Officer, and his successful closing of the Carvana transaction in October 2021 and the BlackRock term loan in January 2022. Mr. Rosenthal will be required to repay the cash payment should he resign other than for good reason or be terminated for cause, as defined in the applicable agreement, on or prior to December 31, 2022. In addition, as part of a retention program designed to retain the Company’s top talent, including members of senior management, Mr. Rosenthal will be eligible to receive a cash payment of $500,000 if he continues to be employed by the Company as of December 2, 2022. As part of the same program, he was awarded, as of February 23, 2022, an RSU grant valued at $1,420,000, based on a 30-day closing share price average, which will vest in full on June 15, 2023, subject to his Continuous Service, as defined in the Company’s 2020 Equity Incentive Plan. The Compensation Committee believes these retention measures are appropriate considering Mr. Rosenthal’s significant contributions to the Company and its future opportunities. The agreements between the Company and Mr. Rosenthal with respect to these matters are filed as Exhibits 10.30 and 10.3, respectively, to this Annual Report on Form 10-K, and incorporated by reference herein. The Compensation Committee approved an amendment to Mr. Rosenthal’s employment agreement to incorporate non-competition and non-solicitation terms and an amendment to Mr. Timm’s employment agreement to incorporate non-competition and non-solicitation terms and severance in the event of Mr. Timm’s departure other than for cause. The foregoing summary is qualified in its entirety by references to the full text of the amendments to Messrs. Timm’s and Rosenthal’s employment agreements, filed as Exhibits 10.26 and 10.27, respectively, to this Annual Report on Form 10-K, and incorporated by reference herein. 132 Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not applicable. 133 PART III. Item 10. Directors, Executive Officers and Corporate Governance The information required by this Item is incorporated by reference in the definitive proxy statement for our Annual Meeting of Stockholders to be held on or about June 7, 2022. This proxy statement is referred to in this report as the “2022 Proxy Statement.” 134 Item 11. Executive Compensation The information required by this Item is incorporated by reference to the 2022 Proxy Statement. 135 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by this Item is incorporated by reference to the 2022 Proxy Statement. 136 Item 13. Certain Relationships and Related Party Transactions, and Director Independence The information required by this Item is incorporated by reference to the 2022 Proxy Statement. 137 Item 14. Principal Accountant Fees and Services The information required by this Item is incorporated by reference to the 2022 Proxy Statement. 138 PART IV. Item 15. Exhibits and Financial Statement Schedules. (a) Exhibits. Exhibit Number Description of Exhibit Form SEC File Number Exhibit Filing Date Filed Herewith 3.1 Amended and Restated Certificate of Incorporation of Root, Inc. 8-K 001-39568 3.1 October 30, 2020 3.2 Amended and Restated Bylaws of Root, Inc. 10-Q 001-39658 3.2 August 12, 2021 3.3 Certificate of Designations of Series A Preferred Stock, filed with the Delaware Secretary of State on October 1, 2021 8-K 001-39658 3.1 October 1, 2021 4.1 Form of Class A common stock certificate. S-1/A 333-249332 4.1 October 20, 2020 4.2 Description of Securities . X 4.3 Common Stock Purchase Warrants, dated as of October 1, 2021, by and between Root, Inc. and Carvana Group, LLC 8-K 001-39658 4.1 October 1, 2021 4.4 Form of Common Stock Purchase Warrant (Tranche 1), dated January 26, 2022 8-K 001-39658 4.1 January 27, 2022 4.5 Form of Common Stock Purchase Warrant (Tranche 2). 8-K 001-39658 4.2 January 27, 2022 10.1* Term Loan Agreement, dated as of January 26, 2022, by and among the Company, Caret Holdings, Inc., as borrower, the loan parties party thereto and Acquiom Agency Services LLC, as the administrative agent for the lenders party thereto 8-K 001-39658 10.1 January 27, 2022 10.2# Executive Employment Agreement by and between Caret Holdings, Inc. and Hemal Shah, dated December 16, 2021 X 10.3# Form of Executive Retention Award X 10.4# Root Inc, Non-Employee Director Compensation Policy adopted February 17, 2022 X 10.5 Amendment to the Fifth Amended and Restated Investors’ Rights Agreement by and among Root, Inc. and certain of its stockholders, dated October 28, 2020 X 10.6# Root, Inc. Non-Employee Director Compensation Policy adopted February 12, 2021 X 10.7# Form of Root, Inc. 2020 Equity Incentive Plan RSU Award Grant Notice and Award Agreement 10-Q 001-39658 10.2 May 6, 2021 10.8# Form of Root, Inc. 2020 Equity Incentive Plan Stock Option Grant Notice and Option Agreement 10-Q 001-39658 10.1 August 12, 2021 139 10.9# Executive Employment Agreement by and between Caret Holdings, Inc. and Anirban Kundu, dated June 21, 2021 10-Q 001-39658 10.2 August 12, 2021 10.10 Investment Agreement, dated as of August 11, 2021, by and between Root, Inc. and Carvana Group, LLC 8-K 001-39658 10.1 August 12, 2021 10.11# Advisor Agreement with Daniel Manges, effective July 3, 2021 8-K 001-39658 10.1 July 2, 2021 10.12* Commercial Agreement, dated as of October 1, 2021 8-K 001-39658 10.1 October 1, 2021 10.13 First Amendment to Investment Agreement, dated as of September 29, 2021, by and between Root, Inc. and Carvana Group, LLC 8-K 001-39658 10.3 October 1, 2021 10.14 Fifth Amended and Restated Investors’ Rights Agreement by and among Root, Inc. and certain of its stockholders, dated November 25, 2019. S-1 333-249332 4.2 October 5, 2020 10.15# Root, Inc. Amended and Restated 2015 Equity Incentive Plan. S-1 333-249332 10.1 October 5, 2020 10.16# Form of Stock Option Agreement under the Amended and Restated 2015 Equity Incentive Plan. S-1 333-249332 10.2 October 5, 2020 10.17# Form of Notice of Stock Option Exercise and Stock Option Exercise Agreement under the Amended and Restated 2015 Equity Incentive Plan. 10-K 333-249332 10.7 March 4, 2021 10.18# Form of RSU Agreement under the Amended and Restated 2015 Equity Incentive Plan. S-1 333-249332 10.4 October 5, 2020 10.19# Root, Inc. 2020 Equity Incentive Plan. 10-Q 001-39658 10.1 December 2, 2020 10.20# Root, Inc. 2020 Employee Stock Purchase Plan. S-1/A 333-249332 10.14 October 20, 2020 10.21 Office Lease Agreement by and between Root, Inc. and Two25 Commons LLC, dated May 9, 2018, as amended. S-1 333-249332 10.6 October 5, 2020 10.22 Form of Director and Officer Indemnity Agreement X 10.23# Offer Letter by and between Root, Inc. and Alexander Timm, dated January 4, 2021. 10-K 333-249332 10.16 March 4, 2021 10.24# Amended and Restated Offer Letter by and between Root, Inc. and Daniel Rosenthal, dated February 24, 2021. 10-K 333-249332 10.17 March 4, 2021 10.25# Offer Letter by and between Root, Inc. and Daniel Manges, dated February 24, 2021. 10-K 333-249332 10.18 March 4, 2021 10.26# F irst Amendment to Off er Letter by and between Root, Inc. and Alexander Timm, dated February 22 , 2022 X 10.27# F irst Amendment to Amended and Restated Offer Letter by and be tween Root, Inc. and Daniel Rosenthal, dated February 23 , 2022 X 140 10.28 Board Observation Side Letter, dated January 26, 2022, by and between the Company and GCO II Aggregator 2 L.P. 8-K 001-39658 10.2 January 27, 2022 10.29 Registration Rights Agreement, dated January 26, 2022, by and between the Company and the other parties thereto. 8-K 001-39658 10.3 January 27, 2022 10.30 Root, Inc. Executive Compensation Agreement X 21.1 List of subsidiaries of Root, Inc. X 23.1 Consent of Deloitte & Touche, LLP. X 24.1 Power of Attorney (incorporated by reference to the signature pages of this Annual Report on Form 10-K). X 31.1 Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanex-Oxley Act of 2002. X 31.2 Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. X 32.1* Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. X 101.INS Inline XBRL Instance Document 101.SCH Inline XBRL Taxonomy Extension Schema Document 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). _______________ * Schedules and exhibits to this Exhibit omitted pursuant to Regulation S-K Item 601(a)(5) and (b)(10). The Company agrees to furnish supplementally a copy of any omitted schedule or exhibit to the SEC upon request. # Indicates management contract or compensatory plan. * The certifications furnished in Exhibit 32.1 hereto are deemed to accompany this Annual Report on Form 10-K and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the registrant specifically incorporates them by reference. 141 Item 16. Form 10-K Summary None. 142 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized . Date: February 23, 2022 ROOT, INC. By: /s/Alexander Timm Alexander Timm Chief Executive Officer POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Alexander Timm, Daniel Rosenthal and Megan Binkley, and each of them, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution for him or her, and in his or her name in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the U.S. Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and either of them, his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated. Signature Title Date /s/ Alexander Timm Chief Executive Officer and Director ( Principal Executive Officer ) February 23, 2022 Alexander Timm /s/ Daniel Rosenthal Chief Revenue and Operating Officer and Chief Financial Officer ( Principal Financial Officer ) February 23, 2022 Daniel Rosenthal /s/ Megan Binkley Chief Accounting Officer ( Principal Accounting Officer ) February 23, 2022 Megan Binkley /s/ Doug Ulman Director February 23, 2022 Doug Ulman /s/ Elliot Geidt Director February 23, 2022 Elliot Geidt /s/ Jerri DeVard Director February 23, 2022 Jerri DeVard /s/ Larry Hilsheimer Director February 23, 2022 Larry Hilsheimer /s/ Luis von Ahn Director February 23, 2022 Luis von Ahn /s/ Nancy Kramer Director February 23, 2022 Nancy Kramer /s/ Nick Shalek Director February 23, 2022 Nick Shalek /s/ Scott Maw Director February 23, 2022 Scott Maw