INNOVATE Corp. 10-K

ITEM 1. BUSINESS Unless the context otherwise requires, in this Annual Report on Form 10-K, "HC2," means HC2 Holdings, Inc. and the "Company," "we" and "our" mean HC2 together with its consolidated subsidiaries. This Annual Report on Form 10-K contains forward-looking statements. See "Management’s Discussion and Analysis of Financial Condition and Results of Operations - Special Note Regarding Forward-Looking Statements." General HC2 is a diversified holding company that has a portfolio of subsidiaries in a variety of operating segments. We seek to grow these businesses so that they can generate long-term sustainable free cash flow and attractive returns in order to maximize value for all stakeholders. As of December 31, 2020, our four reportable operating segments, plus our Other segment, based on management’s organization of the enterprise included Infrastructure, Life Sciences, Spectrum, Insurance and Other, which includes businesses that do not meet the separately reportable segment thresholds. Our principal operating subsidiaries include the following assets: (i) DBM Global Inc. ("DBMG") (Infrastructure), a family of companies providing fully integrated structural and steel construction services; (ii) Pansend Life Sciences, LLC ("Pansend") (Life Sciences), our subsidiary focused on supporting healthcare and biotechnology product development; (iii) HC2 Broadcasting Holdings Inc. and its subsidiaries ("HC2 Broadcasting") (Spectrum), a strategic acquirer and operator of Over-The-Air ("OTA") broadcasting stations across the United States ("U.S.") and Puerto Rico. In addition, Spectrum, through its wholly-owned subsidiary, HC2 Network Inc. ("Network"), operates Azteca America, a Spanish-language broadcast network offering high quality Hispanic content to a diverse demographic across the United States; and (iv) Continental Insurance Group Ltd. ("CIG") (Insurance), a platform for our run-off long-term care and life and annuity business, through its insurance company, Continental General Insurance Company ("CGI" or the "Insurance Company"); (v) Other, which represents all other businesses or investments that do not meet the definition of a segment individually or in the aggregate. We expect to focus on operating and managing our portfolio of companies and building value in Infrastructure, Life Sciences and Spectrum in the future. We believe these segments are well positioned to take advantage of current trends in today’s economy and that there is opportunity to build value organically and inorganically in these three segments. We will consider opportunities outside of these businesses in the longer term to acquire and invest in businesses with attractive assets that we consider to be undervalued or fairly valued. Overall Business Strategy We evaluate strategic and business alternatives, which may include the following: operating, growing or acquiring additional assets or businesses related to our current or historical operations; or winding down or selling our existing operations (including our Insurance segment), or, in the longer-term, acquiring assets or businesses unrelated to our current or historical operations. We will generally pursue either controlling positions in durable, cash-flow generating businesses, assets that will enhance our current businesses or companies we believe exhibit substantial growth potential in Infrastructure, Life Sciences and Spectrum. We may choose to actively assemble or re-assemble a company’s management team to ensure the appropriate expertise is in place to execute the operating objectives of such business. We view ourselves as strategic and financial partners and seek to align our management teams’ incentives with our goal of delivering sustainable long-term value to our stakeholders. As part of any acquisition strategy, we may raise capital in the form of debt or equity securities (including preferred stock) or a combination thereof. We have broad discretion in selecting a business strategy for the Company. If we elect to pursue an acquisition, while we intend to focus on Infrastructure, Life Science and Spectrum, we have broad discretion in identifying and selecting both the industry and the possible acquisition or business combination opportunity. In connection with evaluating these strategic and business alternatives, we may at any time be engaged in ongoing discussions with respect to possible acquisitions, business combinations and debt or equity securities offerings of widely varying sizes. There can be no assurance that any of these discussions will result in a definitive agreement and if they do, what the terms or timing of any agreement would be. Competition From a strategic perspective, we encounter competition for acquisition and business opportunities from other entities having similar business objectives, such as strategic investors and private equity firms, which could lead to higher prices for acquisition targets. Many of these entities are well established and have extensive experience identifying and executing transactions directly or through affiliates. Our financial resources and human resources may be relatively limited when contrasted with many of these competitors which may place us at a competitive disadvantage. Competitive conditions affecting our operating businesses are described in the discussions below. 2 Employees As of December 31, 2020, we had approximately 2,803 employees, including the employees of our operating businesses as described in more detail below. We consider our relations with our employees to be satisfactory. Our Operating Subsidiaries Infrastructure Segment (DBMG) DBM Global Inc. is a fully integrated Industrial Construction, Structural Steel, and Facility Maintenance provider who provides 3D Building Information Modeling ("BIM"), detailing, fabrication, and erection of structural steel and heavy steel plate, heavy mechanical and facility maintenance services. DBMG provides these services on commercial, industrial, and infrastructure construction projects such as high- and low-rise buildings and office complexes, hotels and casinos, convention centers, sports arenas and stadiums, shopping malls, hospitals, dams, bridges, mines, metal processing, refineries, pulp and paper mills, and power plants. DBMG also fabricates trusses and girders and specializes in the fabrication and erection of large-diameter water pipe and water storage tanks. Through its Aitken business ("Aitken"), DBMG manufactures pollution control scrubbers, tunnel liners, pressure vessels, strainers, filters, separators and a variety of customized products. Through its GrayWolf Industrial business ("GrayWolf"), DBMG also provides integrated solutions for digital engineering, modeling and detailing, construction, heavy equipment installation and facility services including maintenance, repair, and installation to a diverse range of end markets. Headquartered in Phoenix, Arizona, DBMG has domestic operations in Alabama, Arizona, California, Georgia, Kansas, Kentucky, Oregon, South Carolina, Texas, Utah, and Washington with construction projects primarily located in the aforementioned states. In addition, through its DBM Vircon business (“DBM Vircon”), DBMG also has international operations located in Australia, Canada, India, New Zealand, the Philippines, Thailand, and the United Kingdom, providing steel detailing, rebar detailing, BIM modeling, and BIM management services. DBMG’s results of operations are affected primarily by (i) the level of commercial, industrial and infrastructure construction as well as the need for mechanical and maintenance services in its principal markets; (ii) its ability to win project contracts; (iii) the number and complexity of project changes requested by customers or general contractors; (iv) its success in utilizing its resources at or near full capacity; and (v) its ability to complete contracts on a timely and cost-effective basis. The level of commercial, industrial and infrastructure construction activity is related to several factors, including local, regional and national economic conditions, interest rates, availability of financing, and the supply of existing facilities relative to demand. Strategy DBMG’s objective is to achieve and maintain a leading position in the geographic regions and project segments that it serves by providing timely, high-quality services to its customers. DBMG pursues this objective with a strategy comprised of the following components: • Pursue Large, Value-Added Design-Build Projects: DBMG’s unique ability to offer design-build services, a full range of steel construction services and project management capabilities makes it a preferred partner for complex, design-build fabrication projects in the geographic regions it serves. This capability often enables DBMG to bid against fewer competitors in a less traditional, more negotiated selection process on these kinds of projects, thereby offering the potential for higher margins while providing overall cost savings and project flexibility and efficiencies to its customers; • Expand and Diversify Revenue Base: DBMG is seeking to expand and diversify its revenue base by leveraging its long-term relationships with national and multi-national construction and engineering firms, national and regional accounts and other customers. DBMG also intends to continue to grow its operations by targeting smaller projects that carry higher margins and less risk of large margin fluctuations. DBMG believes that continuing to diversify its revenue base by completing smaller projects, such as low-rise office buildings, healthcare facilities and other commercial and industrial structures, could reduce the impact of periodic adverse market or economic conditions, as well as the margin slippage that may accompany larger projects; • Emphasize Innovative Services: DBMG focuses its BIM modeling, design-build, engineering, detailing, fabrication and erection expertise on larger, more complex projects, where it typically experiences less competition and more advantageous negotiated contract opportunities. DBMG has extensive experience in providing services requiring complex BIM modeling, detailing, fabrication and erection techniques and other unusual project needs, such as BIM coordination, specialized transportation, steel treatment or specialty coating applications. These service capabilities have enabled DBMG to address such design-sensitive projects as stadiums and uniquely designed hotels and casinos; and • Diversify Customer and Product Base: Although DBMG seeks to achieve a leading share of the geographic and product markets in which it traditionally competes, it also seeks to diversify its product offerings and geographic markets through acquisition. By expanding the portfolio of products offered and geographic markets served, DBMG believes that it will be able to offer more value-added services to existing and new potential customers, as well as to reduce the impact of periodic adverse market or economic conditions. 3 • Ensure Project Delivery Success through Predictive Technologies : DBMG uses resources including data analytics, modeling and detailing, laser scan to BIM, and augmented and virtual reality to provide fully integrated solutions for a project’s lifecycle, from design through fabrication, construction, and mechanical and facility services. DBMG is thus able to deliver optimal value and reliable outcomes that are on schedule and on budget. Services and Customers DBMG consists of four business units spread across diverse markets: Schuff Steel Company ("SSC") (steel fabrication and erection), DBM Vircon ("DBM Vircon") (steel detailing, rebar detailing, bridge detailing, BIM modeling services and BIM management services), the Aitken product line ("Aitken") (manufacturing of equipment for the oil and gas industry) and GrayWolf (specialty facility maintenance, repair, and installation services, as well as management of smaller structural steel projects). For the year ended December 31, 2020 revenues were as follows (in millions): Revenue % of Total Revenue SSC $ 436.3 64.5 % GrayWolf 192.9 28.5 % DBM Vircon 40.6 6.0 % Aitken 6.8 1.0 % Total $ 676.6 100.0 % The majority of DBMG's business is in North America, but DBM Vircon provides detailing services on five continents, and SSC provides fabricated steel to Canada and other select countries. In 2020, DBMG's two largest customers represented approximately 18.6% of revenues. In 2019, DBMG’s two largest customers represented approximately 20.2% of revenues. DBMG’s size gives it the production capacity to complete large-scale, demanding projects, with typical utilization per facility ranging from 75%-88% and a sales pipeline that includes over $857 million in potential revenue generation. DBMG believes it has benefited from being one of the largest players in a market that is highly fragmented across many small firms. DBMG achieves a highly efficient and cost-effective construction process by focusing on collaborating with all project participants and utilizing its extensive design-build and design-assist capabilities with its clients. Additionally, DBMG has in-house fabrication and erection combined with access to a network of subcontractors for smaller projects in order to provide high-quality solutions for its customers. DBMG offers a range of services across a broad geography through its ten fabrication shops in the United States and 29 sales and management facilities located in the United States, Australia, Canada, India, New Zealand, the Philippines, Thailand and the UK. DBMG operates with minimal bonding requirements, with a current balance of 23% of DBMG's backlog (out of a total backlog of $394.5 million) as of December 31, 2020, and bonding is reduced as projects are billed, rather than upon completion. DBMG has limited its raw material cost exposure by securing fixed prices from mills at contract bid, as well as by utilizing its purchasing power as one of the largest domestic buyers of wide flange beams in the United States. SSC offers a variety of services to its customers which it believes enhances its ability to obtain and successfully complete projects. These services fall into six distinct groups: design-assist/design-build, pre-construction design and budgeting, steel management, fabrication, erection, and BIM: • Design-Assist/Design-Build: Using the latest technology and BIM, DBMG works to provide clients with cost-effective steel designs. The end result is turnkey-ready, structural steel solutions for its diverse client base; • Pre-Construction Design and Budgeting: Clients who contact DBMG in the early stages of planning can receive a DBMG-performed analysis of the structure and cost breakdown. Both of these tools allow clients to accurately plan and budget for any upcoming project; • Steel Management: Using DBMG’s proprietary SIMS, DBMG can track any piece of steel and instantly know its location. Additionally, DBMG can help clients manage steel subcontracts, providing clients with savings on raw steel purchases and giving them access to a variety of DBMG-approved subcontractors; • Fabrication: Through its six fabrication shops in Arizona, California, Kansas, and Utah, SSC has one of the highest fabrication capacities in the United States, with over 1.5 million square feet under roof and a maximum annual fabrication capacity of approximately 310,000 tons; • Erection: Named the top steel erector in the United States for 2007, 2008, 2011, and from 2013-2020 by Engineering News-Record, SSC knows how to add value to its projects through the safe and efficient erection of steel structures; and • BIM: DBMG uses BIM on every project to manage its role efficiently. Additionally, DBMG’s use of Steel Integrated Management Systems ("SIMS") in conjunction with its BIM platform Visualizer allows for real-time reporting on a project’s progress and an information-rich model review. 4 Aitken is a manufacturer of equipment used in the oil, gas, petrochemical and pipeline industries. Aitken supplies the following products both nationwide and internationally: • Strainers : Temporary cone and basket strainers, tee-type strainers, vertical and horizontal permanent line strainers and fabricated duplex strainers; • Measurement Equipment: Orifice meter tubes, orifice plates, orifice flanges, seal pots, flow nozzles, Venturi tubes, low loss tubes and straightening vanes; and • Major Products: Spectacle blinds, paddle blinds, drip rings, bleed rings, and test inserts, ASME vessels, launchers and pipe spools. DBM Vircon provides steel detailing, rebar detailing, BIM modeling and BIM management services for industrial and infrastructure and commercial construction projects in Australia, New Zealand, Europe and North America. • Steel Detailing: Utilizing industry leading technologies, DBM Vircon provides steel detailing services which include: shop drawings, erection plans, anchor bolt drawings, connection sketches, DSTV files for cutting and drilling, DXF files for plate work, field bolt lists, specialist reports and advance bill of material and piping; • Rebar Detailing: These services, including rebar detailing and estimating, are delivered by a staff experienced in rebar installation and familiar with the construction practices and constructability issues that arise on project sites. Deliverables include: field placement/shop drawings, field and/or phone support, 2D and 3D modeling, connection sketches, bar listing in ASA format, DGN files, and complete rebar estimating; • BIM Modeling: Through multidisciplinary teams, DBM Vircon creates highly accurate, scaled virtual models of each structural component. These independent models and data are integrated and standardized to produce a single 3D model simulation of the entire structure using DBM Vircon’s proprietary application, Visualizer. This integrated model contains complete information for all functional requirements of a project, including procurement and logistics, financial modeling, claims and litigation, fabrication, construction support and asset management; • BIM Management: DBM Vircon is an industry leading provider of BIM management consultancy services ("BIM Management"), with clients ranging from government, industry organizations and general construction contractors. BIM Management of all project participants’ input, use and development of the applicable model is integral to ensuring that the model remains the single point of reference. DBM Vircon’s BIM Management service includes the governing of process and workflow management, which is a collection of defined model uses, workflows, and modeling methods used to achieve specific, repeatable and reliable information results from the model. The way the model is created and shared, and the sequencing of its application, impacts the effective and efficient use of BIM for desired project outcomes and decision support; and • Bridge Steel Detailing: Utilizing industry leading technologies, DBM Vircon, through its wholly owned subsidiary Candraft Detailing, provides steel detailing services for bridges which include: shop drawings, erection plans, anchor bolt drawings, connection sketches, DSTV files for cutting and drilling, DXF files for plate work, field bolt lists, specialist reports and advance bill of material and piping. GrayWolf provides services including steel fabrication, steel management, maintenance, repair, erection, and installation to a diverse range of end markets in order to provide high-quality outage, turnaround, and new installation services to customers. GrayWolf provides the following services through its four major brands: GrayWolf Integrated Construction (formerly Titan Contracting), Inco Services, Milco National Constructors and Titan Fabricators. • Specialty mechanical contracting services: GrayWolf offers specialty mechanical contracting services to the power, petrochemical, refining and other industrial markets. Its services including plant maintenance, specialty welding, equipment rigging, and mechanical construction to customers in the power, industrial, petrochemical, water treatment, and refining markets at a national level; • Specialty construction solutions for processing markets: Customers in the pulp and paper, metals, mining and minerals, and petrochemical markets are able to receive specialized solutions including plant maintenance, process piping, equipment, and tank and vessel fabrication and erection that are catered to the needs and specifications of the customer’s industry through the Inco Services brand; • Turnarounds, tank construction, and piping services: GrayWolf offers services including plant maintenance, specialty welding, piping systems, and tanks and vessels construction to the power, refining, petrochemical, and water treatment markets in the Midwest, Mid-Atlantic, and West Coast; • Custom steel fabrication and erection: GrayWolf offers engineering, design, fabrication, modularization, erection and additional services to the heavy commercial and industrial markets in the Southwest, Midwest, Gulf Coast and Southeast; and 5 • Structural steel management: provides turn-key steel fabrication and erection services with expertise in project management. Leveraging such strengths, GrayWolf uses its relationships with reliable subcontractors and erectors, along with state-of-the-art management systems, to deliver excellence to clients Suppliers DBMG currently purchases its steel from a variety of domestic and foreign steel producers but is not dependent on any one producer. During the year ended December 31, 2020, DBMG, through SSC, purchased approximately 53% of the total value of steel and steel components purchased from two domestic steel vendors. See Item 1A - Risk Factors - "Risks Related to the Infrastructure segment" elsewhere in this document for discussion on DBMG’s reliance on suppliers of steel and steel components. Sales and Distributions DBMG obtains contracts through competitive bidding or negotiation, which generally are fixed-price, cost-plus, unit cost, or time and material arrangements. Bidding and negotiations require DBMG to estimate the costs of the project up front, with most projects typically lasting from one to 12 months. However, large and more complex projects can often last two years or more. Marketing Sales managers lead DBMG’s sales and marketing efforts. Each sales manager is primarily responsible for estimating sales and marketing efforts in defined geographic areas. In addition, DBMG employs full-time project estimators and chief estimators. DBMG’s sales representatives build and maintain relationships with general contractors, architects, engineers and other potential sources of business to identify potential new projects. DBMG generates future project reports to track the weekly progress of new opportunities. DBMG’s sales efforts are further supported by most of its executive officers and engineering personnel, who have substantial experience in the design, detailing, modeling, fabrication and erection of structural steel and heavy steel plate. DBMG competes for new project opportunities through its relationships and interaction with its active and prospective customer base which provides valuable current market information and sales opportunities. In addition, DBMG is often contacted by governmental agencies in connection with public construction projects, and by large private-sector project owners, general contractors and engineering firms in connection with new building projects such as manufacturing and industrial plants, data centers, warehouse and distribution centers, and other industrial and commercial facilities. Upon selection of projects to bid or price, DBMG’s estimating departments review and prepare projected costs of shop, field, detail drawing preparation and crane hours, steel and other raw materials, and other costs. With respect to bid projects, a formal bid is prepared detailing the specific services and materials DBMG plans to provide, along with payment terms and project completion timelines. Upon acceptance, DBMG’s bid proposal is finalized in a definitive contract. Competition The principal geographic and product markets DBMG serves are highly competitive, and this intense competition is expected to continue. DBMG competes with other contractors for commercial, industrial and specialty projects on a local, regional, or national basis. Continued service within these markets requires substantial resources and capital investment in equipment, technology and skilled personnel, and certain of DBMG’s competitors have financial and operating resources greater than DBMG. Competition also places downward pressure on DBMG’s contract prices and margins. The principal competitive factors within the industry are price, timeliness of project completion, quality, reputation, and the desire of customers to utilize specific contractors with whom they have favorable relationships and prior experience. While DBMG believes that it maintains a competitive advantage with respect to many of these factors, failure to continue to do so or to meet other competitive challenges could have a material adverse effect on DBMG’s results of operations, cash flows or financial condition. Employees As of December 31, 2020, DBMG employed approximately 2,530 people across the globe, including the U.S., Canada, Australia, New Zealand, India, Philippines, Thailand, and the UK. The number of persons DBMG employs on an hourly basis fluctuates directly in relation to the amount of business DBMG performs. Certain of the fabrication and erection personnel DBMG employs are represented by the United Steelworkers of America and the International Association of Bridge, Structural, Ornamental and Reinforcing Iron Workers Union. DBMG is a party to several separate collective bargaining agreements with these unions in certain of its current operating regions, which expire (if not renewed) at various times in the future. Approximately 28% of DBMG’s employees are covered under various collective bargaining agreements. As of December 31, 2020, most of DBMG’s collective bargaining agreements are subject to automatic annual or other renewal unless either party elects to terminate the agreement on the scheduled expiration date. DBMG considers its relationship with its employees to be satisfactory and, other than sporadic and unauthorized work stoppages of an immaterial nature, none of which have been related to its own labor relations, DBMG has not experienced a work stoppage or other labor disturbance. DBMG strategically utilizes third-party fabrication and erection subcontractors on many of its projects and also subcontracts detailing services from time to time when its management determines that this would be economically beneficial (and/or when DBMG requires additional capacity for such services). DBMG’s inability to engage fabrication, erection and detailing subcontractors on favorable terms could limit its ability to complete projects in a timely manner or compete for new projects, which could have a material adverse effect on its operations. 6 Legal, Environmental and Insurance DBMG is subject to claims and legal proceedings that arise in the ordinary course of business. Such matters are inherently uncertain, and there can be no guarantee that the outcome of any such matter will be decided favorably to DBMG or that the resolution of any such matter will not have a material adverse effect upon DBMG or the Company’s business, consolidated financial position, results of operations or cash flows. Neither DBMG nor the Company believes that any of such pending claims and legal proceedings will have a material adverse effect on its (or the Company’s) business, consolidated financial position, results of operations or cash flows. DBMG’s operations and properties are affected by numerous federal, state and local environmental protection laws and regulations, such as those governing discharges to air and water and the handling and disposal of solid and hazardous wastes. These laws and regulations have become increasingly stringent and compliance with these laws and regulations has become increasingly complex and costly. There can be no assurance that such laws and regulations or their interpretation will not change in a manner that could materially and adversely affect DBMG’s operations. Certain environmental laws, such as CERCLA (the Comprehensive Environmental Response, Compensation, and Liability Act) and its state law counterparts, provide for strict and joint and several liability for investigation and remediation of spills and other releases of toxic and hazardous substances. These laws may apply to conditions at properties currently or formerly owned or operated by an entity or its predecessors, as well as to conditions at properties at which wastes or other contamination attributable to an entity or its predecessors come to be located. Although DBMG has not incurred any material environmental related liability in the past and believes that it is in material compliance with environmental laws, there can be no assurance that DBMG, or entities for which it may be responsible, will not incur such liability in connection with the investigation and remediation of facilities it currently operates (or formerly owned or operated) or other locations in a manner that could materially and adversely affect its operations. DBMG maintains commercial general liability insurance in the amount of $1.0 million per occurrence and $2.0 million in the aggregate. In addition, DBMG maintains umbrella coverage limits of $75.0 million. DBMG also maintains insurance against property damage caused by fire, flood, explosion and similar catastrophic events that may result in physical damage or destruction of its facilities and property. DBM maintains professional liability insurance in the amount of $10.0 million for professional services related to our work in steel erection and fabrication projects. All policies are subject to various deductibles and coverage limitations. Although DBMG’s management believes that its insurance is adequate for its present needs, there can be no assurance that it will be able to maintain adequate insurance at premium rates that management considers commercially reasonable, nor can there be any assurance that such coverage will be adequate to cover all claims that may arise. Life Sciences Segment (Pansend Life Sciences, LLC) Pansend focuses on the development of innovative technologies and products in the healthcare industry. As of December 31, 2020, Pansend is currently invested in four companies: R2 Technologies, Inc. R2 Technologies, Inc. ("R2"), a company developing and commercializing breakthrough aesthetic medical and non-medical devices in the aesthetic dermatology market. Founded in 2014 by Pansend and Blossom Innovations, LLC, R2 exclusively licenses intellectual property developed at Massachusetts General Hospital and Harvard Medical School. Skin lightening and brightening is a large and fast growing segment of aesthetic dermatology. Current lightening products and/or procedures may be ineffective, unpredictable or even harmful, and patients often must compensate for lack of efficacy by using makeup or concealers. R2 has developed breakthrough CryoAesthetic technologies that uniquely deliver in-office treatments that provide patients skin lightening, brightening, skin tone evening and reduction or elimination of hyperpigmentation. R2 uses patented CryoAesthetic technology, which is the use of controlled cooling to suppress melanin, inflammation and discomfort by precisely controlling time and temperature to deliver an effective treatment with no social downtime. In 2019, R2 closed its Series B “Commercialization” round with its strategic partner, Huadong Medicine Company, Ltd., (“Huadong”) and, in exchange for a staged $30 million investment, entered into an exclusive distribution agreement with Huadong for the Asia-Pacific region. As a part of this agreement, Huadong’s existing sales force will be responsible for sales and marketing in the Asia-Pacific region, and R2 will receive a share of the residual profits from such sales. As of December 31, 2020, R2 received two $10 million staged investments from Huadong based on the completion of certain pre-determined milestones at a post-money valuation of approximately $90 million. On February 3, 2021, the Company announced that R2 received its third and final $10 million staged investment at a pre-determined post-money valuation of approximately $113 million. R2 currently has three products in various stages of commercialization and development: 1. Glacial Rx – Launching in the first quarter of 2021 in the United States after receiving U.S. Food and Drug Administration (“FDA”) clearance, the Glacial Rx system removes benign lesions of the skin (such as those caused by aging, sun damage and/or genetics), leaving the skin with a smoother and brighter appearance with little to no pain and downtime for the patient. The Glacial Rx system will be sold to dermatologists and plastic surgeons and operated by trained healthcare professionals. 7 2. Glacial Spa – Launching in the first half of 2021 in China after receiving China Non-Medical Classification, the Glacial Spa is a cooling experience used to even skin tone, and brighten and lighten skin. The Glacial Spa system will be sold by Huadong’s existing sales force to spas and operated by a trained aesthetician. 3. Glacial AI – Currently undergoing research and development, the Glacial AI is an autonomous cooling device focused on whole-body skin lightening and brightening. MediBeacon, Inc. MediBeacon, Inc. ("MediBeacon") develops proprietary non-invasive real-time monitoring system for the evaluation of kidney function. Current methods to evaluate kidney function are indirect estimates that may be inaccurate and are not real-time. Chronic kidney disease is estimated to affect more than 850 million people worldwide. MediBeacon’s Transdermal GFR Measurement System (“TGFR”), which uses an optical skin sensor combined with Lumitrace, a proprietary agent that glows in the presence of light, will be the first non-invasive system to enable real-time, direct monitoring of kidney function at point-of-care. On October 22, 2018, the FDA granted Breakthrough Device designation to the TGFR for the measurement of Glomerular Filtration Rate (“GFR”) in patients with impaired or normal kidney function. Under the Breakthrough Device program, the FDA works with companies to expedite regulatory review in order to give patients more timely access to innovative diagnostic and therapeutic technologies. MediBeacon is expected to begin its U.S. pivotal study in the second half of 2021. In 2019, MediBeacon closed its Series B financing round with its strategic partner, Huadong, providing Huadong with exclusive rights to MediBeacon’s portfolio of assets in Greater China in exchange for a staged $30 million investment. Further, Huadong will be responsible for funding clinical trials, commercial and regulatory activities in 25 countries in the Asia-Pacific region, including Greater China. In exchange, MediBeacon will receive royalty payments on net sales of the TGFR system. As of December 31, 2020, MediBeacon has received $15 million from Huadong at a pre-money valuation of approximately $300 million. Contingent upon the regulatory approval of the TGFR system by the FDA, Huadong will make a second $15 million investment at a pre-money valuation of approximately $400 million. In 2020, Huadong amended its commercial agreement, which will provide an additional $20 million pre-payment of future China royalties over the next two years to pursue Class 1 status in China, allowing the device to immediately enter the Chinese hospital system. As of December 31, 2020, MediBeacon has received approximately $10 million to include China in MediBeacon's global pivotal study. MediBeacon is also exploring additional clinical applications of the patented Lumitrace technology, including: 1. Gastrointestinal permeability, which has the potential to transform management of autoimmune and inflammatory diseases, including Crohn’s disease. Grants from the Bill and Melinda Gates Foundation, in collaboration with scientists at Washington University School of Medicine in St. Louis and the Mayo Clinic, have supported MediBeacon’s research in this area. During 2020, the first in-human clinical studies were conducted to establish the feasibility of fluorescent tracer agent-based systems to quantify the permeability of the gastrointestinal tract in patients with active Crohn’s disease. 2. Ocular angiography, which has the potential to diagnose and monitor vasculature leakage in the eye, a key factor in diagnosing and monitoring various diseases, including macular degeneration, diabetic retinopathy and retinal vasculitis while avoiding current potential clinical side effects such as allergic reactions, nausea and vomiting. MediBeacon was the recipient of a Small Business Innovation Research grant supported by the National Eye Institute of the National Institutes of Health (NIH). With this support, MediBeacon is pursuing research into the use of a MediBeacon fluorescent tracer agent to visualize vasculature in the eye, having recently received FDA approval in 2020 to begin clinical studies. 3. Surgical visualization feasibility, which has the potential to be used in open, laparoscopic and robotic surgeries to identify critical structures, tumor margins and blood flow in tissues in real-time. Clinical research in this area is still underway. Genovel Orthopedics, Inc. Genovel Orthopedics, Inc. ("Genovel") is a medical device company developing novel partial and total knee replacements for the treatment of osteoarthritis of the knee based on patented technology developed at New York University School of Medicine. Triple Ring Technologies Triple Ring Technologies is a research and development engineering company specializing in medical devices, homeland security, imaging sensors, optics, fluidics, robotics and mobile healthcare. 8 Spectrum Segment (HC2 Broadcasting Holdings, Inc.) HC2 Broadcasting Holdings Inc., ("HC2B" and together with its subsidiaries, "HC2 Broadcasting"), a majority-owned subsidiary of HC2 Holdings, Inc., is an owner and operator of broadcast TV stations throughout the U.S. and an avenue for high-end content providers to deliver their product OTA to more homes and, ultimately, mobile devices. HC2 Broadcasting’s stations are interconnected to an internet protocol network backbone, which allows HC2 Broadcasting to monitor and operate the stations remotely, resulting in significant cost efficiencies. As of December 31, 2020, HC2 Broadcasting operated approximately 221 stations, including 6 Full-Power stations, 49 Class A stations and 166 LPTV stations. HC2 Broadcasting stations are collectively able to broadcast over 1,500 sub-channels and reach 94 markets in the U.S. and Puerto Rico, including 34 of the top 35 markets. HC2B has approximately 100 stations concentrated in the top 35 markets. HC2 Broadcasting also owns approximately 200 construction permits for broadcast stations, a portion of which are expected to be selectively built and licensed over the next 24 months, increasing HC2 Broadcasting’s footprint to approximately 130 markets. HC2 Broadcasting includes Azteca America,. Azteca America airs Spanish language programming targeting U.S. Hispanics. The majority of the network’s programming is provided by TV Azteca, S.A.B. de C.V. ("TV Azteca"), Mexico’s second largest broadcast network, under a multi-year Programming Licensing Agreement ("PLA"). As of December 31, 2020, Azteca America was carried on approximately 85 HC2 Broadcasting stations. HC2 Broadcasting has employees in the U.S. and contracted employees in Mexico under a Broadcast Services Agreement ("BSA") with TV Azteca dedicated to the operations of Azteca America. Operating Broadcast Stations Below are HC2 Broadcasting’s operating stations as of December 31, 2020, listed by call sign and market rank: Market Market Rank (a) Station Service New York, NY 1 WTXX-LD Full-Power Station (b) WKOB-LD LPTV Station W02CY-D LPTV Station Los Angeles, CA 2 KSKJ-CD Class A Station KHIZ-LD LPTV Station Chicago, IL 3 WPVN-CD Class A Station W31EZ-D LPTV Station Philadelphia, PA 4 WPSJ-CD Class A Station WZPA-LD LPTV Station WDUM-LD LPTV Station W25FG-LD LPTV Station Dallas - Ft. Worth, TX 5 KNAV-LP LPTV Station KODF-LD LPTV Station KHPK-LD LPTV Station K07AAD-D LPTV Station KPFW-LD LPTV Station KJJM-LD LPTV Station San Francisco - Oakland - San Jose, CA 6 KEMO-TV Full-Power Station KQRO-LD LPTV Station Houston, TX 8 KUGB-CD Class A Station KUVM-CD Class A Station KUVM-LD LPTV Station KEHO-LD LPTV Station KBMN-LD LPTV Station Boston, MA 9 WLEK-LD LPTV Station Atlanta, GA 10 WYGA-CD Class A Station WDWW-LD LPTV Station WUEO-LD LPTV Station WUVM-LP LPTV Station Phoenix - Prescott, AZ 11 KPDF-CD Class A Station K18JL-D LPTV Station KTVP-LD LPTV Station Tampa - St Petersburg - Sarasota, FL 12 WXAX-CD Class A Station WTAM-LD LPTV Station W16DQ-D LPTV Station 9 W15CM-D LPTV Station Seattle, WA 13 KUSE-LD LPTV Station Detroit, MI 14 WDWO-CD Class A Station WUDL-LD LPTV Station Minneapolis - St. Paul, MN 15 K33LN-D Class A Station KJNK-LD LPTV Station KMBD-LD LPTV Station KMQV-LD LPTV Station KWJM-LD LPTV Station K28PQ-D LPTV Station Miami - Ft. Lauderdale, FL 16 W16CC-D LPTV Station Denver, CO 17 KRDH-LD LPTV Station Orlando - Daytona Beach - Melbourne, FL 18 WATV-LD LPTV Station WFEF-LD LPTV Station Cleveland - Akron - Canton, OH 19 WUEK-LD LPTV Station WQDI-LD LPTV Station KONV-LD LPTV Station WEKA-LD LPTV Station Sacramento - Stockton - Modesto, CA 20 KBTV-CD Class A Station KFTY-LD LPTV Station KFMS-LD LPTV Station KAHC-LD LPTV Station K04QR-D LPTV Station KFKK-LD LPTV Station KBIS-LD LPTV Station K12XJ-D LPTV Station Charlotte, NC 21 W15EB-D Class A Station WHEH-LD LPTV Station WVEB-LD LPTV Station Portland, OR 22 KOXI-CD Class A Station St. Louis, MO 23 K25NG-D Class A Station KBGU-LD LPTV Station WODK-LD LPTV Station KPTN-LD LPTV Station W09DL-D LPTV Station WLEH-LD LPTV Station Pittsburgh, PA 24 WWKH-CD Class A Station WJMB-CD Class A Station WMVH-CD Class A Station WWLM-CD Class A Station WKHU-CD Class A Station Indianapolis, IN 25 WUDZ-LD LPTV Station WSDI-LD LPTV Station WQDE-LD LPTV Station Baltimore, MD 26 WQAW-LP LPTV Station Raleigh - Durham - Fayetteville, NC 27 WIRP-LD LPTV Station WNCB-LD LPTV Station Nashville, TN 28 WCTZ-LD LPTV Station WKUW-LD LPTV Station San Diego, CA 29 KSKT-CD Class A Station Salt Lake City, UT 30 KPNZ Full-Power Station KBTU-LD LPTV Station San Antonio, TX 31 KVDF-CD Class A Station K17MJ-D LPTV Station KSAA-LP LPTV Station KOBS-LD LPTV Station KISA-LD LPTV Station 10 KSSJ-LD LPTV Station Kansas City, MO 32 KAJF-LD LPTV Station KCMN-LD LPTV Station KQML-LD LPTV Station Hartford - New Haven, CT 33 WRNT-LD LPTV Station Columbus, OH 34 WDEM-CD Class A Station Milwaukee, WI 35 WTSJ-LD LPTV Station West Palm Beach - Ft. Pierce, FL 36 WWCI-CD Class A Station WDOX-LD LPTV Station WXOD-LD LPTV Station Las Vegas, NV 39 KNBX-CD Class A Station KHDF-CD Class A Station K36NE-D Class A Station KEGS-LD LPTV Station KVPX-LD LPTV Station Austin, TX 40 KGBS-CD Class A Station KVAT-LD LPTV Station Jacksonville, FL 41 WODH-LD LPTV Station WKBJ-LD LPTV Station WRCZ-LD LPTV Station WJXE-LD LPTV Station Oklahoma City, OK 43 KOHC-CD Class A Station KTOU-LD LPTV Station KBZC-LD LPTV Station Birmingham - Anniston - Tuscaloosa, AL 44 WUOA-LD LPTV Station Albuquerque - Santa Fe, NM 46 KWPL-LD LPTV Station KQDF-LP LPTV Station New Orleans, LA 50 WTNO-LP Class A Station WQDT-LD LPTV Station Buffalo, NY 52 WVTT-CD Class A Station WWHC-LP LPTV Station Ft. Myers - Naples, FL 53 WGPS-LD LPTV Station Richmond - Petersburg, VA 54 WUDW-LD LPTV Station WFWG-LD LPTV Station WWBK-LD LPTV Station Fresno - Visalia, CA 55 K17JI-D Class A Station KZMM-CD Class A Station Mobile, AL - Pensacola, FL 57 WWBH-LP LPTV Station WEDS-LD LPTV Station Tulsa, OK 58 KZLL-LD LPTV Station KUOC-LD LPTV Station Little Rock - Pine Bluff, AR 62 KWMO-LD LPTV Station KENH-LD LPTV Station K23OW-D LPTV Station Des Moines - Ames, IA 68 KAJR-LD LPTV Station KRPG-LD LPTV Station KCYM-LD LPTV Station Omaha, NE 71 KAJS-LD LPTV Station KQMK-LD LPTV Station Wichita - Hutchinson, KS 72 KFVT-LD LPTV Station Springfield, MO 73 KFKY-LD LPTV Station KCNH-LD LPTV Station Charleston - Huntington, WV 74 WOCW-LD LPTV Station Rochester - Mason City - Austin, NY 76 WGCE-CD Class A Station Flint - Saginaw - Bay City, MI 77 W35DQ-D LPTV Station WFFC-LD LPTV Station Huntsville - Decatur - Florence, AL 78 W34EY-D Class A Station 11 Madison, WI 81 W23BW-D Class A Station WZCK-LD LPTV Station Waco - Temple - Bryan, TX 82 KZCZ-LD LPTV Station KAXW-LD LPTV Station Harlingen - Weslaco - Brownsville - McAllen, TX 83 KRZG-CD Class A Station KAZH-LP LPTV Station KNWS-LP LPTV Station Paducah, KY - Cape Girardeau, MO - Harrisburg, IL 84 W29CI-D Class A Station Champaign - Springfield - Decatur, IL 88 W23EW-D LPTV Station WCQA-LD LPTV Station Savannah, GA 89 WUET-LD LPTV Station WDID-LD LPTV Station Cedar Rapids - Waterloo - Iowa City, IA 90 KWKB Full-Power Station KFKZ-LD LPTV Station Charleston, SC 91 WBSE-LD LPTV Station Chattanooga, TN 92 WYHB-CD Class A Station Baton Rouge, LA 94 K29LR-D LPTV Station K27NB-D LPTV Station South Bend - Elkhart, IN 98 KPDS-LD LPTV Station Ft. Smith - Fayetteville - Springdale - Rogers, AR 101 KFLU-LD LPTV Station KAJL-LD LPTV Station Boise, ID 102 K31FD-D Class A Station KFLL-LD LPTV Station KBKI-LD LPTV Station Augusta, GA - Aiken, SC 108 WIEF-LD LPTV Station Ft. Wayne, IN 110 WFWC-CD Class A Station WCUH-LD LPTV Station WODP-LD LPTV Station W25FH-D LPTV Station W30EH-D LPTV Station Tyler - Longview- Nacogdoches, TX 114 KCEB Full-Power Station KPKN-LD LPTV Station KDKJ-LD LPTV Station KBJE-LD LPTV Station KKPD-LD LPTV Station Yakima - Pasco - Richland - Kennewick, WA 118 K33EJ-D Class A Station Macon, GA 119 W28EU-D LPTV Station Montgomery - Selma, AL 122 WQAP-LD LPTV Station WDSF-LD LPTV Station Lafayette, LA 123 K21OM-D LPTV Station Bakersfield, CA 125 KTLD-CD Class A Station KXBF-LD LPTV Station Santa Barbara - San Luis Obispo, CA 126 KSBO-CD Class A Station KQMM-CD Class A Station KVMM-CD Class A Station KDFS-CD Class A Station KLDF-CD Class A Station KZDF-LP LPTV Station Wilmington, NC 127 WQDH-LD LPTV Station Corpus Christi, TX 128 KYDF-LD LPTV Station K21OC-D LPTV Station K32OC-D LPTV Station KCCX-LD LPTV Station Columbus, GA - Opelika - Auburn, AL 130 W29FD-D LPTV Station Amarillo, TX 132 KAUO-LD LPTV Station KLKW-LD LPTV Station Palm Springs, CA 141 K21DO-D Class A Station 12 Lubbock, TX 142 K24GP LPTV Station KNKC-LD LPTV Station Topeka, KS 144 K35KX-D LPTV Station Joplin, MO - Pittsburg, KS 153 KRLJ-LD LPTV Station KPJO-LD LPTV Station Biloxi-Gulfport, MS 155 W33EG-D LPTV Station Quincy, IL - Hannibal, MO - Keokuk, IA 174 WVDM-LD LPTV Station Jackson, TN 176 WYJJ-LD LPTV Station Bowling Green, KY 177 WKUT-LD LPTV Station WCZU-LD LPTV Station Puerto Rico NA WOST Full-Power Station WQQZ-CD Class A Station W20EJ-D LPTV Station WWKQ-LD LPTV Station W27DZ-D LPTV Station (a) Rankings are based on the relative size of a station’s Designated Market Area ("DMA") among the 210 generally recognized DMAs in the United States as estimated by Nielsen Media Research (Nielsen) as of December 31, 2020. (b) WTXX-LD is an LPTV license broadcasting on full-power station WEDW, pursuant to a channel-sharing agreement. The station is currently broadcasting from Stamford, CT. A DTS installation is underway that will enable the station to broadcast from Manhattan, NY. Broadcast Operations HC2 Broadcasting carries more than 70 networks on its stations, distributing content across the U.S. Broadcasting provides free OTA programming to television viewing audiences in the communities it serves. The programming Broadcasting distributes includes networks targeting shopping, weather, sports and entertainment programming, as well as religious networks and networks targeting select ethnic groups. Revenues Broadcast station revenue is generated primarily from the sale of television airtime in return for a fixed fee or a portion of the related ad sales. In a typical broadcast station revenue agreement, the owner of a station makes available, for a fee, airtime on a station subchannel to a third party. The third party broadcasts during that airtime and collects revenue from advertising aired during such content. Broadcast station revenue is recognized over the life of the contract. The fees charged can be fixed or variable and the contracts that the Company enters into are generally short-term in nature. Variable fees are usage/sales-based and are recognized as revenue when the subsequent usage occurs. Network advertising revenue is generated primarily from the sale of television airtime for advertisements or paid programming. Network advertising inventory is sold in the upfront and scatter markets and is offered at market rates, based on a number of factors such as available inventory, network programming and ratings, and economic conditions. In the upfront market, advertisers buy advertising time for the upcoming season. In the scatter market, advertisers buy advertising time close to when the commercials will be run and varies quarter over quarter. In some cases, the network advertising sales are subject to impressions guarantees that require the Company to provide additional advertising time if the guaranteed audience levels are not achieved. Network advertising revenue is recognized when advertising spots are aired, and as impression guarantees, if any, are achieved. Impressions are defined as the number of times that an advertisement is viewed by users. The achievement of performance guarantees is based on audience viewership from an independent research company. If there is a guarantee to deliver a targeted audience number of impressions, revenues are recognized based on the proportion of the audience impressions delivered to the total guaranteed in the contract. For the local inventory the Company sells national spot advertising and local advertising. National spot advertising represents time sold to advertisers that advertise in more than one DMA. Local advertising revenue is generated from local merchants and service providers. National and local advertising spots are generally sold without guaranteed ratings, and revenue is recognized when spots are aired. Network distribution revenue consists of fees charged and payments received from cable, satellite and other multiple video program distribution (“MVPD”) systems for their retransmission of our network content. The Company’s network is aired on MVPDs pursuant to multi-year carriage agreements that provide for the level of carriage that the Company’s network will receive. Carriage of the network is generally determined by package, such as whether the network is included in the more widely distributed, general entertainment packages offered or lesser-distributed, specialized packages, such as U.S. Hispanic-targeted or Spanish language package. Network distribution revenue is determined on the contractual rate-per-subscriber negotiated in the agreements, the average number of subscribers that receive content, and the market demand for the content that the Company provides. Network distribution fees received from MVPDs are recognized as revenue in the period that services are provided. 13 Strategy HC2 Broadcasting’s strategy includes the following initiatives: • HC2 Broadcasting is principally designed to be a nationwide OTA distribution platform, targeting the growing number of OTA households in the U.S.; • HC2 Broadcasting's vision is to capitalize on the opportunities to bring valuable content to more viewers over-the-air and to position itself for the changing media landscape and to take advantage of the technology advances rapidly underway in the industry. • As of December 31, 2020, 203 operating stations are connected to HC2 Broadcasting's cloud-based IP backbone, can be operated and monitored remotely, allowing for substantial cost savings and operating efficiencies. In 2018, FCC deregulation in TV broadcasting has eliminated the need for full time employees and studio facilities in markets where HC2 Broadcasting operates Full-Power and Class A stations, thus allowing HC2 Broadcasting to operate these stations remotely at greater cost efficiency; • HC2 Broadcasting's major focus is to attract the highest quality content providers looking for nationwide distribution. With its national footprint and cloud-based infrastructure, HC2 Broadcasting also expects to realize premium pricing for content distribution; • HC2 Broadcasting's growing revenue source is from providing national carriage to content providers. Pricing carriage contracts is in part determined by the signal contour of the broadcast station and the number of OTA TV households in a given market, as well as market supply and demand; and, • As an anchor network tenant, Azteca America is distributed on the HC2 Broadcasting platform in 60+ markets. New Broadcast TV Technology: ATSC 3.0 In 2017, the FCC approved ATSC 3.0, next generation broadcast standards defining how television signals are broadcast and interpreted. ATSC 3.0 is an enhancement to previous broadcast standards, providing enhanced picture and audio quality, mobility, addressability, increased capacity, and IP connectivity. ATSC 3.0 will offer a platform to merge linear programming and non-TV data services alongside OTA and over-the-top ("OTT"). Among the many emerging opportunities will be hyper-local news, weather, and traffic; dynamic ad insertion; geographic and demographic targeted advertising; customizable content; better measurement and analytics; the ability to share data with devices connected to the Internet; flexibility to add streams as needed; an ultra-high definition picture quality with enhanced immersive audio; and connectivity to automobiles. In addition, ATSC 3.0 will provide new emergency capabilities including advanced alerting functions which can relay evacuation routes and device wake-up features. Many of these features will be available to mobile devices. Employees As of December 31, 2020, HC2 Broadcasting employed approximately 58 people across the U.S. See Note 22. Operating Segment and Related Information for additional detail regarding our Segment's operations and financial information. Insurance Segment (Continental Insurance Group Ltd.) CIG currently provides long-term care, life, annuity, and other accident and health coverage to approximately 124,000 individuals through CGI. The benefits provided by CIG's insurance operations help protect policy and certificate holders from the financial hardships associated with illness, injury, loss of life, or income discontinuation. CIG has a concentrated focus on long-term care insurance and is committed to the continued delivery of best-practice services as established by CIG’s insurance operations to its policy and certificate holders. Through investments in technology, a commitment to attracting, developing and retaining best-in-class insurance professionals, a dedication to continuing process improvements, and a focus on strategic growth, we believe CIG is well equipped to maintain and improve the level of service provided to its customers and assume a leading role in the long-term care industry. CIG’s plan is to leverage its existing platform and industry expertise to identify strategic growth opportunities for managing closed blocks of long-term care business. Growth opportunities are expected to come from: • Future acquisitions of long-term care businesses and/or closed blocks of long-term care policies; • Reinsurance arrangements; • Third party administration arrangements; and • Strategically diversifying into other product lines. 14 Products Long-Term Care Insurance CIG's long-term care insurance products pay a benefit that is either a specified daily indemnity amount or reimbursement of actual charges up to a daily maximum for long-term care services provided in the insured’s home or in assisted living or nursing facilities. Benefits begin after a waiting period, usually 90 days or less, and are generally paid for a period of three years, six years, or the policy holder's lifetime. Substantially all of the in-force long-term care insurance policies were sold after 1995, with all sales then being discontinued in January 2010. Policies were issued in all states except for New York, with Texas being the largest issue state with approximately 20% of the business. The existing block of policies includes both individual and group products, but all individuals were individually underwritten. CIG's long-term care insurance products were sold on a guaranteed renewable basis which allows us to re-price in-force policies, subject to regulatory approval. Profitability of CIG's long-term care block is affected by premium rate increases, persistency, investment returns, claims experience, and the level of administrative expenses. As part of CIG's strategy for its long-term care insurance business, management has been implementing, and expects to continue to pursue, significant premium rate increases on its blocks of business as actuarially justified. Premium rates vary by age and are based on assumptions concerning morbidity, mortality, persistency, administrative expenses, and investment yields. CIG develops its assumptions based on its own claims and persistency experience and published industry tables. Life Insurance and Annuities CIG's life insurance products include Traditional, Term, Universal, and Interest Sensitive Life Insurance. Its annuity products include Flexible and Single Premium Deferred Annuities. CIG's life insurance business provides a personal financial safety net for individuals and their families. These products provide protection against financial hardship after the death of an insured. Some of these products also offer a savings element that can help accumulate funds to meet future financial needs. Annuities are long-term retirement saving instruments that benefit from income accruing on a tax-deferred basis. The issuer of the annuity collects premiums, credits interest or earnings on the policy and pays out a benefit upon death, surrender or annuitization. All life insurance and annuity products are closed to new business. The life insurance products were issued with both full and simplified underwriting. Other Accident & Health CIG’s accident and health products, other than Long-Term Care Insurance, include accidental death, accidental death and dismemberment disability income, hospital expense, hospital indemnity, and major medical individual insurance policies. These products provide from partial reimbursement to full reimbursement of covered medical and related expenses. All products were sold prior to the introduction of the Affordable Care Act and these product lines are closed to new business. If not otherwise exempted from the requirements of the Affordable Care Act, the policies are grandfathered under the Affordable Care Act and not subject to the requirements of the Affordable Care Act. A limited number of these policies were guaranteed issued, although the majority of the policies were issued with individual underwriting. Customers CIG's long-term care insurance policies were marketed and sold to individuals between 1986 and 2010 for the purpose of providing defined levels of protection against the significant and escalating costs of long-term care services provided in the insured’s home or in assisted living or nursing facilities. Though CIG no longer actively markets new insurance products, it continues to service and receive net renewal premiums on its in-force Long-Term Care, Life, Annuity, and Other Accident & Health blocks for approximately 124,000 lives. Employees and Operations As of December 31, 2020, CIG employed 144 people, the majority of whom are employed on a salaried basis with some on an hourly basis. Besides eleven remote employees working in various states, all other employees typically work out of the home office located in Austin, Texas. However, due to the COVID-19 pandemic, most employees are working remotely with the exception of certain essential workers remaining in the home office. CIG considers its relations with its employees to be satisfactory and has never experienced a work stoppage or other labor disturbance. All operating centers maintain a cost effective and efficient operating model. Administrative Services Agreement On December 24, 2015, an Administrative Services Agreement (the "Administrative Services Agreement") was entered into with Great American, pursuant to which Great American Life Insurance Company ("GALIC") agreed to continue to administer the Insurance Company’s life and annuity businesses for a period of no less than five years. Effective July 1, 2019, the Insurance Company and GALIC entered into Amendment No. 1 to Administrative Services Agreement which removed the five-year duration clause effectively extending the duration of the Administrative Services Agreement. The KIC acquisition included the assumption of numerous existing, or the establishment of new, third party administrator ("TPA") agreements to continue to provide services and perform processes critical (actuarial, claims processing, rate increase work etc.) to KIC’s ability to continue producing outputs. The majority of KIC’s insurance contracts are currently administered by these TPAs. CIG has assumed the administration for the KIC Life and Annuity blocks previously administered by one of these TPAs. 15 Reinsurance CIG reinsures through cession agreements a significant portion of its insurance business with unaffiliated reinsurers. In a reinsurance transaction, a reinsurer agrees to indemnify another insurer for part or all of its liability under a policy or policies it has issued for an agreed upon premium. CIG participates in reinsurance cession activities in order to minimize exposure to significant risks, limit losses, and provide additional capacity for future growth. CIG also obtains reinsurance to meet certain capital requirements. Under the terms of the reinsurance agreements, the reinsurer agrees to reimburse CIG for the ceded amount in the event a claim is paid. Cessions under reinsurance agreements do not discharge CIG's obligations as the primary insurer. If the assuming reinsurer in a reinsurance agreement is unable to meet its obligations, CIG remains contingently liable. In the event that reinsurers do not meet their obligations under the terms of the reinsurance agreement, reinsurance recoverable balances could become uncollectible. CIG evaluates the financial condition of reinsurers to whom CIG cedes business and monitors concentration of credit risk to minimize our exposure. CIG may also require acceptable collateral to support reinsurance recoverable balances. The collectability of CIG’s reinsurance recoverable is primarily a function of the solvency of the individual reinsurers. Although CIG has controls to minimize its exposure, the insolvency of a reinsurer or the inability or unwillingness of a reinsurer to comply with the terms of a reinsurance contract could have a material adverse effect on CIG’s results of operations. CIG has various quota share reinsurance agreements in place for its long-term care business, with ceded reinsurance totaling $524 million in active life reserves and $125 million in disabled life reserves. Amounts recoverable from reinsurers are estimated in a manner consistent with the gross liability associated with the reinsured policy. Reserves for Policy Contracts and Benefits The applicable insurance laws under which insurance companies operate require that they report, as liabilities, policy reserves to meet future obligations on their outstanding policies. These reserves are the amounts which, with the additional premiums to be received and interest thereon compounded annually at certain assumed rates, are calculated to be sufficient to meet the various policy and contract obligations as they mature. These laws specify that the reserves shall not be less than reserves calculated using certain specified mortality and morbidity tables, interest rates, and methods of valuation required for statutory accounting. CIG calculates reserves in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP"), which calculations can differ from those specified by the laws of the various states and reported in the statutory financial statements. These differences result from the use of mortality and morbidity tables and interest assumptions which CIG believes are more representative of the expected experience for these policies than those required for statutory accounting purposes and also result from differences in actuarial reserving methods. The assumptions CIG uses to calculate its reserves are intended to represent an estimate of experience for the period that policy benefits are payable. If actual experience is more favorable than our reserve assumptions, then reserves should be adequate to provide for future benefits and expenses. If experience is less favorable than the reserve assumptions, additional reserves may be required. The key experience assumptions include claim incidence rates, claim resolution rates, mortality and morbidity rates, policy persistency, interest rates, crediting spreads, and premium rate increases. CIG periodically reviews its experience and updates its policy reserves and reserves for all claims incurred, as it believes appropriate. The statements of income include the annual change in reserves for future policy and contract benefits. The change reflects a normal accretion for premium payments and interest buildup and decreases for policy terminations such as lapses, deaths, and benefit payments. If policy reserves using best estimate assumptions as of the date of a test for loss recognition are higher than existing policy reserves net of any deferred acquisition costs, the increase in reserves necessary to recognize the deficiency is also included in the change in reserves for future policy and contract benefits. For further discussion of reserves, refer to the risks related to the Insurance Segment within "Risk Factors" contained herein in Item 1A, the discussion of the Insurance segment operating results included in "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained herein in Item 7, and Note 2. Summary of Significant Accounting Policies and Note 13. Life, Accident and Health Reserves of the "Notes to Consolidated Financial Statements." Investments CIG manages its cash and invested assets using an approach that is intended to balance quality, diversification, asset/liability matching, liquidity needs and investment return. The goals of the investment process are to optimize after-tax, risk-adjusted investment income and after-tax, risk-adjusted total return while managing the assets and liabilities on a cash flow and duration basis. CIG’s liabilities are primarily supported by investments in investment grade, fixed maturity securities reflected on the Company’s consolidated balance sheets. The Company filed an Investment Management Agreement Form D application with the Texas Department of Insurance ("TDOI") to appoint CIG, an affiliate, as investment manager, effective April 1, 2020. The TDOI issued a “no action” letter dated May 14, 2020 with respect to the April 1, 2020 Investment Management Agreement. The CGIC Board of Directors has approved the extension of the current IMA for a six month period and notification has been given to the TDOI on February 26, 2021. The TDOI responded on March 1, 2021 expressing no concern with the extension request. CIG entered into a new Investment Management Agreement with Goldman Sachs Asset Management, L.P. (“GSAM”) dated December 23, 2020 to begin providing services no earlier than January 1, 2021. Approximately one-third of the portfolio will be managed by GSAM while the remaining two-thirds remains with the affiliate investment manager, CIG. 16 Regulation CIG's insurance company subsidiary is subject to regulations in the jurisdictions where it does business. In general, the insurance laws of the various states establish regulatory agencies with broad administrative powers governing, among other things, premium rates, solvency standards, licensing of insurers, agents and brokers, trade practices, forms of policies, maintenance of specified reserves and capital for the protection of policyholders, deposits of securities for the benefit of policyholders, investment activities and relationships between insurance subsidiaries and their parents and affiliates. Material transactions between insurance subsidiaries and their parents and affiliates generally must receive prior approval of the applicable insurance regulatory authorities and be disclosed. In addition, while differing from state to state, these regulations typically restrict the maximum amount of dividends that may be paid by an insurer to its stockholders in any twelve-month period without advance regulatory approval. Such limitations are generally based on net earnings or statutory surplus. Our insurance subsidiary is examined periodically by its state of domicile and by other states in which it is licensed to conduct business. The domestic examinations have traditionally emphasized financial matters from the perspective of protection of policyholders, but they can and have covered other subjects that an examining state may be interested in reviewing, such as market conduct issues. Examinations in other states more typically focus on market conduct, such as a review of sales practices, including the content and use of advertising materials and the licensing and appointing of agents and brokers, as well as underwriting, claims, and customer service practices, and identification and handling of unclaimed property to determine compliance with state laws. Our insurance subsidiary is also subject to assessments by state insurance guaranty associations to cover the proportional cost of insolvent or failed insurers. Financial impact of annual guaranty assessments for CGI has not been material. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Dodd-Frank Act"), among other things, established a Federal Insurance Office ("FIO") within the U.S. Treasury. The Dodd-Frank Act requires the promulgation of regulations for the FIO to carry out its mandate to focus on systemic risk oversight. The FIO gathered information regarding the insurance industry and submitted a report to Congress in December 2013. The report concluded that a hybrid approach to regulation, involving a combination of state and federal government action, could improve the U.S. insurance system by attaining uniformity, efficiency and consistency, particularly with respect to solvency and market conduct regulation. The FIO has issued additional reports since that time on various aspects of the insurance sector and insurance regulation. We cannot predict the extent to which any of these matters might result in changes to the current state-based system of insurance industry regulation or ultimately impact the Company’s operations. Risk-based capital ("RBC') standards for U.S. life insurance companies are prescribed by the National Association of Insurance Commissioners ("NAIC"). The domiciliary state of our insurance subsidiary has adopted a version of the NAIC RBC for Insurers Model Act, which prescribes a system for assessing the adequacy of statutory capital and surplus for all life and health insurers. The basis of the system is a risk-based formula that applies prescribed factors to the various risk elements in a life and health insurer's business to report a minimum capital requirement proportional to the amount of risk assumed by the insurer. The life and health RBC formula is designed to measure annually (i) the risk of loss from asset defaults and asset value fluctuations, (ii) the risk of loss from adverse mortality and morbidity experience, (iii) the risk of loss from mismatching of asset and liability cash flow due to changing interest rates, and (iv) business risks. The formula is used as an early warning tool to identify companies that are potentially inadequately capitalized. The formula is intended to be used as a regulatory tool only and is not intended as a means to rank insurers generally. The RBC ratio for our insurance subsidiary remains in line with our expectations and is significantly above the level that would require state regulatory action. The NAIC has also issued a proposal to implement a new and more granular RBC structure for fixed income asset capital charges. The proposed structure will expand the fixed income asset designations from six to 20 categories and will revise factor values. The new structure related to fixed income assets is not in effect as of December 31, 2020. CIG will continue to monitor the NAIC's activities on this issue. Competition CIG competes with financial services firms with respect to the acquisition of insurance companies and/or blocks of insurance businesses through merger, stock purchase, or reinsurance transactions or otherwise. 17 Environmental Regulation and Laws Our operations and properties, including those of DBMG, are subject to a wide variety of increasingly complex and stringent foreign, federal, state and local environmental laws and regulations, including those concerning emissions into the air, discharge into waterways, generation, storage, handling, treatment and disposal of waste materials and health and safety of employees. Sanctions for noncompliance may include revocation of permits, corrective action orders, administrative or civil penalties and criminal prosecution. Some environmental laws provide for strict, joint and several liability for remediation of spills and other releases of hazardous substances, as well as damage to natural resources. In addition, companies may be subject to claims alleging personal injury or property damage as a result of alleged exposure to hazardous substances. These laws and regulations may also expose us to liability for the conduct of or conditions caused by others, or for our acts that were in compliance with all applicable laws at the time such acts were performed. Compliance with federal, state and local provisions regulating the discharge of materials into the environment or relating to the protection of the environment has not had a material impact on our capital expenditures, earnings or competitive position. Based on our experience to date, we do not currently anticipate any material adverse effect on our business or consolidated financial position, results of operations or cash flows as a result of future compliance with existing environmental laws and regulations. However, future events, such as changes in existing laws and regulations or their interpretation, more vigorous enforcement policies of regulatory agencies, or stricter or different interpretations of existing laws and regulations, may require additional expenditures by us, which may be material. Accordingly, there can be no assurance that we will not incur significant environmental compliance costs in the future. Corporate Information HC2, a Delaware corporation was incorporated in 1994. The Company’s executive offices are located at 450 Park Avenue, 29th Floor, New York, NY, 10022. The Company’s telephone number is (212) 235-2690. Our Internet address is www.hc2.com. We make available free of charge through our Internet website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the United States Securities and Exchange Commission (the "SEC"). The information on our website is not a part of this Annual Report on Form 10-K. The information required by this item relating to our executive officers, directors and code of conduct is set forth in Item 10. Information relating to our Audit Committee and Audit Committee Financial Expert will be set forth in our 2021 Proxy Statement under the Caption "Board Committees" and is incorporated herein by reference.